We usually sell a stock when we think it's not going any higher; do so knowingly could be considered immoral since there's someone we're selling to whom we know (or sincerely believe) will not make any money on what he's buying.
I have often thought about this with respect to the convertible deals this thread often brings up. Some question whether shorting is ethical or "American", etc. What if, instead of shorting, you warned a current holder of the stock that there was a problem and they then sold the stock. Sound more American? Not a chance. Who would they sell it to? Would you tell the new buyer about the problems? How would you back up your case. Shorts often profit from shorting on suspicion, not always facts - suspicions which later turn out to have substance. You are taking a big liability risk if you try to warn the longs, whether you have a position in the stock or not.
Okay then is the safest answer to not short, not discredit the company, but instead do nothing? Would you just stand aside and watch a crime take place? Obviously this is just as selfish, if you see what is going on and don't report it.
Then there is the intelligence factor. What if, instead of insider information, you have superior intelligence? Is it fair to buy an under-priced company or short an over-priced company just because you are better at evaluating the fair price than the market?
If you own a car worth $1000 and someone offers you $2000 and you take it, is that immoral?
There is not really a good case for morality when we talk about what price one wants to pay to buy or sell an asset. The only morality question is whether or not the buyer is truthfully representing the asset and whether or not the seller has the ability to pay their bid if taken.
The question of manipulation comes into play when we are trading on margin and supply/demand impulses are created in an illiquid security. It's not fair for a bigger player to wash you out, and there are lots of textbook cases about players being cornered.
Have you ever played poker without a betting maximum? Never accept!
The only reason shorting does not fit this category if you are a small player is that there are other shorters that will take advantage of the opportunity that is created when you are being squeezed. It's only when the whole crowd is squeezed out by a bigger crowd (KTEL, for example) that you lose big. But just for that reason you never want to be shorting small BB stocks or stocks that no other shorts are following or likely to follow.
But if the shorts stick together, is that collusion? If they stick together to fight a rising price, that is accepted practice. If they work together to drive a stock down to fair price, that is looked down upon.
Very controversial stuff. I don't think these questions will ever be resolved.
Regards,
Jon
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