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Pastimes : Investment Chat Board Lawsuits -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey S. Mitchell who wrote (7454)	2/27/2005 7:41:25 AM
From: rrufff	Respond to of 12465

If I had to vote Cuban v O'Brien from your previous post, I vote O'Brien, not that I agree with all of O'Brien's work. I agree with much of Cuban's post, but a billionare can be wrong and can also do what he accuses others of doing, i.e., being arrogant, mistaking wealth with knowledge, thinking past successes make one an expert on everything. I'll try not to bring up his glaring expertise failure on his recent television reality bomb, his attempt to imitate Trump. Here's where I disagree. Why ? In case Im wrong about the stock. If by chance Im wrong (and honestly, it doesnt happy very often), naked shorts increase the demand for shares of stock in the company beyond what it legally should be. How can that be ? Because even naked shorts have to cover sometime. Particularly if the stock is moving up. Even though they didnt play by the rules, their brokers will still apply the margin rules against the short sellers accounts. If a stock moves hard against them, they will cover. THeir covering stock, moves the stock price higher, which in turn hurts my short position. I've found just about everyone who claims to be right almost all the time in the market is a liar and/or a manipulator. The gurus here were prime examples as shown in the recent trial. Like professionals who handicap sports, there has to be a point spread, legal or illegal to give gurus their advantage. At best, a stock picker can be right about 70% of the time and I think I'm being generous. Does anyone really believe the apparent claims (subject to fine print disclaimers) of infallibility from the likes of Lebed? Furthermore, in the above cited paragraph, Cuban ignores the naked short mantra of GTZ = go to zero, so the short claims he never has to cover. In theory, enough naked shorting can be a self-fulfilling concept for a start-up. 1. If my stock price is pushed down far enough, and again , we are talking thinly traded companies that you refer to, it will take far less money to do a buy out, interest rates are cheap. I just go to the bank, show them how wonderful my company is, that the stock is incredibly undervalued and we take it private. The fact that there are naked shorts make it even more attractive. You announce the deal, you watch the stock price go through the roof as your shareholders are handsomely rewarded as the shares go north as the naked little beasts try to cover their shorts. First of all, start ups are public because they hope to use the market to raise capital. Taking it private pretty much restricts the ability to raise capital and puts the company at the mercy of the vulture capitalists. Cuban seems to think that everyone is blessed to ride an internet bubble like Broadcom. If he is saying, "just watch the stock price go through the roof," as meaning the stock will rise and you won't have to go private, then he IMO has been manipulative in his announcement of going private. 2. If i dont want to take it private, and where your argument turns into total bullshit is that there are private equity firms all over the country looking for deals. OK so he's advocating vulture funds, PIPE's, toxic financing and the rest of the world that would be left to a start-up? Talk about selling one's soul to the devil. I wonder how he feels about touts and management that try to enhance personal wealth at the expense of shareholders in the midst of vulture finacing, PIPE's and Convertibles. I never followed Broadcom BTW. I also don't follow NFI.

To: Jeffrey S. Mitchell who wrote (7454)	3/1/2005 6:01:30 AM
From: Jeffrey S. Mitchell	Read Replies (1) \| Respond to of 12465

Re: 3/1/05 - My Reply to Bob O'Brien on Mark Cuban's Blog Unlike basketball (to which someone here lamely tried to analogize), the stock market is not a contest. It is a marketplace. The predominant goal is to make money betting on whether a security will go up or down. However, like a contest, the "loser" often would rather blame his failure on someone or something other than himself. Studies have shown that shortsellers have been blamed for market declines since the inception of the stock market. New theories of how to "cure" this alleged problem surface every few years. Five years ago the cry was to call in your certificates. A couple of years ago it was to abolish the DTC and return to paper certificates. Now, thanks to people like Bob O'Brien, abolishing naked short selling is the medicine of choice. Simple, logical analysis shows how misguided the anti naked shorting crowd is. For example, here are a few myths exposed: 1. We Need to Eliminate Naked Short Selling to Level the Playing Field The risk of going long is finite in that a stock will only fall to a value of 0, thus limiting your liability to the amount invested. As a stock may rise indefinitely, the money necessary to cover a short is theoretically unlimited. Obviously, the playing field is not just un-level, it is tilted to create a slippery slope for short sellers. Furthermore, one can buy a stock whether the price is going up or down. The "Uptick Rule" prevents shorting a stock whose price is on the decline. Next time someone tries to soft peddle their opposition to naked short selling as "I just want to make sure both sides play by the same rules," ask them if they are in favor of capping risk on short selling and abolishing the Uptick Rule. 2. Naked Short Selling Destroys Innocent Thinly Traded Companies According to a study of market manipulation cases brought by the SEC between January 1990 to October 2001, entitled "Stock Market Manipulation - Theory and Evidence", "84.51% of manipulation cases involve the inflation of stock prices while less than 1% of cases involve the deflation of stock prices. Stabilization accounts for 2%. For about 13% of cases we do not have enough information to classify the type of manipulation." [1] Another study, entitled “The Long and Short of Hedge Funds: Effects of Strategies for Managing Market Risk”, analyzed the performance of companies that complained about excessive shorting of their stock: "Firms don’t like it when someone shorts their stock, and some firms try to impede short selling using legal threats, investigations, lawsuits, and various technical actions. Consistent with the hypothesis that short sale constraints allow stocks to be overpriced, firms taking these anti-shorting actions have in the subsequent year very low abnormal returns of about -24 percent per year. The negative returns continue for up to three years. What appears to be happening is that these companies are overpriced, either because of excessively optimistic investor expectations, faulty products or business plans, or just plain fraud on the part of management." [2] Conclusion Given the inherent risk in going short a stock vs. going long, any argument in favor of further constraining short sellers in order to level the playing field is fallacious. It's precisely this added risk that makes it much more likely a heavily shorted stock indicates a less desirable investment in general. With frauds of massive proportion like Enron, Worldcom, and Tyco -- not to mention absurd abuses by mutual funds, investment houses, and even media talking heads -- the SEC, and presumably Mark Cuban, should have a much higher agenda than wasting time battling the latest fad excuse for why someone like Bob O'Brien's pet stock is not making him rich. Sources (highly recommended for further reading): [1] sec.gov [2] financialservices.house.gov For a chronicle of investment chatboard related lawsuits, maintained by the author, see: Subject 28509 blogmaverick.com