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Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: David Andersen who wrote (18476)	10/11/1998 12:14:00 AM
From: Greg Hull	Read Replies (3) \| Respond to of 29386

David, << I seem to lack a basic understanding regarding why shorting the stock will cause the price to go down. [snip] Can someone help me regarding this?>> I'll take a stab. Buying shares will trigger an increase in prices and selling shares will trigger a decrease in prices, if the trade is large enough (supply and demand). Selling short is selling shares you've borrowed, but selling nonetheless. Just as manic buying can raise the price to stratospheric levels, massive (short) selling can depress prices to subterrainian levels. In a normal situation short selling is limited by the ability to borrow shares. These shares are owned by other people and held in accounts that allow borrowing. I could not possibly sell short more shares than are currently outstanding, since this is the maximum number of shares that could possibly be in these accounts. Most often the shares available for shorting is significantly less than the number outstanding. We are not in a normal situation. Here the preferred shareholders are borrowing shares from themselves, essentially. That is, by presenting their prospectus to a broker, they can promise to replace the shares they borrowed with newly issued shares. The more they sell short, the lower the conversion price (absent any news), the more shares they will receive, the more shares they can borrow against for another round of shorting, which causes an even lower conversion price, ad nauseum. Hence, the "death spiral". I understand that some people take a large short interest as a positive sign, because in most situations these short sellers will have to become buyers at some point in the (near?) future. We are not so lucky. If all of the short interest in Ancor is by preferred shareholders, we have no imminent buyers. They will cover their short position with newly minted shares rather than buying existing shares on the open market. This has been a long answer to your short question. I've told you twice as much as I know on the subject (Laverne and Shirley). Greg