What it is all about
I don’t claim to be an expert on this and I have never tried it and don’t even plan on it. I’m writing this because of an article I read in Bloomberg. But shorting on stocks is something that has bothered me for a long time. Certain people have gained a huge reputation and a lot of money using the short method. My problem is that it kind of feels like market manipulation to me.
Essentially a person or company makes a stock purchase in a way where they make money if the stock goes down. This is sort of the reverse of the way that I invest. I don’t know how it’s done, and I don’t really care to, but it seems to be quite effective for some people. I have watched when some people who have a large following, invest in this way, and then publish articles saying that the stock is going to tank, people listen. Then they sell, worried that they will lose their investment, and that causes the stock to fall, and the short seller takes the money and runs.
The Article I read
What it sounded like to me is that a guy was using his following to manipulate the market through tweets indicating trouble with a stock. They brought up a instance where he shorted a company, put out some tweets that the stock was going bad, and then inside of an hour sold his shorted stocks and got 700,000 dollars. I understand that there are many reasons why stocks go up and down, (and sometimes it seems like all of mine go down!) but when someone uses a position of having followers and makes these kinds of deals, it ruffles my feathers.
Apparently, this guy that this article was about was taken to court and found guilty of several charges. The article suggested that other short sellers may just back off on this type of manipulation or at least stop posting that they are doing it with the view that the stock will go down to people who blindly follow their suggestions. I’m sure that the court case will go on for a while, and somehow it will get wiped out. But if it curtails the shorting for a little while, I am all for it.
I’m not alone. It seems that CEOs of companies dislike it as well. I’m sure it drives them crazy.
The Negative to My Positive
I tend to be a very positive person, and I choose my stocks with a view that the company is one that I want to own. Yes, I want to make money, but I prefer to do it by getting companies that I think will do well, rather than betting on them tanking. I understand that it is legal, the question is, is it moral? I personally don’t like it and refuse to get into that kind of position. I also understand that there are some reasons that the stock goes down and that the short sellers are warning us of problems in the company. I believe that if there are problems, that it should be pointed out, but to make a profit out of it just seems wrong to me somehow.
I don’t know how you feel about it, and you might think it’s ok if no one gets hurt, but the companies get hurt when this happens. Probably some investors get hurt by it as well. For me, I’m staying out of it. I’m kind of glad that this guy has been caught and maybe there will be others too. I invest using my own moral code. And I will continue to do that as well.
