Smarts last month, and he explained why short sellers are good to the market.
Hedge and Mutual Fund
hedge which means can sell short. Mutual fund only can buy.
it to rise. It then rise to $20 a share when you sell. Now you make a profit of
$10 per share.
that it will fall to $10 – You are going to short it. What you do now is to
sell the stock at $20 and then buy it back at $10.
bank. E.g. I borrow 1,000 shares from a bank and sell the stock at $20. Now my
stock account has $20,000.
$10. I then begin to buy back 1,000 shares at $10 which cost $10,000.
longer you borrow, the heftier the interest pay back. Discounting the interest,
I then make the difference of $10,000 (20k – 10k).
otherwise stock price will skyrocket and also otherwise during collapse, it will
Market need buyers and sellers. Without sellers,
price will sky rocket. Without buyers, price collapse.
from $20 to $80. Without Short sellers, price may go to $110, now it is $90. Without
sellers, there will be no liquidity, things will go nuts!
Let us say short sellers are wrong. They cover
their shorts, and summarily forced out of market. Stock will go up! But if
short sellers are right, (by the way, short sellers have a better record than
most Wall Street), stock price will head towards a collapse. Everyone will be in
panic and wanted to sell. But now there are no buyers! Well there is actually
the short sellers. This is because they have to replace the stocks they
borrowed. They have to cover their shorts! So in a collapse, stock does not
drop as much as it might have. Let’s say it will drop to 80 instead of 30.
So short sellers are good. They save you from
buying the failed stock at $110 – if you bought at the top, you bought at 90
instead. When you dump, the short sellers replace stock which you will be able
to get out at 80 instead of 30.
During an interview I gave on CNBC in 2008. Jim
Rogers shorted Fannie Mae. Fannie Mae was a sham and on verge of collapse. In
2008, it drop to 60 to bankrupt. It was down to 20 by then, and reporter
interview me – Sharin Epperson – opinion that collapse was Jim fault.
“Listen, I told Ms Epperson, as politely as
I could, “if you really think that Fannie Mae is going into the tank because
of short sellers, you really should get another job!”
Short sellers are
not the cause (of collapse), they are simply the messengers and as such they
exposed many of the great frauds. The criminal enterprise that was Enron is one
of the most famous scandals they are responsible for having identified!
am not a parrot in the comment. LOL
versa. In a food chain, there exists predator/prey systems, and relationships
between herbivores and their food source such that a stable equilibrium is achieved.
This is called the “balance of nature” or homeostasis. Other examples are regulation
of temperature and balance of acidity and alkalinity in our body internal
environment in response to external conditions.
process in which buyers and sellers in a dynamic equilibrium continuously
change reach a balance.