Shorting is neither bad nor good.
Committing fraud is bad.
Management that cook the books to paint a rosier picture of their accounts are bad. That is fraud. That is market manipulation.
How are we going to find fraud in the accounts? By fundamental analysis.
When someone puts time and effort in going through the books and finds fraudulent reporting how can s/he profit from it? By placing a short sell.
Short sellers play a very important role. And I appreciate it. They don’t short the companies with solid fundamentals, solid competitive advantage and solid future prospects. If those people can’t make money by finding fraud through fundamental analysis they will stop doing it. And then some managers without integrity will reign supreme and fill their pockets at the expense of shareholders even when they belong in jail for committing fraud. How would you like that?
Committing fraud is bad.
What I don’t appreciate is abusive behaviours. Both on the long and the short side.
And if we have abusive behaviours on the long side, by means of fraudulent accounting practices, we can also find abusive behaviours on the short side. GME is just an eloquent example of it.
In the very specific case of the GME short sell, short sellers placed shorts of close to 140% of shares floating in the stock exchange.
They did it to create a downward spiral of the stock price with the goal of causing the bankruptcy of the company and pocket the profit. With the company bankrupt they wouldn’t even have to buy the stock because it would be worth zero.
But they got caught while doing it. They got caught by someone who did fundamental analysis and saw that the numbers didn’t add up, and saw an opportunity to make money. This person then shares the information and along came people who also see an opportunity to make money by squeezing the shorts. And also came along people who saw an opportunity to stick the free market’s invisible hand up Wall Street’s sfincter.
I think these particular short sellers, and I can’t emphasize enough these specific short sellers, tried to manipulate the market by means of overshorting and got caught in the process. I think this is fraud.
And now people with different motivations are together trying to either profit from it or teach them a lesson. I bet there’s even Hedge Funds betting along side the squeezers.
I’m in it for the money, but most of all to contribute to the end of overshorting. I hope a situation like this never happens again.
Market makers and other financial institutions are now trying to avoid getting caught up in the middle of the cross fire. The bill will show up eventually and someone will have to pay it.
Many retail investors will loose money if the squeeze is over and the price of the stock goes back to its fundamental value. And that will be sad. It might be insane to enter into a long position in GME at the current price.
But maybe the squeeze is just in the beginning. And I’m not saying that it is. That scenario may bring an abundance of bankruptcies in the financial sector. I feel no sympathy for them. But the price may reach levels that could cause a crash of the overall market. And that could cause many retail investors to panic sell everything, while creating yet more buying opportunities.
It might be insane to enter into a short position in GME at this price level. Who knows?!
I don’t think this will end well. And all because overshorting was in place. And found.
I hope short sellers may be understood for the good service they provide. And abusers, manipulative and/or fraudulent participants may rot in jail. After getting bankrupt