I dont have a issue with the mechanics of short selling. It is a tool in keeping the marketplace relatively healthy and honest. For example look at Enron, if those who short get a sniff at dodgy behavior, they will have a field day, as they should.
However what I dont like about it is the fact that it can be used excessively, some might even say abused.
Imagine a listed entity pioneering a change in an existing field, a change that can be costly, complex and not reward holders for quite some time.
In this situation shorting can create or exacerbate negative sentiment in order to make a financial gain, effectively removing wealth from the majority LT holders for those smaller numbers of people willing to bet against a current SP in the short term.
Should this entity then stumble, make a strategic mistake, require capital raising or even become a victim of a situation within the larger marketplace not of its making, then the weakness baked out of the SP by shorts can leave the entity and its LT holders at risk of capital loss as an unintended consequence.
One then has to ask how shorting in that situation is beneficial to participants in the marketplace.
Dont think shorting is the only tool that is regularly used in such a fashion. The same could be said for algorithmic trading.
MSB Price at posting:
$1.68 Sentiment: Hold Disclosure: Held
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