"Who is the ultimate loser in all this?"Often it is those that...

First 8143 Last

Share
Profile

Follow
wazzie2

1,188 Posts.

233

05/06/24

09:45

Post #: 74169023
Share

Originally posted by BobF: ↑

I am inclined to understand the process as one in which the original owner of the shares cannot lose. They effectively agree to 'sell' their shares temporarily with the proviso that the buyer MUST 'sell' them back to the original owner at the same price after a certain time, or on demand. They cannot lose in other words. They also get paid a 'rental fee' for the process, so they can only win. They thus make a profit for nothing. This is always a good deal for them in other words.

The shorter takes the risk that by trading at sub-normal pricing he can drive the trading price down and buy more shares back for a lower price than he paid. He does this by trading some of the rented shares at a lower price, encouraging others to also sell low, which he then tries to buy low. By doing a rinse and repeat selling a small number of shares low over and over he is able to undermine confidence in the stock and encourage a general reduction in the share price. He hopes to net-buy more shares at a lower price than he is paying for the shares he rented, including the cost of rent and trading. When he stops his assault on the SP it rises again and he sells the ones he has bought low at a higher price and makes a worthwhile profit that covers his costs, and returns the shares to the original owner, on time, and keeps the profit. This relies on frequent trading at small incremental benefits that add up over time. His trading costs are low or even zero, so this is something that an automated trading system facilitates well. If all goes according to his plan he will win. If there are too many rival shorters out there they will battle it out and some will win while others lose. If the company's value increases generally (its product becomes successful) then his efforts may fail and he will lose significantly. No matter. He has many other irons in the fire.

Who is the ultimate loser in all this? The small holder who cannot see what is going on behind the curtain and lacks the confidence to sit tight. These holders are hopeful that shares they buy at value 'X' will rise later to "X+y" so they can make a profit. They are betting on their ability to recognise and predict a good company to bet on (the horse). When it works they are happy to make a reasonable profit. This is generally based on businesses that make a product that is generally wanted and will become popular and profitable in the wider market. One could say it is providing a public good, and that such investors are helping to fund the creation of such a public good. These investors reason that this is how the sharemarket works overall, and that they are making a fair profit that everyone benefits from. They often do not sufficiently factor in that there are also scavengers and predators out there that rely on their presence for their own existence. Shorting is but one strategy such predators employ. Little fish gobble up all those tiny edibles, but there are always bigger and bigger fish, just fewer of them.

Expand

"Who is the ultimate loser in all this?"

Often it is those that don't understand how the process actually works - see the prior response.

WBT Price at posting: $2.24 Sentiment: Buy Disclosure: Held
1 Upvote

0 Great analysis

Reply

Top Stories

COD

Coda Minerals (ASX:COD) enters rights issue to further exploration in South Australia

RCE

Recce eyes Indonesia for novel anti-infective as Indo-Aus ties grow stronger

COB

Cobalt Blue sees A$60M price tag for Kwinana, WA refinery – but $68M value for stage one

OJC

SPC to merge with Original Juice Co and Nature One Dairy

ACW

Actinogen Medical ramps up Alzheimer’s treatment trials, targeting fast-track global approvals

There are more pages in this discussion • 969 more messages in this thread...

First 8143 Last

Add WBT (ASX) to my watchlist

(20min delay)
Last $1.87		Change 0.050(2.75%)		Mkt cap ! $353.2M

Open	High	Low	Value	Volume
$1.82	$1.90	$1.80	$722.2K	387.9K

Buyers (Bids)

No.	Vol.	Price($)
1	10985	$1.86

Sellers (Offers)

Price($)	Vol.	No.
$1.88	10033	3

View Market Depth

No.	Vol.	Price($)
1	10985	1.860
1	2093	1.855
4	6199	1.850
1	2093	1.845
1	2093	1.840

Price($)	Vol.	No.
1.880	9533	2
1.885	2093	1
1.890	19695	4
1.895	2093	1
1.900	81855	9

Last trade - 16.10pm 02/10/2024 (20 minute delay)

WBT (ASX) Chart

"Who is the ultimate loser in all this?"Often it is those that...

Coda Minerals (ASX:COD) enters rights issue to further exploration in South Australia

Recce eyes Indonesia for novel anti-infective as Indo-Aus ties grow stronger

Cobalt Blue sees A$60M price tag for Kwinana, WA refinery – but $68M value for stage one

SPC to merge with Original Juice Co and Nature One Dairy

Actinogen Medical ramps up Alzheimer’s treatment trials, targeting fast-track global approvals

Featured News

Buyers (Bids)

Sellers (Offers)

Featured News

"Who is the ultimate loser in all this?"Often it is those that...

Top Stories

Coda Minerals (ASX:COD) enters rights issue to further exploration in South Australia

Recce eyes Indonesia for novel anti-infective as Indo-Aus ties grow stronger

Cobalt Blue sees A$60M price tag for Kwinana, WA refinery – but $68M value for stage one

SPC to merge with Original Juice Co and Nature One Dairy

Actinogen Medical ramps up Alzheimer’s treatment trials, targeting fast-track global approvals

Featured News

Buyers (Bids)

Sellers (Offers)

Featured News