Shorting should be liked, not loathed

On many threads, anti-shorter rants can be heard being blamed for share price woes.

Me, I take a diametrically opposite view: last month’s shorter is today’s buyer when they move to cover their short positions.

Take RMD, for example: over the 12 months to May 2014, net short positions in the stock rose by around 110m shares (out of a total number of issued shares of 1.4bn, so around 7.5% of the total issued capital).
Over the past few weeks, shorters have been net buyers of around 44m shares to close out their positions.

The result has been an 19% increase in RMD’s share price.

The point being made is that shorters ultimately become buyers of stock.

The reason I like shorters is that they play a very important role in getting overvalued shares return to their point valuation equilibrium (and often below it, which creates opportunities for discerning buyers).

Which is what happened to RMD: the short-selling of the past 12 months created a fantastic buying opportunity in RMD in the earlier part of this year.

Shorters provide a valuable price discovery service to me.

Long Live The Shorters.
Viva The Shorters, Viva!