The One Minute Case for Stock Shorting

[Meta Blog]

What is stock shorting?

Stock shorting is a method of profiting from a decline in a stock’s price. It is the opposite of investing long, where the investor profits from a rise in the stock’s price. “Going long” or hoping for a gain in the stock’s price is the more familiar method of investing. However, “going short” and profiting from a decline in a stock’s price is an equally valid method of investing.

How does stock shorting work?

Shorting a stock is a little more complicated than going long where a stock is simply bought and then sold later for either a gain or loss. Shorting stock first involves borrowing it from an existing owner. The short seller pays a fee to the owner to borrow his shares. Upon borrowing it, the stock is immediately sold and the proceeds are kept in the short seller’s brokerage account. When the short seller wants to close out his position (or the shares’ owner wants them back), he buys equivalent stock in the marketplace and returns the shares he borrowed back to the owner.

If the stock has fallen in value, he makes a profit that is the difference between the price at which he borrowed the stock and the price at which he bought it back. Conversely, if the stock has risen in value, he suffers a loss since he has to buy back the stock at a higher price than he borrowed it for.

Short sellers fulfill a crucial and productive role in financial markets:

Short sellers bring to light valuable information about poorly run companies.

Short sellers have a strong incentive to uncover poorly run companies. If a short seller successfully discovers ahead of others that a company is destroying value through incompetence, bad luck or even criminal activity, he profits by shorting the stock and publicizing the information. Short sellers are similar to good investigative journalists. They make more money if they can “scoop” others with information that will drive the stock down.

It is this aspect of short selling that many company managers, regulators and others find discomforting. Yet these same managers and regulators have no problem when an investor uncovers a successful company. Why should they be opposed to someone who does the opposite, and uncovers the overvalued, incompetent, lazy or even fraudulently managed companies?

Short sellers help capital go to the best companies.

By taking financial capital away from poorly run companies, short sellers free up money that can go to the best-run companies. Short sellers are the other half of the value-creating process of financial markets whereby capital is continually re-directed to those who can put it to the most valuable use.  The existence of short sellers means that capital will more quickly flee the poorly run companies and thereby become available that much faster for the better-run companies. The profit that a short seller makes is his reward for aggressively uncovering the poorly run companies.

Short selling is challenging.

Short selling is not for everyone for the simple reason that stocks generally tend to go up. During the 20th century, stocks gained 9% a year on average, although there was significant yearly variation. Stocks do not decline in value across the board for long periods of time. Because of this, short sellers must time their moves well, and attempt to short at the top of a stock’s move and then close out the position when it has hit bottom. If the short seller mis-times his moves, he will lose money. Such precision in timing is less important for long investors because stocks generally go up.

It is a misconception that short sellers can unfairly cause stock prices to go down.

This is the most common misconception about short sellers. However, short selling is only likely to be successful if companies truly have problems. If a seller shorts a strong or improving company, he will lose money. It is a misconception to think that short sellers (or long investors) can cause stock prices to deviate for meaningful time periods from their true values.

The only power a short or long investor has comes from being right. When he is right, he is rewarded for helping to bring true information to the marketplace. When he is wrong, his wealth is dissipated and his ability to invest further is diminished. If he is wrong often enough, all of his wealth will be dissipated and his ability to influence stocks will be nullified.

Conclusion: Short selling is moral and should be permitted.

Short selling creates value by making the capital markets work more efficiently. Short sellers help bring negative information about companies to the market. By doing so, short sellers provide liquidity to the market and help capital to flow away from the worst companies and toward the best companies. Without short sellers, markets would be less liquid and more violatile. Long investors would have more difficulty selling their positions, and the lack of liquidity would make it more difficult for companies to raise funds in public offerings.

To restrict short selling not only harms the efficiency of the markets, but it violates the right of stock owners to freely dispose of their shares as they see fit. Because their shares belong to them, it is their property, they have the right to do what they want with them, including loan out their shares to short sellers. Conversely, short sellers have the right to borrow those shares.

A proper understanding of short selling demonstrates the valuable and productive role it plays in the financial markets.

Further reading

• Investopedia: Short Selling: Introduction
• Investopedia: Short Interest: What It Tells Us
  

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[Capitalism Forever]

Quite a good essay; I just have one quibble:

Conclusion: Short selling is moral and should be permitted.

This statement can be taken to imply that it should be permitted because it is moral. The criterion for whether something should be legally permitted is not morality but merely whether it infringes on anyone's rights--although I wouldn't even use the term "permitted," but rather say that it should not be forbidden. The positive action taken by the government, the explicit provisions in the law, should be to forbid violations of individual rights. What is not forbidden, may be done, without a need for anyone to permit it.

The fact that short selling is moral (when it is indeed based on rational research into the facts behind a company) means something much more than that it should not be legally forbidden: it means it should be encouraged.

[Moebius]

All the points are sound in a theoretical sense. In practice though, short selling, when combined with insider knowledge and large amounts of money, can create short term panics that takes advantage of market irrationalities in a way that is similar to pump-and-dump schemes. And it's true that in the long run this wouldn't work, but since shorting stocks is inherently a short term activity due to the need to pay interests, long run is pretty irrelevant.

I suppose you can tag "preying on fools" as one of the positive functions of these moves, since it teaches investors to do their home work. It's just that the market never seems to run out of fools.

[adrock3215]

You don't mention naked short selling. Is naked shorting also moral?

Edited December 7, 2007 by adrock3215

[Capitalism Forever]

can create short term panics

You mean short term bouts of stocks trading way below their realistic value, then quickly rebounding? If only that were true--I'd be so rich by now!

Anyone claiming to have spotted a recurring pattern of irrational market valuations should be prepared to explain why he is not already a billionaire. Money is made in the market by forecasting the future values of things; the better you are at such forecasting, the greater the profit you earn. Identifying a pattern that keeps repeating itself allows you to forecast successfully again and again--it's nothing less than finding a bonanza! And, if you like money at all, you will probably not want to publicize your discovery until after you have profited out of it as much as you care to.

So, if you're featured on a Forbes list, I will hear with interest your theory on how people consistently misvalue stocks or other things--but if you're not, don't expect me very much to buy into it. That's my take on the relationship between theory and practice!

[Capitalism Forever]

You don't mention naked short selling. Is naked shorting also moral?

I don't want to speak for Galileo, but here's my opinion:

Again, this is more of a legal question than a moral one. The important thing is to make sure the buyer is getting what the seller says (or implies) he will get. "I will sell you 100 shares in ExxonMobil at $92 each within the next 3 days"--does this imply that the seller already owns said shares, or does it just mean that he intends to obtain them and reasonably expects to succeed in doing so? If the buyer is aware of the fact that the trade may fail and is willing to accept that risk, he is clearly not being defrauded, and the government has no business prohibiting such transactions. If, on the other hand, the buyer is led to believe that the seller is selling him specific shares that he already owns, and thus the trade cannot fail--i.e. if the buyer is given a guarantee of getting the shares--then it is quite clear that the seller is defrauding him if he is merely hoping to obtain the shares in time, and it is proper for the government to punish him for such fraud. But if neither an explicit guarantee nor an explicit disclaimer of a guarantee is made, then the matter is up to interpretation, and the government may properly choose a standard interpretation for such cases.

If the standard interpretation of "I will sell" is "I own, have set aside for you, and will sell," then a seller wishing to do a naked short will have to explicitly indicate that what he is offering is a naked short. In the absence of such an indication, buyers can assume that it is a guaranteed one. If the standard interpretation is "I will obtain and sell you, to the extent it is obtainable," buyers wishing to have a guarantee will have to explicitly ask for one. In either case, naked short selling is possible to those wishing to practice it, and so is guaranteed buying--the difference is only in who has the burden of making sure the other party understands the nature of the trade.

So, yes, the answer is that naked short selling to a consenting buyer should be legal--and, if the seller benefits from it no less than he would from whatever alternative courses of action he has available, it is certainly also moral.

[Moebius]

You mean short term bouts of stocks trading way below their realistic value, then quickly rebounding? If only that were true--I'd be so rich by now!

Anyone claiming to have spotted a recurring pattern of irrational market valuations should be prepared to explain why he is not already a billionaire. Money is made in the market by forecasting the future values of things; the better you are at such forecasting, the greater the profit you earn. Identifying a pattern that keeps repeating itself allows you to forecast successfully again and again--it's nothing less than finding a bonanza! And, if you like money at all, you will probably not want to publicize your discovery until after you have profited out of it as much as you care to.

So, if you're featured on a Forbes list, I will hear with interest your theory on how people consistently misvalue stocks or other things--but if you're not, don't expect me very much to buy into it. That's my take on the relationship between theory and practice!

I'm not really sure what you're trying to say, or what your post has to do with what you quoted me on. My original post was referring to bear raids, which while illegal, is extremely hard to prove, and straddles in my opinion a gray line as far as free market goes. Basically the whole idea is that if a group of traders get together and short a security for a critical mass amount, it will be almost guaranteed to artificially drive down the price, covering the traders' short position. This is prohibited by the SEC in the US, and is also illegal in Taiwan where I trade. But due to the difficulty of evidence gathering it is rarely prosecuted. This can also be done with help of company insiders, in the form of either releasing negative press, or the borrowing of their shares.

On the other hand, are you saying that there are no such thing as short term bouts where stocks trade above or below their value? Nor am I exactly sure what you mean by "recurring pattern of irrational market valuation". Like, some sort of magical formula that you can just plug in, rinse and repeat, and money will continuously fall out? I mean, obviously there are patterns. Cyclical business cycle -- that's an obvious pattern, an important part of fundamental analysis. Then there is the entirely field of technical analysis, which is replete with theories about patterns within the securities market. There are also a slew of books on these things, so obviously people do publicize it. There is also psychology, which is another pattern in its own right -- people react in similar ways under similar situations. There are plenty of patterns, and you try to assess them all and make the most accurate conclusion. I guess if you can predict the market with a hundred percent accuracy, you WOULD be a billionaire.

I trade stocks for a living. Sadly, I do not possess the magical insight that you seem to be referring to. But I have doubled my money over the course of this year for somewhere along the lines of few hundred grand. Sometimes I'm right, sometimes I'm wrong. I even got burnt twice this year thanks to the sub-prime crisis. I'll probably never be a billionaire, but I do fully intend on becoming a millionaire at some point in my life. If I ever get on the Forbes list though, I will be sure to give you a holler.

[Capitalism Forever]

My original post was referring to bear raids, which while illegal, is extremely hard to prove, and straddles in my opinion a gray line as far as free market goes. Basically the whole idea is that if a group of traders get together and short a security for a critical mass amount, it will be almost guaranteed to artificially drive down the price, covering the traders' short position.

Thank you for clarifying that; I thought you were talking about short selling in general.

Do you know of anyone actually having pulled off this sort of thing successfully? I doubt it can work; the fact that you are driving down the price by selling means that you sell half the shares cheap, and the fact that you have to buy them back means you'll be driving the price back up, and therefore you'll buy half of them expensive.

This can also be done with help of company insiders, in the form of either releasing negative press

Now that is something that should be forbidden--by the company's policies, that is, not by law.

On the other hand, are you saying that there are no such thing as short term bouts where stocks trade above or below their value?

I am saying that if someone found a way to tell when exactly stocks are "way cheaper than they ought to be," he'd be able to profit from this, and if this situation occurred regularly and affected most stocks, he'd profit a lot. And of course his taking advantage of the cheap prices would lead to the prices quickly going back up, eventually eliminating the misvaluation altogether.

So if anyone complains of a systematic irrationality in market valuations, the proper response to him is: Well, isn't this a buying opportunity, then? (Or shorting opportunity, if he thinks they're valued too high.) In other words: don't complain about the market, go ahead and make prices rational if you know better than the rest what they should be!

If I ever get on the Forbes list though, I will be sure to give you a holler.

It's a deal. Good luck with your trading!

[Moebius]

Do you know of anyone actually having pulled off this sort of thing successfully? I doubt it can work; the fact that you are driving down the price by selling means that you sell half the shares cheap, and the fact that you have to buy them back means you'll be driving the price back up, and therefore you'll buy half of them expensive.

Sure it works. I don't personally know anyone that has done it, since given the illegal nature of market manipulation people tend not to publicize this kind of things. It also requires a lot of cash and usually many traders or at least one major shareholder. I do see it happen regularly though on the market itself, and sometimes hear about it prior to it happening through other brokers. I would say though that given human nature it is probably easier to artificially depress the price of a stock than jacking its price. Usually when a small investor sees the price drop severely, they stop loss, which triggers a chain reaction. You have to remember that the bear raiders aren't the only ones that have the stocks, and since they are the first to sell they tend to fetch higher prices when they short. All I can say is that when stocks are not liquid enough or have few outstanding shares, it is much easier to perform market manipulations -- which is the reason why the market I trade in (Taiwan) have so much of it. There are simply too much money with too few quality companies to buy.

There are some famous examples that you could look up. I can't think of one off the top of my head right now but google it and I'm sure you'll find it.

Now that is something that should be forbidden--by the company's policies, that is, not by law.

The thing is if you're a member of the company board for instance, you are required to have a set percentage of stocks that must be on hand ANYWAY. In that case there is clearly an incentive to squeeze cash out of schemes like these since in the long run the stock price will return to its former level anyways.

I am saying that if someone found a way to tell when exactly stocks are "way cheaper than they ought to be," he'd be able to profit from this, and if this situation occurred regularly and affected most stocks, he'd profit a lot. And of course his taking advantage of the cheap prices would lead to the prices quickly going back up, eventually eliminating the misvaluation altogether.

Obviously there are ways to tell when stocks are cheaper than they ought to be and profit. Fundamental analysis, technical analysis, intuition, blind luck, whatever. And yeah, you would profit from doing so if you were in fact correct. I don't understand what you're trying to say. Some people make a living doing this. Are you saying that if someone had an INFALLIBLE way of predicting this he'd be uber rich? Because obviously that is impossible.

I don't know if you trade personally or not. But obviously there is a time lag between when the stock price is under-valued and when it adjusts back to its appropriate price. It could be days, it could be weeks, or it could be months. The market is not really as efficient as the diagrams in an economics textbook, so I don't know what you mean when you say the prices "quickly going back up". I made a lot of money for instance following the first wave of stock crash following the subprime loans crisis because any stocks that seemingly have nothing to do with sub-prime loans were severely depressed in price.

What I find to be true though is that it is oftentimes difficult to determine the "correct" value of a stock, since the prices are set according to future expectations. There are some rules of thumb but all in all it's pretty nebulous and have a lot to do with publicity, popularity, and public opinion than necessarily profitability.

So if anyone complains of a systematic irrationality in market valuations, the proper response to him is: Well, isn't this a buying opportunity, then? (Or shorting opportunity, if he thinks they're valued too high.) In other words: don't complain about the market, go ahead and make prices rational if you know better than the rest what they should be!

It's not really a complaint but rather an observation. If the market was completely rational and efficient, there would be far less opportunities to make money (well theoretically there wouldn't be any). But again, it is a question of timing. "Short term" in economics could be a long, long time in human terms, along with all sorts of opportunity costs. I would prefer not to get my money stuck on some undervalued stock for months and months just to wait for the prices to go back to where it "ought" to be. TIME, and the opportunity costs that comes with it, are the real problems. Not necessarily the short term drop in prices.

[Capitalism Forever]

All I can say is that when stocks are not liquid enough or have few outstanding shares, it is much easier to perform market manipulations -- which is the reason why the market I trade in (Taiwan) have so much of it.

The way I would put it is: If a market is not liquid enough, that is an opportunity for keen-eyed investors to make money--and when they take advantage of this opportunity, the market will become more liquid. And this will continue until the market becomes as liquid--and therefore efficient--as it can be.

And that is the key point I've been making all along. Rational investors and traders contribute to the market's efficiency, and rational short selling is one way they can contribute. Irrational traders can get lucky occasionally, but in the long run, they are bound to lose.

If bear raids work in a given market because there are too many small investors who tend get scared (and a stop-loss set up without giving thought to the company's actual value is really just a pre-programmed way of getting scared), that means that the market isn't efficient; that there are too many irrational people trading compared to the number of rational traders. A bear raid is one way of punishing irrationality--a rather cruel one, I admit, but no less cruel than reality itself is to irrational people. If someone invests into a company without having any idea what that company's value is, he is asking to lose money--so he shouldn't complain when he does.

[Moebius]

The way I would put it is: If a market is not liquid enough, that is an opportunity for keen-eyed investors to make money--and when they take advantage of this opportunity, the market will become more liquid. And this will continue until the market becomes as liquid--and therefore efficient--as it can be.

I'm not sure why non-liquidity necessarily equals a chance to make money. And anyway if you're going to manipulate the market, sometimes the non-liquidity is on purpose by gobbling up a large amount of outstanding shares.

And that is the key point I've been making all along. Rational investors and traders contribute to the market's efficiency, and rational short selling is one way they can contribute. Irrational traders can get lucky occasionally, but in the long run, they are bound to lose.

That's a rather obvious point, no? I don't think anyone has disputed that.

If bear raids work in a given market because there are too many small investors who tend get scared (and a stop-loss set up without giving thought to the company's actual value is really just a pre-programmed way of getting scared), that means that the market isn't efficient; that there are too many irrational people trading compared to the number of rational traders. A bear raid is one way of punishing irrationality--a rather cruel one, I admit, but no less cruel than reality itself is to irrational people. If someone invests into a company without having any idea what that company's value is, he is asking to lose money--so he shouldn't complain when he does.

When I say stop-loss, I'm simply referring to the act of cutting your losses, and not necessarily a stop-loss order. And frankly, when a stock's price suddenly plummets, it isn't necessarily irrational to stop-loss. A lot of buying stocks is about information, and information distribution obviously isn't equal. If someone is dumping a huge number of shares into the open market, there is almost always a reason, and you won't necessarily find out why in time before the prices hits bottom. Rather than riding out the whole thing -which as I said cost you time and therefore opportunity- you're better off to just stop loss and wait until the price hits bottom before picking it up again.

[adrock3215]

Hey guys. Just found an absolutely amazing article on Short Selling and in particular Naked Short Selling. Check it out here:

http://www.houstonlawreview.org/archive/do...f/Christian.pdf

"At the center of this manipulative potential is the Stock Borrow Program run by the DTCC and its subsidiary the NSCC. Critics of the Stock Borrow Program claim that it facilitates naked short selling in two ways. First, critics contend that the Stock Borrow Program allows naked short sellers to hide long-term failures to deliver by disguising the delivery of stock borrowed from the lending pool as a legitimate delivery. Second, critics contend that the lack of controls put in place by the DTCC has allowed for the creation of phantom shares, thereby increasing the amount of stock available for trading beyond a company's authorized number of registered shares."

Edited December 21, 2007 by adrock3215

[DarkWaters]

Do you know of anyone actually having pulled off [a bear raid] successfully?

According to Edward J. Renehan, Jr.s Dark Genius of Wall Street: The Misunderstood Life of Jay Gould, King of the Robber Barons Daniel Drew, a fellow speculator and associate of Jay Gould, used to do this all of the time.

During such a [bear] raid, Drew would pool with others to short a particular stock, borrowing shares that were then sold at market price. The speculation of Drew and his colleagues was that the value of the security in question would soon drop, allowing them to purchase more shares on the cheap for return to the owner while claiming the margin between the two prices as their own. In the midst of a typical bear raid, once he was sufficiently short, Drew would spread rumors and otherwise push the price of the selected stock lower.

Granted that the author of this book is Edward J. Renehan Jr., who is not exactly the greatest admirer of the Industrial Revolution, he could be misinterpreting or outright exaggerating the actions of Daniel Drew's "bear raiding" as dishonest when they were not. However, every source on the trading speculations of Jay Gould, Daniel Drew and Jim Fiske detailed how they were not beyond resorting to fraud or deceit to increase their margins, so I would not be surprised if these particular actions did involve the deliberate dissemination of misinformation. Do you think the aforementioned practices of Daniel Drew qualifies, if they are even accurate?

Does the concept of "bear raiding" always involve some form of dishonesty to encourage a large sell-off?

If bear raids work in a given market because there are too many small investors who tend get scared (and a stop-loss set up without giving thought to the company's actual value is really just a pre-programmed way of getting scared), that means that the market isn't efficient; that there are too many irrational people trading compared to the number of rational traders. A bear raid is one way of punishing irrationality--a rather cruel one, I admit, but no less cruel than reality itself is to irrational people. If someone invests into a company without having any idea what that company's value is, he is asking to lose money--so he shouldn't complain when he does.

I am still mulling over this paragraph to decide if I agree with it.

In terms of playing poker at a casino, where the very nature of the game requires outwitting your opponents within certain restrictions to win his money, I can understand that any greenhorn who joins a game involving substantially more experienced players only has himself to blame if he gets duped out of all of his chips through fair play. In other words, I see no immorality in cleaning out an inexperienced player in this context.

I am not entirely certain that this principle easily extends to the morality outwitting irrational traders for their money. However, it would be ludicrous to insist that cunning traders must restrict their honest stock shorting so as not to mislead callow traders. So perhaps this is moral as well. Do you guys agree with this analysis?

Anyway, I do agree with your assessment that to discuss a concept such as bear raiding requires a large mass of easily fooled investors, which seems to be a pretty unrealistic assumption in modern markets. Perhaps not in emerging markets though.

[adrock3215]

I don't see how one trader outwitting another is a moral issue. If it is, then buying a house, a used car, a used bike, a piece of furniture off of craigs list, or purchasing a local mom-and-pop record shop is also an issue in which one party outwits the other. If I put a limit order out to sell XYZ stock 20 cents above the price it is currently trading, and I get filled because some idiot submitted a market order, or some floor specialist needed to load up on his inventory and didn't mind paying above market price to do so, then that's fine. The key is that the transaction was voluntary on both sides.

Bear raids do, at times, involve some fraud. The proper way to deal with this is through self-regulation by the exchanges, which is sort of already done (think NASD, but take out the SEC oversight). Why would this work? Well, if I run the NYSE, I don't want bear raids occuring on my exchange, and thus destroying my business' reputation as a worthwhile exchange. Otherwise, companies will list their shares elsewhere.

[DarkWaters]

I don't see how one trader outwitting another is a moral issue.

I reflected on this a little more and I think you are absolutely right. An irrational, foolish or inexperienced trader on the stock market losing money through honest stock trade is no different than an irrational, foolish or inexperienced participant in any of the other settings you have described.

I think my confusion, along with that of most laypersons when it comes to stock trading, stemmed from how it is very common for authors, syndicated columnists, television personalities and other intellectuals to describe individuals who make large sums of money as somehow doing so through "dishonest" means. So whenever a particular sector in the market declines substantially, those who lost large sums of money where "cheated" and those who profited probably "swindled" someone. Needless to say, these assessments are largely untrue as the vast majority of traders surely make a living through honest means. Unfortunately, stock trading seems to be especially susceptible to such deceptive descriptions as it is a very complex field, which is not well understood by most, and a very fast paced sector that involves prodigious sums of money.

[adrock3215]

I think my confusion, along with that of most laypersons when it comes to stock trading, stemmed from how it is very common for authors, syndicated columnists, television personalities and other intellectuals to describe individuals who make large sums of money as somehow doing so through "dishonest" means. So whenever a particular sector in the market declines substantially, those who lost large sums of money where "cheated" and those who profited probably "swindled" someone. Needless to say, these assessments are largely untrue as the vast majority of traders surely make a living through honest means. Unfortunately, stock trading seems to be especially susceptible to such deceptive descriptions as it is a very complex field, which is not well understood by most, and a very fast paced sector that involves prodigious sums of money.

That's an interesting take on it.

My opinion is a little bit different, although on a similar train of thoguht. The biggest fallacy that has been perpetuated about the stock market is that it is a "zero-sum game." This is commonly quoted by the media, or various movies (think Gordon Gekko in Wall Street) in order to say succintly: 'For every person who sells, there is a buyer, and one of them made the wrong decision.' But the markets are not a zero sum game. The fact that a stock goes up or down in price means that the market capitalization of that company has either gained or lost value. Every day, value is gained or lost in the markets for every issued stock (except for the relatively rare occurence where a stock ends unchanged for the day). But the fallacy of "zero-sum game" has sort of created an aura around the markets and trading, making it seem like it is "for rich people" or "gamblers".

Although there is some dishonesty involved, most traders do make money honestly, based on the fact that they are good at their job.

[Capitalism Forever]

Does the concept of "bear raiding" always involve some form of dishonesty to encourage a large sell-off?

I think it has to--and then it is the misinformation and the selling by other people that it triggers that allows you to buy back the stock cheap--not your own selling.

[softwareNerd]

Every so often, people who are shorting a stock very heavily will go public as loudly as they can with their reasons. If one is trading with a short/medium term view, it makes sense to convince other people of one's viewpoint, after one has established the position (either long or short).

Recent examples of people accompanying their short-selling with a lot of brouhaha are Mark Cuban (on various stocks of tiny companies) and Bill Ackman (on MBIA). They both might honestly think the particular stocks ought to be shorted.

OTOH, there are other people with deep pockets and contrary views. The MBIA example shows how such people were buying and continued to buy in the face of steep drops in the stock and an increasingly poor public image.

Edited April 7, 2008 by softwareNerd