July 23, 2009
If you're going to mess with liquidity and keeping a company's stock honest how do you propose to manage the upside of stocks that have exhuberant buying beyond realistic value?
Isn't it true that highly shorted stocks usually "squeeze" a stocks price up? It takes high volume stock disposition to drive a stock's price down fast. Hence the hedge fund selling of recent market decline. In a free market system the true value of a company's stock will prevail irrespective of short selling or other. If this weren't true fundamentalists like Warren Buffet wouldn't be as succesful. Whether the SEC likes it or not short selling keeps valuations from getting to high and fundamentalists keep the valuations from getting oversold.
In my view it is not that easy to make money shorting a stock as everyone seems to think. There are more challenges that can hurt a short seller than a buyer. Either way both are needed in the market and restricting either will cause problems that will be hard to predict.