The badness of short selling
Short selling came to attention recently and the US even banned it for a short while. SGX did banned short selling which I find amusing for the reasons and the nature of it. SGX is only against naked short selling. But the big boys or anyone can short the whole market till kingdom comes if he has the ability to borrow scrips to cover his short position. Why is short selling bad? It goes against the principle of investing in stocks. Investors put money into stocks for its potential to grow. The better the company is managed, the better chances that it will make more profits to reward its shareholders, thus leading to higher share prices. With short selling, the fundamentals of share investment have changed. It becomes gambling. The funds are saying that they can make money by buying or shorting the market, regardless of fundamentals. It is no longer whether the company is good or bad. Good company can still be shorted and its price forced down by short sellers to make their profits. How so? Over the years, many small investors have lost their money in the stock markets for many reasons, a shrinking economy, too many stocks, too many derivatives, too little money and of course short selling. We have reached a stage when there are just not enough small investors in the market for fair play. And the shortists, mostly big funds and house traders, have unlimited resources to short out the buyers. The one who who is able to keep on buying or selling wins. This is the game in the market today. Even very sound companies are not seeing their prices moving up. They all fell victims to this new gambling strategy. When there are few small investors buying, the big boys just short and force them to sell at a loss. Investors beware. Only when the big boys start to buy up the market will the stocks run up. But there are no one buying the market except the small investors. And they are either stuck for the very long haul or have to cut losses and get out. This is the new game play.