Post #328,149
6/17/10 11:22:33 AM
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More words, please.
Your original link was a whine by someone who bet short. That's not "investing". That's gambling. How does a company that issues stock benefit from a short? How is it "investing"? Investing means putting up money on the hope that it will result in growth and future profits. Selling short is betting that the company's stock will go down, meaning (if you believe in fundamentals) that the company will have lower profits and lower future value. It's disinvesting.
There are economic arguments for short trading. But it is not "investing".
What does my 401k have to do with anything in this thread?
Cheers,
Scott.
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Post #328,151
6/17/10 11:28:57 AM
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investing is gambling
you are betting the stocks you buy will go up in value. My question on your 401k was to drew's point that investing into a company that pays dividends during growth is investing. My question to you was to point out that you are gambling as you probably do not know offhand whether you have dividend producing stock or how much of it. Selling short (not naked short) is what keeps the market honest, 2 sides to every transaction. It appears that now their is only one side. The government and the banks vs the people. That is criminal.
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Post #328,153
6/17/10 11:47:24 AM
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False dichotomy
Short selling is gambling, which is different from investing. And it is big institutions vs. "the people". I don't see why you seem to think those are mutually exclusive.
--
Drew
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Post #328,155
6/17/10 11:55:42 AM
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Unpersuasive.
There are no guarantees in life. People selling short take risks just as people going long. But people going long are investing. People selling short are gambling.
Selling short may "keep a market honest" but it's also been dramatically abused. I'm not arguing that there's no economic justification for it under any circumstance.
I guess we should have let the financial system implode to preserve the "market purity" that Mr. Pitts and Mr. Newman seemingly expected. Of course, Mr. Pitts would only be able to collect those short sale profits as a result of the creation of a strong financial system that was protected and nurtured over the decades by Fed and the government of the United States that he's whining about now....
<image of infinitely tiny violin playing screechy sad song for Mr. Pitts>
HTH.
Cheers,
Scott.
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Post #328,157
6/17/10 12:15:56 PM
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so you are happy that the fed
loaned money at zero so the banks could buy treasuries that you have to pay the interest on. Fine, I am very pissed about that. Government could have just sold that many treasuries and give each of us the payers of that money the 75k worth that we all now owe the banks. Economy would be hopping right along about now.
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Post #328,158
6/17/10 12:26:45 PM
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The Fed could have and should do better.
We've been through a lot of this before.
I'm happy that the banking system was rescued. And actually I'm happy that Mr. Pitts didn't make out like a bandit on his shorts.
I think the Fed should be doing more now to get the banks to clean up their balance sheets, reign in the incentives that banks and big financial systems have to drive the economy into a ditch, increase reserve requirements, etc., etc., but a lot of these things have to be phased in gradually.
I'm not terribly upset that the banks are making 3% for no risk. Some of that sleight of hand seems to be necessary right now.
I'm more upset about the Fed not doing more to address the first third of its mandate: "maximum employment, stable prices, and moderate long-term interest rates."
YMMV.
Government could have just sold that many treasuries and give each of us the payers of that money the 75k worth that we all now owe the banks.
Um, the Treasury bill auctions are open. The banks that got bailed out weren't the only ones that were bidding. Anyone with the cash can bid, AFAIK.
Giving each American $75k would have done little if anything to fix the problems. The bailouts bought the system time to work things out - a lot of the problems are still there, under the surface...
Cheers,
Scott.
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Post #328,180
6/17/10 7:27:07 PM
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It is certainly investing
short positions can be used for many things, not all are gambling. They can be used to limit losses on investments, for example. Options trading is the same.
If you are in the stock market by your definition, its all gambling as it is a secondary market and you are betting on price. The company benefits on initial offer only.
I will choose a path that's clear. I will choose freewill.
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Post #328,185
6/18/10 12:04:37 AM
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Why does that matter?
The company benefits on initial offer only.
Which has precisely what to do with the way I differentiated gambling and investing? --
Drew
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Post #328,187
6/18/10 2:11:48 AM
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Ummmm . . . .
The company benefits on initial offer only. The company doesn't exist to be "benefited", it exists to benefit the owners. A share of stock is exactly that, it's a share of ownership of the company. Gather enough shares (ownership) and you can put in your own management - because you're the majority owner.
If the company does well, it becomes more valuable and the owner's shares becomes more valuable. s/he can reap that value in either or both of two ways - by dividends paid to the owners, or selling to another investor at a higher price. In any case it is an investment in the ownership of the company, which, again, exists to benefit the owners, not to be benefited.
Selling short is something entirely different. you borrow stock from an investor and bet that he's wrong and the company's value will decline. You immediately sell those shares you borrowed. In a set time you have to give them back to whomever you borrowed them from, and you're betting you can buy them back cheaper than what they were worth when you borrowed them.
If you're right and the stock declines, the shareholder looses no more than he would have holding on to the shares. He loses a percentage of his investment - except if things get really bad he can't bail out, because you have the shares.
Now suppose he's right and the company's stock does well. Panic! You have very little capital, because you borrowed the shares. A small increase in share price and buying those shares back will wipe you out. You are trapped. You have to buy those shares on the open market right now and give them back to whomever you borrowed them from before they cost too much for you to afford!
And of course you've paid some fees to play this game in the first place - you didn't think the investor loaned those shares to you out of the goodness of his heart, did you?
Your totally screwed by a relatively small market move - that's why it's called gambling.
One of the fun games in the stock market is the "short squeeze". Take a stock that's heavily shorted and buy into it, which will cause it to go up a bit. Then figure a way, publicity or whatever, to get that stock to go up a lot, until the shorts panic and buy out, which drives the price up even higher. You sell to the shorts and to any other suckers who see the price going up and want some. By time the shorts are out and the general market catches on and the stock drops back to its normal price, you're sold out. Of course this is obviously a game for the big guys - or someone who knows what the big guys are doing.
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Post #328,200
6/18/10 11:03:47 AM
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Not only that, but...
Well said.
In addition to that, I reject the idea that the company only "benefits" on the IPO. AFAIK, very few if any companies sells all of its available stock. E.g. Apple is authorized to issue 1.8B shares and has about 900M outstanding - http://phx.corporate...9MSZudW09Mw%3d%3d
That value can be used by the company for current and future business operations and development (e.g. collateral for loans, etc.).
Yes, issuing those additional shares would dilute the value of the shares on the market, but it's not a zero sum game (market sentiment plays a role). And it's obviously not the IPO that sets the value of those retained shares.
Of course it is in the company's interest (and obviously in the owners's interests) to have a stable and growing stock valuation. Short selling may have an overall economic value to the economy in some cases, but it's not "investing".
Cheers,
Scott.
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Post #328,201
6/18/10 11:09:19 AM
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fer cryin out loud.
if only buyers are allowed who is selling? Without a seller buyers dont have a thing.
a trade is just that 2 parties trying to make a profit. As long as the seller has the product whether borrowed or not doesnt matter as long as the item is available. Caqll it whatever you want but it is no different that doubling down on a pair of aces on a blackjack table.
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Post #328,204
6/18/10 11:20:37 AM
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... yerself.
:-)
There are arguments on both sides. Saying short selling is the same as any other trade is foolish.
http://www.fool.com/...selling-evil.aspx
[...]
The troubling thing about shorting is that it creates an incentive for investors to see companies -- or as we're seeing in Europe, entire governments -- to fail. Some will argue that these failures are inevitable, but when derivatives like credit default swaps hasten the process, they can prevent solutions that might have worked given more time. In those cases, the gains short-selling investors reap can be far less than the cost to other stakeholders, including not just shareholders but also employees and the broader communities that depend on those businesses.
Banning short-selling isn't the answer. But placing some limits on the practice won't keep the markets from functioning.
Short selling can have dramatic consequences and there needs to be limits on this kind of gambling.
HTH.
Cheers,
Scott.
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Post #328,206
6/18/10 11:40:32 AM
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Short selling isn't "selling"
As my previous post mentioned, an owner can always sell to another. That isn't "Short Selling".
Short selling is an act of speculation on a price move, and a rather dangerous speculation at that, because it's highly leveraged, and it has an expire date - you can't wait out a bad situation.
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Post #328,211
6/18/10 1:34:52 PM
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no, you're talking puts and calls
short selling requires a cover at full price or a re-sell. Options are different, and more highly leveraged. They are more truly "bets".
Still, I don't think anyone here has come up with anything that is truly convincing. Its all "gambling" as it is all based on putting money down on an unpredictable outcome.
If you want to classify "investing"...then it would only be when someone buys, fully intending long hold, which would pretty much limit activity on the NYSE to a trickle.
Disqualifying options, shorts, straddles, et al as "investment strategies" means that every company "gambles" to protect the value of assets (currency hedging) and many other extremely useful applications of these types of trades.
I will choose a path that's clear. I will choose freewill.
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Post #328,214
6/18/10 1:44:33 PM
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You're expanding the definition of gambling
Its all "gambling" as it is all based on putting money down on an unpredictable outcome. Sure, investing is a calculated risk. Ooh, I said "calculated", that makes it gambling. Except it doesn't.
There's a difference. You may not like the implications of recognizing that difference, and potentially treating the two activities differently, but I can't believe you don't see it.
... which would pretty much limit activity on the NYSE to a trickle. And that's a bad thing because ... ? --
Drew
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Post #328,223
6/18/10 3:44:07 PM
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no different than playing slot machines
and just as rigged as the article pointed out. You want to make money add value. So how does drook add value to that share of at&t stock? He doesnt, he is gambling.
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Post #328,224
6/18/10 4:00:38 PM
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Then Drook owns a piece of the company. What does Box own?
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Post #328,236
6/18/10 8:17:26 PM
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piece of dirt that I can build on, value added services
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Post #328,237
6/18/10 8:26:36 PM
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From playing the slots? Then Tyche is smiling upon you.
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Post #328,225
6/18/10 4:14:40 PM
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*Trading* stocks is zero-sum, just like slot machines
But holding stocks for the dividend is taking your rightful share of newly created value.
I'm not saying anyone shouldn't be allowed to profit on moves in stock prices. But when that's the primary mechanism by which people make money, that is gambling. And the problem with gambling, as you pointed out, is that it's not creating anything of value.
I'll accept the premise that it's good for the system to have some amount of pure speculation to provide the flexibility people need to feel safe with investing. But the current system -- whether as the goal of the regulatory structure, or as an unintended response to that structure -- is weighted heavily to profiting on the financial activities themselves. And while financial activities may enable value creation, they are not in themselves creating value.
--
Drew
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Post #328,203
6/18/10 11:15:22 AM
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Naked Short Selling
What you describe is normal short selling. The recent innovation that has turned many people against shorts is naked short selling.
In this case you sell stock even though you don't have it. You can do this because the market rules gives you a certain amount of time to actually turn over the stock. This time window, for historical reasons back when the exchange involved actual paper stock, is actually several days. Normal sales are all electronic now and usually done within fractions of seconds.
This form of short selling lets the short sellers drive the price of a stock down. By pumping their non-existent stock sales into the market they increase supply and reduce demand. This pushes the price down, making it possible for them to buy at a lower price and make money.
My opinion is that short selling is a valid, if risky, form of investment. Naked short selling is a form of market manipulation.
Jay
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Post #328,209
6/18/10 1:22:42 PM
6/18/10 1:22:58 PM
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Great point
It's not just gambling. Naked short selling is a form of market manipulation. --
Drew
Edited by drook
June 18, 2010, 01:22:58 PM EDT
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