Short-Seller Conspiracy Theorists

One of the things I find fascinating at a macro level about the current market fondness for short-seller conspiracy theories is that it is selective. While it is entirely likely — as matter of fact, entirely probable — that there are short-sellers out there trying to plant stories to drive stocks down, the exact same thing happens on the bullish side too. There are always plenty of people with long positions looking to plant stories to drive stocks up.

Yes, both behaviors are bad and both can amount to stock manipulation, but how is it that short-seller manipulation gets so much more of a bad rap than does long-only shenanigans? From my point of view, as an analyst or a journalist — the usual target of that sort of thing — you concede up front that anyone talking to you probably has a bias, and you work from there. Every data point, whether from a long or a short, is just another observation from a usefully biased perspective.

Related posts:

  1. Excellent reading on hedge funds and short-selling
  2. The Venture Capital Overhang
  3. Better to Be a Buyer than a Seller of External Storage
  4. Air Canada, WestJet, and Conspiracy Theories
  5. Ebert on “Paths of Glory”

Comments

  1. BobZ says:

    do Sith Lords conspire on the short side and Jedi Masters conspire to drive stocks up?

  2. jamjam says:

    There’s of course the law of averages. There aren’t as many short sellers as long buyers so there’s more noise from the long against the short. There’s also some pyschological effect. When I’m short I tend not to be as vocal about it. I don’t want others to know or short the stock. When I’m long I am more vocal about it.

  3. I agree, Paul. You would assume that to a large extent they would balance each other out. But the reason there’s so much attention paid to shorts (as you know) is that the Street in general is biased towards being long, and any movement against that bullish upward momentum is seen as being tantamount to treason.

  4. Value Investor says:

    Name one knowingly false story planted by an investor (not an issuer) who then benefitted by selling the stock at a higher price.

  5. You’re kidding, right? I’m assuming you don’t read the financial media, have never heard of Jonathan Lebed, or are otherwise convinced that “pump and dump” operators are generally just misunderstood.

  6. Value Investor says:

    Now you are talking about the microcap and bulletin board universe, but those aren’t shortable names, and certainly not the ones drawing the black helicopter theories like OSTK or BVL. My point not that longs are by nature more ethical than shorts, but relates to the nature of markets themselves. It’s about incentives. Like people, issuers will not fail to deliver good news promptly if they have it, so it’s hard to plant a positive story which doesn’t exist. Like people, companies may avoid disclosing bad news if they can get away with it, and that is where the short community is useful and effective. Sometimes they get carried away in a manner that is difficult to achieve on the long side for the reason discussed above. Your thoughtful comments on the subject are appreciated.

  7. Value Investor says:

    Now you are talking about the microcap and bulletin board universe, but those aren’t shortable names, and certainly not the ones drawing the black helicopter theories like OSTK or BVL. I think your focus is on larger names that true pros – real smart guys – might get involved in, long or short.
    My point relates to the nature of markets. It’s about incentives. Like people, issuers will not fail to deliver good news promptly if they have it, so it’s very hard to plant a positive story which doesn’t really exist. Who will believe you if the company isn’t confirming? Like people, some companies may avoid disclosing bad news if they can get away with it, and that is where the short community is useful and effective. Niether side is famous for truth-telling, but it is far easier to sow doubt than it is to sell good news that just ain’t so.
    If you don’t believe that latter point, just ask W.