Why Short Shares

The first response to come timing has to be to make money as investors expect the stocks to fall in the future. The local bourse allows some shorting but only selected counters.Considerations were given to being Main Board, well capitalised, sufficient liquidity. You can't short second or third liners.

 There is a sense or morality or ethics here. Some feels that you shouldn't be profiting on a stock when it is behind hammered. It is just not right, so they say.

If you are that type, you shouldn't be trading stocks. That's because you have attached "emotions" to stocks, and worse, you have attempted to humanise stocks as "darlings", "my favourite", "love of my life", etc.

For local shorts, investors can use it for trend comparison. Collect and monitor the list and note trends of up or down. Moreimportantly, note the upcoming "events" that could impact share prices (corporate exercises, quarterly results, etc.)

Stocks are emotionless. They don't have memories of what prices they were traded at in the past. THEY WILL ALWAYS BE THERE, up or down... will you be?

For every seller, there has to be a buyer. You cannot see things from just one perspective. If by selling you are being morally wrong, then is the buyer clueless? Everyone makes their decisions based on their assumptions and risk assessment. 

You could short stocks to protect your portfolio, or to extend your gains (e.g. if I think Supermax is better than Topglove, I buy one and sell the other... being in same industry I only want exposure in same industry).

Short selling strengthens the market by exposing which companies' stock prices are too high. In their search for overvalued firms, short sellers can discover accounting inconsistencies or other questionable practices before the market at large does. This does not imply that all stocks shorted may have those characteristics - but some usually do.

There is the belief that the practice represents profiting off others' misery or that it depresses successful companies' share prices, both academic studies and real-world experiments have shown that short sales improve market efficiency. Locally usually there is no massive collusion at work to push down certain stocks.

I do have a quibble when there is a collective effort to discover "faults", do massive PR campaign and promote sell research

 a taste of the techniques used by a “Short selling activist”, for example:

• Make itself a Research company, not a short seller
• Target Asian (especially Chinese) companies listed in Hong Kong & Australian companies.
• Make a report, especially an attractive & negative title
• Publish the information !

In fact, it’s not a new trick. In an article published by Reuter, companies listed in Hong Kong are targeted because:

- poor regulation, weak enforcement and small public floats means there are more stocks overvalued in the territory than in other major markets.

- China’s strict investment rules make it all but impossible to take short positions in individual domestic-listed Chinese stocks from overseas.

- Chinese companies alleged to have committed accounting tricks, market manipulation and fraud are being increasingly targeted by short sellers.

You can short based on publicly available information, but when you are short by doing extra research to obtain negative information, and you are part of an organised group to whack down the company - that's collusion even though it is based on "facts". A collusive grouping can caused a herd mentality to sell. Here is where the regulators need to be more vigilant. All said, it is fair game if you do shady  or false accounting.

There also has been sell research not based on facts but false accusations. It appears that there has been no penalty for these type of sell research groups yet.

p/s: The lovely Farah Ann Abdul Hadi, Malaysia's top artistic gymnast for many years.