Mark Cuban on (Naked) Shorting

Your boy Cubes (as the guys on PTI would say) just wrote a little dissertation about short selling on his blog. The post is mainly about naked shorting but also has comments about just plain old, legal, shorting as well. I basically agree with everything Cuban has to say. Here are some key points:

I also believe that since short selling is rarely if ever offered as an option by traditional brokers to their customers, there is always going to be a bias towards demand trying to push the price of a stock up. That in turn creates an opportunity for short sellers who get to take advantage of that upside bias.

[SNIP]

The more shorts, the more shares shorted, the more pent up demand there is for the stock. For a company that is well run and operationally successful, short shares are like an insurance policy to protect the downside for the price of your stock and more likely push the stock price ever higher. When we had broadcast.com I used to beg people to short our stock. If they didn’t like what we were doing I would actively suggest to them that they short the stock. Sure, it might have slowed the rise of the stock in the short term but who cared. I knew we were going to be able to hit our numbers, so why not. If we did our jobs, it just meant they would have to cover the stock and in a down market, that helped keep the price up and in an up market, that could cause the stock to run. Both very good things.

Which leads to one of the things I look for when I short a stock.

The louder a company complains about the shorts, the worse the company. Companies bitching and moaning about shorts trying to hit their stocks are companies that are far too worried about their short term stock price and are looking for an excuse to give their shareholders. [read the whole post...]

There’s also a heated discussion in the comments section of that post. It looks like Mark and some dude named Bob are going to debate this topic on pay-per-view. ;-) He also has a follow-up post about Naked shorting.

Comments

  1. Posted by Eric on March 1, 2005 at 4:23 am

    Did you ever review your reading of William O’Neil’s book on shorting stocks? Was wondering what you thought of it.

  2. Posted by Michael on March 1, 2005 at 7:58 am

    Eric,

    The review is linked above, in the “possibly Related Posts” section. See the “Trading 101: Recommended Reading – ‘How to Make Money Selling Stocks Short'” link

  3. Posted by Don Aretis on April 4, 2005 at 9:06 pm

    The abusive practice of complaining about naked short selling should be thoroughly examined by the SEC.

    Petition Against Petitions Against Naked Shorting
    http://www.freedomfunds.net/papans.html