10 Classic Myths About Short Selling
Since the 1975 movie Jaws, whenever we get in the water, we all have this instinctive apprehension about what swims beneath. Sharks are unparalleled killing machines. They have a better detection system than the most technologically advanced sonar. They swim faster than speed boats. They have three rows of razor-sharp teeth that continuously regrow. Yet, did you know that deep in the comfort of your home, somewhere in the dark, there is something a thousand times deadlier than any great white? There are, on average, 80 shark attacks every year, mostly exploratory bites and mistaken identity. Meanwhile, falling out of bed carries a far greater probability. Sharks are majestic creatures. If they wanted us dead, we would be. Apparently, they don't like junk food.
Short sellers are like sharks, a little less majestic, but still vastly misunderstood and not as deadly as you might think. You know you have a bit of a reputational issue when your brethren, in allegedly the most reviled industry, would still gladly sharpen pitchforks at the single mention of your profession. In this chapter, we will debunk 10 of the most enduring myths surrounding short selling:
- Myth #1: Short sellers destroy pensions
- Myth #2: Short sellers destroy companies
- Myth #3: Short sellers destroy value
- Myth #4: Short sellers are evil speculators
- Myth #5: Short selling has unlimited loss potential but limited profit potential
- Myth #6: Short selling increases risk
- Myth #7: Short selling increases market volatility
- Myth #8: Short selling collapses share prices
- Myth #9: Short selling is unnecessary during bull markets
- Myth #10: The myth of the "structural short"