In defense of short selling

[@1234doawee]

The disconnect between politicians and experts has always been wide... but these days is getting insane.

[@MarkMeldrum]

Experts practice, politicians pander.

[@mikecogan5428]

@@MarkMeldrum Totally stealing that

[@josephkarogo-amethystinsur7247]

Me too!!

[@willburke7969]

A few of my bewildered friends need to give this one a watch ! Always great from the wonderful MM

[@angelohunter5329]

Hey Mark. It would be cool if you did "portfolio reviews" or something like that. I would love that!

[@jenniferguzmancortes6030]

Hello Dr.Meldrum, I love watching your videos. I'm not in the field of finance or CFA work, but everything you post is very interesting. I was wondering if you could make a video on Cryptocurrency and the analysis you have on it. Thank you!

[@AK-cq5bf]

Hey Mark - completely irrelevant to the vid but just received my level 3 and passed and wanted to pass along a note of gratitude for your help throughout this process. Couldn't have done it without your program. Cumulatively I may have spent more time with you than my wife in the past few years lol...

[@MarkMeldrum]

Congrats! Next stop - the charter!

[@joelmartin82]

Always fantastic.

[@Chessmapling]

I agree that short selling is not inherently evil, but the fact that multiple brokers halted trading on certain stocks is really what has angered people and is completely justified in my view. What use is there in studying the dynamics of a free market when the market’s not free?

[@sonnyt7235]

Thanks for this. Was in disbelief the past week with cries that short selling are an evil thing.

[@timothybracken1728]

once again , well put together and concise insights! ty Mark , especially the last point..

[@pjmanuel2911]

@Mark, what happed to the video you posted about the improved December results :-) i wanted to watch

[@stacyliddell5038]

Amazing content as always. The number of people who I've heard say short selling adds no value to the financial markets is crazy.

[@njoro414]

Mark is always on point

[@freddyflores6608]

Brilliant as always, Mark.

[@Pikachu_invest]

Hello Mark, I wonder if you could make a video on the quick run up of the 10Y US T bond to 1.5% and how the markets reacted on it. I do not fully understand how there has been a sell-off on the equity markets due to "rotation" and this rate has still been holding up to 1.5%. Shouldn't the new attractiveness of these bonds yielding 1.5% drive that same yield back down derived from higher demand ? What can the FED do on this regard, increase even more their share of every bond issuance ? Would be also good to hear about what levels of rates could sustain current very demanding p/e p/sales levels we see on these markets! Best regards and thank you !! H

[@xMohJeex]

Always useful... Thanks for the explanation.

[@davidvanbeert455]

Hey Mark, appreciate everything you're doing! Could you do a follow up explaining how settlement & naked selling would work? (DTCC and all that good stuff)

[@jayliu645]

Thanks for the video. Any thoughts on the magnitude of the stock price change due to this options chain effects VS the genuine stock supply on demand? For example, if Apple's price goes up by 10%, some of them are due to the higher demand, but others might due to this options chain effect, which caused the scarcity effect, as you mentioned. Thanks. Ning

[@juniormedina7557]

Hello professor, I have a question regarding your strategy regarding falling market. I remember back in may you said that when there are huge market swings experience makes a lot of money and inexperience loses a lot of money. With this being said what did you do back in March 2020 to manage your portfolio? Or is it simply selling a lot of ITM Calls and selling puts? Thanks !!!

[@eugeneh42]

Tried to explain this to my finance professor yesterday. But she stuck to her guns saying that "hedge funds who short" are evil

[@MarkMeldrum]

Well, there are some simple minds out there.

[@SwiftySwiftt]

@@MarkMeldrum a lot of them, sadly...

[@_Sam_-zh7sw]

Before i went to university i used to read conspiracy theories. Finance always made its way into this kind of stuff....so back then i used to constantly update my social media about how everything is broken....then and till i finished my university and joined a bank my perspective about system completely changed.....my initial reaction to GME was to defend finance practices and try to prove everyone that the markets are not rigid. Then Robinhood halts open market trading. Now the interesting thing is that similar event happens in Indian agri business where big merchants are capable to control prices....and in both situations i had very different opinion....in GME saga i wanted to defend the market and in Indian agri situation i sided with farmers and hated the merchants

[@KvN-07]

Hi Dr. Mark, thanks for another wonderful video. I'm having second thoughts about the second short seller not being guilty of what is going on in the market. If people from reddit notice that the short interest was higher that 100% percent, why shouldn't be the second short sellers be aware of that too? I mean, if those guys were charter holders, couldn't cfai punish them for doing something harmful, yet legal, against the market?

[@adelinogomes4687]

Hi Mark - Any update you can provide on your cash position? Jeremy Grantham (GMO) mentioned a few weeks ago in a Bloomberg interview that "You can't maintain this level of near ecstasy...because you've put in your last dollar...you can't borrow anymore money." Would love to get your thoughts.

[@Xangr8]

Insightful. Appreicate the video. Thank you.

[@kennyllang9107]

Hello Mark, thanks for the great video. We didn't really get to hear your thoughts on naked shorting, when the shares are sold without being borrowed. This seems to be what was going on with GME on a large scale, with the consistently high Failure-To-Deliver rates for many weeks. This practice seems to be rampant among hedge funds, with an executive recently coming out defending naked shorting, saying borrowing shares don't make sense due to the high interest rate and that all hedge funds do it. Would appreciate it if you could share your thoughts on this and how this affects the healthy functioning of the markets. Thanks!

[@Therapy44me]

Professor, can you please provide a link or an article about the Chinese shorting you mentioned at the 8:10 mark? Thank you for all that you do!

[@Therapy44me]

Nevermind, found this. Would still appreciate any readings or sources you like. en.wikipedia.org/wiki/Early_21st-century_Chinese_reverse_mergers

[@FB-tr2kf]

muddywaters

[@marketmaestro4089]

@@Therapy44me there is a great documentary on Hulu called "The China Hustle" about this

[@jasvinderkaur2143]

Hey Mark! I've my exam for level 1 on 18th Feb and there is still no information about exam hall tickets? Are they not going to issue hall tickets? You know something about this?

[@evanlebzu1]

Hi Mr. Mark, can you please make a video about your opinion on BTC. I heard you once say, it's not the only crypto. what do you think will happen next? a government action you feel is more probable now, because as you say for hedge funds, if you don't want regulation stick to your own crowd. more and more people/companies has a growing stake now, it really threatening the well being of the market, no?

[@Liverpoolaussie21]

Always makes me think of taleb’s skin in the game book.

[@raxitkaria]

Thanks for the sanity in the stupid to the moon world😊

[@ManicMovesDrowsyDreams]

That phrase annoys me too. At least it seems some on WSB want to educate themselves and others.

[@packerfanbd1995]

How can we get politicians to watch this video so they can understand. Great video as always!

[@dzafrilhafez1256]

thank you sir

[@Justicewarrior795]

Naked shorting is just plain illegal and immoral.

[@Game-yl2lh]

Would you please activate subtitles. I am a non-native speaker/hearing impaired which makes it very difficult to understand language in general (even with hearing devices). Thank you!

[@MarkMeldrum]

Click on cc on the video player.

[@meghnagupta7268]

Hello sir, im cfa level 1 candidate and gonna sit for the exam on 24th feb, im done with the revison website ques and scoring 65 to 70% on mock. Left 2 cfa institute mocks for the last week,. Given all this.... Im very confused at this point what to do and what not.. While revision i start getting distracted and sometimes i feel that I've do ques and not supposed to revise from text again and sometimes i ferl ive to revise text more. Please guide me sir!!

[@michaelguglielmo3280]

Mark - Question: Continuing with your example of how > 100% short interest can be created. Let's assume a company has > 100% short interest. That assumption also must mean that there is > 100% of the float in long positions. Are new share actually created? Thinking about it from a long holder's perspective with voting rights, does the company accept votes from the rehypothecated longs? Further, it seems like if there are 2M claims to 1M shares then half the people don't actually own anything of value. How can long positions in excess of the initial float be delivered in the settlement process?

[@MarkMeldrum]

The vast majority of shareholders don't vote their shares in most cases. There can only be votes based on the float. If a fund plans on voting, then any borrowed shares must be returned. That results in a forced buy-in. As for owning anything of value - how do you know any of the shares you own were not borrowed shares? You own something of value regardless - a claim on any gains and the responsibility to cover any losses.

[@michaelguglielmo3280]

@@MarkMeldrum To the first part - In your example in the video let's say that the initial 1M shares shorted were bought in because the lender wanted to vote. How about the 1M shares that the short sold to? Now there are two individual people who think they each own 1M shares and believe they have voting rights (so there's 2M shares long). But the company only has 1M float. How is this reconciled? To the second part - if the corporate charter says there are 1M shares outstanding but there are 2M claims to it, then why wouldn't the value of the shares in the mkt be 1/2 the value based on the number of shares outstanding? I am not aware of any resource that provides total # of long claims and total # of short claims, but it seems like financial crisis material when people who are way down the chain start to wonder what they actually own.

[@michaelguglielmo3280]

Thinking about it a little more I think I understand. If the initial long wanted to vote, then the short would have to buy-in 1M shares, and in our simple example the only place they'd have to buy them from is the long that they sold to.

[@MarkMeldrum]

The net shares are still 1M. 2M long + 1M short = 1M. So I don’t see why the price would be 50% lower.

[@michaelguglielmo3280]

​@@MarkMeldrum The answer I think I was looking is that if the 1M long wants to vote, the 1M short has to cover, and in our simple example the only place they have to buy from is the 1M longs that they sold to. If that is not correct please let me know. Otherwise, getting a chance to write it out and ask helped me think it through. Thanks!

[@Alaris101]

Thanks for the summary, Professor! I agree that informational efficiency requires the ability of players to profit from dropping prices in order to look for the new information, however how do you look at the impact of organized institutional shorting combined with disseminating misinformation (kzbin.info/www/bejne/jH7YdpypaMesj5Y), on the companies themselves. In the case of Nikola short seller research brought prices down to reality, however Tesla was pressured by short sellers over the years to the point of not having affordable access to capital from the market. I guess you could argue that this was a stress test they passed, but I'm pretty sure there were non-fraudulent companies that didn't. Obviously the benefits you outlined outweigh the impact of such cases, but is that a side effect we should accept or di you see a way to reduce it?

[@gonzaloortizolave6175]

Hi Mark, I've noticed you have deleted one of your last videos regarding the December test results and thoughts on CBT, I was very interested in watching it, are you planning on uploading it again? Cheers!

[@sagardalvi2686]

Hi Sir, I had previously registered for June 2020 exams and later re-registered for May 2021 Level 2 exam but I haven't scheduled an appointment for the dates between 25 may - 1st June. I want to defer my L2 exam to August 2021 because I have another exam to give in May 2021. Is it possible to do so? if yes, how?

[@MarkMeldrum]

Not possible.

[@sagardalvi2686]

@@MarkMeldrum Thank you for the help Sir

[@andraswallner1885]

While I completely agree with you about the beneficial nature of shorting, I have to disagree with the point stated around 6 minutes. In your examples, a company having a 1 billion market cap and a 50% short interest will have 150% long exposure (given those shorting have sold the shares borrowed). As such, if they company goes bankrupt, indeed the shorts will have made 500 million, but the longs lost 1.5 billion. As such, the net loss is still 1 billion regardless of the level of short interest - it's only the distribution of P&L that will be impacted. Apologies if this has already been raised in other comments. Please let me know if I missed something.

[@caiobgomes]

Totally agree...

[@guyinaplace]

No, longs lost 1bil & shorts made 500mil. Net loss offset by half

[@guyinaplace]

The original shares the "shorts" here you speak of have to sell came from not their own long position. That's just selling your share on the open market. If you want it sold short you have to borrow shares from your brokerage or someone else, they sell it and you pay them back with a share.

[@andraswallner1885]

​@@guyinaplace I never stated that the shares sold short came from people's own long positions (that would be called shorting against the box and has a very different purpose). However, when you borrow a share and sell it, your short position is matched by an identical new long position. Imagine the example of a hypothetical company with 2 shares, each with a price of 10. You sell short 1 of them. Now there are the original 2 shares + your short + a newly created long (by the person to whom you sold). Net-net there still will be 2 shares: by having 3 shares long and 1 short. Of course you're not printing new shares, but the new positions have this effect. You can increase the short interest to any level but there always will be 2 net shares.

[@ManicMovesDrowsyDreams]

Nothing wrong with short selling. Naked shorting is fraud. Or a hedge "strategy" lol but I think even hedge funds unintentionally naked short. Problem is there's no actual penalty for FTD.

[@wallstreetwolf7681]

You can be Naked ... And never know it. LMAO :)

[@Kitman0304]

24:27 that’s very problematic. With nowadays technology, we can’t develop a system that tracks if a specific share has been shorted or not? In the blockchain world, they have this idea about decentralized exchange which basically mean people who owns different securities put their assets in one pool, called the liquidity pool, so that we don’t need a market maker anymore. And trade can be settled faster via the blockchain technology. Sounds like something that can avoid the Robinhood clearing issue in the future

[@aero4856]

There is nothing wrong with the tool itself. It's the corruption and cheating behind it that's the issue.

[@mikecogan5428]

short selling doesn't kill people, people kill people

[@TheAthithya]

volumes is very low in all your videos, please see what you can do to improve it thanks

[@MarkMeldrum]

Its not my videos - its your device. Either raise the volume on the player or on your device.

[@jimbeckettplay]

@@MarkMeldrum Sorry, but you are not correct here. You are soft spoken, so you need to compensate by either A. Speaking louder, or B. Investing in better sound capture equipment, or C. Adjusting your volume in the editing phase.