Is short selling ethical?

Question

Monkeys, I was going through this article on Roger Ackman's Pershing Square Capital Management: http://www.newyorker.com/magazine/2017/03/06/fina…

The author mentions that "Short sellers are generally reviled by corporations as malevolent opportunists" but Ackman thinks it as a way to fight evil.

I think short selling, and in fact public short selling, where you share your concerns in a public way, is an incredibly healthy thing, not just for the capital markets but because the regulators do not have the resources to find these things.

What are your views?

TheFamousTrader · Accepted Answer

"jankynoname"

I don't have an issue with short selling itself, but I do think that individual HF analysts tend to act in an unethical fashion when they solicit information from company management teams. When the hedgies are meeting with a CFO/CEO at a conference, the company generally has no idea whether they are investigating a long or a short idea. Often you can tell from their line of questioning which side their thesis is leaning but I'm not sure the management teams/ IR's pick up on this.

TheFamousTrader · Answer

"...particularly when they may be inhibiting the firms' ability to raise capital at more attractive rates".

Yes, completely agree. But one might argue if short-sellers get nitpicked out of a cohort of investors with whom management completely refuses to talk, then the only remaining approach is Ackman's approach - i.e.

TheFamousTrader · Answer

If anything, in theory the existence of short-sellers should make for more efficient markets since it makes prices revert closer to their true fundamentals than just letting the long only funds be. It is also very clear why company management teams don't particularly like them - often they would attack the management's integrity (if it's an accounting / fraud based short) and it also makes their options / stock take a dive.

There's also truth that certain types of shorts can be malicious (e.g.

jankynoname · Answer

I don't have an issue with short selling itself, but I do think that individual HF analysts tend to act in an unethical fashion when they solicit information from company management teams.  When the hedgies are meeting with a CFO/CEO at a conference, the company generally has no idea whether they are investigating a long or a short idea.  Often you can tell from their line of questioning which side their thesis is leaning but I'm not sure the management teams/ IR's pick up on this.

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Is short selling ethical?

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Is short selling ethical?

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