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Author: EconDropout Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 156991  
Subject: When Traders Attack Date: 10/25/2000 11:10 PM
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Recommendations: 94
1/15/98

1,774,510,126
1,820,425,083
1,923,330,179
1,987,553,237
2,070,186,272
2,182,373,707
2,250,495,211
2,220,252,047
2,142,382,932
2,049,387,465
2,006,636,208
1,947,231,149

1/15/99
1,865,536,141
1,814,592,497
1,833,457,860
1,882,563,875
1,898,898,030
1,957,502,572
2,034,586,092
2,037,835,537
2,190,465,261
2,312,295,696
2,322,323,347
2,390,061,107

1/15/00
2,446,269,038
2,636,578,292
2,776,676,816
2,688,741,037
2,781,379,562
2,834,160,616
2,931,720,845
3,044,034,242
3,174,370,440
3,404,030,063


Look at those short numbers! These are the monthly totals for the last 3 years as reported by NASDAQ. You can make your own judgments about the effect on the market from Short sellers, but I would say that this is definitely a factor in our recent slide. Also note that in the past and until mid 1999 there was a pretty normal ebb and flow to the amounts but since then we have been pretty much setting records on a monthly basis. Bears would argue that these are still relative small numbers compared to overall float, but I say to that records are records.

Those of you that tread the boards will probably agree that lately the more vocal people are those that seem to have an interest in stock prices falling and the number of clear “bashers” has been increasing with regularity. Many of our P-boxes are filled with end of the world as we know it posters.

There are traders that will always be there to profit from falling prices and that is the market, but I think it is important to realize that if you are an investor that your wealth is being influenced by what is a growing group.

I have a real philosophical and legal problem with shorting and never do it nor will I ever do it. I will often use options if I want to hedge or make money on what I perceive to be overpriced stocks. Shorting is different. When you short, you are adding to the float by borrowing and selling shares; you in essence are creating shares out of nothing and diluting the value per share of the company. It has always seemed to me that it was wrong for individuals to create shares of a company. Isn't that solely the legal right of the stockowners? Or at least shouldn't it be?

I guess that is kind of beside the point because as it is pointed out all over the Nasdaq site today, shorting is a legitimate trading strategy. It seems as though with the now 6,000 hedgefunds and countless individuals that daytrade or swing trade on both sides that the investor is now at war with the traders. Having traders run your stock up only to dump it is bad enough <smirk>but having them actively try to lower your capital is a different story.

What do you do about it? I have no idea. They can borrow shares until they cannot barrow any more but you will run out of cash as you average down. They will drive prices down with short sales, rumors and other techniques but you can't fight rumors.

I guess all you can do is realize that all is not as it seems and that stock you think is part of a great company may not be doing well because of no fault of its own, it might be the additional float that was created.

I am a trader for the most part and probably should not be whining about the game because some of my investments are not working out in the short term, but I do think it is important to point out a trend that is going mostly unnoticed in the financial press. There are extremely large amounts of people that are invested in the market that don't even know what short selling is all about. They just see their portfolios decrease.

The Fool is a big place so do everyone a favor and recommend this post so that people here can see the alarming trend that has taken hold this year.

The acronym F(fear)U(uncertainty)D(despair) has been seen all over the net lately and I think it is related to this trend.

Good luck and remember those shares always get called back.
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