Selling, Short selling, and naked short selling.

LIVE DRAFT

What's the difference, and what is the big deal. No one (sane and smart) will argue with your right to sell a stock in a free market (as long as you do not have inside information-- more on that in another post).

So if there is unequivocally no contention with the right to sell something you own outright, for any reason, why is there a bit of superciliousness associated with short selling. Why do some people think it's bad for markets (and why do we disagree).

Short selling is the act of borrowing shares for the purpose of selling something you don't own in an attempt to profit by buying the same shares back at a lower price, returning them to the owner; effectively placing a wager on the price of the shares going down rather than the conventional "long" play. Short selling is akin to playing the don't pass line at the craps table in Vegas.

Some arguments against shortselling include...

LIMITED DOWNSIDE (can't go any lower than zero, where long plays have no cap). This argument is purely theoretical.
FIGHTING A GENERAL TREND (this is true, stocks tend to go up, but this is a very general argument and does not apply to specific stocks).

Excellent blog post/discussion on shortselling and naked short selling

Sort of funny but kind of dumb daily show video on short selling

"Essentially they buy fire insurance on the company, and then they burn it down" -Patrick Byrne (he, hopefully, is just talking about NAKED short selling and was taken out of context. He is too smart to think that the mere act of selling is akin to burning the place down. Many short sellers lose a ton of money. The defense of his line would be, if you saw a building that was going to burn down anyway NO MATTER WHAT YOU DID, because it was not looked after properly, and you could buy insurance on it, would you. The answer, hopefully is yes, because not only could you stand to profit, but you might be able to warn some of the innocent people to get out of the building in time...)