Don't Blame the Shorts

One thing you can always count on during market corrections is that there will be a rush to assign blame for the poor market to things other than just the normal business cycle. Rather than simply accept the fact that the market goes through periods of boom and bust, we hear how if it wasn't for this or that, we'd be booming and hitting new highs.

In recent months we have been inundated with diatribes about how the incompetent government has caused all our woes and if we just listen to the pundits who have been losing money all year, it would be smooth sailing.

The latest excuse I'm hearing for this poor market is the demise of the uptick rule, which required shorts to wait for a stock to trade up before they could short it. The argument is that shorts now have free rein to drive the market down anytime they please.

The foundation for such arguments is the bias against short-selling that many permabulls harbor. In the world of these folks, anyone who bets on price declines are evil, while those who only think the market will go up are good and holy and true.

I suspect the demise of the uptick rule has helped increase intraday volatility, but that cuts both ways. If shorting is easier, it also means that short squeezes are more likely. What is particularly silly about the complaints is they often come from those who claim to have a longer-term view of the market. If anything, the ability of shorts to be more aggressive should be seen as a good thing by investors who like to average down into their favorite stocks. If you want to keep on lowering basis, you should be happy if shorts provide some short-term pressure.

Blaming short-sellers for a bear market is simply sour grapes and a failure to recognize that markets are cyclical.

None.

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James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.