Short Seller Hedge Funds Were The Good Guys In Gamestop Pissant Insurrection...,

WaPo  |  The particular targets of the GameStop crowd are hedge funds and short sellers. Here, a couple of definitions may be useful. Generally speaking, a hedge fund is a small-to-medium-size company that makes money by choosing smart investments. There is nothing nefarious about this. To the contrary, if you don’t like too-big-to-fail banks that get backstopped by taxpayers, small-enough-to-fail hedge funds ought to be celebrated. If you worry about complex financial conglomerates with corrupting conflicts of interest, single-purpose investment boutiques are simpler and healthier. On the online forums where the GameStoppers congregate, you read complaints about hedge funds being bailed out during the crisis of 2008. Actually, banks, brokers, insurers, mortgage providers, money market funds and even car companies got rescues. Hedge funds got nothing.

What about short sellers? These are specialists who research stocks that might go down, sometimes because bosses are illegally covering up bad news about their companies. When short sellers identify a case of fraud or similar, they borrow and sell the stock, hoping to buy it back at a lower price later. Again, there is nothing evil about this. To the contrary, it’s a way of keeping prices honest. A market without short sellers is like a political system without investigative journalists.

This, however, is not how GameStoppers see things. They have gone after a short seller named Andrew Left, hacking into his social media accounts, sharing his personal information online, ordering dozens of pizzas to be delivered to his home in the middle of the night, and texting his children with threatening and profane language, according to the Wall Street Journal. Perhaps not surprisingly, Left has announced he will stop playing the game. Irrational stock prices will be that much likelier.

The worry is that the GameStoppers will now target others. Short sellers operate in the open: You can check short-selling volumes for any given stock on Yahoo. By whipping up frenzied buying of a heavily shorted company, speculators can cost the shorts billions and maybe put them out of business. Already, GameStoppers are buying other beaten-down companies, such as cinema giant AMC. A Goldman Sachs index of heavily shorted stocks is up sharply this month because the shorts have been routed.

Hedge funders and short sellers are out to get rich: They are certainly not angels. But there is a difference between trading based on evidence and research and trading based on conspiracy theories and mob tactics. Over the past week, it’s been tempting to celebrate the colorful rebels — they represent the democratization of finance, the revenge against the fat cats. Now it is time to remember that truth matters.