Neither! The market needs a short element to keep the rampant herd mentality in check. If everyone is betting one way on a stock why not someone betting the other side; after all– it is the world’s biggest casino. I think in bull markets it’s much easier to identify overextended, overvalued, laggers; or even easy targets such as the mortgage insurers or investment banks than stars or market darlings. Don’t get me wrong I have favorites, and when the price drops I’m in buying them, but I still take profits off the table and wait for a new bottom.
I had two prominent investment bankers from Fortis sit in my office offering to manager short-term private equity funds not yet deployed in a portfolio of bear, goldman, lynch, lehman, ms, all of them, in October 2007 because “they hit their bottoms.” They projected 10% a month before fees and costs. I had just started shorting them at this point due to mortgage projections from a colleague and once I look at the pipeline of defaults coming down the line I jumped on board. I never thought that the entire world would lose trillions from essentially betting on our real estate market. It’s kind of amazing if you think about it. Nations were betting on the upward momentum our our wealth and property.
Short sellers are the realists in the market when it comes to overvalued & over leveraged entities. Granted they can crush a company, but isn’t that the point of capitalism, to extinguish the weak and support the strong. I mean if you believe the rhetoric of financial talking-heads and politicians when times are good you would think Adam Smith was running things, but when times are bad they change the rules– and prove the truth, that all governments are more or less socialist and protectionist. Airlines, Automotive, Banking, Defense, Railway, Oil and many more.
Policy and actions dictate reality not rhetoric.