Do You Believe in Magic? (Part2)

Apparently the SEC believes in magic, too.

Their top economist is stepping down after the agency rejected his staff’s study and adopted short-selling restrictions. In spite of there being no evidence that short sales can take down otherwise healthy companies, the SEC restricted them because, as they said, they “undermines confidence.”

I’ll tell you what undermines confidence: having politicians artificially support stock prices. If I can only buy a stock at a price that some bureaucrat determines is fair, I’ll just keep my (and my clients’) money at home.

Short-selling is the free speech of the financial markets. It allows participants to express a negative opinion. And just like free speech, it’s most unpopular when things really stink.

But it’s not black magic. You can’t cheat an honest man and you can’t undermine a sound balance sheet. In time, the truth of every business comes out. If you short a solid company and they keep on reporting growing stable and growing earnings, you’re going to lose money.

That’s why sound companies never fear shorts. And a free market doesn’t fear the Dark Arts.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By |2017-07-17T12:35:20+00:00March 10th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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