Should we abolish shorting?
That's what a reader asked recently in an email sent to me, Jim Cramer, and Lord knows how many others. Here's the reasoning:
"All investors will be on the same side and the reason I am sending this email is when the stock market goes down you see thousands of nasty bashers try to attack every single stock on Yahoo message boards ... GOD PLEASE HELP US BUILD AN IDEAL SYSTEM FOR AMERICA."
Really, really bad idea. Here's why:
1. When we're all on the same side, the market becomes perfectly efficient instead of mostly efficient. And then no bargains are left for any of us.
2. When everyone's a bull, fraudulent firms don't get held to account. Thank God for the skeptics who have the courage to look under the hood.
3. When bashers attack unreasonably -- yes, they sometimes do -- they offer a gift to patient investors. Check the Reg SHO list and you'll see what I mean. Cal-Maine Foods has doubled over the past year.
I've no doubt that we can always do better in protecting individual investors. But asking us to stop shorting, or to be "on the same side" of every trade, isn't the answer. Not even close.
Of course, that's just my opinion. What do you say?