Working from my High School finance 101 class, selling stock is a way for a company to raise capitol. People buy stock with the expectation that it will go higher.
Shorting a stock turns the market into a casino. What possible good (other than the short sellers making money) comes from short selling?
Increased liquidity. Prevention of a bubble. Discovery of fraud.
Well, theoretically you could say that if a company is being shorted, it is because their failure in the market seems inevitable and apparent, and the shorters are just accelerating their failure, and freeing up the investments in that company to be invested in other companies more likely to succeed.
But that’s just theoretically, since nobody knows whether the company will actually fail or not if the short didn’t crush the life out of it, and the money the shorters make is probably more likely to be used to cause other companies to fail than it is to be reinvested in other ways.
There are two sides of every trade. For every short seller, there is a long buyer. If I as a long buyer think stock X is worth $20/share or more, and if someone (i.e., a short seller) will sell it to me for $20/share, why should I care if that seller already owns the stock or not? As a buyer, the short seller can be my friend if I’m right about the stock and he’s wrong.
When companies get overbought as in the case of tala, amazon, apple and many others that have pets that are so outrageous, he shorts come in and bring the price down to earth.
The market is nothing but a manipulated casino nowadays anyway.
In casino terms, it's like betting the Don't Pass/Don't Come line in Craps.
You win when everyone else loses.
-PJ
It allows you to force your competition out of business.
Lets say you own YY Widget company.
You have a up and coming ZZ Widget company nipping at your heels. They do things you will not, like make a smaller, stronger widget and they allow people to re-sell their widgets when they are through with them.
So you talk with your old buddy that works with a hedge fund and tell him that you know a way he can make a bunch of money.
They do a short go on CNN and spread some lies and the price of ZZ stock falls. They make more money, you get rid of an annoyance and you will be able to pick up some prime people at bargain basement prices when they are out of a job because their company collapses.
Its a win for everybody!