You're reading from Algorithmic Short Selling with Python

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Published inSep 2021

PublisherPackt

ISBN-139781801815192

Edition1st Edition

Concepts

Financial Technology

Author (1)

Laurent Bernut

Myth #3: Short sellers destroy value

"Price is what you pay, value is what you get."

– Warren Buffett

Market commentators love to put a dollar sign on the destruction of value every time share prices tank. The net worth of Mr Zuckerberg shrank by $12 billion on July 26, 2018. Since short sellers stand to profit from the drop, they are guilty of value destruction by association. For example, George Soros is often associated with the fall of the British pound in 1995. How could one man single-handedly bring down the currency of one of the wealthiest nations on earth? He bet big on the Bank of England's unsustainable stance.

At the heart of this is a confusion between intrinsic and market values. One is value, the other is valuation. Intrinsic value is the net wealth companies create through the sale of products and services. Market value is the price market participants are willing to pay. Market and intrinsic value live in parallel universes that rarely intersect. One is hard work. The other is the fabled Keynesian beauty contest. The bottom line is that shareholders do not create any more value than short sellers destroy any.

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Author (1)

Laurent Bernut

Laurent Bernut has 2 decades of experience in alternative investment space. After the US CPA, he compiled financial statements in Japanese and English for a Tokyo Stock Exchange-listed corporation. After serving as an analyst in two Tokyo-based hedge funds, he joined Fidelity Investments Japan as a dedicated quantitative short-seller. Laurent has built numerous portfolio management systems and developed several quantitative models across various platforms. He currently writes and runs algorithmic strategies and is an undisputed authority on short selling on Quora, where he was nominated top writer for 2017, 2018, and 2019.
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