I posted an article on the morality of short selling several months back. I recently listened to a podcast on the topic on NPR’s “Planet Money.”
It starts out with an Herbalife conference call. Herbalife is a company that sells weight loss shakes, vitamins, etc. The company is doing well and reporting good numbers during the call.
Next, David Einhorn, a renowned short seller gets on the conference call with Herbalife. He asks how many final sales are made outside of the network. After asking these questions, the stock fell 20%
Following this, Bill Ackman took a billion dollar short on herbal life, driving the price down again. Ackman, in later interviews went on to call Herbal Life a Pyramid Scheme. Herbalife’s Michael Johnson defends the company and said Bill Ackman is in the wrong. When a large short is made, the sheer volume is likely to lower the price. The fact that Ackman’s short was announced could further affect the price. This is where Herbalife’s Michael Johnson sees the wrong in his activities.
The story again brings up the idea of the morality of short selling, since the actions drive the prices.
It’s a good broadcast. Exactly 17 minutes, take a listen.