Spread betting – particularly shorting – is legalised theft…

Here is a comment from one long term share trader who lives the mantra of ‘buy and hold’. Spread betting – particularly shorting – is legalised theft… It is a system designed to swindle ordinary buy-and-hold investors of their life savings. Spread betting – a phenomenon barely 10 years old – penalises thrift, penalises patience and threatens the entire future of retail investment. It is using money you don’t have to lever share prices downwards to destroy the savings of honest investors. It creates and magnifies violent movements in share prices at times when calm and stability are most needed. It is the pursuit of short term greed – the antithesis of building long-term wealth. It is a cancer in the market – Mark

I disagree. The worlds ‘greatest’ buy and hold investor Warren Buffet is as sinful and greedy as any short selling spreadbetter. He doesn’t need to make money as in relative terms he hardly spends any, his investors don’t need to make money, they almost seem to worship money and the thought of making more and more of it. Who is the more sinful, greedy buy-n-hold Buffet making and accumulating money simply because he can or a private trader trying to give their family a little bit of a brighter future. You can’t get away with saying buy and hold isn’t greedy but spreadbetting is….

“Spread betting often gets poorer publicity than other means of market access partly owing to the lower barriers to entry, such as tiny capital needed to open an account. The traders who are most likely to fail are generally attracted to spread betting first: these are also the people most likely to shift blame to a third party, rather than look to their own faults!”

You can use the argument to say that going long means you are “Betting that a share price will rise”!! Just because I have the opinion that a share is overvalued doesn’t make it any less valid or less of an investment strategy than a person who thinks it is undervalued. It’s how markets work. There is nothing inherently wrong with short selling…

Personally I have no probes with debates on shorting as it aids liquidity, as without that we would have a Market with no buys and all sells. Thus, rubbing one’s hands with glee at the thought of short sellers being roasted is seriously misplaced. Firstly, short sellers contribute to market efficiency. Secondly, shorts did not create the conditions that led to banking stocks across the world being pulverized. The banks own idiotic risk-taking did the damage. Don’t blame the shorts. It must also be noted that spreads bets and are regulated financial instruments in the United Kingdom. In other jurisdictions the situation may be less clear and they are not permitted in the USA.

Note: It may not be fashionable or trendy but I think greed is good and an essential trait for human survival and reproduction. You only have to see food being handed out to starving famine hit people to see how greed plays out. The strongest get to the front of the front and the weakest pick up the spilt grains from the ground. Greed motivates us to strive for better paid jobs and better education for our kids. It motivates us to invest money to make more money. It’s what turns science discoveries into practical applications. The internet is a typical example. It’s inventor gave it free to mankind. It was the greed of Bill Gates who made it applicable to the masses. We owe it to the greedy and strongest of the world that we have improved our average age and our standards of living. But imagine how you would be vilified if you tried to set up in politics as The Greedy Party.

“Generally speaking, long-only investors tend to under-react to bad news, hence short sellers perform a useful function in causing share prices to more rapidly adjust to a sensible valuation. Playing the stock market without shorting is like fighting with one hand tied behind your back.”