Is Short Selling a Virtue or a Vice?
On the GameStop Saga (Continued)
Technologist and investor, Balaji Srinivasan, writes:
Economist Alex Tabarrok ripostes:
Their debate is about whether skepticism or faith is the healthier posture, a question I pose to you, not as a matter of finance, but of life philosophy.
Each thinker makes a valid point, in the abstract, with implications not just for asset investing, but existential investing (to what projects we devote our energy, time, and loyalty?)
A lack of skepticism opens oneself to being duped and incentivizes corruption. A lack of optimism and belief ensures a world of despair, stagnation, and fatalism.
I tend to think of skepticism and faith as temperamental qualities, not virtues or vices. But I lean towards Srinivasan’s way, here. Even if shorting makes rational sense, I think we should err towards going long. Nondualists will say that creation and destruction come together and can’t be separated. It’s impossible to bet on creation without also betting against that which stands in its way.
In Jewish theology, short sellers represent the divine attribute of Judgment (din, in Hebrew), while buy and hold investors represent the divine attribute of Love (hesed). The market price where the two meet might be thought of as Mercy (rachamim)—a blend of the two.
While the market is value neutral with regard to how much Judgment or Love we should put out, we need not be. To which approach are you more inclined? How do you find the balance? On what ideas and institutions are you short? How would the world be different if you found a way to alchemize your pessimism about others into optimism about yourself?
To riff on the Gospel: “Short not lest ye be shorted.”
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You can read my weekly Torah commentary here.
Shorting does tend to promote misanthropic traits at an individual level, but it's prosocial overall: short-sellers act as a check, because charismatic revolutionaries and charismatic con artists can both appeal to the same people. For perennial optimists, VCs do seem to have good BS detectors—the biggest private company scandals, WeWork and Theranos, both raised most of their money from non-VC sources. (When people have tried to create ways to short private companies, those were the two that most funds wanted to short.)