Never before has the S&P 500 been as top-heavy as it is now.
The five largest companies by market capitalization (Apple, Microsoft, Amazon, Facebook and Alphabet) comprise more than 22% of the index. Those five companies have as much influence on benchmark performance as the bottom 363 companies combined.
In recent years, index funds have been steadily catching up with their actively managed competitors. In 2015, for example, active equity funds enjoyed £15.3bn of inflows, compared to £1.8bn for index trackers, a ratio of almost 9:1. In 2018, index trackers already saw larger inflows than active funds, but so far in 2019, active funds have shed £2.6bn, while trackers have absorbed over £2.9bn of inflows.
What do you mean with covering a short position? And what is an overshorted stock? — Benkei
GME had been shorted to the tune of about 120% of its available stock - there was more stock that had to be covered (bought) than actually exists. — StreetlightX
One of the reasons this happened was because, again, people were hedging on the company to go bust, so that no stock would ever have to be bought back, — StreetlightX
That's no problem though. If only one share is issued and it's sold twice in one day, the transaction volume was 200% of the outstanding stock — Benkei
If a company goes bankrupt its stock continues to exist and would still have to be delivered back to the lender. The stock no longer represents an equity ownership after bankruptcy but a subordinated claim. — Benkei
But we're not talking about transaction volume. And I didn't say it was a 'problem' - only that it was this situation that created an opportunity for the attempt at a squeeze that's happening/happened. Take a read:
https://www.fool.com/investing/2021/01/28/yes-a-stock-can-have-short-interest-over-100-heres/ — StreetlightX
Sure, but again, the point is still that the expected profit banks on the company going out of business. — StreetlightX
That the borrower is doing the selling really doesn't change anything. — Benkei
And if traders make money, that money must come from someone. So it's a matter of traders being engaged in a completely different activity from that of investors. And "taking advantage of", means that the traders treat the investors unfairly, because they know that the rules of the market place will allow them to do so. — Metaphysician Undercover
That money is going to come from other traders. — BitconnectCarlos
While true, not related to what we were discussing — Benkei
I think any investor guide gives you the basics for normal investing, which is very good to understand. — ssu
To be clear, I was responding to the point that overshorting is not a problem since it is equivalent to the same stocks being bought and sold in succession (volume-based). But if it were just that, there would be no situation in which someone pays for 1.4 stocks and ends up with 1 stock.
If someone bought a share at $10 dollars, sold it for $5 dollars, then bought another at $10, we'd say that person was a bit dim for paying $15 dollars for a share worth $5. The problem that person would be creating for themselves is the problem inherent in shorting that the trader risks meeting. — Kenosha Kid
I'm not sure I follow what you're saying. First of all, let me say that we were discussing shorting as actually affecting the livelihood of the people employed by the shorted company. I don't think that view is correct. — Benkei
We now have two short sales with only one issued share and no regular transactions. Is it "overshorted" because I know have a 200% short interest? I can make a chain of 100 short sellers if I want and I still don't see an issue with the activity of short selling itself. — Benkei
A trader losing money could not make a living, and would be gone from the market. But on top of this, all the losing traders, would have to be bringing into the market place all the money required for the winning traders to be making their living. So there'd be an endless supply of losing traders coming in with money for the winning traders. — Metaphysician Undercover
In reality, a lot of the money comes from investors who are forced (for one reason or another) into selling at a loss. — Metaphysician Undercover
An investor might think that taking a margin is a smart and profitable way to invest. But if we consider the reasons why an investor would sell when the market is down, the call to cover the margin when the market does drop from an unforeseen event, is reason number one. — Metaphysician Undercover
Still, you cannot avoid the fact that huge market drops are perpetuated by traders then, and there is still a significant number of investors who are forced to sell low, due to prior commitments or whatever other reason, and companies are forced out of business, and the loses from these investors are supplying a lot of money to the traders. — Metaphysician Undercover
Shorting by a large company would send a signal to the market that the target stock is expected to decline. The market runs on moods, right? So the stock declines because it's expected to, and the target company now has a diminished ability to pay for marketing, securing talent, planning for the future. — frank
I think the issue is that two people are contractually obliged to buy a share but there's only 1 share available. And assume that you buy back this share from the person at the bottom of the chain and return it to the original owner. Now the person who borrowed the share from you owes you a share, but there's no share left to buy. — Michael
TLDR: If you're using margin you're speculating so if you get stopped out or liquidated don't come crying that "speculators take money from investors" because by using margin you're speculating. — BitconnectCarlos
No of course not. Buying a house is a different issue. I — BitconnectCarlos
When you use leverage you must know there's always a chance of being forced to sell. — BitconnectCarlos
It would actually be really dumb to buy a house in cash — BitconnectCarlos
I think the worst thing the left could do would be cheerlead this, then drift away when the fallout happens. — csalisbury
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