Short sellers play important role in separating wheat from chaff
These investors can help identify firms with unsustainable or irregular business practices, writes Sean Peche
Embrace short sellers" is my message to those who are up in arms over Viceroy’s report and short position in Capitec, and here’s why. The sole purpose of markets is to allocate capital between those parties with excess cash (investors) and those companies needing cash. It is neither in the interests of investors nor society as a whole to have capital allocated to firms that have questionable or unsustainable business practices, or have accounting irregularities and/or are scams or frauds. Short sellers help sniff out these companies. Furthermore, I would argue that short sellers are even more important these days because, given the rise in popularity of passive funds, the longer potentially unsustainable operations are left unchallenged the more of society’s money becomes passively invested in the firm. From 1999 to 2001 I researched short positions for a South African-based hedge fund. We did work similar to Viceroy’s when researching our short positions, which included African Ban...
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