Rat in Broth
Matt Levine's daily commentary on financial matters frequently makes me giggle. Here is a particularly good one:
“Rat in Broth Wipes $190 Million Off Restaurant Chain’s Value” is the unappetizing headline here: Shares of Xiabuxiabu Catering Management, a Chinese public company, lost 12.5 percent of their value in two days after, you know, Rat in Broth. Rat in Broth will do that. (There’s a picture.) But the thing about Rat in Broth is that anyone could put a Rat in Broth, leading at least one person to speculate on Twitter about the possibility that this could be “intentional share price manipulation.” [ … ]
One thing I will say for short sellers is that many of them really do believe their (standard, correct) claims about their role in financial markets: that they make markets more efficient, deflate bubbles, root out fraud and delusion, and generally make the world better with their unpopular and negative activity. They see it as a noble but misunderstood calling.
Obviously you could approach short selling in a totally different way: You could short a perfectly good company and then try to blow up its factories, murder its executives and put rats in its broth. This would be strictly inefficient, not only from a financial-market perspective but also from a product-market one: If this was really how short selling worked, then all our cars would fall apart and all of our broth would have rats in it.