The work of the Stock Exchange

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Monograph

Identifikator:: 1831284952

URN:: urn:nbn:de:zbw-retromon-225876

Document type:: Monograph

Author:: Meeker, James Edward http://d-nb.info/gnd/126597340

Title:: The work of the Stock Exchange

Edition:: Revised edition

Place of publication:: New York

Publisher:: The Ronald Press Company

Year of publication:: [1930]

Scope:: XVI, 720 Seiten; Illustrationen, Diagramme

Digitisation:: 2022

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

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Document type:: Monograph

Structure type:: Chapter

Title:: Chapter VII. Credit transactions in securities

Collection:: Economics Books

CREDIT TRANSACTIONS IN SECURITIES 197 Effect of Short Sales on Values and on Prices.—A share of stock is simply a certificate of fractional ownership in the assets and earning power of some corporation. Let us suppose that some bear trader, believing that the shares of a copper company are selling higher than they should, sells enough of these shares short to depress their price temporarily 2 points. By this operation he has not decreased the amount of copper in the company’s mines, nor injured its mining or smelting machinery. Neither has he affected in any way the industrial demand for the company’s products, nor its earning power. The effect of his short sale has been to decrease for the time being, not the inherent equities of the company, but merely the price of its shares, which are only the warehouse certificates to these assets and earning power. Thus it is apparent that the fundamental and intrinsic value of a given share of stock may be a wholly different thing from the price at which it can be bought and sold in the market at any given time. If it were easy to determine exactly what the present and prospective value of a given stock was, there would be as little speculation in stocks as there is in bonds. But the prospective earning power of any corporation depends upon so many constantly changing economic circumstances that the inherent value of its shares cannot be infallibly determined. The market price of such shares, therefore, is simply a com- posite estimate reflecting the opinions of the keenest students of industry and finance all over the country.** The “bear raider,” as he is sometimes picturesquely but rather inaccurately called, may by his short sales depress prices for a time, but he can no more destroy intrinsic values than he can lower the temperature by putting ice on the thermometer bulb. Effect of Purchases and Sales on Prices.—Every pur- chaser of a commodity, whether of stocks or of “shoes and ships and sealing-wax,” tends to raise the price of that com- modity, since he tends to increase the demand for it and de- "3 Sue Chapter II, p. 47.

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