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.
