Key Insights Into Short Selling

Specialized expertise--particularly medical expertise--is not unique to short-sellers ("The secret world of short-sellers," Cover Story, Aug. 5). Virtually every Wall Street brokerage firm employs one or more former physicians or scientists as research analysts to evaluate biotechnology and health-care stocks. So do many "long-only" investment institutions, including Dreyfus Corp. and Alliance Capital Management.

Great investment research--both on the long side and on the short side--results from leveraging that expertise with shoe leather. Emotional responses, such as those of the short-sellers who "despise" and brokerage analysts who "love" a particular stock, can trip up even the most diligent analytical efforts.

Teena L. Lerner

Riverdale, N.Y.

Short-selling, like long-term investing, is nothing more than taking a position on a security--based on an informed opinion--and waiting to see if you're on the right side of the trade. It is for this reason that regulatory agencies spend countless dollars ensuring that brokerages include the key phrase: "There may be a loss of capital trading securities" in every disclosure document, whether account application form, advisory newsletter, or fund prospectus.

M.J. Rollo

Senior Investment Strategist

International Offshore Investments Group Inc.

Vancouver, B.C.

Heavy short-selling shifts the supply curve to the right, so it crosses the demand curve at an artificially low price. That's how short-selling hurts stock prices. If shorts try to close their positions all at once, there isn't enough stock and the price goes ballistic. That's how it causes price volatility. We don't need anybody monkeying with the supply curve. The article was an annoying whitewash of an unnecessary practice.

Erwin Aldinger

Glen Mills, Pa.

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