Speculating that prices are too high is as natural (and necessary) a part of any well functioning market as speculating that they are too low. For stocks downward speculation is called "short selling" and it has often been the boogeyman of regulators and politicians who want to score cheap political points based upon people's ignorance of how free markets work and which come at the expense of the market's function as a whole.
Consider: what would happen to stock prices if short selling were outlawed? With no countering force to long speculation, stock prices would on average be too high, and in specific cases (eg, the GME long side manipulation we saw a while back) certain stocks would become MASSIVELY overvalued.
Why is this a problem? Because one of the most important functions of any free market is to generate correct prices. Correct prices are perhaps the most important reason that free markets outperform centrally planned markets. It's not hard to see that correct pricing requires that speculators have the ability to express that prices are too high (by shorting) as surely as they can express that they are too low (by going long). Removing shorts distorts market pricing and degrades the ability of free markets to efficiently allocate capital.
Aside from market efficiency arguments, people often feel that banning short selling will somehow protect them because they reason their stocks will be 'less likely to go down' because the 'greedy speculators' out there 'manipulating markets' will be banished. Banning shorts will not prevent price manipulation; for example pump and dump scams like the GME fiasco will work just fine without shorts in the market (except that they become much worse). Reckless long speculators will continued to be fleeced, and investors will on average get significantly worse prices on their investments.
Consider: what would happen to stock prices if short selling were outlawed?
The exact same thing as the price of everything else? People would pay what they were willing to pay for them, and sell them at whatever price they thought was reasonable?
I don't need to have short sellers promising to sell me a stereo for $1000 at some point in the future while they wait for it to drop to $900 so they can make a profit on the sale any more than I need a scalper to helpfully buy a bunch of tickets to events and mark them up so that I can't buy one myself.
Okay, let's say I don't own stock in XYZ corp but I've done my research and have reason to believe they're really dropping the ball. I believe the stock is overvalued, and I want to express that belief. Without the ability to short sell there would be no way to do that; no way to signal to other market participants (and society at large) that the price is too high.
I think maybe you're underestimating just how HUGE a problem that is. It means market pricing *cannot *accurately reflect the true valuation of a company. Accurate valuation (insofar as that is possible) is perhaps the most important product of a free market in that it allows capital to be directed most efficiently and protects people from paying the wrong price.
Continuing our example, let us say that my speculation is correct and XYZ really is overvalued. The corporate officers almost certainly understand that and so they decide to issue more shares at the inflated price. People who buy those shares are really screwed. Capital will be badly allocated because there was no way for the price to accurately reflect all known information about the company. Badly allocated capital is a negative for all of society.
any more than I need a scalper to helpfully buy a bunch of tickets to events and mark them up so that I can't buy one myself.
Let's say your dastardly scalper buys all the tickets to an event for an average of $50 a piece and manages to sell them all at an average of $100 a piece.
Now, this is getting long so I'll just leave you with a couple of questions. First, what is the real value of those tickets? Second, can you see what the downsides are of the tickets selling at the wrong price?
Speculating that prices are too high is as natural (and necessary) a part of any well functioning market as speculating that they are too low. For stocks downward speculation is called "short selling" and it has often been the boogeyman of regulators and politicians who want to score cheap political points based upon people's ignorance of how free markets work and which come at the expense of the market's function as a whole.
Consider: what would happen to stock prices if short selling were outlawed? With no countering force to long speculation, stock prices would on average be too high, and in specific cases (eg, the GME long side manipulation we saw a while back) certain stocks would become MASSIVELY overvalued.
Why is this a problem? Because one of the most important functions of any free market is to generate correct prices. Correct prices are perhaps the most important reason that free markets outperform centrally planned markets. It's not hard to see that correct pricing requires that speculators have the ability to express that prices are too high (by shorting) as surely as they can express that they are too low (by going long). Removing shorts distorts market pricing and degrades the ability of free markets to efficiently allocate capital.
Aside from market efficiency arguments, people often feel that banning short selling will somehow protect them because they reason their stocks will be 'less likely to go down' because the 'greedy speculators' out there 'manipulating markets' will be banished. Banning shorts will not prevent price manipulation; for example pump and dump scams like the GME fiasco will work just fine without shorts in the market (except that they become much worse). Reckless long speculators will continued to be fleeced, and investors will on average get significantly worse prices on their investments.
The exact same thing as the price of everything else? People would pay what they were willing to pay for them, and sell them at whatever price they thought was reasonable?
I don't need to have short sellers promising to sell me a stereo for $1000 at some point in the future while they wait for it to drop to $900 so they can make a profit on the sale any more than I need a scalper to helpfully buy a bunch of tickets to events and mark them up so that I can't buy one myself.
Okay, let's say I don't own stock in XYZ corp but I've done my research and have reason to believe they're really dropping the ball. I believe the stock is overvalued, and I want to express that belief. Without the ability to short sell there would be no way to do that; no way to signal to other market participants (and society at large) that the price is too high.
I think maybe you're underestimating just how HUGE a problem that is. It means market pricing *cannot *accurately reflect the true valuation of a company. Accurate valuation (insofar as that is possible) is perhaps the most important product of a free market in that it allows capital to be directed most efficiently and protects people from paying the wrong price.
Continuing our example, let us say that my speculation is correct and XYZ really is overvalued. The corporate officers almost certainly understand that and so they decide to issue more shares at the inflated price. People who buy those shares are really screwed. Capital will be badly allocated because there was no way for the price to accurately reflect all known information about the company. Badly allocated capital is a negative for all of society.
Let's say your dastardly scalper buys all the tickets to an event for an average of $50 a piece and manages to sell them all at an average of $100 a piece.
Now, this is getting long so I'll just leave you with a couple of questions. First, what is the real value of those tickets? Second, can you see what the downsides are of the tickets selling at the wrong price?