Always worth bearing in mind imho26 May 2019 17:42
Equity markets are structured to promote companies and encourage their valuations to rise. Brokers, shareholders and advisors are all incentivised to see shares go up. Almost nobody wants shares to fall. Even those who don’t own a given company’s stock have no compunction to see the collapse of its value. Indeed, as with all asset classes, a valuation is generally made with reference to a comparable asset, and so the rise in price of another company will by proxy increase the value of your own holdings.
To compound this dynamic, the vast majority of equity research is undertaken by conflicted institutions whose objective is to earn fees, not enlighten investors. The bias in research coverage is clear to see by the quantum of “buy” recommendations versus “sells”. Just ask a research analyst with a few years of experience about the constant pressure they face to generate optimistic investment cases. “Sell” notes are like salad - they buy no friends. And there is an army of young willing analysts ready to step into your shoes and earn a decent living pumping shares, if you want to be principled.
It is in this context that short sellers and other cynics operate. They fight against a relentless tidal wave of credulous half-truths in which bad corporate behaviour is laundered. Indeed, bad behaviour can lead to juicier fees owing to the metronomic return to the piggy bank, and so sometimes the worst companies can be the most attractive to the swarm of advisors.