Quote from Option Trader:
This does NOT apply if there is an infinite amount of shares available to sell. Someone on ET gave (an extreme) example of an institution trying to short the thing to zero, or it won't happen because someone comes and buys 5 times the available shares, then when he asks for delivery, he gets nothing.
Stock prices should be valued based on convential supply & demand, not with artificial supply & demand.
Actually, stocks ARE ACTUALLY valued on their prospects for future profits (or losses). Stocks like XOM and WMT are profitable, are expected to remain profitable and expected to do at least "okay" going forward vs. the general market. Hence no so-called "bear raids" in these names.
The stocks that have been victims of so-called "bear raids" have been losing a lot of money and - more important - have very shaky outlooks regarding their future profitability. This subprime stuff used to make them a lot of money. Now it is costing them.
How are they going to stop the current bleeding? The answer is unclear.
Once they finally figure out an answer to the above -
How are they going to replace the revenue and profits that they used to earn from their subprime activities? This answer is very very unclear.
How do you value a stock with these issues? Generally, lower. And lower. And lower - until the answers become more clear.
How many times have you heard Mr. Robert Pisani blurt out "The Market HATES Uncertainty" ... ? Probably the only thing he tends to be consistently right about.
The uncertainty in these names is huge. There not much to love and quite a bit to hate, at this point, for any investor who hates uncertainty.
Anyway, that's how stocks are "conventionally" valued.
BTW - Excellent post by Mr. Keith Omalley. The sell-offs detailed in the studies cited in his post all dovetail with conventional stock valuation.
