Short Selling Strategy -- Starting a Panic

One goal of a predatory short seller may be to cause a panic among the enemy.

Let us define the state we want to create. We want a state of fear that is so intense, so frantic, that it overwhelms and dominates thinking to create the actions we want. We want this to be a contagious group state.

So imagine the stampede for the exits when someone yells “Fire!” in a crowded theater. The audience panics and clogs the exits with bodies.

Would you not like the shareholders to panic and run for the exits by selling such that this stampede of selling at any cost drives the stock to next to nothing?

Would you not like managers to be paralyzed and not know what to do? Wouldn't you want them to stop their duties and start frantically circulating resumes?

Wouldn't you want the customers to jam the phones with requests for refunds?

Note that this has to be a sudden, overwhelming attack from which recovery is impossible. Over time, anyone can get used to anything, change, adapt and eventually recover. No! You want smashing direct hit destruction of all systems.

Note also that if the mind is totally taken up with panic, logical thought, productive thought is impossible and wild action, even that which would cause the destruction of the entity involved can happen. The people rushing to the exits can be trampled to death, not having the presence of mind to realize that they need to take other action.

Short sellers can attack various groups: target shareholders, company management, company employees, and customers. They can attack all of these at once.

What causes the type of panic we want?

Real or imagined immediate threats to survival. Not seeing any hope, being unable to move or respond, being surrounded, all are things that can cause panic. Not seeing any prospect for help or rescue. Having too much to handle. Stress. Weakness. Confusion. For unethical companies, the threat of prosecution. The fear that others will sell before you can. 

While a team can help provide its members with courage, panic is a herd disease that infects groups rapidly. Being part of a herd makes you more susceptible.

Being in a new situation makes one more susceptible.

Note also that you can have buying panics. The short sellers are panicked about their losses and want to cover at any price.

Can you protect against panic? At some level, no. Even the most well trained soldiers can fall into panic. However, good training can ward off most panic. Good leadership can stop a panic. Good leaders are immune from herd instinct.

It is interesting to me that some soldiers in a threatening situation will hunker down and fight to the death they know must come, while others panic and run (only to be killed without killing any enemies). Recall the determination of the Spartan 300 at Thermopylae.

In my opinion you find short selling opportunities when you have a bubble caused by investor herd behavior that drives prices beyond all reality, and you the find that this herd is that much more susceptible to panic on the way down. One a herd, always a herd. Herds can be stampeded.