Some of the market's biggest bears stayed in their dens through Monday's stock plunge, as Wall Street's "short" sellers found their investment strategies conveniently coincided with patriotic virtue.
Amid a grass-roots movement encouraging people to buy stocks as a vote of confidence in the U.S. market after last week's terrorist attacks, short sellers--who bet stocks will fall in price--say they largely remained on the sidelines as the market dived.
Several investors said it was technically difficult to make new short sales or add to a short position because the market fell immediately at Monday's opening. In a short sale, an investor borrows stock (usually from a brokerage) and sells it in the market, expecting to buy it back later at a lower price.
In fact, some short sellers said they were buyers Monday, as they closed out previous short sales--locking in profits on beaten-down stocks in industries such as airlines and lodging.
"Most people won't short into this kind of hole. Any good short seller shorts on rallies. These are the days that shorts cover" their positions, said Mark Strome of the Strome Susskind hedge fund in Santa Monica.
In addition, many short sellers say they are being cautious because the market is so volatile and unpredictable in the near term.
Short sellers have been bracing for scathing criticism that they are vultures exploiting the tragedy by making money on any market downturn that results from last week's attacks.
Those feelings were exacerbated over the weekend by reports still being investigated that Osama bin Laden himself may have joined the ranks of short sellers by betting against European insurance stocks just before the attacks.
In addition, a comment last week by Securities and Exchange Chairman Harvey Pitt--that "the goal of all of us here is to have a market that most closely approximates a normal trading environment" when trading resumed--was interpreted in some news reports as a sign that the SEC might try to limit the short-selling practice.
But SEC spokesman John Heine said Pitt meant the opposite: that the SEC would be hands-off, allowing short sellers to trade as they choose.
"There seems to this attitude out there that short sellers are evil and unpatriotic," said David W. Tice, manager of the short-oriented Prudent Bear Fund in Dallas and publisher of the Behind the Numbers newsletter.
But short sellers contend that they fill an important role in exposing stocks of companies whose prospects are overblown.
Manuel P. Asensio, chief executive of well-known short-selling firm Asensio & Co. in New York, went so far as to put out a news release last week defending the strategy.
Short sellers, he said, target companies and stock promoters that tout over-hyped and overvalued investments.
"We short a lot of stocks that are terminal--bankruptcies, fraudulent promotional securities," Asensio said. "Society is not well-served when unbridled speculation is allowed to funnel savings toward areas with questionable value. This is what short sellers challenge. Not the system, but those who abuse the system."