Short and Distort

Short and Distort

Written by the Millennial Trader

Elon Musk is internationally regarded as one of the most innovative and wealthy industry titans in a generation. Elon has cultivated his companies, brands, and reputation over the years. His acquisition of social media platform Twitter is his most recent high profile venture. Since taking Twitter private as CEO, his account has become the home to numerous unfiltered, blunt, and sometimes unadvised tweets. For example, he recently reopened the conversation of the power imbalance between brokers and retail investors, essentially the story of David vs. Goliath. 

Retail traders and investors know the uphill battle they face to stay alive in the markets while competing with brokerages. When we witness a billionaire speaking out on the divide, that feeling is validated, reigniting the spark to fight back. Wall Street corruption has been evident over the last 50 years, and the smaller retail investors continue to get knocked down and deal with it, until now. Influential moguls like Elon Musk or Michael Burry are starting to focus more attention to the issue because they’re more influential compared to the voices of thousands of retail traders. 

Although the meme stock craze—like Gamestop and AMC—let retail traders capture attention, their disadvantage against hedge funds is more apparent than ever. We have only just begun to scratch the surface of the corruption of Wall Street’s, further exemplifying the insurmountable battle retail investors face trying to make money against them. In tweets, Elon specifically touches on corrupt acts hedge funds partake in, known as the “short and distort” tactic. Elon claimed that hedge funds use short selling to take advantage of retail investors; this was evident with Gamestop in 2021. 

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Elon described “short and distort” as hedge funds planning to short a company. First, they will conduct negative publicity campaigns (aired to the public through mainstream media) intended to drive the stock price down, only to cash out, collect the profits, and repeat (Franknez, 2022).

You might see the campaigns published on mainstream media outlets where hedge funds have some influence, like the Wall Street Journal. Once news hits the public, it’s only a short time until it scares retail investors out of their money. So, next time you see a stock start to take a lot of heat, with news published all over major media outlets, choose to hold off selling and do some additional research. 

Retail investors should also beware of the “pump and dump” strategy, which is the opposite and equally manipulative version of the short and distort tactic. The “pump and dump” tactic occurs when hedge fund managers endorse campaigns to positively influence an underperforming stock to drive the price up. Ultimately, as people buy more (assuming it will continue to rise), hedge fund managers will cash out and sell at the right time (dump) and pocket their tidy profits. 

Sounds illegal? Unfair? Unethical? Welcome to the stock market. Nevertheless, we could be moving in a positive direction because big names like Elon are beginning to air some of Wall Street’s dirty laundry. The more people discuss hedge funds’ fraudulent and unethical behavior, the SEC (who refused to comment on Musk’s tweets) will eventually be forced to take action. 

These claims are not new. Elon Musk is simply the most prominent to point out this behavior. He admits to being more of a guiding voice. Advising people to put less trust in mainstream media outlets and look for the information elsewhere, on less regulated media sites such as Frankez.com and Nezmediacompany.com for market news and retail updates. 

Over the last decade, many people have criticized mainstream media and the negative influence it creates. Things are different now that one of the biggest influencers is backing up this same narrative. This year, citizen journalism (blogs, independent media sites, documentaries) have offered more truth about our world than mainstream media ever has. 

Hedge funds have been and continue to be the Goliath in this story, leaving retail investors to play the part of David. Although the Davids can win some battles (hedge funds loss from Gamestop), the Goliaths always seem to win the war. Bailouts, money, and influence keep the Goliaths more powerful. Still, it might become a fair fight if we cut off their media ties and access to illegal campaigns manipulating the market.