(Wall Street Journal-Deal Journal Blog) In the Peanuts cartoons, Linus held on to a ratty blue blanket, believing it gave him protection against a chaotic and unpredictable world.
Put Linus in a business suit on Wall Street and picture his little blue blanket as the SEC’s ban on so-called naked short-selling–in which traders sell stock without actually having borrowed actual shares.
The ban may have been derided by one academic study as nearly useless and even harmful to the process of allowing the markets to work efficiently. Still, four trading days after the ban lapsed last Tuesday night, those formerly protected financial stocks are getting hammered. Is it possible the ban on naked short-selling played an important psychological role in protecting those stocks from the vagaries of the markets? As the great investor Benjamin Graham wrote, “most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble…to give way to hope, fear and greed.”
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