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Shorting Private Stocks Would Be Good for Tech

Public market investors are pouring more into the private tech markets, able to put big sums to work and be well-positioned in the event a company goes public. But one thing these investors can’t do in the private-company market is to bet on a stock going down in price, by selling short.

That should change. Investors who sell short—selling shares they’ve borrowed from others, and repaying the stock loan by buying later, hopefully when the stock’s price has fallen—impose a pricing discipline on the public markets by reining in stocks that get too far ahead of themselves in valuation terms. Short-selling specialists sniff out negative information about a company, through their own research. The most famous example may be Jim Chanos’ analysis and subsequent short selling of Enron before that company was exposed as a fraud more than a decade ago.

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