Given that many long term investors believe in dollar-cost averaging and explicitly refuse to try to forecast if the price will rise or fall over the short run, both groups can be right at the same time and aren't directly opposed viewpoints.
Ackman’s short of Herbalife wasn't a long term short so much as a long series of short term shorts (also this is not a very common occurrence or he wouldn't be so famous for doing it). The most common means of shorting a stock is to buy put option contracts. Those contracts have an expiration date by which you must cover the put. That date is seldom more than a few weeks in the future. Therefore, because of these short term contracts, most short interest is short term and assumes that a correction is imminent.
At the same time that someone is speculating that a stock will go down soon, other people are investing long based on a thesis that over a long time frame the stock will go up. These long interests are often regularly investing smaller amounts into a stock as opposed to one large investment all at once. This practice, called dollar cost averaging, is frequently undertaken to avoid trying to short term time the market (under the belief that short term price predictions are often wrong).
Taking these two strategies together, you can simultaneously have someone short a stock they expect to go down soon and someone else long a stock they expect to go up over 5-10+ years. Both can be right at the same time. You can then derive from this point that short interest is of limited to no concern to a long investor, which was my original point.
Herbalife is an excellent example of the market providing the right incentives and those incentives working out in the way we want them to. If Ackman had exited his position after the original corrections were made by Herbalife everyone would've won: he would've made money, long investors would have a stronger company, and Herbalife would be a real business. Instead he doubled down and so he lost, but everyone else still won.
This sounds like a really high functioning market to me. If you think TSLA is bound for 0 there are ways you can make that bet today. The fact is no one thinks that, and so no one is trying to make that bet. Same with Twitter.
> Taking these two strategies together, you can simultaneously have someone short a stock they expect to go down soon and someone else long a stock they expect to go up over 5-10+ years. Both can be right at the same time. You can then derive from this point that short interest is of limited to no concern to a long investor, which was my original point.
Right, but this doesn't mean that the incentive to devalue companies that need devaluing doesn't exist.
So as I said, I'm still not sure what you're arguing. Shorts seem to be doing what we want them to do. The market does not seem broken.