There are limits to what you can do with superior but imperfect knowledge though. E.g. everyone knows Tesla stock is overvalued - even Elon tweets about it. And yet it's not really feasible to profit off this knowledge.
If you only predict that the stock is overvalued, it may indeed be difficult to exploit that information.
However, in this case, the author predicted the downfall of a huge company. If its business starts failing by any reasonable metric, its stock will fall very fast and very far.
Also, long and short positions aren't symmetric, because there is no non-margin way to enter a short position. This makes the ability of the market to stay irrational more likely to go bite you in a short position than a long one, ceteris paribus.
Isn't that a market failure then? If the founder and CEO of the company says the company is over-valued, there should be someone in a position to capitalize on that information.
Sure, but then so is pretty much every aspect of the stock market, IMHO. It's a tool with all sorts of terrible flaws when it comes to capital allocation. A single company being overvalued without a safe way to bet against mass delusion of the public isn't that large of a flaw compared to the systematic over valuations and under valuations, IMHO.
This isn't to say that it's not without its uses, but we should be aware that it has huge problems even if we don't know of a way to fix them yet.
Not really a failure. It's important to realize that people are not necessarily always paying for the 'actual value of a company' (subjective itself) but for what other agents will be willing to pay for the stock. If that value is higher than the current price, they'll buy.
By definition, every non-ideal behavior of real markets is a “market failure”.
Real markets, as opposed to Econ 101 idealized ones, are full of market failures, both due to structures that Econ 101-level analysis ignores about basic market structures and human irrationality.
I know a lot of people meme about the Reddit Wall Street Bets community, but if you want to see a stream of people losing money trying to guess TSLA’s downfall, that’s a good place to start.
There are also lots of examples there of people gambling on TSLA shooting to the moon and making a killing this year.
