I think the “all sales have to have a buyer” statement is technically true, but misleading.
When you look at a list of sales, it’s true that for every buyer there was a seller at that particular price. But it’s also true that for other prices, there would be many more buyers than sellers, or more sellers than buyers. Like, when bad news comes out - lots of people want to sell their shares, and because that increased selling demand isn’t offset by increased buying demand, the only way they’re able to do that is if they lower the price. So they do end up selling their shares, but the net selling demand leads to a drop in price.
To put it in a different context, the housing market works the same way. But I don’t think anyone would ever claim that “For every buyer, there’s a seller. Therefore, if there’s a big increase in demand for housing, we won’t actually see an increase in house prices.”
I don’t believe the WSB stories about short sellers, but if I were forced to steelman their argument, this is how I’d frame it:
In a regular market, people who have things to sell meet up with people who want to buy those things, and they negotiate a price that satisfies both parties. That’s fair. And over the course of time, prices will change if there are more sellers than buyers, or vice versa. Like, if a town becomes more desirable, the increase in net demand will cause house prices to increase. That might feel unfair to people trying to buy, but it’s still a generally fair market system. The key is that an individual house can only be owned by one person at a time, and the only person who can sell a house is the owner of that house. (If someone fraudulently offered to sell a house they didn’t own, it would quickly be revealed when the defrauded buyer attempted to claim possession of the house while the real owner occupied it.)
Here’s what short selling does:
Instead of a normal housing market, imagine a market for fractional ownership - time shares. This, on its own, doesn’t change anything; it just means that the rights to any particular physical house are collectively owned by multiple people. But the notion of “only one person can physically own and possess one house at a time” goes away, which makes it a little more difficult to track true ownership and ensure that no one is inappropriately claiming ownership.
Now introduce a shady guy who offers to sell some of those rights even though that guy doesn’t actually own any of them. And this guy is aggressively selling those rights at prices 5%, 10%, 20% lower than the “normal” price. But the buyers have no way of knowing that the seller doesn’t own the shares; they just view this as an increase in net selling demand that allows them to pay less for those shares. That excess selling demand (which is FAKE because the guy doesn’t actually have anything to sell) will drive down prices in exactly the same way that discovery of a toxic waste dump will spur net selling demand and drive down prices.
So this guy WHO NEVER OWNED ANYTHING TO BEGIN WITH can just artificially create as much selling demand as he wants, and drive the price down much lower than what the asset is actually worth. And because the regulator (WHO SHOULD BE DOING THEIR JOB) isn’t monitoring this, the guy suffers no consequences at all, and all the GOOD people who LEGITIMATELY own their shares are suffering because those shares are now valued at low distorted prices.
The solution is that the regulator gets off their ass and identifies the fact that this guy has been NAKED SHORTING shares that he doesn’t own, and forces him to buy back all of those shares that he fraudulently sold. That huge buying pressure, WHICH IS JUST AROUND THE CORNER, will cause the shares to return back to their true value, and is what people refer to as MOASS.