A professional short seller does as much research as any investor does who buys a stock. The pros are looking for stocks that are more hype than reality or have hidden problems that management is trying to cover up with accounting tricks. The best short sellers do as much home work on their stocks as any investment manager looking for good value. Because short selling has no limit on the losses it can bring, these pros know better than to mess with good stocks that have strong earnings and good prospects.
Of course, there are many short sellers who are not pros and are just looking to spread bad rumors on good stocks, hoping to get them down long enough to make a quick buck. But these players tend to burn out quickly as the market has a way of punishing the uninformed or the just plain stupid.
Both of these groups, however, serve three good purposes for any investor or trader wanting to buy stock. First they provide added liquidity. That means they add more stock for investors to buy since they only borrow the shares they short. They don't actually own the stock. More liquidity always makes spreads thinner (that's the difference between the bid and ask prices) and supply more plentiful.
Secondly, shorts have to cover at some point, which adds upward price pressure when they start buying back their positions. If the shorts are wrong and a stock they've shorted heads higher, they will join the buying crowd to limit their losses. Remember, for a short to make money, the stock must go down. If it starts heading higher, they have to scramble to buy their stock or watch their losses mount.
Thirdly, shorts can be bought back in without their consent. That means if the stock they've shorted has strong buying pressure, it's likely the shorts will have to buy back the stock they've borrowed because the broker from whom they've borrowed the stock will need the stock for its own purpose. In other words, the stock supply is not large enough to have borrowed positions outstanding given the large demand from the buy side. A buyer of the stock wants the stock delivered to his or her account. If too many shares have been loaned out, there aren't enough shares to deliver to all the buyers. To make up for that, brokers have the right to buy the stock for the short positions, close out the short position, and then deliver that stock to the broker from whom the stock was originally borrowed. This is called a short squeeze, and it gladdens the heart of every investor who owns the stock.
If you're a long term investor, and you've done your homework on a stock, you can be glad when you see a large short position reported on your stock. If you're right and the stock heads up, all those shorts will be covering or forced to cover, adding buying fuel to the fire, especially if there's a good news announcement that catches everyone by surprise. So don't waste your time getting heated up over short sellers. When they're wrong and you're right, you can thank them for pushing your stock price higher.