Fair warning. Buying stocks with high short interest is, over the long run, a terrible investment strategy. Mountains of academic research has consistently found the most heavily shorted stocks to significantly underperform the market[1] (to the order of 10% per year).
Heavily shorted stocks tend to be the companies with the most negative cash flow shocks[2], low quality earnings statements[3], negative earnings revisions, and future bad news[4]. In other words, when a company is heavily shorted it's almost always for a good reason. (Like being a brick and mortar video game retailer, that's losing mountains of cash with no turnaround plan.) High short interest is a tell-tale warning of a bad investment.
This shouldn't be surprising. Research has consistently found that short-sellers are the most sophisticated and well-informed investors in the market[5]. There activity strongly predicts soon-to-be released negative public announcements[6]. Short sellers are exactly the type of trader, you do not want to be on the other side of.
It sounds like in the case of Melvin, their aggressive and continued short-selling likely drove down the price. It sounds like powerful and aggressive short-sellers can parasitically drive a company's value down and then make a killing at the bottom.
If that's the case then yes, you don't want to be on the other side, because they're manufacturing their desired outcome.
Yea, but you know what a lot of these studies fail to grasp that the WSB exposed? The human factor. Namely, predatory humans.
Yes, a lot of the companies who get heavily shorted stumbled. But then, to guarantee a profit, the shorting hedge funds knee cap the company. Then they short them again and again. The current fiasco also shows the widespread influence these firms have to enact their will on the market.
If you look at the stock market as independent number generator, you'll always use statistics to explain what's going on. If you realize there are humans behind those numbers, you see it more like a crime scene rather than a math problem.
> Mountains of academic research has consistently found ...
"Past performance does not guarantee future returns", and vice-versa.
That's a somewhat trite statement (albeit technically true), but it's particularly relevant here where people are betting on disruption. The "concept" behind this movement is that one can influence stock performance through collective action by taking decisions that would not have been taken in the past (for very obvious industry reasons, like those given in your comment).
It's a high-risk bet for some, but noone is going into this hoping for a return based on traditional market performance.
Is it not also possible that the shorting itself influences the direction of the stock/performance of the company? I'm not sure you can make a statement like you're making. There, to me, is not a direct cause/effect relationship here.
Anyone seeing this list as a list of investment opportunities should think twice. This is the list of companies that Big Money is betting heavily against.
In 99% of cases you don't want to take the other side of the bet against these big funds. They could be right and the company is actually a loser, or they could just have way more money than you and the market will never reflect anything but their perspective.
GME is a really fun ride (and I'm rooting for the WSB crowd) but it is a result of a uniquely heavily shorted stock and an even more unique groundswell of popular interest.
and if enough people take the other side of the bet, these whales will fix the game to their favour. We pay taxes and yet the law enforcement we pay for works against us. Where are the arrests?
I know there are a lot of Wall st guys here. Can someone explain what's really going to happen here in regards to the short squeeze? Is it really so simple? How will the shorts be able to cover?
Also, is this page correct in saying that GameStop is the only stock on all listed US markets that's shorted over 100%?
Re: 100%, yes for companies with a reasonable minimum market cap.
The one thing not really being explained enough is that short interest as reported through the exchanges is reported bi-monthly. You can imagine that with current events that is an eternity to wait for the next update.
(Edit: removed mostly wrong info, but here's an article on some stuff that goes on with voting rights and shorts that could potentially be used to vote for a capital raise and break the short squeeze by issuing new shares:
https://www.wsj.com/articles/SB116978080268188623 )
I won’t pretend to fully understand this but the analyst answered a lot of FAQs on this data on his Twitter: https://mobile.twitter.com/ihors3
What differs in this data: “S3 data is shares shorted, our competition's data is broker stock borrows. Problem is, stock borrows do not equal shares shorted. Stock borrow includes financing trades, broker to broker transactions but does not include all internal rehypothication used to cover short sales”
The case of GME is more complicated than only being highly shorted. A short squeeze doesn't emerge solely from being highly shorted. Please be very careful with any single-stock gamble.
But the question is, how do you mobilize enough people to act on something that causes market movement? As I understand it, the new thing wasn't lots of short positions, it was that a bunch of people coordinated to make something dramatic happen. Isn't that the problem?
It is fairly rare for stocks to be so heavily shorted.
It doesn't necessarily take a bunch of people to make the price move up, but it does take a lot of money, enough to capture most of the floating shares of stock. And in particular these folks banded together to use call options to amplify their money (and risk) as they purchased stock to drive the price up.
The only thing new is that rather than a few dozen wealthy people coordinating behind closed doors to use a ton of money to cause the short squeeze, it was a ton of small time investors coordinating in public, plus a bunch of others hopping on board when they saw what was going on.
Shorts have finite payoff for infinite risk. If you buy into shorts when the interest is above 100%, you _immediately_ open the door for this type of counter position to become rational.
Is it really a problem that a bunch of people on a message board collectively decided to act on a rational position?
And people wonder why hedge fund managers with short positions on GME are scared by the squeeze! They will do everything they can to stop retailers buying GME. They got caught naked!
I’m surprised this sort of attack has never be carried out before. Is it just because no one ever thought there’d be a crazy army of retail investors that could be so coordinated and so irrational and large enough to matter?
There have been many attempted short squeezes, notoriously the attempt by the founder of Piggly Wiggly to squeeze shorts 100 years ago. He ended up broke, of course, because cornering the market on shares that you pumped to a ridiculous price is never a great idea. More recently there was a cartel that tried to squeeze Volkswagen shorts in 2008.
Short squeezes and similar battles happen all the time. Normally it is one Wall Street behemoth vs another, and the winner gets lauded as being a genius. The Herbalife saga is a good recent example. The only difference this time around is that there is a completely new and unknown outside entity involved. The average retail investors and consumers, social media, mainstream news etc. have all just never been this deeply involved.
Be careful not to fall into the narrative the mainstream US media is selling, though it shifted drastically yesterday -- this is not a coordinated attack. WSB is full of people shilling all types of tickers for all types of reasons, but there is a large amount of people there who understand (or at least pretend to) the dynamics of a gamma + short squeeze, and are in it for that reason.
The person who posted one of the earliest bull case research for this (referred to by his YT channel name RoaringKitty or his reddit username u/deepfuckingvalue) has been into GME since last year. He was holding LEAPs (long-dated call options) and shares and has been holding for the last year. He was ridiculed in the original post, because everyone still believed Gamestop was Blockbuster v2. Gamestop is not Blockbuster v2 (I used to think it was), but what's happening right now is not about fundamentals (and if you see anyone arguing that, they are trying to trick you by reframing), it is about the mechanics of a combination of a gamma and short squeeze happening at the same time.
Hedge funds do this kind of attack when they realize the opportunity is there -- you don't hear about it because it doesn't make the news, and because the news makes up a rationalization. Here's an example -- a bunch of stocks that were essentially left for dead (heavily shorted) popped yesterday and the rationalization was retail jumping in. That makes sense, unless you take a second and think about it -- how can the retail that's all still all-in on GME be simultaneously moving huge amounts of market cap of smaller companies? Yes those companies were cheap but they're cheap because they were shorted -- this means anyone could move them. Don't forget that ~90% of all stocks are owned by the top 30% or something like that. Retail can possibly cause gamma squeezes (see TSLA last year), but institutions have to take part for it to go anywhere.
It is 140% the fault of the short sellers that didn't take profit last year (assuming some rode GME from 45 to 5, this is a ~10x position If i understand correctly) that this short squeeze had the chance to happen. Greed got them.
'Rational' investors try to make money off each other. That operating in pursuit of a class interest is considered irrational suggests there might be some shortcomings in mainstream economic theory.
Why the hell would iRobot have 40% short interest? I love my iRobot. I swear to you if they make these things talk or take commands like Siri iRobot will be the ultimate consumer electronic item.
My guess would be that this space has become way more competitive in the last few years. If you haven't noticed, there are a lot of robot vacuum cleaners on the market now with more coming soon.
On a side note: I finally understood what Buffet and B. Graham meant when they said:
“In the short run, the market is a voting machine but in the long run it is a weighing machine"
It’s such a cryptic phrase, that I never quite understood it for the longest time, until I came to understand the price insanity of TSLA and Bitcoin. And now GME.
My layman’s explanation is:
People get together to buy a stock, because they believe in it, even against all odds. This gives the stock its value to this nebulous group of people. They are the true believers. They are the voters.
Then the stock price runs high, and has a very high market capitalization. Like TSLA, Bitcoin, and now GME. This is the weighing machine part. This means that over time, the company must deliver on its value, in order to justify that its market capitalization is worth its weight in gold.
So, Tesla the company, has been delivering electric cars and new technology, that helps to justify its lofty valuation.
Bitcoin, has brought the Blockchain idea to the masses. Although I’m not quite sure yet how it maintains its weighing part of the valuation. Maybe its Blockchain system becomes the underlying mechanism of other electronic commerce systems.
And GameStop, if they survive this, can cash out at $1000, issue new shares, and take the money to build itself into a giant e-Sports Gaming company. Or maybe it can even build its own GameStation video game system, to justify its lofty market capitalization.
Or something like that. And also, the initial investors are probably just hoping to ride a rocket ship to riches, and then they hold on for the long term.
If a company with say $1bn market cap has more than 100% of shares on loan for shorts, how much money does it take to trigger a short squeeze? Isn’t it trivial for any investor who has enough capital?
Shorting a stock and having that information be public seems like a big risk, since it opens you up to people trying to make money by short squeezing you.
[+] [-] dcolkitt|5 years ago|reply
Heavily shorted stocks tend to be the companies with the most negative cash flow shocks[2], low quality earnings statements[3], negative earnings revisions, and future bad news[4]. In other words, when a company is heavily shorted it's almost always for a good reason. (Like being a brick and mortar video game retailer, that's losing mountains of cash with no turnaround plan.) High short interest is a tell-tale warning of a bad investment.
This shouldn't be surprising. Research has consistently found that short-sellers are the most sophisticated and well-informed investors in the market[5]. There activity strongly predicts soon-to-be released negative public announcements[6]. Short sellers are exactly the type of trader, you do not want to be on the other side of.
[1]https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-1082.00... [2]https://www.sciencedirect.com/science/article/abs/pii/S03044... [3]https://link.springer.com/article/10.1007/s11142-006-6396-x [4]https://onlinelibrary.wiley.com/doi/abs/10.1111/fima.12144 [6]https://www.newyorkfed.org/medialibrary/media/research/confe... [5]https://onlinelibrary.wiley.com/doi/abs/10.1111/jfir.12121
[+] [-] thrwn_frthr_awy|5 years ago|reply
[+] [-] shrimpx|5 years ago|reply
If that's the case then yes, you don't want to be on the other side, because they're manufacturing their desired outcome.
[+] [-] NoOneNew|5 years ago|reply
Yes, a lot of the companies who get heavily shorted stumbled. But then, to guarantee a profit, the shorting hedge funds knee cap the company. Then they short them again and again. The current fiasco also shows the widespread influence these firms have to enact their will on the market.
If you look at the stock market as independent number generator, you'll always use statistics to explain what's going on. If you realize there are humans behind those numbers, you see it more like a crime scene rather than a math problem.
[+] [-] lucideer|5 years ago|reply
"Past performance does not guarantee future returns", and vice-versa.
That's a somewhat trite statement (albeit technically true), but it's particularly relevant here where people are betting on disruption. The "concept" behind this movement is that one can influence stock performance through collective action by taking decisions that would not have been taken in the past (for very obvious industry reasons, like those given in your comment).
It's a high-risk bet for some, but noone is going into this hoping for a return based on traditional market performance.
[+] [-] optimiz3|5 years ago|reply
[+] [-] dclowd9901|5 years ago|reply
[+] [-] lxbky|5 years ago|reply
[+] [-] habosa|5 years ago|reply
In 99% of cases you don't want to take the other side of the bet against these big funds. They could be right and the company is actually a loser, or they could just have way more money than you and the market will never reflect anything but their perspective.
GME is a really fun ride (and I'm rooting for the WSB crowd) but it is a result of a uniquely heavily shorted stock and an even more unique groundswell of popular interest.
[+] [-] varispeed|5 years ago|reply
[+] [-] ThreeOne|5 years ago|reply
[+] [-] 55555|5 years ago|reply
Also, is this page correct in saying that GameStop is the only stock on all listed US markets that's shorted over 100%?
[+] [-] apaprocki|5 years ago|reply
The one thing not really being explained enough is that short interest as reported through the exchanges is reported bi-monthly. You can imagine that with current events that is an eternity to wait for the next update.
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] cma|5 years ago|reply
[+] [-] loceng|5 years ago|reply
[+] [-] zackkatz|5 years ago|reply
[+] [-] theboat|5 years ago|reply
Some things don't change.
[+] [-] iNic|5 years ago|reply
[+] [-] jrib|5 years ago|reply
[+] [-] myroon5|5 years ago|reply
[+] [-] faizshah|5 years ago|reply
I won’t pretend to fully understand this but the analyst answered a lot of FAQs on this data on his Twitter: https://mobile.twitter.com/ihors3
What differs in this data: “S3 data is shares shorted, our competition's data is broker stock borrows. Problem is, stock borrows do not equal shares shorted. Stock borrow includes financing trades, broker to broker transactions but does not include all internal rehypothication used to cover short sales”
[+] [-] fireattack|5 years ago|reply
[+] [-] shirakawasuna|5 years ago|reply
[+] [-] supernova87a|5 years ago|reply
[+] [-] epistasis|5 years ago|reply
It doesn't necessarily take a bunch of people to make the price move up, but it does take a lot of money, enough to capture most of the floating shares of stock. And in particular these folks banded together to use call options to amplify their money (and risk) as they purchased stock to drive the price up.
The only thing new is that rather than a few dozen wealthy people coordinating behind closed doors to use a ton of money to cause the short squeeze, it was a ton of small time investors coordinating in public, plus a bunch of others hopping on board when they saw what was going on.
[+] [-] akira2501|5 years ago|reply
Shorts have finite payoff for infinite risk. If you buy into shorts when the interest is above 100%, you _immediately_ open the door for this type of counter position to become rational.
Is it really a problem that a bunch of people on a message board collectively decided to act on a rational position?
[+] [-] bo1024|5 years ago|reply
- huge amounts of short positions at like $5 (months and months ago)
- some people disagreed and went long
- good luck #1 for game stop: some big investors (also months ago)
- good luck #2: activist investor joins board, overhaul seems likely (this month)
- shorts refuse to close position, stock at $15-20 (early this month)
- at this point, short squeeze is apparently likely and the momentum begins.
- 2 weeks later, the escalation catches attention outside wallstreetbets
A lot of long term background that seems key to how things have unfolded in that case.
[+] [-] themihai|5 years ago|reply
And people wonder why hedge fund managers with short positions on GME are scared by the squeeze! They will do everything they can to stop retailers buying GME. They got caught naked!
[+] [-] qaq|5 years ago|reply
[+] [-] nateberkopec|5 years ago|reply
[+] [-] xwdv|5 years ago|reply
[+] [-] jeffbee|5 years ago|reply
[+] [-] paxys|5 years ago|reply
[+] [-] hardwaresofton|5 years ago|reply
The person who posted one of the earliest bull case research for this (referred to by his YT channel name RoaringKitty or his reddit username u/deepfuckingvalue) has been into GME since last year. He was holding LEAPs (long-dated call options) and shares and has been holding for the last year. He was ridiculed in the original post, because everyone still believed Gamestop was Blockbuster v2. Gamestop is not Blockbuster v2 (I used to think it was), but what's happening right now is not about fundamentals (and if you see anyone arguing that, they are trying to trick you by reframing), it is about the mechanics of a combination of a gamma and short squeeze happening at the same time.
Hedge funds do this kind of attack when they realize the opportunity is there -- you don't hear about it because it doesn't make the news, and because the news makes up a rationalization. Here's an example -- a bunch of stocks that were essentially left for dead (heavily shorted) popped yesterday and the rationalization was retail jumping in. That makes sense, unless you take a second and think about it -- how can the retail that's all still all-in on GME be simultaneously moving huge amounts of market cap of smaller companies? Yes those companies were cheap but they're cheap because they were shorted -- this means anyone could move them. Don't forget that ~90% of all stocks are owned by the top 30% or something like that. Retail can possibly cause gamma squeezes (see TSLA last year), but institutions have to take part for it to go anywhere.
It is 140% the fault of the short sellers that didn't take profit last year (assuming some rode GME from 45 to 5, this is a ~10x position If i understand correctly) that this short squeeze had the chance to happen. Greed got them.
[+] [-] garmaine|5 years ago|reply
[+] [-] anigbrowl|5 years ago|reply
[+] [-] TheGrassyKnoll|5 years ago|reply
[+] [-] vga805|5 years ago|reply
[+] [-] blondie9x|5 years ago|reply
[+] [-] pg_bot|5 years ago|reply
https://www.amazon.com/s?k=robot+vacuum&ref=nb_sb_noss_1
[+] [-] blackrock|5 years ago|reply
And it only works on one floor. And a wet Swiffer, once a week, does a better job at picking up the dust.
[+] [-] blackrock|5 years ago|reply
“In the short run, the market is a voting machine but in the long run it is a weighing machine"
It’s such a cryptic phrase, that I never quite understood it for the longest time, until I came to understand the price insanity of TSLA and Bitcoin. And now GME.
My layman’s explanation is:
People get together to buy a stock, because they believe in it, even against all odds. This gives the stock its value to this nebulous group of people. They are the true believers. They are the voters.
Then the stock price runs high, and has a very high market capitalization. Like TSLA, Bitcoin, and now GME. This is the weighing machine part. This means that over time, the company must deliver on its value, in order to justify that its market capitalization is worth its weight in gold.
So, Tesla the company, has been delivering electric cars and new technology, that helps to justify its lofty valuation.
Bitcoin, has brought the Blockchain idea to the masses. Although I’m not quite sure yet how it maintains its weighing part of the valuation. Maybe its Blockchain system becomes the underlying mechanism of other electronic commerce systems.
And GameStop, if they survive this, can cash out at $1000, issue new shares, and take the money to build itself into a giant e-Sports Gaming company. Or maybe it can even build its own GameStation video game system, to justify its lofty market capitalization.
Or something like that. And also, the initial investors are probably just hoping to ride a rocket ship to riches, and then they hold on for the long term.
[+] [-] smalter|5 years ago|reply
https://sqze.trydoji.com/
[+] [-] victor106|5 years ago|reply
[+] [-] baby|5 years ago|reply
[+] [-] Tycho|5 years ago|reply
[+] [-] steenreem|5 years ago|reply
Why isn't short trading done secretly?
[+] [-] iandanforth|5 years ago|reply
[+] [-] unknown|5 years ago|reply
[deleted]