Un:
Like you, I have been nicely "oosicked" by short squeezes. As a result, much research was expended to find out why. Being a dumb Canuck, it took a while to realize that having company on the short side of things is not a good thing. (g)
Among many observations that one might make about short squeeze situations, the following appear significant to me.:
- there are funds out there that actually do band together and initiate squeezes. In fact some of them devote much effort to this activity.
- once a squeeze gets underway, "there are the quick and there are the dead" takes on new meaning. Many shorts try to get out quickly, which of course exacerbates the stock price rise.
- generally speaking, a short squeeze will continue "until it runs out of cannon fodder", i.e., until most of the shorts have capitulated. Consequently, big short positions tend to equate with very nasty and relatively long-lived short squeezes.
- very heavy personal research has led me to conclude that companies almost always endure much longer than the fundamental research would lead one to expect. While there are many reasons for this, for me, the most important point is the degree to which a company has institutional ownership of its stock. If institutions are heavily involved, it is almost inevitable that the company will be able to raise additional dough, even when anyone with a particle of intellect would see such a financing as insane. A change in the executive suite or the business plan is all that is required (and this is just cosmetics, given the circumstances). The reason for this is that institutional managers hate to own up to their foolish investment mistakes, especially if they can see a way to avoid so doing. By providing some additional dough, the ensnared institutions can "average down" (the financings are done at a deep discount to an already beaten-up share price) and also obtain additional time during which the stock can be sold off. A big short position can also assist them in this endeavour.
As noted earlier, shorting a particular stock tends to be much safer (in a "mania" environment) after it has been really pounded and once the debt really becomes the dominant factor.
best, Earlie |
