What Short Sellers, the Voting and Weighing Machine are Offering Investors Today
KCR’s data-driven and historically informed process helps us avoid bubbles, find mispriced quality, and identify stocks that are simply too cheap. Over the long arc of time, investors’ reliable penchant for following the herd and ricocheting from greed to fear at precisely the wrong moments affords disciplined investors the opportunity to compound wealth at higher rates with far lower chances of permanent impairments.
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Short sellers have been ridden out on a rail. First, through the combination of free money and a speculative mania that, by many measures, eclipsed the dot.com bubble. Now, those same folks have come under regulatory attack post the short squeeze chaos around GameStop. Suddenly short interest data, short positions, and the number of shares sold short at various issuers have become an issue of public interest.
As Barron’s explained, some short sellers allegedly engaged in the practice of publishing bearish research on a stock and then covering as their reports sent the stocks lower. KCR can see how that would draw the ire of both investors and regulators alike. What’s less clear to us is why the same behavior by prominent long-investors doesn’t stimulate the same upset and regulatory inquiries.
Netflix Short Interest Troughs Post Recent Price Declines
We are left to wonder if this lopsided regulatory push is merely amplifying already prominent behavioral errors. Inefficient markets combined with an ever-growing affinity for indexing have possibly, increased the human tendency to “anchor” on things that have no relationship with intrinsic value.
The chart below shows the stock price and short interest in Netflix since 2011. On the one hand, with the stock price down -65% since the peak in October of 2021, a reduction in short interest is to be expected. On the other hand, …
…. just because a mania darling was valued at $300bn at the peak does not mean that the company’s current $110 billion market cap makes it cheap.
The chart below is the same as the chart above, with one difference that completely changes the story.
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September 23, 2022 |
| Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
September 23, 2022
Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
