by Gavin M.
Herrow. Harrow? Hallo? I don't know, I'm trying to be smart. There's an old trade play called Buy Stocks with High Short Interest in anticipation of high short squeeze. Yes, this is the same as buying a 1980 Toyota Corolla with the hope that it'll be an antique some day and will be worth 50x more than the $1200 you paid for it.
I can name a ton of companies where this strategy would not work. For every 5 companies that have high short interest, there probably could be one that it would work. That's a 20% success rate. In my book, that's not enough.
The biggest argument people always give me is TSLA - "Gav, you keep saying it doesn't work but look at Tesla." As mentioned above, it's 1 in 5. Let's look at a basket of stocks with high short interest: TSLA, BBRY, JCP, GMCR, and MCP. I purposely left NFLX out of this list as it did used to have a high short interest. Again, even if you included it, it's still 2 in 5 which is 40%.
In any case, the chance for a massive short squeeze is always a one off. Tesla pulled off a nice publicity stunt and they're basking in that glory but that stock was stuck in the $20-$40 range for YEARS not months. NFLX was also stuck below $70 for months. It is always a gamble no matter what. People jumped into BBRY thinking it was going to be the next TSLA after the release of the BB10 and it was a major flop. So you can see that buying stocks with high short interest is not only a recipe for disaster but it's also a big lottery play.
But hey, I don't know how to trade. So what do I know. Carry on and BTFD!
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