Let’s Talk… “If a Stock Has a Big Short Interest, It Has to Go Up Eventually“, Right?

Shorting a stock is the process by which an individual or institution will sell a stock that they don’t own in the hopes of buying it later at a lower price because they think the price is going down. A popular mantra going around right now is the idea of buying stocks that are heavily shorted in hopes that there will be a big rebound, and those people who shorted the stock will have to, at some point, buy the stock back.

I can tell you in the practice of watching the market for over 25 years, this has historically been a faulty theory in practice. 

This idea was going around in the early 2000’s. There was this communication company that was the toll booth of the internet and this energy company out of Houston that was trading energy. They both had great commercials. They both had accounting scandals that dropped the stocks to almost nothing. 

My guidance to you is when you buy a stock, you are buying into a business. If you have to think “what do they do?” or “how do they make money?”, I suggest that you consider holding off, even if the mantra is that it is heavily shorted.

The content in this material was created for educational and informational purposes only and is not intended as an investment advice.

The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.