I look at a lot of different things when I invest in a stock. Revenue growth, profit margins, cash on hand, debt, free cash flow, there are all these metrics that we can use to measure how a company is doing.
Also, confession time. I like to cheat. I like to peek into the portfolios of people who are doing well. I like to sneak into David Gardner’s port and find out what he’s buying. I can tell a lot of you want to know what Saul is buying. It’s cheating, of course. We should do our own work! Not copy other people. On the other hand, it can give you a lot of confidence. I don’t fully understand what the Trade Desk does, or how it does it. The technology is complicated. But I have confidence in David Gardner. And I have confidence in people on this board, what they say. And I watched some videos of the CEO, Jeff Green. And he fills me with confidence, too. “I think these guys are right,” I say to myself. “I am going to buy.” And I buy. And then the stock jumps magnificently six months later. And I say to myself, I am so smart.
So the metric I’m going to talk about is a combination of the above two things. It’s actually a metric, but it’s not measuring the company and how it’s doing. It’s a measure of the market, and what other people are saying about my stock. And this metric is short percentage of float. So this is not just people yapping on a message board. This is people investing money in their opinions. I’ll give you two examples from my portfolio.
Short percentage of float: 166%
What this means is that a huge number of wealthy people think Carvana is a bad investment. They think it’s a horrible investment. They are investing in the destruction of Carvana. Oh, they hate Carvana so much. These negative Nellies are piling on top of each other to short Carvana. They’ve gone beyond 100%. You remember your basketball coach who wanted you to give 110%? And you wanted to tell him that this was impossible? Well, these Carvana haters are giving 166%. That’s how much they hate Carvana. They really hate it. And sometimes, there’s this thing, it’s called a short squeeze. I don’t know the ins-and-outs of it. Something to do with you borrowed some money and the bank wants it back. Anyway, today Carvana went up 14% on no news. So the Motley Fool ran an article. What Drove Carvana 14% Higher Tuesday?
I clicked on it, because I wanted to know. And I read the article. And then I said to myself, nah. That huge gain had nothing to do with the company, or it’s business. Too many negative nellies tried to squeeze into that phone booth. That phone booth is filled to 166% capacity. And so the stock starts popping up. It can’t help itself. This was like investing in Amazon in the early days. You know how many rich people hated on Amazon? A lot of them. Unprofitable! All they do is sell books! Carvana-hate is nothing like Amazon-hate. I feel like Carvana is Amazon all over again. And that includes the huge short interest and the wild stock gyrations. (And the massive revenue growth and a huge potential market).
Short percentage of float: 5%
Okay, that is nothing. That is zero hate. I guess it’s a little higher than zero. But mostly Mr. Market has a huge amount of indifference towards my Amarin. Not even paying attention. Which is weird, right? I mean, Amarin is up 541% over the last year. How can you be indifferent to that?! You should love it or hate or something. You should be jumping on the Amarin train, like me. Or determined to kill that Amarin fraud and make easy money off all those damn suckers who believe in fish oil cures for heart attacks. Amarin is up big and Mr. Market is bored and oblivious. I guess we’ll send three analysts to the conference call. Damn Irish biotech. I don’t even think it’s a biotech. It’s just a damn Irish drug company. I am so bored, I cannot believe I got to sit and listen to these Irish people and their stupid story about reducing heart attacks and death by 25%. Whatever.
So how do we explain Amarin jumping up 10% last Friday, or whatever the gain was, on zero news? Well, it wasn’t a short squeeze. I know that. And there was no damn news. I kinda think it was people discovering the stock and buying it.
Anyway, when a stock has massive jumps on no news, you might want to take a peek at your short interest. It tells you nothing about your company. But it says quite a bit about what Mr. Market thinks about your company. Specifically, it tells you how much negativity is out there on your particular stock. Here’s a quick run-down of my portfolio and its short percentage of float.
Intuitive Surgical 0%
The Trade Desk 11%
Ionis Pharma 12%
Sirius Satellite 13%
Ubiquiti Networks 29%
IPG Photonics 10%
Arista Networks 3%
NV5 Global 6%
bluebird bio 17%
The Meet Group 12%