A metric to consider the next time you invest

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.

Carvana

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?

https://finance.yahoo.com/news/drove-carvana-14-higher-tuesd…

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).

Amarin

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%
Apple 0.89%
Shopify 6%
Square 9%
The Trade Desk 11%
Ionis Pharma 12%
Schwab 1%
Amarin 5%
Carvana 166%
Sirius Satellite 13%
Immunomedics 16%
Ubiquiti Networks 29%
Visa 1%
PayPal 2%
IPG Photonics 10%
Elastic 19%
Arista Networks 3%
Smartsheet 3%
MongoDB 22%
Disney 2%
Novavax 19%
NV5 Global 6%
bluebird bio 17%
The Meet Group 12%
Amazon 1%
Finjan 1%

Taylor

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Hi Taylor,

thanks for that informative post. I was aware of this metric but didn’t track it because I felt it doesn’t really say much about an individual stock’s future. However, with your example of Carvana it seems to make sense to put in on the stock check-list. Could be a yellow flag and definitely an indicator for doing some additional research.

May I ask you from which source you get the short percentages up to date and accurate?

Thanks!

Niki

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Nice writing style… And food worthy of thought!

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Thank you for an excellent write up. A few follow up questions:

  1. How can I find certain Motley Fool profile to see their holdings, such as David Gardner’s? Thank you.

  2. The short percentage may suggest why a stock has a massive run up, if it continues to do well, due to short covering. Is there anything else we should look for when looking at short percentage? I would assume it just means perhaps more volatility. Also, where I can I look up the short percentage?

Thank you for a wonderful read.

David Gardner Holdings (look under the ‘Investing Basics/Stocks I own’ section):
https://discussion.fool.com/profile/TMFSpiffyPop/info.aspx

tj

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If you select a stock in yahoo finance and look under the Statistics tab, you’ll find:

“Short % of float”

For Carvana it was 166% as of Feb 14th.

https://finance.yahoo.com/quote/CVNA/key-statistics?p=CVNA

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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.

As a note of caution, I just did a purely mechanical back test evaluating the stocks with a top 5%
performance over the previous 26 weeks with different short interest ratios. Any Short interest
ratio above 10% in general did not bode well for the investors. However the big question is how
smart is the supposed knowledgeable short investor compared to the Saul with some help from
the board?

RAM

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Was AYX in your list of stocks? Their short % of float was 23.98% as of 2-14-19 according to Yahoo finance.

Hi Niki,

I have a TD Ameritrade account.
If I look up TTD, I see this information: Short Interest (% of float 02/15/19) 11.14

On the other hand, if I go to Yahoo Finance
and if I look up TTD, I see this information: Short % of Float (Feb 14, 2019) N/A

I don’t know if there is a better place to look.

Nancy

Here’s another site to look up short interest.

https://www.nasdaq.com/symbol/ndaq/short-interest

I don’t know that there is real time data. Usually short interest is reported 2xs a month if I recall correctly.

Rob

I don’t know that there is real time data. Usually short interest is reported 2xs a month if I recall correctly.

At the bottom of the page you linked!

When is short interest updated?

NASDAQ, Inc. short interest is available by issuer for the past 12 months and updated twice a month. Short interest data is reported on mid-month and end-of-month settlement dates. It is then released on a dissemination date after 4 p.m. ET.

https://www.nasdaq.com/symbol/ndaq/short-interest

Nasdaq Short Interest Publication Schedule
https://www.nasdaqtrader.com/Trader.aspx?id=ShortIntPubSch

BTW, they do not report short interest on AMEX and NYSE stocks.

This page does not support NYSE and AMEX stocks.
https://www.nasdaq.com/symbol/cvna/short-interest

Denny Schlesinger

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