Too Many Shorts

CEOs often worry that if there are lots of shorts, that’s bad for their stock price. Meanwhile, the likes of John Hempton worry that a lot of short interest could be very good for the stock price. Me, I think very large short interest does increase upside risk in the near term, but that it’s far from the only — or even the most common — way in which shorts get squeezed. Good old-fashioned volatility can do it just as easily.

Still, it’s interesting that Hempton regrets posting about WestAmerica Bancorp on the grounds that his blog entry made his trade get too crowded. I wonder if he ever worries about his long positions being too crowded. Shorts have a reputation for being vocal and wanting to get their analysis out by any means necessary, but maybe that’s not always a great idea.

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