Thread by @StockWonk

A must-read thread on important lessons for retail and newbies who fall for a lot of myths surrounding stocks, particularly retail-heavy meme stocks like $AMC $GME $RDBX $REV etc...if you're retail, then read this /1

1. Shorts can't drive a company into bankruptcy, no more than longs can drive a company into profitability. Bankruptcy is when a company becomes insolvent due to its debt/obligations dramatically exceeding its income/assets. Shorts have zero impact on this /2

2. These meme stocks are zero sum games. If you're going to win, someone else has to lose. Encouraging a bunch of retail to pile in to "squeeze the shorts" in fact usually causes a bunch of retail to lose money as it's just retail pumping & dumping on each other. /3

Example of this: $AMC dumped $1 billion on retail during the height of its meme frenzy, and it's those retail who lost big. More on zero sum games here: stockwonk.com/understanding-… /4

Encouraging more retail to pile in to pump your own bags means that if you do make money on these meme stocks, it's more likely off the back of a losing retail investor/trader who you encouraged to pile in at a higher price rather than an evil short. /5

3. High short interest does not mean a squeeze is coming. In fact, high short interest generally is predictive of lower stock prices. There are multiple academic studies on this /6

One must also consider "days to cover." Even if short interest is high, if days to cover is low (like 1 day, for example), volume is high enough where shorts can easily cover without causing a squeeze /7

4. A short interest higher than the float does not mean there's "naked shorting." Check out this thread by @keubiko to understand what a short interest exceeding the float actually means. threadreaderapp.com/thread/1469403… /8

5. A high prevalence of supposed "naked shorting" is a bogeyman myth spread among retail to try to explain why a stock price is down. Fails-to-deliver are often not evidence of "naked shorting" but rather back-office errors as @keubiko has written here: seekingalpha.com/article/150001… /9

6. If a stock price is falling when you didn't expect it to, it doesn't mean there's "manipulation." In fact, encouraging a bunch of retail to pile into a stock to try to pump it up can be considered manipulation ... manipulation that has been prosecuted in the past /10

7. Shorts are generally not responsible for stock price manipulation. The vast majority of stock price manipulation comes from the long side (pump & dumps, etc). In fact, nearly all SEC prosecuted cases of manipulation have come from the long side /11

8. Shorts can't drive a stock down by piling into it. In fact, there's little evidence of "bear raids" by shorts piling into a stock. @goodetrades has an excellent article on this here: goodetrades.com/2012/02/the-tr… /12

9. Stop assigning morality to stock price direction. Betting that a stock price going down isn't "evil"...it's just a bet, no more than betting a price will go up. And in a zero sum game, someone must lose for someone to win regardless of the price direction /13

10. Beware of crowded trades. If a bunch of longs are piling in to try to "squeeze the shorts", it's likely not going to work out, especially if early shorts were already squeezed out. /14

This is why I wait on my shorts...I wait for the early shorts to be squeezed out, and all the longs now who were late to the game to now crowd the trade and get stuck. It's known as waiting for the "backside" of a move. /15

Example of a long crowded trade is $RDBX. Browse Twitter and all you see are tons of people longing it hoping for a squeeze simply because short interest is high. But instead it keeps bleeding down on low volume. Early shorts were already squeezed out on the 3-18 move /16

11. There's no such thing as "short ladder attacks." The idea is so absurd I made a joke about it here:

https://twitter.com/StockWonk/status/1541607146323726336

12. Take responsibility for your own trading decisions and losses. If your stock is down or you're losing money, it's because you made a bad decision. It's not due to short manipulation, or Wall Street, or some conspiracy by OCC or Robin Hood to turn off trading /18

If you're losing money on a trade, consider the fact that your trade thesis may simply be wrong. Show me a trader who blames losses on external factors and I'll show you a losing trader /end