Pivot, Pivot

Adding Squeezes and Pumps

I’ve been toying around with this website idea for the past few months. At first, I thought it would simply be a place to share short ideas. But the more I thought about it, the more I realized I also want to share ideas on short squeezes and pump & dumps.

That might sound like an odd pairing to professional investors and retail investors, but short selling and short squeezes seem like opposing sides of the same trade, but in practice, they’re deeply connected. Let me explain.

Short sellers are the perfect type of people to be opining on squeezes, pumps, and other market anomalies.

Short sellers spend their time digging into some of the worst public companies they can find.These companies aren’t liquid, mega-cap stocks where markets are highly efficient; these are shitcos where the companies operate in some of the most inefficient markets you can find in public securities.

DEFINITION: “Shitcos” — companies with weak fundamentals, questionable management teams, and business models that exist mostly to promote their stock and raise money through equity sales.

The dynamics of these companies are much different than large liquid caps, where markets are highly efficient. They are often either intentionally float constrained, have high short borrow rates, have high short interest, have a lack of share borrow, and have many various other inefficiencies. The companies are polarizing, usually with very promotional sales guys in leadership roles, moonshot-type potential, or just insiders hell-bent on looting the company for their own personal gain.

Squeezes are often inevitable once they happen and can last for years if the conditions are right.

DEFINITION: “Squeeze” - a market environment driven by the share dynamics, a one time event, volume surge, or a classic Short Squeeze. Each squeeze is a bit different with external factors that drive it but the main reason for a Squeeze is a float constraint in shares or shorts being an overwhelming portion of the outstanding shares

Pumps, on the other hand, are slightly different from squeezes.Pumps are driven less by float constraints like lack of short borrow or IPOs with not enough float relative to the demand of their share, but more by overwhelming demand of shares by longs.

DEFINITION: “Pump” - a demand driven rise in a companies share price driven by a recent excitement in shares, a promotional management team, a news event, or a stock that has become a meme.

Pumps can become squeezes, and squeezes can become pumps, but both operate on different market dynamics that drive the stock price to rise in a rather short period of time.In the end all Pumps and Squeezes end up as Shorts.

That’s why it makes perfect sense to write about both shorts, squeezes, and pumps here on Short & Squeeze Corner (S&SC). They are opposites—they’re two sides of the same coin. If you study shorts seriously, you inevitably understand squeezes and pumps better than anyone else. Honestly, it took me years of actively being a short seller to realize that in many respects, squeezes and pumps are more predictive events than short selling. Due to the dynamics that longs can go up over 100% and shorts can only go down 100%, squeezes, if executed well, can be a valid source of returns to complement shorts. If you're a short seller spending your time in Shitco land, you might as well generate some alpha on both sides of the coin.

And that’s exactly what I’ll be breaking down in future posts: shorts, squeezes, and pumps. Time to Pivot.