What happened

Shares of Tilray (NASDAQ:TLRY) were up 10.4% as of 11:25 a.m. EDT on Thursday after rising as much as 20.3% earlier in the day. The Canadian marijuana grower didn't make any new announcements. Shares of most of Tilray's peers were either down or up only slightly. So what was behind Tilray's jump?

The most likely answer is that we're seeing a short squeeze turn into a "short accordion." Tilray stock skyrocketed to dizzying heights earlier in September in what appears to have been a textbook example of a short squeeze. Short-sellers betting against the stock scrambled to cover their positions as positive news drove Tilray's share price higher. This short covering only fueled the stock's rapid rise.

Businessman pulling declining red line back up.

Image source: Getty Images.

Eventually, short-sellers quit covering their positions, and Tilray's share price fell. However, it seems likely that we are now seeing a "squeeze on, squeeze off" type of scenario play out -- just like an accordion being played -- with Tilray stock experiencing big swings both up and down. 

So what

If William Shakespeare was alive today and watched the stock market, he'd probably say that Tilray's gyrations are much ado about nothing. Tilray's share price jumped by a double-digit percentage on Monday, with the only news for the company relating to a shipment of medical cannabis to a few patients in Australia. Did that news warrant a big spike for the stock? Nope.

I wrote last week about lessons that investors should learn from the rise and fall of Tilray. Those lessons also apply to the rise, fall, and rise again of Tilray. One of the points was to be skeptical about huge moves with no clear underlying catalyst. There's no clear catalyst for today's big gain, so it's probably appropriate to be skeptical.

The most important of the lessons to learn from Tilray's wild ride, though, is to keep your eyes mainly on a company's underlying business prospects and not the stock's fluctuations. Have the business prospects for Tilray changed materially today or in recent days? I suspect most people would agree that the prospects haven't changed much at all.

Now what

My guess is that the Tilray accordion could continue to play. I fully expect a lot of volatility over the next few weeks.

For long-term investors, volatility shouldn't be a big concern. However, when a stock's valuation gets out of whack with the company's business prospects, long-term investors should be concerned. I think that's the case for Tilray right now.

The valuation will probably be more closely aligned with those business prospects at some point in the future. Until that time comes, my view is that it's better to watch the fireworks with Tilray from a safe distance.