In this clip from "The Future of Fintech" on Motley Fool Live, recorded on Feb. 10, Motley Fool contributors Matt Frankel and Jason Hall discuss their thoughts on heavily shorted stocks and what they think investors should consider before buying.
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Matt Frankel: Will says, "Matt, I read a few articles on SoFi (SOFI 0.89%) saying the short interest is too high and short-term. It's going to go down. Do you agree? I just bought, thanks." I don't know about you guys, but I really don't care what the short interest is on a stock. It's nice to know just because it can explain share price dynamics. When the meme stock thing started, knowing what your stocks' short interest was, Jason and I both invest in Tanger Outlets (SKT 0.07%), I believe, that was when it went very meme stock-ish and, I said, why is this real estate stock of no particular importance to the market doubling in a day? The answer was, it was one of the most heavily shorted stocks. So, it's worth knowing because it can really explain price moves that don't really have any other explanation. But their short interest, I want to say, it was about 15% last I looked.
Jason Hall: It's about 12%. I just brought it up on the screen.
Frankel: Anything in double digits I would consider relatively high, which means there are a lot of people betting against it. That doesn't necessarily mean it's going to go up or down in the short term. It does make it more susceptible to short squeezes. Meaning, it could rise dramatically if their earnings report knocks it out of the park, for example.
Hall: It's going to make it more volatile in the short term.
Frankel: It will make it more volatile.
Hall: If the business performs well over 2, 3, 5, 10 years, it's just noise in the background.