| | | Tuesday, January 19, 2016 | Issue #2720 | |
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Look! These Insiders Are Collecting Massive Royalties...
Ralph Marlow collected a lump-sum payout of $71,120 on February 12, 2015... Kevin Stratford scored $83,556 on May 7, 2015... and Fredrick White took the mother lode with $155,237 on August 6, 2015.
Where is all this coming from? Shockingly, from a wealth stream organized by John D. Rockefeller over 100 years ago. Since then, it's increased payments every year we have on record. A total payout of $583,000,000 is coming within days, and even average Joes can receive a share. Here's how. | |
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This Ratio Is Like a Magic 8 Ball for Investors Kristin Haugk, Research Analyst, The Oxford Club
Note From the Managing Editor: Some friends and I went to see The Big Short last night. In case you're unfamiliar with it, the film - a true story - follows a handful of traders who shorted the U.S. housing market just before the bubble burst, earning hundreds of millions of dollars in the process. I thought the movie was excellent. (As is the book it's based on.) But, exiting the theater, I overheard several fellow moviegoers lamenting that, while they enjoyed the film... they didn't quite get it. Particularly the whole "shorting" aspect.
If you're in that camp, I strongly urge you to check out our free report, "Short Selling Made Simple." Because the truth is... this is an important concept to grasp. Knowing who's shorting - and what - can provide valuable insight into where a stock is heading. Just take it from Kristin Haugk, a former trader and analyst with 10 years' experience in professional portfolio management. Her comments below originally ran in our sister publication, Wealthy Retirement. (If you'd like to receive weekly insights from Kristin and the rest of her team, click here to automatically subscribe.)
 Short sellers are a secretive bunch. Suspicious by nature, most carefully guard their positions. Until they have initiated those short positions, they share their findings with only a few carefully vetted confidants.
As I found out early on in my career, gaining entry into their exclusive club is a lot like pledging a fraternity.
New members must prove their loyalty and worth. Short sellers are not quick to accept new members into their club.
That's why it's so hard to find out what they are doing until after they have done it. By the time short sellers are touting their thesis on television, it could be too late. Long investors are left to deal with the fallout of the stock price.
It's nearly impossible for the average investor to be accepted into the clique. So how can you tell if the short sellers are targeting one of your positions before the news hits the mainstream?
Here is the first thing you can do.
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The Short Interest Ratio: A Power Metric
The short interest ratio, in my opinion, is the most underused metric in investing... probably because few investors know what it is.
Short interest is the total number of shares of a stock that have been sold short.
The short ratio is the short interest divided by the average daily volume of the stock. This ratio tells us how many days it would take for all of the short sellers to cover their positions. Some people call it the "days to cover" ratio. The higher the number, the more bearish the sentiment and the longer it would take to buy back all of the borrowed shares sold short.
Another way to look at short interest is in terms of the percentage of the stock sold short. To calculate this number, you divide the short interest by the public float.
The public float is the number of freely tradable shares available. That means it does not include the shares held by company officers or insiders. It also doesn't include the shares of "beneficial owners," which is just a fancy name for the people or institutions that own a large percentage of the stock.
So, for example, if a company has 750 million shares outstanding in its public float and 75 million shares are sold short, the percentage of shares sold short would be 10%.
Now that we know the equation, let's figure out where to find the inputs.
Where to Find Inputs
The public float is calculated by taking the shares outstanding listed on the company's latest filing and subtracting the number of shares held by officers, insiders and beneficial owners.
Some financial websites will include the number on their summary or statistic pages, but it is always better to know where the number is coming from.
The Nasdaq website is a great resource.
It reports the number of shares sold short for stocks listed on the Nasdaq and the NYSE. It also provides the average number of shares traded each day. Brokerage firms are required to disclose all of their short interest positions to the Financial Industry Regulatory Authority twice each month.
Know the Trends and the Red Flags
With short interest, like stock prices, the trend is your friend.
It's important to pay attention to whether the number is going up or down. If the short interest jumps significantly over a short period of time, it's a red flag. The shorts are moving in fast.
Typically, a short interest percentage above 30% or 40% is considered high. This is also a warning signal. It means a large proportion of investors are betting the price of the company's shares is going to go down.
You don't need to be a detective or have a crystal ball to monitor the moves of the short sellers. You just need a little math.
Remember: Although it is helpful, no investment decision (to buy or sell) should be based on one metric alone.
But shorting stocks is expensive. And most short sellers will not initiate a position unless they believe the price will drop significantly. A high level or big jump in short interest means it's time for investors to find out why.
Tracking what the short sellers are doing is easy. Finding out the reasons behind their activity is not.
Good investing,
Kristin
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BLACK SKY DAYS
Codenamed by the Intelligence Community and quoted as being "inevitable," this is the one event that could take down everything - your home... your job... your finances. With trillions of dollars hanging in the balance, this crisis could soon bring the entire economy to a grinding halt. Click here to see what all the commotion is about. | |
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For most retail investors, short selling remains a mystery simply because it's a lot more involved than buying and holding. And we get it. That's why, today, we're going to look at one of our favorite long-standing plays... an income-generator that's raised its dividend for 12 years running. To find out how you can get all the details, click here. | |
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Many people have a tendency to imagine a certain financial outcome and then invest as if it's a virtual certainty. Here's why that's killing your portfolio. Read On... | |
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After three whirlwind days at the 2016 J.P. Morgan Healthcare Conference, Marc is back with plenty of insights on what's going on in the sector. Marc also welcomes Alan Nadel, founder of Flying Point Asset Management to the show. Listen here... | |
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