Squeezing Lemonade: Short reports

One of the most interesting things I’ve learned watching activist investing from Reddit’s Wall Street Bets and Game Stop is ‘short reports’.

To short a stock you are basically saying the the stock will drop in price, so you can buy it back cheaper.

The part I didn’t know is that companies who short sell then publish “research” that tells everyone the company is rubbish, thus driving the price down so they can buy back the stock at a lower price.

For example, one of the companies I have shares in is a US online insurance company called Lemonade LMND. A notorious short seller called Citron Research (this is real I promise!) has shorted the stock. Citron Research publishes “short reports” telling investors that the shares are overpriced.

In January 2021, Citron research published that Lemonade shares were overvalued by 43%, causing an 11% drop in the share price.

Are you with me? So the “short reports” look like independent advice but are in fact manipulating the market so the short sellers get the low prices they need.

The activist investing by Wall Street Bets users has forced companies like Citron to disclose that what they’re doing is wrong and stop doing it...hooray.

Will I be selling my Lemonade shares? No. Diamond hands hold, paper hands fold. To the moon.

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