Apple shareholders need not worry that it will be the shortest US stock. I am referring to the report by the short-selling analysis firm S3 Partners that, after 864 days in which Tesla TSLA,
was at the top of this list, Apple AAPL,
has acquired this dubious honor. As of September 14, a total of $18.4 billion worth of Apple stock was sold short, dwarfing Tesla’s total of $17.4 billion. That certainly sounds like a lot of money betting aggressively that Apple stock will fall.
Perhaps the first clue that Apple investors need not worry, however, comes from Tesla’s outperforming market, even though it topped the shortest list. From April 2020 through September 14, the stock produced a total return of more than 100% annualized, according to FactSet, versus 15% for the S&P 500 SPX.
Apple investors can only expect them to outperform the market by much during the time the company is shortest.
Tesla is just a data point, of course. The best reason for Apple investors not to worry is that the dollar amount of shares sold short “doesn’t make sense,” Jay Ritter told me in an email. Ritter is a professor of finance at the University of Florida and co-author of one of the most cited academic studies on the investment implications of short-term interest. He added that he is not currently short of Apple, but he is short of Tesla.
For data of short-term interest to be meaningful, they must be put into context. A lot of dollars worth of Apple stock may be shorted, but the company also has the largest market capitalization of any publicly traded company in the world. Among the most relevant short sale metrics are percentage interest short (the number of shares sold short expressed as a percentage of the total number of shares outstanding) and days to cover ratio (the number of shares sold short). overdraft divided by recent average daily transaction volume).
By either ratio, Apple is actually one of the least shorted stocks. According to FactSet, in terms of short-term interest rate, Apple ranks 477ththe rank among the top 500 stocks in the S&P 500. In terms of days to cover index, it ranks 463dr place. In other words, what the headlines proclaimed as one thing is, in fact, precisely the opposite.
Could a strong short position be bullish?
Some contrarians may be disappointed to learn that Apple’s short interest range is so low. That’s because they believe that high levels of short selling are actually bullish.
The problem with this counterargument is that it’s wrong, according to Adam Reed, a finance professor at the University of North Carolina and one of the leading academic experts on the importance of short-selling data. In an email, he told me that the strong consensus conclusion from numerous academic studies is that stocks, on average, underperform the market if they carry high short-term interest rates.
He added that he is not aware of any academic research that has found that the dollar value of shares sold short is significantly correlated with a stock’s subsequent performance.
The bottom line? Apple’s recent first place ranking on the shortest list is a lot of noise and fury, which means nothing.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be contacted at firstname.lastname@example.org
Plus: These 20 stocks are shorting 19% or more, and AMC and GameStop aren’t even in the top half.