Banter and general comments, page-26902

While shorting of a stock you believe in the long term fundamentals of is annoying, you have to remember shorters are on a very different timeline to LT investors.

Shorting is by nature, shorter term. It is in a shorters best interest to unwind their position as quickly (and orderly) as possible once the SP hits their TP as, unlike a long position, they continue to incur costs by maintain the position through financing fees and maintenance of a margin account. Additionally, the lower the SP goes the more upside risk there is and the longer they hold the more likely a positive SP event will occur (recent examples of shorts being burnt by this are MP1, CHN and LTR).

The risks for shorters are much higher, as if they get it wrong their losses are theoretically infinite. This is why shorting tends to increase in a bear market, as the risk of a significant increase is largely offset by overall bearish sentiment. Globally, we are currently in the perfect situation for shorting and it is unlikely to go away until we re-enter the next bull market.

For some of you this may be your first bear market - Bear markets are rough, they are not for the faint hearted and you will not make easy money by following the herd like you may have in a bull market. But bear markets and recessions represent the best opportunity for long term, contrarian investors. It might not feel like it now, but these periods of panic are the best time to accumulate long term wealth. As an example, the current darling of wall street Nvidia plummeted over 65% before bottoming at $112USD in October - it is now at an ATH of $380. Even if you bought a ASX ETF during peak COVID panic you would still have pocketed a cool 50% as of today. As Buffett was taught, "always buy your straw hats in winter".

I am a strong believer in value investing during these periods, and choose to ignore the crowd and paper losses and focus on the upside potential. While I have used the volatility to trade some CXO I do so to build my core LT holding. When the SP dropped to $1 in October last year, I thanked my lucky stars and went accumulating as I did not think we would retest $1. I definitely did not think we would see $1 again after that, let alone 70-80c. But if I thought CXO was a bargain at $1.03 in October 2022 why wouldn't it be a steal in the mid 70's after months of further de-risking? So I bought the dip (at least I hope it was a dip!).

All this is to say that - If you believe in the long term fundamentals of a company, try not to let the shorters and volatility during this period bother you. Furthermore, if you your beliefs are particularly strong and you have the appetite and capital for it, these times can be seen as an opportunity to accumulate at a price that you thought was otherwise unobtainable.

All this talk of "If not for the shorters CXO would be valued 2-3x" - If you genuinely felt that way you should be thanking the shorters, US polititians and the global bear market for the opportunity to snag an easy double or triple bagger. Short termers or people who need liquidity now, this is not your market and I empathise with your frustrations.

For those with a shorter term horizon, I will say Shorters always have a reason for suspecting a SP will fall, and the smart money is more often right than wrong. It would be foolish to assume shorters are misinformed, they have much better information than you or I. If I was a short to medium term investor I would think twice before betting against a short position of 10%.

If I had to speculate, CXO shorts took a noticeable uptick on the 12th of May - 1 day after the "Maiden Concentrate Shipment and BP33 Mining Authorisation" announcement. Shorts are recorded the day after transaction (ref RG.196) so the increase commenced the day of the report. It may be that the market saw the 2000 additional tonnes as underwhelming and indicative of a slower than anticipated ramp up. Combined with uncertainty over the offtake ceiling price, global spodumene price and increased capex of BP33, there are a few short term hurdles for CXO to clear.

Long term though - the eventual ramp up is all but inevitable, the ceiling prices are only for 2 years, lithium still appears to be in a structural deficit, the market should be more comfortable with battery minerals as a commodity, and even if CAPEX blew out 200% BP33 will still be making bank for 10 years.

The difference between CXO and VUL or SYA is that, shorts will not be able to cover their position by participating in a cap raise. If you are unsure what I mean check VUL's shorts in the days after their last cap raise and check SYA's in a couple of weeks. CXO shorts will have to cover on market, which carries it's own risks as it requires a coordinated and orderly unwinding over an extended period of time so as to not create a short squeeze.

For those banking on a short squeeze, it is incredibly unlike to occur short of a TO (EG: LTR). And regarding a TO offer, if there was even a whiff of a TO over for CXO do you think CXO would be shorted 10%? It's wishful thinking at best but I will be extremely happy to eat my words should it occur.