With this much volatility in SDA’s share price, it’s natural to...

With this much volatility in SDA’s share price, it’s natural to develop a hypervigilance to the satisfying green upward arrow and the disheartening downward red arrow. During these times it may help to take a breath and manage our own expectations.

The first thing to remember would be that it is “not” normal for a share to consistently increase in price every day. Nor do shares jump 120% in one or two days. The share price of a company is at a constant flow of alternating between going up and down. Instead of placing too much weight on each and every day, it may help to maintain perspective by considering progress on a weekly basis.

The table below shows the opening prices for the past 5 weeks:

	Date	SDA Opening Share Price
1	16/12/19	$0.745
2	23/12/19	$0.78
3	30/12/19	$0.94
4	6/01/20	$0.98
5	13/01/20	$1.02

This could be expanded to tracking the price on a monthly basis for long-term investors.

An encouraging sign is that, according to the ASIC’s short position report, the short interest in Speedcast has decreased again, making it the fourth consecutive week where shorting interest has fallen; 13.6% (23/12/19), 13.1% (30/12/19), 12.9% (06/01/20), 12.7% (13/01/20). This would suggest that short sellers are recognising that SDA’s share price is unlikely to drop significantly lower, and are beginning to cover their positions.

It’s worth remembering that there is the other side to short selling, and that is their inevitable buyback. The amount of shares they initially sold will need to be returned, and if the price goes up beyond their tolerable levels, the buy volume at that increased price will be a brilliant example of what happens when substantial demand meets limited supply = dramatic increase in price. And in this scenario, the most stubborn short sellers will ironically become SDA’s best customers.

Consider my earlier post on 07/01/20, when I identified the 10 most shorted shares in the ASX at the time of 14/11/16. As a reminder, these shares were: Myer Holdings (17.5%), Western Areas (14%), Worleyparsons (13.8%), Bellamy’s Australia (11.8%), Aconex (11.1%), Nine Entertainment Co Holdings (11.1%), Metcash (10.8%), Monadelphous Group (10.3%), Alumina (9.8%), and G8 Education (9.5%).

Today, the 10 most shorted companies are: Galaxy Resources (16.3%), Syrah Resources (16%), Orocobre (13.5%), Inghams Group (12.7%), Speedcast (12.7%), Nearmap (12.4%), GWA Group (11.9%), NextDC (11.9%), JB Hi-Fi (11.8%), Bega Cheese (11.1%).

It’s easy to notice that none of the companies that had once been in the top 10 remained in the top 10 over time. The current level of short interest in Speedcast cannot be maintained indefinitely, and if a short squeeze does occur, having more of the company shorted will work in the current holders’ favour. I believe that this company is greatly undervalued, and when I think of short sellers, I think of them as pending buyers.

It’d be fair to ask, how can Speedcast thrive while there are those who would directly benefit from the complete opposite of the company’s best interest? I believe a good first step is to not play into their game of fear & doubt. Short sellers will jump in when there is any hint of bad news, and by their selling, magnifies the impact by bringing attention to it and attributing high volume selling to what had happened. This will make people pessimistic about the company, and drives them to prematurely or irrationally sell, further bringing the price down for the short sellers to reap the profits by buying the shares while they’re cheap. However, if investors refuse to be distracted and shaken, and choose not to contribute to snowball selling, then the short sellers will find themselves on the losing side, being a springboard for those who have faith in the company and see value in its potential.