Wednesday 10 November 2021

Why I Think Shorts on Cassava Sciences are going to get Absolutely Crushed

I wrote an article on Seeking Alpha about Cassava Sciences (SAVA), stating that I thought it makes an excellent short squeeze candidate. That article focused more on the quantitative side of a short squeeze. This write up is going to be more on the qualitative side of it. I'll preface this by saying that while I have opened a speculative call option position, this is by no means a "long and strong" call on the stock. It's a startup biotech worth about $3 billion in market cap. I'm not an expert in Alzheimer's disease nor am I in the medical field. I'm in no way qualified to make any quantitative, long-term valuation or price targets on SAVA based on fundamentals and its science. My opinion is solely based on SAVA's float, short interest and the current market sentiment on the stock.

I actually know several of the individuals who are loudly proclaiming SAVA to be a scam, and I would consider myself to be on friendly terms with them. I met some of them previously when they were heavily involved in a short campaign against MiMedx (MDXG). I had initially gone long on the stock but Marc Cohodes took the time to explain in detail his short thesis and had convinced me that the stock had serious issues. I was thankful that he took that time. 

Here's the issue with these short sellers that became very apparent to me when I went deeper with them into the MDXG saga. I have no doubt that they do good research to the best of their ability and have intelligence and market knowledge. The problem is they become obsessed, and obsession has absolutely no place in the investing world. Cohodes made it very clear that he had a personal vendetta against MDXG, as the company representatives (allegedly) made threats against him. He wasn't in it for the money. That's all well and good when someone explains it that way. The rest of them weren't in the same position as him.

Think about the most annoying long term penny stock supporter you know that never shuts up about how their pick is one day going to make them a millionaire. Think about me and how long I talked about PKK in that way since 2014 (it finally happened in 2020-21, yay!). Now multiply that sentiment by -10 and that's exactly what you got with MDXG shorts and that's exactly what they have carried over to SAVA. Have you ever heard that you have to take emotion out of investing to be a success? Well, penny stock pushers with their emotion (blind love) usually don't get anywhere. Short sellers and their emotion (blind hatred) are the mirror image of that.

SAVA is not an investment to these people. It's a scapegoat for rage and indignation. Remi Barbier isn't merely the CEO of SAVA or even a human being. He is the devil incarnate. He is what Joe Biden is to Trump supporters. He is what Trump is to Democrats. He is what Justin Trudeau is to me. If Remi Barbier breathes wrong the obsessed shorts will be all over it like it's the worst thing in the world. But if he cures cancer (or Alzheimer's), they will give him absolutely no credit for it.

The short sellers on SAVA may be smart and good people. The issue is right now they are in an echo chamber. They are in a self-made cult where the end game is seeing Cassava completely destroyed. This is the type of cult-like thinking that churns out ideas like "when will the FDA get some integrity and pull SAVA's trials?". A Journal just confirmed there is no data manipulation in a NINE YEAR OLD publication on SAVA and the response to that was among those same lines. Maybe, just maybe, SAVA isn't the scammer and data manipulator they think it is, given the free pass they have been getting for years by these journals, the FDA and other supposed medical experts and regulators? A Journal having to confirm no manipulation in a nine year old document should probably be a signal to FINALLY admit that there is at least SOME merit to SAVA's science. Not being able to admit this at a base level is akin to not being able to admit Trump lost the 2020 election. It's no longer about facts, but protecting one's own opinions as infallible.

Going back to MDXG, it was supposed to be a zero back in 2018. Yet...three years later and it's trading just fine. It's been bound mostly in the $7 to $14 range since. The MDXG short trade was crowded and I exited it to go onto greener pastures with my limited capital. It was the right move. MDXG hasn't been a great long since 2018 but it's been an absolutely terrible short. 

Here is where the obsessed short sellers and penny stock long dreamers differ. You can hold or baghold a penny stock for years with not too much financial hardship beyond your initial investment and hope one day fortunes turn your way. You can't do that on a short. Shorting is expensive. You have to pay the cost to borrow to short legally. You have time decay on put options if you go that route and want to avoid the possibility of losing greater than 100% by going short on a security. A good short is something that you are in and out in no more than a couple of months. You take your profits and you move on. You don't wait years and years hoping it'll go to zero. Your capital will be eroded away in CTB charges and you will expose yourself to a random 200% up move in a day.

Now how does my opinion relate back to SAVA? SAVA is a meme-ish stock. Short sellers on SAVA are stuck in 2017 back when they had power and influence and haven't left their echo chamber. The good times for short sellers officially died in January of this year when Citron's Andrew Left was absolutely cuckolded by a bunch of Reddit meme traders out of his GME short position. But apparently the SAVA shorters haven't gotten that memo. Those are just dumb retail traders who know nothing of the science to them. Whether they are dumb or not has absolutely no correlation to their past and continued influence on the market. 2021 has been the year of dumb money. A short seller's inability to recognize and respect really have to think who the real "dumb money" is?

Short sellers had big profits in August as their citizen's letter to the FDA worked and scared enough people to drop SAVA from $120 to $50. That's when they should have taken their victory lap and gotten out. But ohhhh no. Remember, Remi Barbier is their Joe Biden. They won't be happy until he's completely crushed. These guys loaded up on shorts EVEN MORE throughout October at low prices, likely in preparation of Quintessential Capital's short report. And then the Journal cleared SAVA of any data manipulation and the stock spiked 49% the very next day. Hahaha!

Despite the pullback the last couple of days, SAVA shorts are still in a very bad spot. They heavily shorted at bad prices, lost major on the options market last week and pissed off a bunch of retail traders. Any individual retail trader doesn't pose a threat...unless they tell five of their Reddit/Discord/Stocktwits chat room buddies to buy SAVA because some mean people are shorting it and the potential buyer - not knowing or caring about the science or bear arguments one way or another - agrees. SAVA short sellers are one popular Wallstreetbets Reddit poster away from being completely Melvin Capitalized. Some guy hacks Elon Musk's Twitter account to type out "Use Cassava" in a Tweet and the short sellers are completely smoked. It's not sound investing. It's emotional gambling and my bet is that it will fail for them, causing a short squeeze as a result. And it very likely won't have anything to do with Cassava's operational achievements, for better or for worse.

P.S. Gabriel Grego, the man behind Quintessential Capital, is not one of these individuals. I find him to be more of an opportunist than an emotional investor, which in some ways serves him well. My first encounter with him was with his article exposing Aphria. I didn't like the way he conducted himself. He raised some valid points but made mountains out of molehills. Now that Aphria got bought out he took credit for the firm forcing itself to clean up and thus became buyout ready. LOL sure. I don't care for this guy nor do I trust his research. But he is a substantial market player in this. Allegedly he covered his short position the same day the report went out. Real great conviction there. But at least he wasn't married to the short position, unlike the others.

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