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Short Selling is an investment strategy where investors sell borrowed shares, anticipating the price will drop and they can buy them back at a lower cost, making a profit from the difference. Short selling can be a profitable strategy, but it's inherently risky as potential losses are theoretically unlimited. Understanding the Basics A Short Squeeze occurs when a heavily shorted stock's price suddenly rises sharply. This rise forces short sellers to buy the stock back (cover their positions) to avoid further losses, causing a demand surge that pushes the price even higher. The Mechanics of a Short Squeeze Short Squeezes are usually triggered by positive news or trends that lead to an increase in a stock's price. This might include unexpected earnings growth, a new product launch, or broader bullish market sentiment. When short sellers begin buying back shares to cover their positions, a cascading effect ensues. As more shares are bought, the price rises, triggering more short sellers to cover their positions, thereby accelerating the price surge. For instance, let's recall the Volkswagen Short Squeeze of 2008. Porsche's announcement that it increased its stake in Volkswagen triggered the squeeze. As the share price soared, short sellers had to buy back shares at significantly higher prices, further driving up the stock price. If you're interested in breaking into finance, check out our Private Equity Course and Investment Banking Course, which help thousands of candidates land top jobs every year Identifying Potential Short Squeezes Identifying potential short squeezes is a multi-dimensional process that involves the examination of several key factors. To thoroughly understand these factors, let's dive deeper: High Short Interest Ratio The short interest ratio, also known as the "days-to-cover" ratio, is a key metric that may indicate the potential for a short squeeze. It is calculated by dividing the number of shares currently shorted by the average daily trading volume of the stock. A higher ratio implies that it will take a greater number of days for all short sellers to cover their positions, given the current average volume. A high short-interest ratio suggests that the stock may be oversold and that a significant price increase could be on the horizon. However, a high short-interest ratio on its own is not a definitive sign of an imminent short squeeze. It should be used in conjunction with other indicators for a more accurate prediction. Low Float Stocks The term "float" refers to the number of shares of a particular company that is freely available for trading by the public. A low float implies that there are a relatively small number of shares available for trading. In such situations, any significant change in demand (such as a sudden surge of buying interest) can disproportionately affect the stock price. Stocks with a low float are often more volatile and more susceptible to price manipulation. Therefore, they are more likely to experience short squeezes. However, a low float on its own does not guarantee a short squeeze will occur. Other factors, like market sentiment and news about the company, will also play significant roles. Positive News and Market Sentiment Short squeezes often get triggered when there's unexpected positive news about the company or the industry it operates. This could include stronger-than-expected earnings reports, a new product launch, regulatory approvals, or even rumors about potential mergers and acquisitions. On the other hand, collective market sentiment plays a critical role. The GameStop saga, for instance, was fueled by bullish sentiment among a large group of retail investors on the Reddit community r/WallStreetBets. Their collective buying spree drove the price up, triggering a massive short squeeze. Stock Lending Data Stock lending data can provide insights into the cost of borrowing shares for short selling and how many shares are currently on loan. A rise in borrowing costs and the amount of shares on loan may signal a potential short squeeze. If borrowing becomes more expensive and fewer shares are available to loan, short sellers may be forced to close their positions, potentially triggering a squeeze. The Implications of Short Squeezes Short Squeezes can create dramatic market movements. They not only affect investors involved in the short positions but also create ripple effects throughout the market. The GameStop Short Squeeze led to significant losses for hedge funds and amplified discussions around market manipulation, sparking regulatory scrutiny. Such incidents emphasize the importance of risk management and ethical considerations in finance. Conclusion Short Squeezes, while complex, can be navigated effectively with the right knowledge and tools. As finance professionals, we must understand these market mechanisms to safeguard our interests and foster ethical trading practices.

One of the most common qualitative questions you need to prepare for when interviewing for investment banking is “Why Investment Banking?”. After the interviewer has asked you to walk you through your resume, it is very common that they’ll either ask you “Why this firm?” or “Why Investment Banking?”. It’s also quite common that you’ll get asked all three of these questions in some shape or form. If you have solid and thoughtful answers to these three questions, you’ll be mostly ready for the qualitative side of your interviews. Ideally, the three answers will collectively touch on the same themes and tell a relatively cohesive story: Walk me through your resume (your full story and key work experiences) Why investment banking (why your past experiences and aptitudes logically lead to a career in investment banking) Why this firm (why out of all the investment banks, you prefer this one the most) It can be helpful to think of it a little bit like a funnel, where you start from the broadest job experiences you’ve had, narrowing to the ones that pertain to investment banking, and finally the ones that relate specifically to a single firm. If you'd like to learn how to answer all of the Big 3 qualitative questions, you should check out our Investment Banking Course. How to Answer This Question I generally think you shouldn’t try to re-invent the wheel when answering this question. I think there are well understood benefits to a career in investment banking and it’s really about picking the combination of elements that most sensibly fit in your story. And as always, a good answer to a qualitative question will be personal, authentic-sounding, and draw upon unique elements in your life. As discussed, in our “Why this firm?” post, a good, comprehensive answer to a question like this will: Be 30-60 seconds in length Be described in 2 or 3 discrete points Relate to unique personal experiences or characteristics I think this question is better when answered more concisely. I aim for 30-45 seconds, in which you’ll spend 15-20 seconds on each point you bring up. Importantly, you’ll also want to bring up specific details in your life that reinforce your answer. It’s best if you can bring up a discrete point and then provide some tangible data that makes it seem true. For example, if you’re the president of the investment banking club… you can very believably say how you’ve met with many people in the industry and how your conversations have inspired you to work on complex deals. “I’m very interested in working on complex transactions and I think investment banking is the best environment for me to train that skill. I’m currently the president of my university’s investment banking club and have been fortunate enough to speak with many alumni in investment banking. My favorite thing from those conversations is hearing about the nuanced nature of their deals and how they constantly have to manage multiple stakeholders.” Or maybe you did an internship with a company that was in the process of raising capital (very common for startups). You can spin that into an enticing point for investment banking. “Last summer, I had the opportunity to intern for a tech startup that was doing their Series C financing. I was extremely excited by the financing process and was really impressed with how efficiently the investment banking advisory team handled our capital issues. That experience got me really interested into the corporate finance mechanism of business and it’s something I want to continue exploring in investment banking.” Common Answers Below are some of the most common answers to this question. What you need to do is pick a few that you can most believably discuss and that you can also tie to a specific experience or trait of yours. I would try to pick 2 or 3, depending on how much content and support you have for each one. Common Answers for “Why Investment Banking” Learning experience Fast-paced environment Relevant internship / club experience / personal experience Opportunity for lots of responsibility at a young age Interface with executives from different companies Exposure to different business models and industries Exposure to raising capital, capital markets, corporate development, M&A, IPOs, financial forecasting (can each be a different point) Lots of modeling experience Intimate exposure to Excel, PowerPoint Deal making involves coordinating different stakeholders Learn about how transactions come together Work with the largest companies in the world Help give strategic advice to companies when they need it most Learn how to dynamically work with different teams Learn about client servicing Want to work with smart and motivated people There are likely many more, but this probably covers 90%+ of what most people will say. I would recommend picking from this time-tested list and no one will dock points from you for being relatively ordinary. Where you can shine and be more creative is with how you connect these points to individual events in your life. It’s a bad answer if you say that you just want to learn a lot. But if you say that you got to shadow someone at a hedge fund last year and your favorite aspect was the ability to interact with many different businesses, then you’ll have a much better answer. Watch Out for Potential Contradictions The only other real thing to be mindful of is to make sure that your answers don’t contradict your own experiences or story. For example, if you have multiple private equity internships, you may not want to say that you want to do investment banking because you want a greater sense of ownership in your work. The prevailing thought being that you tend to have more ownership in private equity because you stick with companies for the longer term. If you’ve never had a finance internship, you should make sure your language reflects that. Don’t speak too confidently about what it’s like to work in the capital markets or how you’re completely confident you want to work on investment banking deals for the rest of your life. The main point is that your reasons should be believable. If you’re interviewing with a firm like Centerview who discourages buyside recruiting until you do 3 years, you may want to be careful about what experiences you dwell upon. You need to tell a believable story that you genuinely want to do investment banking. More Examples Feel free to combine multiple pros into a single reason for “Why Investment Banking”. It may make the answer flow a bit more naturally. Also, always try to sprinkle in details that flatter the interviewer’s firm if it feels organic. Here are a couple of more examples that you can steal and / or repurpose: “I’ve been extremely interested in investment banking ever since a freshman event where we visited New York. We got to meet with a number of different firms, actually including your TMT team at Barclays. I remember being really excited by your company’s work environment and the caliber of people on your team. I’ve kept in touch with a few of the analysts on the team and think it’s the best place for me to learn corporate finance and contribute.” “I’m doing a financial modeling specialization at school and am really interested in furthering that skillset. I think investment banking is going to give me the greatest number of opportunities to further develop my modeling abilities, while also teaching me fundamental business analysis. In particular, I think your firm’s exposure to software businesses is precisely the kind of modeling I want to learn.” “The thing I’m most excited about in investment banking is the deal-making. I think it’s fascinating that you’re able to work with different stakeholders and negotiate over large businesses and assets. I was on my high school debate club and have worked in various sales roles, so I’ve come to appreciate the importance of strategic negotiations and want to be in a role where I’m exposed to that on a daily basis.” “I’ve been interested in the capital markets for several years and think that being in an IPO-driven firm like yours would be extremely interesting. I’ve read several books and taken several courses at school on the capital markets. Specifically, I took a course with Professor Aswath Damodaran at NYU, which taught me how interesting complex transactions can be.” “I was an intern to the chief of staff at a Series D technology firm last summer and one of my favorite aspects of that role was the exposure to senior-level executives. I also got to interact with many different functions including strategy, corporate development, and financial planning. I think investment banking will allow me to continue working with high-level executives while teaching me about various parts of the corporate world.”