Steak n Shake Justifies Large Short Interest

| About: Biglari Holdings (BH)

After the close Thursday, Steak n Shake (SNS) announced unfavorable and less than expected earnings and warned that 2008 guidance "should no longer be relied upon". The stock fell 15% Friday.

Awhile back I swapped a successful short in PF Chang China Bistro (NASDAQ:PFCB) for SNS, and with Friday's plunge, I am firmly in the black with this short as well.

A few days back, Tester.com had a story about short squeezes, mentioning SNS, among others. There is a theory about highly shorted stocks that they are susceptible to a big run up if positive news comes out and all the shorts scramble to cover, driving the stock up. Well, that can happen, but more often than not, short sellers have a good read on stocks, on their deteriorating fundamentals, business, etc. and it usually doesn't pay to bet against them - today was one of those times.

Short selling is a craft practiced primarily by savvy, sophisticated investors, so it pays to reconsider buying a stock if it is heavily shorted - they might (must?) know something that you don't.

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