Anything For You All: Warren Buffett just made life miserable for one group of investors

Warren Buffett just made life miserable for one group of investors

Warren Buffett and Berkshire Hathaway disclosed an almost $400 million stake in Teva Pharmaceutical after the market close on Wednesday, sending the shares soaring.
The big stock increase crushed short sellers, who were sitting on a position of more than $1.2 billion when the news hit.

Warren Buffett's almost $400 million investment in Teva Pharmaceutical made a lot of investors quite a bit of money Wednesday as the company's American deposit receipts surged 11% in after-market trading.

Another group, however, wasn't quite so fortunate.

We're talking about short sellers, the investors betting on a Teva stock decline. As of Wednesday's close, prior to Berkshire Hathaway's disclosure, they held a roughly $1.2 billion short position on the company — one that proved to be a sitting duck once Teva shares started surging.

It's a cruel twist of fate for Teva skeptics, considering they've nearly doubled their short position over the past six months, according to data compiled by the financial-analytics firm S3 Partners.

An unwinding of these positions — also known as a short squeeze — is most likely exacerbating the move in Teva's share price as traders are forced to close their positions by buying the stock.

So why was there so much money riding on a Teva stock collapse? One possible explanation for the increase in short interest is that traders saw Teva's 66% decline over the past two years and viewed the stock as a sinking ship. Short interest normally falls as a stock price does, so it's interesting that investors continued to pile into those bets.

It's also possible that traders have become wary of mounting competition. In October, Teva's blockbuster multiple-sclerosis treatment Copaxone suffered through a rough patch as US regulators approved discounted pricing for generic competitors, while two European companies received approval for their own generic version of the drug.

Buffett's investment in Teva is just one entry into what many expect will be a busy year for the legendary billionaire. UBS recently speculated that the company could make an enormous acquisition of up to $160 billion, considering how much cash Berkshire Hathaway has on hand and how much cash flow it generates.

Teva climbed 9.2% in US premarket trading on Thursday.

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