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 Thursday, sending the shares soaring.
  • The big stock increase crushed short sellers, who were sitting on a more than $1.2 billion position when the news hit.

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

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

We're talking about short sellers — or investors betting on a Teva stock decline. As of Thursday'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 financial analytics firm S3 Partners.

Screen Shot 2018 02 15 at 9.18.50 AMBusiness Insider / Joe Ciolli, data from S3 Partners

It's likely the unwinding of these positions — also known as a short squeeze — is 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.

RELATED: Check out Warren Buffett through the years:

18 PHOTOS
Warren Buffett through the years
See Gallery
Warren Buffett through the years
Investor Warren Buffett answers reporters' questions during a press conference to announce that Walt Disney will buy Capital Cities/ABC July 31.
Billionaire investor Warren Buffett of Omaha makes a rare public appearance during an autograph session outside Borsheim's Jewelry Store in Omaha, May 4. Buffett was signing autographs for shareholders in his company, Berkshire Hathaway, which is having its annual meeting May 5.
Billionaire businessman Warren Buffett sits with his wife Susan (R) and daughter Susie, prior to the annual Berkshire Hathaway shareholders meeting in Omaha, May 5. This marks a rare public appearance for the reclusive Buffett.
Arnold Schwarzenegger, Republican candidate for governor of California in the October 7, 2003 recall election listens as world famous investor, Warren Buffett (L), one of his financial advisors, speaks to reporters after a meeting of Schwarzenegger's Economic Recovery Council in Los Angeles August 20, 2003. REUTERS/Fred Prouser FSP
Billionaire financier Warren Buffett looks on after a meeting with U.S. Senator Arlen Specter (R-PA) and chairman of the Senate Judiciary Committee, at the Hart Senate Office Building on Capitol Hill in Washington June 29, 2005. Specter is the co-author of a bill seeking to create a $140 billion asbestos compensation fund. REUTERS/Shaun Heasley SH/TC
Billionaire Warren Buffett arrives at the Sun Valley Resort in Sun Valley, Idaho July 10, 2007. The world's biggest media chiefs gather this week at the 25th annual Allen & Co. conference at the resort starting today. REUTERS/Rick Wilking (UNITED STATES)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at a Senate Finance Committee hearing about "Federal Estate Tax: Uncertainty in Planning Under the Current Law" on Capitol Hill in Washington, November 14, 2007. Billionaire Buffett warned of widening U.S. income disparity and endorsed the estate tax as a check on wealth accumulation, while two senior lawmakers said they want the tax repealed. REUTERS/Jason Reed (UNITED STATES)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett greets shareholders during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska May 3, 2008. REUTERS/Carlos Barria (UNITED STATES)
Billionaire investor Warren Buffett laughs as he appears with Microsoft Corporation founder Bill Gates for a town hall style meeting with business students broadcast by financial television network CNBC at Columbia University in New York, November 12, 2009. REUTERS/Mike Segar (UNITED STATES BUSINESS)
Berkshire Hathaway Chairman Warren Buffett kisses his ukulele at the Berkshire Hathaway annual meeting in Omaha May 1, 2010. Buffett played "I've Been Working on the Railroad." REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS TRANSPORT)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett (L) and Microsoft founder Bill Gates gesture at the national launch ceremony for the BYD M6 vehicle in Beijing September 29, 2010. Chinese battery and car maker BYD, backed by Buffett, launched its first premium multi-purpose vehicle (MPV) in Beijing on Wednesday to tap rising demand in the world's biggest auto market. REUTERS/Jason Lee (CHINA - Tags: TRANSPORT BUSINESS)
Billionaire Warren Buffett, wearing a traditional tikka or a red mark on the forehead, speaks during a news conference in Bangalore March 22, 2011. Buffett on Tuesday said he is looking to invest in large countries like India, China and Brazil, but added that restrictions on foreign ownership in India's insurance industry could be a deterrent. Buffett also said and the U.S. economy was improving and that the devastating earthquake in Japan would not hurt global growth. REUTERS/Stringer (INDIA - Tags: BUSINESS)
Berkshire Hathaway Chairman Warren Buffett tours the floor of the New York Stock Exchange September 30, 2011. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)
Berkshire Hathaway chairman Warren Buffett holds his hand over his heart during the singing of the national anthem, at the start of a 5km race sponsored by Brooks Sports Inc., a Berkshire-owned company, in Omaha May 5, 2013, a day after the company's annual meeting. Buffett at the meeting on May 4, 2013 gave the most extensive comments to date about the future of Berkshire Hathaway Inc after he is gone, saying he still expects the conglomerate to be a partner of choice for distressed companies. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS SPORT ATHLETICS)
Warren Buffett, Chairman of the Board and CEO of Berkshire Hathaway, poses for a portrait in New York October 22, 2013. REUTERS/Carlo Allegri (UNITED STATES - Tags: BUSINESS)
Roberta Buffett Elliott sits with her brother Warren Buffett as they attend an announcement ceremony at Northwestern University in Evanston, Illinois, January 28, 2015. The sister of financial investor Warren Buffett has given Northwestern University more than $100 million to create the Roberta Buffett Institute for Global Studies, the largest single gift in the school's 164-year history, the university said on Wednesday. REUTERS/Jim Young (UNITED STATES - Tags: BUSINESS EDUCATION SOCIETY)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015. REUTERS/Kevin Lamarque/File Photo
Warren Buffett, chairman and CEO of Berkshire Hathaway, smiles before speaking with Bill Gates (not pictured), at Columbia University in New York, U.S., January 27, 2017. REUTERS/Shannon Stapleton
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

 

It's also possible that traders have become wary of mounting competition. In October 2017, 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 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 pre-market trading on Thursday.

Screen Shot 2018 02 15 at 9.02.57 AMMarkets Insider

NOW WATCH: Microsoft President Brad Smith says the US shouldn't get 'too isolationist'

More from Business Insider: 
GOLDMAN SACHS: These 17 stocks offer the best bargains in the market right now 
Morgan Stanley's US equity chief explains why the recent meltdown signaled the 'final stage' of the bull market 
The stock market's safety net went missing when it was needed most — here's what that means for the future

SEE ALSO: ALBERT EDWARDS: There's a hidden risk that could accelerate the collapse of the market's long-running 'financial Ponzi scheme'

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.