What happened

Shares of real estate investment trust (REIT) Tanger Factory Outlet Centers (NYSE:SKT) fell as much as 14% in early trading today. At around 1 p.m. EST, the stock had pared those losses but was still down a sizable 9% or so.

So what

There are two stories taking shape at Tanger, which owns a collection of outdoor outlet centers. The long-term story is that the retail sector has been struggling through a difficult period marked by a combination of the so-called "retail apocalypse" and the coronavirus pandemic. With companies closing physical stores or, worse, going bankrupt, REITs like Tanger have been left trying to find new tenants. It's a slow process in the best of times; today, retenanting a property is even more difficult.

Three women with bags shopping in an outdoor retail area.

Image source: Getty Images.

But that's the fundamental story behind Tanger's situation. It's only partially related to the story that's driving today's drop. Indeed, the long-term headwinds that Tanger has been facing resulted in a large short position in the stock, prompting a prominent Reddit message board to attempt a short squeeze. At one point just a few days ago, the stock rose up more than 75% for the year. Including today, however, the shares have now fallen 26% from that high. Over the last five days alone, the stock is down around 18%. It looks like the Reddit board speculators have moved on, and Tanger's fundamentals are again taking center stage. As you would expect, the shares are falling back toward their pre-short squeeze prices. 

Now what

This is what the other side of a short squeeze looks like: Someone bought the shares when they were at their peak, and that investor may now be sitting on sizable losses. Wild events, like the short-squeeze mania that has been occurring of late, are exciting, but getting caught up in the melee can be costly if you are the last one left trying to get out of the trade. Long-term investors should probably continue to avoid Tanger until this manic moment is clearly over. That said, take the time to consider what has happened here; there's an important investment lesson to learn.