Tesla Wasn’t the Only Bad Short Bet Last Year

Short sellers lost more than $200 billion in 2020 betting against companies including Apple, Amazon, Zoom, and Netflix.

Brendon Thorne/Bloomberg

Brendon Thorne/Bloomberg

If more evidence were needed to prove the world went virtual during the pandemic year of 2020, the list of the top 25 losing stock shorts offered it.

During 2020, short sellers lost $245 billion, according to S3 Partners, which tracks the business. And although Elon Musk’s electric car company topped the top-25 losers list for short sellers, the ranking also included a laundry list of online companies like Amazon, Zoom, Netflix and Wayfair.

The second-biggest loser for short sellers was Apple, which cost short sellers $6.7 billion for a 61.7 percent loss, followed by Amazon, which cost them $5.8 billion, a 66 percent loss.

Both companies benefited from the social upheaval caused by the pandemic, which left millions of people at home in front of their computers, both working and ordering everything from food to movies online.

“Most of the highly unprofitable 2020 shorted stocks were tech and\or Covid stay-at-home plays,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, in a new report recapping 2020.

He said the largest shorts were “especially unprofitable with 69 percent of every dollar shorted being a losing proposition.”

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In another example of the phenomenon, it also proved costly to bet against Square, the mobile payments service run by Twitter founder Jack Dorsey. Square cost short sellers $4.7 billion in losses, or a 137.8 percent loss, ranking fourth.

The Chinese e-commerce giant Pinduoduo handed short sellers a $4.8 billion loss, or 183.75 percent.

Other well-known names that surged during the pandemic’s virtual reality included Carvana, the online auto marketer that cost naysayers $3.1 billion, a 110.5 percent loss; Netflix, for a loss of $2.74 billion, or 49.8 percent, and Zoom Video, which cost short sellers $2.6 billion, a 98 percent loss.

Still others that benefited from online activity included Wayfair, the furniture purveyor; Snap (the parent company of Snapchat); and Shopify. Short sellers lost $2.9 billion, $2.5 billion, and $2.2 billion on those three companies respectively.

Rounding out the pandemic theme was Moderna, which developed one of the vaccines approved by the Federal Drug Administration for Covid-19. Betting against the vaccine maker cost short sellers $2.1 billion, for a loss of 128 percent.

But the dollars lost shorting Tesla were by far the greatest of all, coming in at $40.1 billion, a 224.8 percent loss.

S3’s Dusaniwsky added that “short-side mark-to-market losses caused short squeezes in many shorted domestic equities/ADRs.”

The biggest winner for short sellers was something of a flip side to the energy transformation promised by Tesla: Exxon Mobil.

Short sellers made $1.3 billion on the oil giant, as the Covid pandemic stopped the world economy and travel in its tracks, and the price of oil plummeted. Short sellers made a 58.4 percent gain betting against Exxon. Oil companies Chevron and Occcidental were also among the top 25 winners, as were Boeing and United Airlines.

Big alleged frauds also proved profitable for short sellers.

On a percentage basis, the biggest gainer among the top 25 was the alleged fraud of Luckin Coffee, the Chinese Starbucks wannabe which earned short sellers $1.1 billion — and a 296 percent gain.

Luckin’s problems were first brought to investors’ widespread attention by Muddy Waters’ Carson Block, who in January said he had received a report from an anonymous source that accused Luckin of inflating its sales. Block said he found the fraud accusations credible enough to short the stock, and it promptly tanked.

The company recently settled with the Securities and Exchange Commission for $180 million, although it neither admitted nor denied guilt.

Another long-suspected accounting fraud targeted by short sellers that hit the top 25 list was Wirecard, the German financial company that collapsed in June, after which its CEO was arrested.

Wirecard was the sixth-best short, earning short sellers $869 million, or a 218 percent gain. Several short sellers, however, admitted publicly after the company collapsed that they’d been short so long waiting for the company to unravel that they actually lost money on the trade.

Nikola was the other big activist short position that was successful. Short sellers made $484.6 million shorting the electric truck maker, a 112.1 percent gain. Nikola has denied accusations of fraud, but it is under investigation by both the Securities and Exchange Commission and the Department of Justice.

The numbers provided by S3 Partners are marked to market gains or losses, net of financing costs.

Dusaniwsky said that overall short exposure in the U.S. market grew by $108 billion in 2020 to more than $1 trillion. “This rise in short interest masked the fact that short sellers were actively covering their positions into the 2020 rally,” he said.