CNBC: Why most short sellers lose money

Jan. 27, 2021

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"Short sellers have obviously picked the wrong stocks in January," CNBC's Bob Pisani says. He adds that the current short squeezes can teach us about short sellers in general. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi Short sellers on the ropes — or are they? Short sellers clearly have picked the wrong names in January. The GameStop phenomenon — where buyers deliberately target heavily shorted stocks — is only the most recent development in a long series of failures from short sellers. But don’t count them out. Most short sellers lose money The market’s relentless rally has not been kind to short sellers for many years. For all the attention that is put on superstar short sellers, most of these managers lose money. Equity shorts lost $243 billion in 2020, a return of negative 26%, according to S3 Partners. This month, their performance is even worse. In January alone, they are down $91 billion, according to S3. And while traders often focus on stocks that have made money for short sellers due to being in sectors that were out of favor (ExxonMobil) or had accounting irregularities (Luckin Coffee and Wirecard), most shorts do not succeed. In 2020, 57% of all securities shorted lost money. Sixty-eight percent of every dollar bet lost money. “The biggest enemy of short sellers has not been Robinhood or Reddit chat rooms, it’s been the Federal Reserve and stimulus, which have pushed most stocks higher. It’s not a value market, it’s a momentum market, and they [short sellers] are on the wrong side of the momentum,” said Ihor Dusaniwsky of S3 Partners. Given the beating short sellers have been taking, it’s not surprising that the dollar value of stocks shorted compared to the dollar value of the S&P 500 is at its lowest level in several years, according to Goldman Sachs.