Short Sellers’ Nightmare: $195B Evaporates In 2023’s Market Surge

ZINGER KEY POINTS

• Short sellers had a bad year, with bets on the Mag7 tech giants showing the worst losses.
• The biggest gains were from short selling banks during the regional bank crisis.

In a year when equity markets rallied strongly, short sellers — traders who position for losses on assets — had an extremely tough time in 2023.

Data published on Friday by S3 Partners showed that short sellers in the U.S. and Canada were down $194.9 billion in 2023 — down 20.4% on an average short interest of $958 billion.

These mark-to-market losses of 2023 offset two thirds of the $299.1 billion gain seen in 2022, with the biggest losses coming from the technology and consumer discretionary sectors.

Least Profitable Short Positions

It probably doesn’t need mentioning which were the least profitable short trades — let’s just run through the top three names:

• Tesla Inc — $12.2 billion total net loss
• Nvidia Corp — $11.2 billion loss
• Apple Inc — $7.3 billion loss

After the remaining Magnificent Seven stocks followed a host of Nvidia’s rival semiconductor makers. The Philadelphia Semiconductor Index, was up 65% in 2023.

Cryptocurrency shorting wasn’t very profitable either, and also among the biggest equity short losses was Coinbase Global Inc, the crypto exchange, which lost short sellers $4.9 billion as the stock soared 341% higher in 2023.

Where Did Short Sellers Make Any Money?

There were a few high-profile bankruptcies in 2023 which allowed short sellers some easy pickings from low-hanging fruit.

The collapse of First Republic Bank — the second such banking failure during last year’s regional bank crisis — provided shorts with the biggest opportunity.

From average short interest of $194.3 million, the total net profits reaped from the rapid share price decline and eventual demise of First Republic were $1.63 billion.

The third-biggest total net gain was $1.06 billion from average short interest of $218.2 million, on short bets during the demise of Silicon Valley Bank, the first regional bank to collapse back in March.

In second and fourth places came a pair of pharmaceuticals companies. Moderna in second place with total net profits of $1.2 billion and Pfizer in fourth with $990.4 million as both companies reported dwindling sales and failures to cash in on the weigh-loss drug phenomenon that swept players such as Eli Lilly rapidly higher in 2023.

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Originally Posted January 5, 2024 – Short Sellers’ Nightmare: $195B Evaporates In 2023’s Market Surge