Market bears who shorted stocks were the biggest winners of 2022, according to S3 Partners.
Shorted stocks had a return of 30.8% in 2022, said Ihor Dusaniwsky, the firm’s managing director of predictive analytics. In other words, short sellers outperformed the broader market, which endured its most significant losses since 2008. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite shed 8.8%, 19.4%, and 33.1%, respectively, last year.
U.S. short sellers pocketed $300 billion in mark-to-market profits on average short interest of $973 billion, Dusaniwsky wrote.
However, things weren’t always in favor of short sellers. For instance, in the past five years, an average annual return for short sellers was a loss of 4.4% while the Dow added 6.8%, the S&P 500 surged 9.3% and the Nasdaq gained 12.5%.
When an investor sells a stock “short” they borrow shares from a broker and sell them in hopes of buying the stock back later at a lower price.
For instance, the best sector to short last year was beat down communication services stocks, which produced a return on shorted holdings of 56.7%. Energy was the worst, and posted a 28% loss on shorted holdings, S3 Partners said.
