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.
The biggest IT-based exchange traded fund by value of assets is the Vanguard Information Technology ETF (NASDAQ: VGT) and it gained 44.7% during 2023. Similarly, the biggest consumer discretionary ETF, the Consumer Discretionary Select Sector SPDR Fund (NYSE: XLY) was up 33.4% in 2023.
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 (NASDAQ: TSLA) - $12.2 billion total net loss
- Nvidia Corp (NASDAQ: NVDA) - $11.2 billion loss
- Apple Inc (NASDAQ: AAPL) - $7.3 billion loss
Cryptocurrency shorting wasn't very profitable either, and also among the biggest equity short losses was Coinbase Global Inc (NASDAQ: COIN), 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 (NASDAQ: MRNA) in second place with total net profits of $1.2 billion and Pfizer (NYSE: PFE) in fourth with $990.4 million as both companies reported dwindling sales and failures to cash in on the weight-loss drug phenomenon that swept players such as Eli Lilly (NYSE: LLY) rapidly higher in 2023.