Despite AMC, GameStop, Analyst Says Death Of Short Selling 'Highly Exaggerated'

Short squeezes in heavily shorted meme stocks such as AMC Entertainment Holdings Inc AMC and GameStop Corp. GME had short sellers facing unprecedented pressures in 2021. The climate was even bad enough to drive some long-time short sellers, such as Citron Research editor Andrew Left, away from short selling altogether.

Berna Barshay, editor and research analyst at Empire Financial Research, said despite all the negative 2021 headlines, short selling is still alive, well and as profitable as ever.

Short Selling Success: In reviewing her top trading ideas of 2021, Barshay said she found she performed better in 2021 on her short calls than her long calls, suggesting the “death of shorting has been highly exaggerated.”

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“Picking shorts has always been a strength for me ... but frankly these results surprised me,” Barshay said.

She found stocks that she warned readers to avoid in 2021 are down an average of 25% since she made her calls, while the S&P 500 is up 7% overall during the comparable periods.

“This is not what I would expect, with the S&P 500 up 24% this year and all the fireworks we saw with short squeezes early in the year,” she said.

Keys To Short Selling In 2021: Barshay’s best short ideas of the year include bearish calls on Peloton Interactive Inc PTON on Jan. 22, Stitch Fix Inc SFIX on April 15, Robinhood Markets Inc GOOD on Aug. 2 and Rent the Runway Inc RENT on Nov. 8. All four of those stocks are down more than 50% since Barshay made her calls.

She said there were two keys to her successful short selling calls in 2021. First, Barshay mostly avoided making calls on meme stocks, which tend to be extremely unpredictable and volatile. Second, Barshay said the overall bullish returns in the S&P 500 are deceptive given so much of the 2021 gains have been concentrated in a small number of big tech stocks, such as Microsoft Corporation MSFT, Apple, Inc. AAPL and NVIDIA Corporation NVDA. In fact, 76 S&P 500 companies are on track to finish 2021 in the red on the year.

Benzinga’s Take: Short selling will always be a large part of a healthy free market in that it is a critical part of price discovery, helps prevent dangerous market bubbles and aids in exposing frauds and bad actors. Yet the countless short squeezes throughout 2021 have been a constant reminder to stock traders of just how dangerous and high-risk those short bets can be.