Are short sellers in their final days?
Short selling has always been a tough way to make a living on Wall Street. Warren Buffett once mused that there were no short sellers on the Forbes 400 list of the wealthiest Americans.
Those who dare go against the market face the threat of litigation and private investigators. As Buffett noted, their targets are also highly motivated to keep their game going as long as possible.
Even established short sellers such as Enron’s foil Jim Chanos have thrown in the towel. Trying to call out bad behaviour when the stock market is hitting new highs is a little like entering a party and telling everyone to turn down the music. No one wants to hear it.
Nathan Anderson of Hindenburg Research is the latest to call it quits, announcing on Wednesday that his firm would be disbanding after seven years running.
He appears to be going out on a high note, calling time after he gripped financial markets with a series of high-profile short bets, most famously his probes of Nikola Motors in 2020 and Adani Group, which began in 2023.
Two months ago, Adani was charged by prosecutors in New York over what they said was a long-running bribery scheme. It appeared to vindicate many parts of Hindenburg’s crusade, which roiled Indian financial markets.
Adani has called the allegations “baseless” and said it was seeking all “possible legal recourse”.
For Anderson, the trade has bookended a short career in which his star burnt bright, thanks to the proliferation of dubious businesses taken public in 2020 and 2021 through special purpose acquisition vehicles.
Many of Anderson’s targets are now virtually worthless, though a few like Carvana, his most recent bet, have seen their shares surge.
His withdrawal has created yet more questions about the future of short selling, particularly so-called activist short sellers who publish detailed research on their targets after they have put on positions betting on their decline.
In recent years, the practice has drawn deep scrutiny, partially because of how little money they have left to bet against companies. Researchers such as Hindenburg had turned to other funds to bankroll their trades.
The US Department of Justice subpoenaed many short sellers as part of a dragnet of the practice, but Hindenburg was left untouched by the probe. The dizzying way in which short bets are funded has led to rising internal industry dissent.
“All of us are figuratively speaking looking into the abyss,” one prominent short seller told DD. “All of the short sellers are at each other’s throats on Twitter. I equate it to playing the fiddle while Rome is burning.”
The political backdrop’s also crucial: US president-elect Donald Trump is promising a deregulatory push that may make shorting even harder. He’s also being advised by Elon Musk, whose company Tesla arguably has led to the greatest short selling losses in history.
Fittingly, perhaps, Anderson announced his retirement just days before Trump’s inauguration.