Short selling has been around for centuries. Dutch traders were shorting tulips at the peak of the Tulip Mania during the 1630s. But short selling stocks these days has become far more complicated. For one, the stock market has typically gone up in the long-run. Regulators also tend to step in to restrict short selling in one way or the other, especially during a crisis. But some activist short sellers have generated stellar returns on their campaigns. Here we take a look at the activist short sellers with the highest average campaign returns between 2013 and 2020.
Top short sellers campaign returns
Short sellers make money by betting that a stock is going to fall. They borrow shares of a stock and immediately sell them, hoping that the stock is going to tumble within a specified period. When it falls, the short seller buys from the open market at dirt cheap prices and returns them to the lender. The short seller pockets the difference. But if the stock in question marches higher instead of falling, the short seller is going to incur a loss on the campaign.
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Being threatened by regulators and the companies they are shorting is part of the job. Last year, German regulators banned short selling of Wirecard shares despite there being indications of foul play. Shorts argue that they keep companies and markets honest. But they have also been accused of manipulating the market to bring down a stock.
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Mostly, it's the institutional investors and hedge funds that short stocks to hedge their bets. But activist short sellers target companies that they believe have shady business and accounting practices. Bluntly put, activist shorts are far more efficient than regulators at exposing corporate frauds and accounting frauds.
Once activists have identified a target, they go public with their campaigns. They publish their reasons for shorting to gain public support in hammering down the stock.
The list below is based on data from Activist Insight Shorts. We've listed the top short seller with the highest average campaign returns by year. Only short sellers with at least three campaigns in a given year have been considered for this post.
2013: The Street Sweeper (average campaign return: 46.57%)
The Street Sweeper is an activist short seller focused on exposing corporate fraud. It had been targeting Miller Energy Resources since 2011, and announced in 2013 that it was shorting the East Tennessee-based oil and gas company's stock. This campaign generated 99.92% return for The Street Sweeper. In total, its average campaign return in 2013 was 46.57%.
2014: Alpha Exposure (68.97%)
Alpha Exposure is an anonymous short seller with an impressive track record. The activist short shares their thoughts and insights on Seeking Alpha. According to data from Activist Insight Shorts, Alpha Exposure had the highest campaign returns of all short sellers in 2014. Just to be clear, a positive campaign return means a decline in the stock price.
2015: Bleecker Street Research (80.15%)
Started by a 21-year-old college kid named Chris Drose, Bleecker Street Research was less than a year old when it targeted companies like Galectin Pharmaceuticals, Vimicro International, and AAC Holdings. Shares of AAC Holdings plunged more than 50% after Bleecker Street Research published its report on the company.
2016: Volmanac (69.22%)
Volmanac is a fundamental/value investor. In August 2016, Volmanac Research issued a report targeting Nasdaq-listed renewable chemicals and advanced biofuels company Gevo. Volmanac anticipated Gevo to file for bankruptcy or announce a restructuring within three weeks. In just a few days, the stock fell from $10.50 to under $0.50 per share.
2017: Alpha Exposure (50.73%)
Alpha Exposure topped the charts again in 2017 with a handsome 50.73% in campaign returns. The anonymous short seller started targeting Indian film studio Eros International in 2015. It published a series of reports accusing the company of questionable related party transactions and accounting fraud. The vehement attack from Alpha Exposure and other short sellers caused a 50% decline in Eros International's share price by 2017.
2018: White Diamond Research (72.39%)
White Diamond Research was the top short seller by campaign returns in 2017. It focuses primarily on tech and healthcare sectors. White Diamond's bold campaign against Orchids Paper Products returned a staggering 99.7%. Orchids Paper Products makes consumer tissue products. The company began facing financial challenges in 2016. White Diamond Research was shorting it with 100% downside target.
2019: Muddy Waters Research (58.46%)
Carlson Block's Muddy Waters has a knack for launching an all out assault on the companies it is shorting. Muddy Waters is one of the most active short sellers, according to Activist Insight. Its best short calls in 2019 were against the hospital operator NMC Health, litigation financier Burford Capital, and medical devices company Inogen.
2020 so far: J Capital Research (34.04%)
The year 2020 isn't over yet. A lot could change in the next few months. But as of July 14, 2020, J Capital Research is in the lead, having generated 34.04% in campaign returns. It focuses mainly on China-based companies. Earlier this year, both Muddy Waters and J Capital Research announced that they were shorting the Chinese coffee chain Luckin Coffee. After its fraudulent accounting practices came to light, Luckin Coffee shares have plummeted more than 90% year-to-date. Nasdaq has halted the trading of its shares.
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