Short Sellers Got Burned By Stocks’ 2019 Rise

Short Sellers Got Burned By Stocks’ 2019 Rise

about 4 years ago2 mins

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2019 was the best year for global stock markets since the last financial crisis: the US **S&P 500 *index, for example, rose nearly 30%. That was great for most investors – but not for the handful who’d bet against* stocks’ rise 😬

What does this mean?

Horseman Capital Management is one of the world’s best-known contrarian investors: its biggest fund has now been betting against markets going up for seven straight years. Stocks however, have instead risen on a more-or-less-consistent basis – leaving Horseman increasingly out on a limb.

The main fund’s manager has still managed to make money most years...
The main fund’s manager has still managed to make money most years...

The UK-based hedge fund upped its “short” positions in November, leaving it with twice as much money staked on prices falling as it had on prices rising. But with stocks stubbornly refusing to drop, 2019 ended up as Horseman’s worst year ever. Its main fund’s value declined 35% – and investors pulled almost half of the cash they’d entrusted to the firm 🤦‍♂️

Short sellers like Horseman may now be reconsidering contrarian bets against one favorite target in particular: Tesla. The electric carmaker’s share price rose 6% to hit a new high on Friday after it revealed a record number of vehicle deliveries last quarter.

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Why should I care?

“Fundamental analysis” – read our Pack on Warren Buffett for more on that – currently shows many stocks to be overvalued compared to their underlying earnings. But interest rate cuts and recently revived “quantitative easing” from central banks have propped up markets.

The past decade has been good for the S&P 500 – just don’t mention 2008 (Source: Macrotrends)
The past decade has been good for the S&P 500 – just don’t mention 2008 (Source: Macrotrends)

All good things come to an end, however – and if Horseman is still standing when they do, it could be in for some serious vindication. Indeed, most of the world’s richest investors expect a “significant” market slump in 2020, according to UBS Wealth Management 😯

Whether you agree or not, check out our Pack on The Next Recession for some ideas about what a downturn might mean for_ your_ investments…

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