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Why Tesla (NASDAQ:TSLA) shares were last year’s worst short bet

Tesla Inc (NASDAQ: TSLA) shares surged higher last year which saw bearish short sellers book billions in mark to market losses.
The post Why Tesla (NASDAQ:TSLA) shares were last year’s worst short bet appeared first on The Motley Fool Australia. –

most shorted ASX shares

The Tesla Inc (NASDAQ: TSLA) share price had an incredible run in 2020. Shares in the electric vehicle (EV) maker climbed 707.4% higher in 2020 to US$694.78 by year end.

According to an article in The Australian Financial Review (AFR), that made Tesla shares one of the worst short bets on the American market in the last 12 months.

Why Tesla shares were a bad short bet in 2020

Short selling is quite a simple concept. A short-seller borrows shares in a company, sells those shares and waits for the price to drop. The idea is that the short-seller can then buy those same shares back for a lower price after the drop and return the borrowed shares back to the owner with a tidy profit in their pocket.

In the case of Tesla shares, many short-sellers were burned in 2020. As reported by AFR, short interest and securities finance data provider, S3 Partners, crunched the numbers on 2020’s worst short bets.

 S3 calculated that short sellers who bet against Tesla would have recorded mark to market losses of 224% or US$40.1 billion.

It wasn’t just Tesla shares that burned short sellers in 2020. Fellow Nasdaq giant Apple Inc (NASDAQ: AAPL) shares saw investors book mark to market losses of US$6.7 billion, said S3.

The coronavirus pandemic and subsequent bear market emboldened short sellers in 2020. However, record government stimulus across the globe helped prop up consumer spending and keep strong money flows into equities, pushing valuations higher.

That means there were a number of short bets that didn’t pay off for investors in the US market. These also included Amazon.com Inc (NASDAQ: AMZN) and Netflix Inc (NASDAQ: NFLX), which both soared in 2020.

Foolish takeaway

Despite high hopes from short sellers in 2020, equities recovered quickly. Closer to home than Tesla shares, the S&P/ASX 200 Index (ASX: XJO) recorded one of its best quarters on record through to December 2020.

However, short sellers aren’t being deterred by the 2020 experience. In fact, Tyro Payments Ltd (ASX: TYR) continues to fend off short seller attacks in a busy start to 2021.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Apple, Netflix, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon, Apple, and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why Tesla (NASDAQ:TSLA) shares were last year’s worst short bet appeared first on The Motley Fool Australia.

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