In a year when the S&P 500 index rose by more than 16% and the Dow Jones industrials rose by more than 7%, short sellers might have been expected to take a beating. After all, betting on stocks to drop when markets are soaring can be problematic.

In a report last week, S3 Analytics noted that the year-over-year mark-to-market change in short interest rose by $282.5 billion in 2020 but that a good deal of that ($174.6 billion) was offset by short sellers having to buy their borrowed shares in order to cover their positions. As the firm put it, “Short-side mark-to-market losses caused short squeezes in many shorted domestic equities/[American depositary receipts (ADRs)].” Ouch.

Short sellers finished the year down $245 billion in aggregate mark-to-market losses (net of financing) for an average return of negative 26%. Given the soaring values of technology and consumer cyclical stocks like Apple, Amazon, Tesla and Nio, it’s no wonder that short sellers had a tough year.

There were winning bets for short sellers, though, primarily in the energy and real estate sectors. In the energy sector, for example, short sellers posted a mark-to-market profit of $17.6 billion last year, while real estate sector profits chipped in another $3.1 billion.

The following table based on data from S3 Analytics shows the 10 most profitable stocks (or ADRs) for short sellers in 2020. Wirecard and Luckin Coffee provided the biggest payoffs after both were hit by financial scandals. The third column shows mark-to-market profit in dollars and the fourth shows the percentage profit to the stock’s average short interest.

	Largest Short Side Winners	Avg Short Interest	MTM P\L $	MTM P\L %
1	Exxon Mobile	$2,201,582,292	$1,285,317,284	58.38%
2	AT&T	$3,907,862,419	$1,264,417,225	32.36%
3	Raytheon	$1,716,844,855	$1,202,108,119	70.02%
4	Luckin Coffee	$360,364,934	$1,066,828,142	296.04%
5	Wells Fargo	$1,234,187,911	$1,031,980,180	83.62%
6	Wirecard	$397,959,678	$868,786,122	218.31%
7	Chevron	$1,625,194,640	$831,376,494	51.16%
8	McKesson	$689,313,948	$814,607,691	118.18%
9	Simon Property	$1,745,105,803	$711,158,820	40.75%
10	Energy Transfer	$521,321,248	$693,871,607	133.10%

The five stocks that posted at least $1 billion gains for short sellers were offset by 52 stocks that posted losses of more than that amount. The largest short-seller killer was Tesla, which accounted for more than $40 billion in mark-to-market losses for short sellers last year. Tesla stock also had the highest average short interest last year at nearly $18 billion. Another big loser for short sellers was Plug Power, which cost shorts just $1.9 billion but a percentage loss of about 285% of average short interest of nearly $680,000.

S3 Analytics sums up the first few weeks of 2021 this way:

[W]e are seeing much the same short activity we had seen in 2020. Total domestic short interest has increased by $51 billion as the markets have rallied and pushed share prices higher. … We have seen $26 million of short covering so far in 2021 in the face of -$78 billion in net-of-financing mark-to-market losses. History may not repeat itself exactly, but so far in 2021 the storyline seems awfully familiar.

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