The 2021 GameStop Corp. (ticker: GME) short squeeze sent shockwaves through the financial world, dealing major blows to hedge funds that massively shorted the stock. The event exemplifies the investment strategy’s significant risk, making it unsuitable for the average investor.
But despite all odds, some short sellers have proven themselves by rooting out poor business practices and other weaknesses in their targets, making substantial profits as a result.
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Let’s dive into the gripping stories of these eight prominent short sellers who have mastered the art of the trade, earning lucrative rewards and shaping the course of the investing world:
— Jesse Livermore
— Jim Chanos
— Andrew Left
— David Einhorn
— John Paulson
— Bill Ackman
— Carson Block
— George Soros
Jesse Livermore
Born in 1877, Jesse Livermore was a savvy investor who gained notoriety for anticipating and profiting from market downturns. One of his largest shorts was during the 1929 stock market crash, accurately predicting the decline of stock prices. His large short position brought him $100 million, establishing his reputation as one of history’s greatest investors and earning him the moniker “The Great Bear of Wall Street.”
Jim Chanos
Jim Chanos is a distinguished American investor and the founder of Kynikos Associates, a hedge fund that focuses on short sales. With over three decades of experience, Chanos is skilled in identifying overvalued companies with weak financial stability and a record of fraudulent practices that go under the radar.
He successfully implemented short-sale positions in companies such as Baldwin-United Corp. and Tyco International PLC. He was also one of the few that accurately predicted the downfall of the subprime mortgage market. However, his most successful trade was with Enron Corp., an energy company.
Chanos noticed concerning information in the company’s financial statements, including disclosures about offshore entities and questionable accounting practices. As a result, Chanos and his team at Kynikos Associates executed a short position against Enron in the 2000s and successfully profited while the company collapsed under its accounting scandals in one of the biggest financial fraud cases of the century.
Andrew Left
Citron Research founder Andrew Left has made a name for himself as a short seller. Left is known for his meticulous research and asset analysis. The investor identifies overvalued companies with weak fundamentals and a track record of fraudulent practices.
One of his best-known shorts involved Valeant Pharmaceuticals International Inc., a multinational pharmaceutical company. In October 2015, Left launched a report that accused the company of price gouging. The report also alleged that Valeant Pharmaceuticals falsified invoices and used a pharmacy called Philidor to inflate its product sales.
As a result, Valeant Pharmaceuticals’ stock dropped more than 39% after Left’s email subscribers received the report.
David Einhorn
David Einhorn is a well-known hedge fund manager, investor and co-founder of Greenlight Capital alongside Jeff Keswin in 1996. Einhorn is a value-oriented investor, but his contrarian investing ideas set him apart from the crowd. The investor has made successful short calls, including his 2011 short of Green Mountain Coffee. His most notable short sale, though, was on Lehman Brothers.
In 2007, Einhorn criticized Lehman Brothers, an international financial services corporation, for its questionable accounting practices. The investor’s statement resulted in a loss of confidence in the bank. Einhorn’s market influence is so powerful that the term “Einhorn Effect” was coined to characterize the rapid shift of a company’s share price in response to his commentary or trading activity.
As Einhorn predicted, Lehman Brothers collapsed amid the subprime mortgage crisis.
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John Paulson
John Paulson, founder of Paulson & Co., earned his reputation by capitalizing on market shifts. One of his most remarkable short sales was against subprime mortgages in the wake of the 2007 credit bubble, catapulting his status from relative obscurity to a prominent figure in the financial world.
To get a sense of the extraordinary nature of his trade, Paulson yielded $1.25 billion on a single morning in 2007 when New Century, a subprime lender, announced it was in financial trouble. The transaction also made his hedge fund an outstanding $15 billion in 2007 alone.
Bill Ackman
Bill Ackman, CEO and founder of hedge fund Pershing Square Capital Management, has attracted sizable attention as an activist investor. His calculated short against the wellness company Herbalife was perhaps his watershed moment, catapulting Ackman into the spotlight.
In 2012, the investor announced that his firm had taken a $1 billion short position in Herbalife. In Ackman’s three-hour presentation called “Who wants to be a millionaire?” he claimed that the company’s business structure was a pyramid scheme, pointing out that its recruitment sales make more than its product sales. On the same day, Herbalife’s shares dropped more than 10%.
Ackman’s short was unsuccessful, however, as the Federal Trade Commission took action against the company but allowed it to continue doing business. His research resulted in Herbalife agreeing to pay $200 million in consumer relief and enacting considerable reforms in its business practices.
Carson Block
Carson Block is the CEO and founder of Muddy Waters Research, an activist investment firm that conducts research on global companies.
Block is best known for his successful short of Canadian-listed Chinese timber company Sino-Forest Corp. Block launched a report alleging the company of fraud. Muddy Waters concluded that Sino-Forest was essentially acting as a Ponzi scheme, as the company raised funds from investors without paying anything in return.
While the precise financial results of the short sale have not been publicly disclosed, Block’s research firm single-handedly caused the company to collapse. Since then, the investor has taken short positions on other Chinese companies, helping to improve transparency and accountability in the market.
George Soros
George Soros was born in Hungary and moved to the U.K. in 1947 to study at the London School of Economics. In 1970, he founded his U.S. hedge fund Soros Fund Management. Soros is best known for his incredible short sale of the British pound in 1992, an event which led to its devaluation and became known as “Black Wednesday.”
Soros believed that the currency was overinflated compared to the German mark under the European Exchange Rate Mechanism, or ERM, and placed a $10 billion bet against the pound. As a result, the British government increased interest rates to prevent the pound from falling, but the country was eventually forced out of the ERM. As a result, Soros made a profit of $1 billion from the short sale and became known as “the man who broke the Bank of England.”
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8 Most Famous Short Sellers in History originally appeared on usnews.com
