Investors have recently only been happy with the share of the e-car manufacturer if they have bet on falling prices.
(Photo: Reuters)
The frustration is understandable: While private investors lost a lot of money with Tesla shares due to the high price losses, short sellers made almost 16 billion dollars in profits there with their bets on falling prices.
This can be considered indecent: after all, the stocks on which the short sellers made their profits never belonged to them. They just borrowed them for a fee and sold them outright to buy them back later at a lower price. And then there are uncovered short bets, where shares are sold without first being bought or borrowed.
Tesla boss Elon Musk therefore calls short bets fraud. “You can’t sell houses you don’t own, you can’t sell cars you don’t own, but you can sell stocks you don’t own!? That’s nonsense,” he wrote on Twitter.
You can follow this argument, but you are only looking for an outlet. Actually, the anger about short sellers is completely unfounded.
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In order to explain this, one can approach the matter from two sides. Possibility one: We assume that the short sellers have an influence on the prices. Then you realize that while Tesla suffered from the shorts this year, it benefited from them many years before that.
Because when stocks rise instead of falling, short sellers make losses. Since the bets are only made for a limited period of time, usually a few months, the short sellers have to buy back the stock to prevent an even larger loss. So you act as a buyer and drive the price.
Short sellers lost more than $40 billion in 2020 alone
The more short sellers got it wrong, the more they have to buy back the stock and the higher the stock can go — and at Tesla, a lot of short sellers got it wrong. In 2020 alone, they made a loss of almost $40 billion. Tesla stock rose 730 percent that year. Incidentally, Elon Musk found it so funny that from then on he sold extremely tight Tesla panties in his shop: short shorts.
So if you believe in the influence of short sellers on prices, you have to be thankful for their existence. Possibility two is that one assumes that the short sellers do not move Tesla’s prices at all. Because Tesla is one, if not the most liquid stock in the world. However, only between three and four percent of freely tradable shares are shorted. So the short sellers aren’t powerful enough to move a stock like Tesla on their own.
So if you are frustrated as an investor, you should not dump it on the short sellers. Perhaps the price crash is also due to the fact that the company is currently not being managed ideally. Just an idea.
More: These three issues explain Tesla stock’s plummet