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Those shorting stocks during the COVID-19 pandemic have made more than $50 billion in profits. Billionaire Bill Ackman recently said that activist short sellers are far more efficient than regulators at unearthing corporate frauds, and that regulators should work with short sellers. Here we take a look at the top 10 best performing activist short calls in the first half of 2020 that paid off big time.
Shorting stocks is a challenging business, especially during an economic crisis when regulators try to restrict short selling. But a crisis also brings tons of opportunities for short sellers.
Short sellers bet that a stock is going to fall. They borrow shares of a stock and sell them, hoping that it would tumble within a specified period. When it falls, they buy from the open market at dirt cheap prices and return the borrowed shares to the lender, pocketing the difference.
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J Capital was the most successful short seller
Breakout Point has compiled the list of best activist short calls that originated in the first six months of 2020. They registered 91 new short campaigns in H1 2020, up from 84 in the same period last year. Notably, just eight short sellers accounted for 54% of the published short campaigns.
J Capital Research has been the most successful activist short seller in the first half of this year. Four of its target stocks declined 28% on average after J Capital published the report.
Here JCap’s next short idea this August 11th!
Best performing activist short calls
These are the top ten best performing activist short calls of H1 2020, based on stock performance following the release of the report.
Quintessential Capital Management (QCM) targeted Akazoo (SONG) at the Contrarian Investor Virtual Conference in April. The short seller alleged that Akazoo management was running a pyramid scheme. The allegations turned out to be true and the stock collapsed to zero. An internal investigation also concluded that the company management “participated in sophisticated multi-year fraud.”
Three wolves, one target
The next three best performing activist short calls targeted a single company: The Starbucks of China. Luckin Coffee Inc. (LK)’s growth rate had shocked the Wall Street. In January, Carson Block-led Muddy Waters Research published a scathing but anonymous report saying Luckin Coffee was a “broken business” engaged in an accounting fraud.
Just days after Muddy Water’s report, a previously unknown short seller called Ash Illuminations Research published its own thesis targeting the Chinese company. Around mid-February, J Capital Research declared that it was also shorting the stock.