Short selling is not for those seeking a stress-free life

Stocktake: Shorts had to pay high interest fees in order to bet against Wirecard

Shorts have to get the timing right to guard against potentially unlimited losses. Photograph: iStock

Shorts have to get the timing right to guard against potentially unlimited losses. Photograph: iStock

 

Short sellers banked billions following the collapse of disgraced German payments giant Wirecard. However, don’t think it’s easy to profit from falling share prices – it’s anything but. In a Financial Times interview last week, Ennismore Fund Management’s Leo Perry confirmed his $500 million fund only made profits of about $10 million after six years of stressful investigative work. In fact, the fund would have lost money were it not for a few final bets made after – not before – revelations of a €1.9 billion accounting scandal.

Shorts had to pay high interest fees in order to bet against Wirecard. They also had to watch the stock skyrocket from €30 in 2014 to over €190 in 2018. Investors who buy undervalued stocks can patiently wait out market declines, whereas shorts have to get the timing right to guard against potentially unlimited losses. To quote Perry, “I wouldn’t recommend short selling if you want a stress-free life.”

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