Hedge funds lose billions trying to short sell the markets

For those of you out there that think shorting the market is an easy thing to do, this interesting piece of information was released this week.

Shorting the market is when a trader bets on an index or stock going down rather than up. Most short selling is done in single stocks, but shorting an index can be a lot simpler and quicker to do.

Even those who consider themselves to be the best players in the market have had trouble calling the shorts this year.

Hedge funds have lost more than?$6bn?this year betting against cruise lines and hotels after underestimating the resilience of US consumers. Cruise lines Royal Caribbean and Carnival are two of the 10 most heavily shorted companies in the S&P 500 but have confounded short sellers’ expectations by more than doubling in value so far this year.

Short sellers — typically hedge funds — aim to make money by selling borrowed stock and buying it back at a lower price when the shares decline. The sharp rally in cruise lines and other holiday accommodations, however, has left them sitting on $6.4bn of mark-to-market losses, according to data from S3 Partners.

Carnival, Royal Caribbean and smaller rival Norwegian accounted for $2.9bn of the losses. Large short positions in Airbnb, which has rallied 70 per cent year to date, and Booking.com, which is up 44 per cent, have also inflicted big losses.

Many US investors started the year expecting an impending recession, encouraging them to avoid sectors that would be exposed to a downturn in consumer spending. However, economic growth has remained resilient in the face of higher interest rates, boosting confidence about the chances of a “soft landing” — bringing down inflation without causing a recession.

Going short the market is a very dangerous and difficult thing to do. Historically, equity markets increase in value over time, but, this never happens in a straight line. This has been more evident over the last few years than ever.

The pandemic, the invasion of Ukraine, soaring inflation, a banking crisis and rising interest rates have all caused a certain amount of panic recently. But timing is never easy and what you expect to happen, isn’t always what actually happens.

Leader Board - Top Trading Strategy?

The traders on TPP tend to short certain markets from time to time, often against a long position elsewhere, but very occasionally they will outright short.

This can take patience, but when they’re right, it can be very profitable indeed.

Active trading is a skill, and decisions can often take time to play out. At TPP our traders are tasked with making returns over the year, not the day, or the week.

Closing comments:

Short selling is definitely a skill, and it's also a move that takes patience. Whilst many hedge funds have taken aggressive sell positions against what they perceived were weak sectors,?many of them are now paying the price in losses.

Fighting the markets is one of the quickest ways to lose your shirt. Every year many hedge funds get to understand this the hard way.

At TPP many short positions are taken over the course of the year, but typically only on our?'equity long/short' and active trading strategies.

Short selling isn't for everyone, but it is a valuable tool when used correctly.

At TPP our strategies tend to be broken down into the following categories:

• Tracker strategies
• Long or Flat strategies
• Equity Long/Short/Active strategies

The trackers are there to profit over the mid/long term. Markets increase in value over time, and so will our tracker strategies. However, we also offer a small amount of leverage on them. Therefore, if you are expecting the FTSE to increase by 7% per annum over time, why not employ 2 x leverage and yield 14% per annum??Why doesn't your wealth manager offer this?

The long or flat strategies tend to evolve into a market neutral stance when markets look over bought. For example, if the FTSE 100 was trading at 7800 and we believed that was the top of the range, our strategies might go 'market neutral' and wait for a drop. Buying back in at 7500 is a surefire way to consistently beat your benchmark.?Why doesn't your wealth manager offer this?

With our active strategies, opportunities are sought in many markets and in any direction. Have a look through some of our strategies and you'll see buys and sells in multiple markets. Active strategies take on a little more risk and volatility, but expect to yield a little more per annum.?Why doesn't your wealth manager offer this?

Although at TPP we offer a multitude of different strategies and trading techniques- they all have one thing in common. They are all designed to beat their market benchmark. Their track records suggest they will do exactly that.?Again- why doesn't your wealth manager do this for you?

TPP has been built for frustrated investors. Do you really want to track the markets up and down continually whilst paying for the privilege?

It's time for change.

Empower yourself, and join the revolution.

Welcome to the future of investing.???