The 10 Biggest Shorts In The U.S. Equity Market

I was bearish in a bear market. That was wise. I had sold stocks short. That was proper. I had sold them too soon. That was costly.

--Jessie Livermore.

The famed stock trader of the early 20th century made and lost much of his fortune selling stocks. Just as Livermore found, making money short selling is not easy. It's one thing to be right, but another to be right at the right time. 

One hundred years on and U.S. investors are still short selling - maybe more than ever - and still experience the wild ride that the Massachusetts-raised Livermore described.

The Dow Jones Industrial Average (DJIA) crossed 22,000 in early August of 2017; sentiment was high and earnings season had been one of the best on record. However, even in the midst of the relentless bull run, short sellers continued to bet against some of the best performing U.S. stocks. As of July 31, the ten most shorted companies in the U.S had cost short sellers $7.5 billion in mark-to-market losses, according to S3 Partners, a financial analytics firm. 

Tesla Motors Inc. (TSLA) is not just the most shorted U.S. stock but the most polarizing. For a company that has turned just one quarterly profit in its last ten, it is not hard to see why short sellers love betting against the company. However, the hype around the electric car maker and its potential has made it one of the hottest stocks on the market. 

Short interest in Tesla reached as much as $11 billion, and as the losses mounted, CEO Elon Musk bathed in their tears, famously tweeting out, "These guys want us to die so bad they can taste it." Musk, never one to take a backward seat has his sights set higher that just the electric car market. 

Just received verbal govt approval for The Boring Company to build an underground NY-Phil-Balt-DC Hyperloop. NY-DC in 29 mins.

— Elon Musk (@elonmusk) July 20, 2017

• Share price: $323.47 (+51 percent YTD)
• Total short interest: $9.03 billion
• Year-to-date profit/loss for short sellers: $2.11 billion loss

The Dallas, Tx.-based telecommunications company is the only stock in the top ten list that has provided gains for short sellers in 2017. Despite a stellar second-quarter earnings report, AT&T Inc. (T) remains lower on the year by nearly 10 percent. 

The on-off merger with Time Warner has investors wary due to the significant debt burden that AT&T potentially faces, and in addition, U.S. antitrust officials continue to ponder the ramifications of the deal, which has created uncertainty, something short sellers have feasted on. (See also: Time Warner CEO: AT&T Deal Was About Competing With Facebook, Google)

• Share price: $39 (-8.3 percent YTD)
• Total short interest: $6.59 billion
• Year-to-date profit/loss for short sellers: $380 million gain

If shorting the second biggest company in the world doesn't sound like a good idea, you're right. As at July 31, Alphabet (GOOGL), the parent company of Google had a market cap close to $700 billion and returned an EBITDA of $8.4 billion for the second quarter of 2017. 

After breaching $1000 a share, investor sentiment has somewhat waned as the competition in the ad space heats up, most notably from social network giant Facebook. The stock took a second hit in late July when European Union regulators slapped the Silicon Valley giant with a $2.7 billion fine for altering search engine results. 

• Share price: $945.5 (+13.1 percent YTD)
• Total short interest: $5.89 billion
• Year-to-date profit/loss for short sellers: $163 million loss

If you thought shorting the second biggest company in the world was a bad idea, spare a thought for those shorting number one. Skeptics of iPhone maker Apple Inc. (AAPL) are down more than $1 billion in mark-to-market gains for 2017. Shares in Apple continue to surge as sales and revenue forecasts continue to top expectations. 

Adding to Apple's status as a blue-chip safe stock is its massive cash-on-hand balance. It currently totals $261 billion, which means there are just ten other U.S. companies biggest than Apple's cash balance. (See also: U.S. Corporate Cash Pile Hits $1.84 Trillion: Moody's)

• Share price: $149.10 (+30.1 percent YTD)
• Total short interest: $5.71 billion
• Year-to-date profit/loss for short sellers: $1.225 billion loss

The hype around Jeff Bezos and Amazon.com Inc. (AMZN) has been unparalleled in 2017. The CEO of the e-commerce giant briefly became the richest person in the world, overtaking Bill Gates on July 27 as shares in the Amazon traded to $1083 a share. (See also: Jeff Bezos: Trillionaire By 2042?)

As product segments grew, so did its share price, and in turn so did the number of people betting against Amazon. Throughout July, the number of shorts increased by $300 million, much to the displeasure of short sellers.

• Share price: $987.80 (+28.9 percent YTD)
• Total short interest: $5.0 billion
• Year-to-date profit/loss for short sellers: $995 million loss

Rounding out the final five spots are tech stars Netflix Inc. (NFLX) and Facebook Inc. (FB), Visa Inc. (V), Priceline Grp Inc. (PCLN) and Wal-Mart Stores Inc. (WMT). 

Netflix and Facebook were two of the standout companies in second quarter earnings season. Netflix subscription numbers easily beat expectations, and total Facebook users topped 2 billion for the first time. In addition to substantial user growth, Facebook's mobile advertising revenue continued to grow, outing doing its rivals Google and Twitter. (See also: Facebook Makes 4 Times More Profit Per Employee Than Google)

Both Netflix and Facebook traded to all-time highs after reporting second quarter results, adding to the misery for short sellers. Combined, there are over $8 billion in short interest, and yearly mark-to-market losses now stand at $1.67 billion. 

Short sellers of Wal-Mart got some relief in June after the news Amazon was acquiring Whole Foods Market. However, the sharp sell-off in Wal-Mart shares quickly reversed, wiping out any gains short sellers had made. There is $3.27 billion of short interest in Wal-Mart, and yearly mark-to-market losses stand at $442 million. 

Investors betting against companies is nothing new but as hedge fund manager Kyle Bass once said, shorting stocks is ok, but it should be done with experience, manageable size, and discipline. 

The S&P 500 has recorded gains in six of the first seven months of 2017, which has tested bearish investors' discipline and patience. As the data shows it has been a tough road for skeptics, and with $7.5 billion in mark-to-market losses, it will require a calamitous sell-off in 2017 to square the ledger.