Many retail traders carefully track the investment decisions of celebrity investors. Right now, many such experts aren’t too bullish on the market. Cathie Wood has been on a selling spree, offloading several high-growth stocks. She isn’t the only one. Michael Burry is famous for his accurate, grim market predictions. He recently tweeted that while markets have already entered a crash, they still have further to fall before investors see any real growth. All this suggests that this is the time to be looking for stocks to short.
How should investors approach potential short positions?
It can be difficult to assess, especially if you want to follow celebrity investor examples. Short-selling news doesn’t always make headlines. Since the U.S. Securities and Exchange Commission does not require the disclosure of short positions, it can be hard to track which famous names are betting against which stocks. For example, although Burry previously held a $31 million short position against Wood’s Ark Innovation (NYSEARCA:ARKK) exchange-traded fund, he has since closed it.
Some investors, including Warren Buffett, have opted to no longer short stocks, due to concerns regarding company valuations and risk. However, there are a few stocks to short that celebrity investors have recently bet against.
In April 2022, Twitter (NYSE:TWTR) erupted after screenshots of a text conversation between Bill Gates and Elon Musk were leaked. They revealed that the Microsoft (NASDAQ:MSFT) founder held a short position against Tesla (NASDAQ:TSLA), which Musk did not appreciate.
The billionaire has not specified why he felt compelled to short Tesla nor if he has since closed his position. The decision to bet against a company at the forefront of the renewable energy revolution doesn’t fit with Gates’ image as an environmental activist. The billionaire has “dedicated considerable time and resources toward addressing the crisis. Because of this, the fact that Gates is shorting the profitable growth stock suggests he may be betting against Elon Musk more than anything else.”
Since then, Tesla has given investors plenty of reason to bet for it, from enacting a successful stock split to reporting progress on lowering battery costs. Many Wall Street experts would also likely advise against shorting TSLA. Nineteen out of 30 analysts on TipRanks rate it as a “buy,” leading to a “moderate buy” consensus for the stock.
As InvestorPlace Assistant Financial News Writer Eddie Pan reported, “billionaire Ken Griffin famously bet against meme stocks” in 2021. The founder of Citadel didn’t specifically short GameStop (NYSE:GME) himself, but he did back Melvin Capital, a fund famous for shorting the meme stock king.
Melvin, which announced plans to shut down in May 2022, is well known for taking out extensive short positions against GameStop and evoking the fury of the r/WallStreetBets crowd. After Melvin took a 53% loss following GameStop’s unprecedented surge, Citadel and Point 72 stepped in to help bail the firm out.
We don’t know if Griffin still — or ever — truly supported the decision to bet against GME. Even so, he is still considered a villain among the meme stock community. As Pan noted, Citadel’s largest holdings currently include SPDR S&P 500 ETF (NYSEARCA:SPY) and Tesla. Griffin has made no moves to short meme stocks since.
AMC Entertainment (AMC)
More recently, Pan reported that Jim Chanos, noted short seller and founder of Kynikos Associates, has launched an arbitrage trade by shorting AMC Entertainment (NYSE:AMC) while taking a long position in AMC Preferred Equity Units (NYSE:APE). As Pan noted, “an arbitrage strategy is used when an investor seeks to exploit price differences in the same or identical assets.” Essentially, Chanos assumes that the two stocks should trade at the same price as both represent shares in the same company.
Barron’s reported that “Chanos, who is credited with uncovering some of the accounting issues that led to Enron’s bankruptcy in 2001, is known for finding stocks that are due to drop.” By that logic, his short position is bad news for AMC stock apes.
The digital army that inspired the APE trading symbol and propelled the movie theater chain to meme stock status isn’t going to be happy that a hedge fund billionaire is betting against them. Perhaps this ire can trigger another short squeeze in beloved AMC stock.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.