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Is It Unmanly To Short Certain Stocks?

Jeff Bailey

Analysis published this week by the Wall Street Journal, showing that short sellers got their heads handed to them so far this year, elicits neither pity nor pleasure in these quarters. The stocks that brought shorts the most grief, according to the Journal analysis, seem from here to be momentum plays. And in some cases the shorts may be right, long-term, but were simply ahead of their time in this nutty 2013 bull market (this week’s slide, aside).

Tesla (TSLA), Zillow (NASDAQ:Z), Netflix (NFLX), Yelp (YELP) and Pandora (NYSE:P) – all heavily shorted when the year began – brought short sellers misery.

TSLA Chart

NASDAQ:TSLA data by YCharts

One can understand the shorts’ wanting to drill these stocks into the ground. They’re money losers, collectively, offering a fabulous (or at least swell) service or product, but largely unproven as businesses. Their founders and initial investors are getting wealthy (at least on paper, and they often preen about their success), which would tend to make a hard-working short seller envious.

So, short seller vs. hot-stock promoter, it’s a fair fight, right?

TSLA Net Income Quarterly Chart

TSLA Net Income Quarterly data by YCharts

It seems less a fair fight when the shorts pile onto some poor, worn-out, struggling old company that’s doing an admirable job of surviving. And thus we were cheered to see the likes of R.R. Donnelley & Sons (RRD), also heavily shorted when the year began, inflicting some pain on traders who bet against the company.

RRD Chart

NASDAQ:RRD data by YCharts

We wrote with mild praise of Donnelley stock in early 2012. (We’re not bragging, given our wrong calls on other stocks.) But what we observed then, and now, was a printing company (is there anything more disdained by the young and the brash than ink on paper?) managing to survive, and dole out a hefty dividend yield, through cost cutting and strategic acquisitions. Whether Donnelley makes it long-term or not is beyond our view, but our guess is that managing the company takes a good deal more nerve and grit than running Yelp.

Pitney Bowes (PBI) is another beleaguered company that beat up on shorts so far this year. Bully.

We’re not proposing that shorts lay off any companies – don’t be so literal minded in reading this piece, please. But taking on highflyers makes for great drama and seems only fair. Targeting the sick and the weak, especially those employing tens of thousands, isn’t very sporting.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.