MW Wall Street short sellers have been crushed in 2025. Better days might be coming.

By Joseph Adinolfi

'In the 10-plus years now that I've been doing this, from an operational perspective, this is the most difficult time to be a short seller,' one fund manager told MarketWatch

Short sellers are having a rough go of it in 2025.

Short sellers, those swashbuckling investors who profit from betting against stocks and who sometimes expose corporate fraud along the way, have faced an uphill battle as stocks have generally marched higher since the end of the 2008 financial crisis.

But the struggle has become particularly acute lately, according to a handful of veteran investors who spoke with MarketWatch. Meme stocks are back, and shares of heavily shorted stocks have soared since the U.S. equity market bottomed in early April. To some, the contemporary market environment is starting to seem dishearteningly similar to early 2021, when investors stuck at home during the pandemic bid up shares of unprofitable companies to levels that were, in hindsight, unsustainable.

Investors' seemingly insatiable appetite for speculative investments is creating problems for those who typically make their money by taking the other side of the trade.

"In the 10-plus years now that I've been doing this, from an operational perspective, this is the most difficult time to be a short seller," said one veteran short seller who asked for anonymity to speak freely with MarketWatch.

It isn't just a dearth of slam-dunk investment opportunities. Increasingly, allocators - the individuals who dole out money belonging to pension plans and endowments - are taking their checks elsewhere. Trendy multimanager funds, which often run market-neutral strategies that involve shorting shares of some companies while buying shares of others, have been hoovering up some of the money that in the past would have found its way to short-only funds, according to two individuals who spoke with MarketWatch.

A recent workforce reduction at the Securities and Exchange Commission could also rob short sellers of a powerful ally: the U.S. government regulators who bring civil enforcement actions against publicly traded companies and their officers or directors.

All the while, public perception of short sellers has continued to sour. For years, short sellers have been vilified by politicians and corporate executives. They were even the focus of a populist backlash during the original meme-stock episode in 2021, when investors banded together on Reddit and other social-media platforms to bid up shares of GameStop Corp. $(GME)$, which had been heavily shorted by Wall Street hedge funds.

But lately, hating short sellers has taken on a more overtly political dimension.

President Donald Trump has called for an investigation into investors betting against Trump Media & Technology Group Corp. (DJT), the publicly traded media company in which Trump is a majority shareholder.

Tucker Carlson, the former Fox News host and a close Trump ally, opined that short selling should be illegal during an interview on his podcast with Trevor Milton, the former CEO of Nikola Corp. $(NKLAQ)$.

Nikola, an electric-vehicle company, saw its market valuation evaporate after Hindenburg Research published a scathing short report on the company alleging it was an "intricate fraud built on dozens of lies." Milton was later convicted of securities fraud but was pardoned by Trump earlier this year. Attorney Bradley Bondi - whose sister, Pam Bondi, is currently the U.S. attorney general - was a member of Milton's legal defense team during his trial.

Hindenburg Research founder Nate Anderson has closed the firm and said he was retiring from the investment business earlier this year, citing the all-encompassing intensity required to do the job.

'We will do well when it ends'

To survive as a short seller these days, investors need to carefully manage their risk while thinking long and hard about which companies they choose to bet against, said Carson Block, the founder of Muddy Waters Capital.

It also doesn't hurt to diversify into different strategies. Block built his reputation as a formidable activist short seller by exposing as frauds several Chinese companies listed on U.S. stock exchanges. Activist short selling is a subset of short selling that involves doing deep due diligence on a company to look for evidence of malfeasance, then publishing the findings in a report shared with the public and the press.

Block still believes the activist approach is the only way to consistently make money as a short seller. But on Oct. 1, Muddy Waters Capital launched a quantitative strategy that holds long positions in 20 S&P 500 SPX constituents. The strategy is up approximately 72% since then, he told MarketWatch.

Some might be tempted to conclude that this time really is different, but Block believes the latest episode of speculative market froth will end in a manner similar to the bursting of the dot-com bubble and the end of the pandemic-era frenzy. During the latter episode, companies rushed to go public via special-purpose acquisition vehicles, or SPACs. The number of SPACs coming to market has again surged in 2025.

As more marginal businesses go public, the supply will eventually overwhelm the demand, Block said.

"Most of them will crash under their own weight," he added.

In the meantime, betting against the most obviously challenged companies might not be the wisest decision, Block said. Even seasoned professionals might struggle to tolerate the powerful short squeezes that have become increasingly common. Some learned this the hard way in early 2021, when GameStop Corp. kicked off the original meme-stock mania.

A short squeeze occurs when shares of a heavily shorted stock suddenly rip higher, forcing investors who had bet against them to buy back the shares at a lofty price. While the gains of a short seller are limited, the potential losses on a bad trade can go on forever.

Ultimately, for short selling to succeed as a viable investing strategy, the market needs to reward investors who correctly bet against overvalued companies or who root out evidence of corporate wrongdoing.

"I mean, at the end of the day, society has to really want people out there trying to protect investors from scams," Block said. "I'm just not sure on the whole that the market really wants that now."

Others are hopeful that the tide might finally be turning. Ben Axler, founder and chief investment officer of Spruce Point Capital Management, another activist short-selling firm, told MarketWatch that as Trump's tariffs start to affect consumer prices, Treasury yields could rise, putting downward pressure on stocks and blunting the appetite for some of the most speculative stocks.

Spruce Point has continued to publish short reports this year. Some of these reports have had an impact on their targets, even if the ensuing downward pressure has proved fleeting. But Spruce Point has scored at least one significant victory in 2025: A short report targeting Procept BioRobotics Corp. $(PRCT)$, published in early January, preceded a substantial decline in the company's share price.

One encouraging sign, according to Axler: "The market is starting to differentiate between some of the better [artificial-intelligence] companies and some of the weaker AI companies."

At least two other prominent short sellers have also scored victories recently. Shares of Palantir Technologies Inc. (PLTR), the top-performing stock in the S&P 500 this year, have sunk by more than 17% since Aug. 13, when Andrew Left, founder of Citron Research, said during an interview on Fox Business that the stock was grossly overvalued.

A few days later, Citron published a short report claiming that Palantir shares would still be overvalued if they traded at $40 a share. The stock was trading at roughly $150 a share on Wednesday, according to FactSet data.

And shares of Strategy Inc. (MSTR), the company formerly known as MicroStrategy, recently tumbled to a four-month low, according to FactSet data. Jim Chanos, a prominent short seller, said earlier this year that he would short Strategy's shares while betting on bitcoin (BTCUSD). Strategy currently owns more than 600,000 bitcoins, according to its website, and Chanos argued that Strategy didn't deserve to be valued at a premium to its bitcoin holdings.

Neither Citron nor Chanos responded to requests for comment from MarketWatch. In a post on X, an account belonging to Citron Research disputed the notion that the firm's commentary had contributed to the selloff in Palantir shares.

Left, the founder of Citron, is due to stand trial on charges of securities fraud in 2026 after a federal court refused to dismiss his indictment earlier this year. Left has denied the charges during interviews in the financial press.

While speaking with MarketWatch, several short sellers expressed a similar sentiment: As the old saying goes, it is always darkest before the dawn.

"It is hard times for a short seller - and we will do well when it ends," said one investor who refused to speak on the record. "But it is amazing, isn't it?"

-Joseph Adinolfi

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August 21, 2025 12:30 ET (16:30 GMT)

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