10 Biggest Short Squeezes of All Time

Published on June 23, 2021 at 10:52 am by Usman Kabir in Hedge Funds, Lists, News

In this article, we discuss the 10 biggest short squeezes of all time.

Short squeezes have dominated headlines in the finance world this year as retail investors band together on internet platforms like Reddit to spoil hedge fund shorts on certain stocks. However, short squeezes are hardly a new phenomenon. They have existed for as long as the market has and some of the biggest and most famous short squeezes of all time took place more than a century ago. Some cases, like the ones involving GameStop Corp. (NYSE: GME), Tesla, Inc. (NASDAQ: TSLA), AMC Entertainment Holdings, Inc. (NYSE: AMC), Clover Health Investments, Corp. (NASDAQ: CLOV), and Alibaba Group Holding Limited (NYSE: BABA), are still ongoing.

Usually, a short squeeze occurs when the stock of a company rises dramatically as short-sellers, who had earlier bet on the stock to lose value, evaluate their decision in light of unusual conditions and exit their short positions to limit losses. The explosive surge in stock price of GameStop Corp. (NYSE: GME), the video game retailer based out of Texas, is perhaps the biggest example of a short squeeze, as it became the rallying cry for retail investors who wanted to spoil hedge fund short-seller bets. GameStop Corp. (NYSE: GME) stock has returned more than 4,000% to investors over the past year but also invited regulatory scrutiny. On June 14, Morgan Stanley CEO James Gorman said that the wild run-up in GameStop Corp. (NYSE: GME) could be a recipe for disaster.

AMC Entertainment Holdings, Inc. (NYSE: AMC), the Kansas-based theatre chain, has also undergone something similar in the past few months. The share price of AMC Entertainment Holdings, Inc. (NYSE: AMC) has climbed close to 550% in the last three months as retail investors on internet platforms like Reddit load on up the shares to undermine short-seller bets. Clover Health Investments, Corp. (NASDAQ: CLOV), the healthcare insurer operating from Tennessee, is another ‘meme stock’ – a term used to describe stocks with strong retail investor interest – undergoing a short squeeze. The share price of Clover Health Investments, Corp. (NASDAQ: CLOV) has climbed 72% in the past few weeks.

However, the most famous short squeeze of the present era remains the defiance Tesla, Inc. (NASDAQ: TSLA) has shown in the face of short sellers. During the last few years, Tesla, Inc. (NASDAQ: TSLA) owner Elon Musk has been involved in public spats with two famous hedge fund managers, Michael Burry and David Einhorn, over the short-selling and come out on top. The California-based EV maker has seen share price climb more than 700% over the course of twelve months beginning in late 2019 before falling in the post-pandemic inflationary market. Burry recently unveiled a $530 million short position on Tesla, Inc. (NASDAQ: TSLA).

Another interesting case on short squeezes is Alibaba Group Holding Limited (NYSE: BABA), the Chinese ecommerce giant that has become one of the largest technology companies in the world over the course of the past decade. Alibaba Group Holding Limited (NYSE: BABA) has been subject to several short selling schemes in the past few years, but consistently beat market expectations on earnings, disappointing short-sellers in the process who have made multi-million dollar bets against the firm.

The rise of meme stocks and trading applications like Robinhood have stoked concerns around financial stability on Wall Street, with some welcoming the influx of retail investors and the change in market dynamics, while others caution against soaring valuations and warning that central banks may be forced to raise interest rates as inflation continues to rise. It is likely that short squeezes will continue to grab a lot of the attention in the finance world as the market adjusts to the new normal. The signs of a tectonic shift in this regard are already there.

The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

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With this context in mind, here is our list of the 10 biggest short squeezes of all time. These short squeezes were ranked keeping in mind the amount of money involved, the profiles of the individuals involved, and their overall effect on the market.

Biggest Short Squeezes of All Time

10. Reliance Industries Limited (NSE: RELIANCE.NS)

In the late 1980s, Manu Manek, otherwise known as the Cobra of the Bombay stock market due to his short-selling exploits, tried to short the shares of Reliance Industries Limited (NSE: RELIANCE.NS). At the time, Reliance was emerging as a major player in the Indian business industry with Dhirubhai Ambani leading the company. The short squeeze pitted Ambani, one of the most successful businessmen in India at the time, against Manek, perhaps the most powerful stockbroker in the country.

As Manek tried to short the shares, Reliance Industries Limited (NSE: RELIANCE.NS) chief Ambani asked his close lieutenant Anand Jain to mount a defense. Jain, through a body known as Friends of Reliance Association, started buying back all the shares that were being shorted by Manek, helping keep the price of the stock stable. Eventually, as more stock was sold by Manek and bought by Jain, the share price started rising again. In the ensuing chaos, as the bear traders started losing huge amounts of money, the exchange was shut for three days.

These three days allowed Manek and Ambani to reach a compromise settlement that led to INR30 million in losses for Manek and helped Ambani cement his place as one of the most shrewd dealers in India. The Reliance Industries Limited (NSE: RELIANCE.NS) saga and the closure of the exchange led to millions in losses. Today, the Bombay Stock Exchange, where the short squeeze played out, is the ninth largest stock exchange in the world with a market capitalization of more than $3.1 trillion.

Just like GameStop Corp. (NYSE: GME), Tesla, Inc. (NASDAQ: TSLA), Clover Health Investments, Corp. (NASDAQ: CLOV), AMC Entertainment Holdings, Inc. (NYSE: AMC), and Alibaba Group Holding Limited (NYSE: BABA), Reliance Industries Limited (NSE: RELIANCE.NS) features on our list of 10 biggest short squeezes of all time.

9. Piggly Wiggly

Piggly Wiggly was the first self-service grocery store in the United States. It first opened for business in 1916 in Memphis before rapidly expanding and opening in several states across the southern belt of the US. It was the predecessor to the supermarket chains of the present era. Within six years, there were more than 1,000 Piggly Wiggly stores in the country. The company went public in 1922 and looked set for further growth, inviting bull predictions from traders in the first few months of the year.

However, towards the fall of 1922, some franchises of Piggly Wiggly went bankrupt. Although these were not wholly owned by Clarence Saunders, the famous owner of Piggly Wiggly, there was some tension around the firm on Wall Street. Traders started short-selling the stock in anticipation of a further crash in the share price. Saunders decided to challenge the market himself, taking out a $10 million loan to buy back the stock. By the spring of 1923, Saunders controlled more than 99% of Piggly Wiggly, which amounted to almost 200,000 shares.

From a low of $39, the stock climbed to $60 as Saunders regained control. However, he did not stop there. He started selling these shares to the public at a fixed price and bypassed the stock exchange, calling for the return of thousands of Piggly Wiggly shares he had loaned to short-sellers. This pushed the Piggly Wiggly stock to $124. Soon thereafter, the exchange suspended trading in the stock and gave short-sellers time to return the shares they owned. Eventually, Saunders settled the dispute for $100 per share and took in millions in losses.

Just like GameStop Corp. (NYSE: GME), Tesla, Inc. (NASDAQ: TSLA), Clover Health Investments, Corp. (NASDAQ: CLOV), AMC Entertainment Holdings, Inc. (NYSE: AMC), and Alibaba Group Holding Limited (NYSE: BABA), Piggly Wiggly features on our list of 10 biggest short squeezes of all time.

8. Harlem Railroad

Cornelius Vanderbilt, the man at the center of the Harlem and Hudson railroad short squeezes, was one of the richest men in America when he started dabbling in the railroad business. Legend has it that Vanderbilt was even the sole survivor of one of the first deadly rail accidents in the 1850s. By the 1860s, he had set his sights on acquiring the Harlem Rail and Hudson Rail, two undervalued that also happened to be the only two rail lines allowed into Manhattan. As Vanderbilt bought stake in the firm, there were short-sellers squeezing the stock.

Some of the people shorting the stock were very influential, including members of the New York City Council and the board of directors of Harlem Rail. Daniel Drew, a longtime rival of Vanderbilt and successful trader on Wall Street, was also among them. As Vanderbilt continued buying what short sellers sold, the share price started rising even as attempts were made to disrupt it, like the cancellation of a bill authorizing Harlem Rail to lay a double track. Eventually, Vanderbilt gained control of Harlem Rail through this strategy.

The short-sellers that had lost a lot of money on the Harlem Rail now turned their attention to Hudson Rail amid speculation that Vanderbilt had used up his fortune on Harlem Rail and would be in no position to spoil their bet. However, they had miscalculated, and again found themselves at the mercy of Vanderbilt when they had to return the loaned shares. This allowed Vanderbilt to gain full control of Hudson Rail as well. A last ditch attempt by Daniel Drew to short the stock was defeated later and Vanderbilt made $3 million in the process.

Just like GameStop Corp. (NYSE: GME), Tesla, Inc. (NASDAQ: TSLA), Clover Health Investments, Corp. (NASDAQ: CLOV), AMC Entertainment Holdings, Inc. (NYSE: AMC), and Alibaba Group Holding Limited (NYSE: BABA), Harlem Railroad features on our list of 10 biggest short squeezes of all time.

7. Herbalife Nutrition Ltd. (NYSE: HLF)

In December 2012, Bill Ackman, the manager of Pershing Square Capital Management, initiated a short position on the stock of Herbalife Nutrition Ltd. (NYSE: HLF), the California-based dietary supplements company. In a three-hour presentation at an investor conference, Ackman described the reasoning behind his move and called the nutrition firm a pyramid scheme that was destined to go to zero. Ackman, over the course of the next six years, took huge losses and was eventually forced to give up his short position in the firm.

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Even though Herbalife Nutrition Ltd. (NYSE: HLF) was fined $200 million by regulators for fraudulent practices in the years following the Ackman presentation, the company still managed to turn fortunes around by improving revenues and cash generation. Ackman was further hit by rival Carl Icahn, who runs Icahn Capital LP, taking a long position in the nutrition company as Ackman shorted it. Icahn acquired a more than 25% stake in the firm and called out Ackman in the media for shorting the stock.

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An intense feud followed, which was only settled in early 2018 when Ackman was forced to relinquish his remaining short position in Herbalife Nutrition Ltd. (NYSE: HLF). It is estimated that Ackman lost close to $1 billion over the course of six years as a result of his short position, while Icahn gained the same amount. The company now has a market capitalization of close to $5.6 billion and posted more than $5.4 billion in revenue last year. Icahn has trimmed his stake in the company to 8 million shares at the end of March from 20 million shares last year.

Just like GameStop Corp. (NYSE: GME), Tesla, Inc. (NASDAQ: TSLA), Clover Health Investments, Corp. (NASDAQ: CLOV), AMC Entertainment Holdings, Inc. (NYSE: AMC), and Alibaba Group Holding Limited (NYSE: BABA), Herbalife Nutrition Ltd. (NYSE: HLF) features on our list of 10 biggest short squeezes of all time.

6. KaloBios

Martin Shkreli, often called one of the most hated men in America for raising the price of an AIDS-related drug by 5,000%, was also involved in one of the most famous short squeezes of all time. Shkreli, now serving a prison sentence for securities fraud, took over biotech firm KaloBios in November 2015 as the firm was more than $6 million in debt and the sole drug it was working on had failed. As short-sellers tried to take advantage of the dire financial state, Shkreli jumped in and acquired more than 70% of the shares, causing the stock to jump 10,000% in five days.

However, KaloBios did not make much of an impact after the takeover, with share price dropping down again quickly. From a low of 44 cents per share on November 15, the stock jumped to $14 per share by November 18 as panicked short-sellers scrambled for cover following the Shkreli takeover. Shkreli later announced that the biotech firm would be given $3 million in cash, with another $10 million promised following shareholder approval, to get the firm back up and running.

By November 23, KaloBios stock had jumped to $45 per share. It then dropped to around $20 in the next few weeks, prompting Shkreli to call back the shares he had loaned out, resulting in a rally that saw the share price jump to around $45 again. By January, Shkreli was arrested on unrelated charges and KaloBios had filed for bankruptcy protection and been delisted from the stock exchange. In 2016, CNN reported that Shkreli more than doubled his initial investment in KaloBios stock when he sold his stake in the firm for close to $6 million in a private transaction.

Just like GameStop Corp. (NYSE: GME), Tesla, Inc. (NASDAQ: TSLA), Clover Health Investments, Corp. (NASDAQ: CLOV), AMC Entertainment Holdings, Inc. (NYSE: AMC), and Alibaba Group Holding Limited (NYSE: BABA), KaloBios features on our list of 10 biggest short squeezes of all time.

5. GameStop Corp. (NYSE: GME)

In January, GameStop Corp. (NYSE: GME) surged amid retail investor interest as hedge funds looked to short the stock based on revenue numbers and future growth projections. The company was a video game retailer that had seen sales fall amid falling numbers of visitors to stores during the coronavirus lockdowns. As hedge funds took short positions on the firm, some famous investors, like Michael Burry and Ryan Cohen, as well as influencers on internet platform Reddit, outlined a bull case for the company, sparking retail investor interest.

As these retail investors piled onto GameStop Corp. (NYSE: GME) stock, the share price jumped from less than $5 to almost $325 in a time period spanning just six months. This rally convinced some famous people, like Elon Musk and Chamath Palihapitiya, to back the stock, leading to a snowball effect and the share price continued to climb. In late January, trading app Robinhood suspended trading in the stock, giving short-sellers some time to recover losses.

It is estimated that short-sellers lost close to $2 billion through the whole development. The company is still attracting a lot of retail investor interest and remains one of the most volatile stocks on the market this year. Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in GameStop Corp. (NYSE: GME) with 3.2 million shares worth more than $620 million.

Rhizome Partners, in its Q1 2021 investor letter, mentioned GameStop Corp. (NYSE: GME). Here is what the fund said:

“The first quarter saw some bizarre market reactions. Game Stop is a heavily shorted legacy video game retailer that saw its stock price rise from $17 to a peak of $483 within a month. It appears that retail investors on a Reddit.com forum called WallStreetBets used memes to create a viral feedback loop of forced buying. Game Stop reached $20 billion in market cap and had more daily trading volume than Apple at one point. The Game Stop short squeeze became a black swan event for the short sellers. Large hedge funds such as Melvin Capital suffered 50% losses during a short period and required emergency capital injections that resulted in costly dilution. Shorting is difficult and introduces a risk of ruin. This is especially true in situations where a large percentage of the float is shorted. We want to remind you that we hedge our portfolio via index puts, sector puts, and sometimes buying puts directly in our own portfolio companies. However, we rarely short because 1) we are not good at it 2) the potential for brain damage is too high and 3) we want to avoid the risk of ruin.”

4. Alibaba Group Holding Limited (NYSE: BABA)

Alibaba Group Holding Limited (NYSE: BABA), the Chinese technology and ecommerce giant, remains one of the most active and shorted stocks on the market. In 2017, in perhaps the most famous short-selling event in the stock history of the Chinese firm, research by S3 Partners LLC showed that short-sellers on Alibaba had lost close to $10 billion throughout the year as the firm consistently beat expectations on revenue and earnings per share. S3 Partners said Alibaba was just behind EV maker Tesla as the most shorted stock on the market in 2017.

Alibaba Group Holding Limited (NYSE: BABA) has remained in the headlines since, with the company recently coming under regulatory scrutiny and founder Jack Ma stirring rumors about his personal freedoms in China. It is also one of the most active foreign stocks on the market in the US. During 2017, as short sellers bet against the firm, the stock climbed a record 65% year-on-year at the end of the second quarter, with revenues rising 56% year-on-year and dampening short-seller expectations further.

At the end of the first quarter of 2021, 135 hedge funds in the database of Insider Monkey held stakes worth $15.4 billion in Alibaba Group Holding Limited (NYSE: BABA), down from 156 in the preceding quarter worth $17.9 billion.

In its Q1 2021 investor letter, Polen Capital Management highlighted a few stocks and Alibaba Group Holding Limited (NYSE:BABA) is one of them. Here is what the fund said:

“Alibaba also detracted from performance as the company continues to remain under regulatory scrutiny from both the Chinese State Administration for Market Regulation on antitrust concerns and the U.S. Securities and Exchange Commission on ADR listing requirements. Despite the regulatory overhang, we believe that Alibaba’s competitive positioning and growth outlook remains intact, even if the company must pay fines or modify some business practices. We viewed the current valuation at <20x next twelve month’s earnings as a compelling opportunity to add to our position. Alibaba is the second largest position in the Portfolio.”

3. AMC Entertainment Holdings, Inc. (NYSE: AMC)

AMC Entertainment Holdings, Inc. (NYSE: AMC) is one of the few stocks presently embroiled in a short squeeze as retail investors offset hedge fund bets against the company. The firm primarily controls a movie theatre chain and has suffered in recent years as internet-based streaming services grab the lion’s share of the business and cinemas and theatre companies witness a rapid decline in revenue.

On June 21, research by data analytics firm Ortex revealed that short-sellers of AMC Entertainment Holdings, Inc. (NYSE: AMC) stock had lost more than $500 million in a single day amid a rapid rise in the share price of the company. The stock has climbed more than 2,500% year-to-date and Ortex estimates that losses for AMC short-sellers had climbed above $1.2 billion in the last few weeks.

Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in AMC Entertainment Holdings, Inc. (NYSE: AMC) with 5.6 million shares worth more than $57 million.

In its Q1 2021 investor letter, Mittleman Brothers highlighted a few stocks and AMC Entertainment Holdings Inc. (NYSE:AMC) is one of them. Here is what the fund said:

“As noted in our Year End 2020 Investment Review (published on 2/1/21), we exited our position in AMC at around $14 during the last week of January. That price exceeded our then $10 estimate of fair value, as the stock went parabolic with the Gamestonk/Reddit/WallStreetBets frenzy that captivated the media, market and general population in January. As longterm shareholders, we were pleased that AMC’s CEO, Adam Aron, did not take the easy way out during AMC’s darkest days when the vast majority of the investment community were writing the company’s obituary. He showed loyalty to shareholders despite being in the zone of insolvency (where fiduciary duty to shareholders extends to creditors as well).”

2. Tesla, Inc. (NASDAQ: TSLA)

Tesla, Inc. (NASDAQ: TSLA) has been one of the most shorted stocks on the market over the past ten years. Since 2011, short-sellers have lost close to $40 billion in bets against the electric vehicle maker. Beginning late 2019, the company’s shares rallied a record 700% before taking a breather at the end of the first quarter of 2021 on the back of demand concerns in China and investigations against the autopilot features of Tesla cars in the United States. Wall Street thinks the firm is overvalued as it is nearly triple in market cap to the two largest automakers in the US.

According to news publication Forbes, short sellers were forced to buy back at least 38 million Tesla, Inc. (NASDAQ: TSLA) shares between late 2019 and July 2020, playing at least some part in the historic rally of the stock through the period. There is institutional interest as well. In the summer of 2020, institutional investors owned 74% of all Tesla stock available to the public. These investors offload Tesla stock during times of crisis, allowing short sellers to buy. Recently, Michael Burry of Scion Asset Management revealed a $530 million short call on Tesla.

Burry, immortalised in Hollywood epic The Big Short for his investment exploits during the 2008 financial crisis, said earlier this year that the reliance on regulatory credits for profits would hurt Tesla. The volatile year that Tesla has had, with supply shortages hitting production and demand worries hitting vehicle deliveries, would lend credence to the argument. At the end of the first quarter of 2021, 69 hedge funds in the database of Insider Monkey held stakes worth $5.6 billion in Tesla, Inc. (NASDAQ: TSLA), up from 45 in the previous quarter worth $2.7 billion.

1. Volkswagen AG (OTC: VWAGY)

Volkswagen AG (OTC: VWAGY) and Porsche were involved in perhaps the most famous short squeezes of all time in the middle of the 2008 financial crisis. The two carmakers had a history going back over seven decades. In the early 2000s, Wendelin Wiedeking, the chief of Porsche, signaled his intent to take over Volkswagen. His stake in the firm soon reached 35%. The shares of Volkswagen were classed into two categories, ordinary and preference. Hedge funds noticed the disparity in prices between the two classes, taking up positions on them.

Soon, Porsche announced that it had acquired a more than 74% stake in Volkswagen AG (OTC: VWAGY). The state of Lower Saxony already owned more than 20% of the firm, making the short-sellers panic as it meant not all short-sellers could hope to cover their positions on the stock. As chaos ensued, the share price of the carmaker climbed to a high of €999 for a brief period, making Volkswagen AG (OTC: VWAGY) one of the largest companies in the world for a brief stint.

However, the share price fell soon afterwards. Volkswagen AG (OTC: VWAGY) eventually hit record lows as environmental scandals hit the firm in late 2018. It is estimated that hedge funds lost close to $30 billion on the Volkswagen AG (OTC: VWAGY) bet. Porsche, the apparent winner, did not come out strong after the ordeal, as debt and declining car sales hit the business, and was ironically bailed out by Volkswagen AG (OTC: VWAGY) in the coming months

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