Art of making money by selling stocks at a given price and then buying at a lower price

Outside the stock trading community, the word “shorting” has increasingly earned the mark of an etched-inyour-brain kind of a buzzword.

For a number of retail and institutional stock buyers, it also leaves a bitter after-taste of getting burnt looking at how share prices of erstwhile investors’ darling stocks plunge.

Hindenburg, the research outfit seen as the main culprit for the rout, is vaguely referred to as a villainous short-selling predator. As the cloud amid finger-pointing clears, it’s emerging that numerous market participants could be in for a shakedown.

It turns out that there’s money — lots of it — to be made from this stock trading strategy, for those on the shorter’s side.

Short sellers have pocketed an estimated $15 billion by betting against Tesla in 2022, according to one report.

WHAT’S STOCK ‘SHORTING’?

Shorting, or short-selling, is the act of selling a security at a given price without possessing it and purchasing it later at a lower price. It is a legal, accepted way to invest and make money in stocks, though subject to stringent regulations.

Being “short” in an asset means investing in such a way that the investor will profit — if the asset’s value declines.

Shorting is the inverse of a more traditional “long” position, in which the investor profits if the asset’s value rises. A short position can be obtained in a variety of ways.

In capital markets, shorting (also “short selling”) is known as a short position — in which an investor essentially plays against the market, gaining when prices fall. Stock investing is all about the clash of theses, based on fundamental or technical research or a combination of the two.

Research can go deep and wide. To short-sell is to take the thesis that a stock will fall, based on some fundamental factors borne out by market research.

WHAT WERE THE ALLEGATIONS?

The report, published on Hindenburg’s website, has a long laundry list of allegations, including a number of downright damning ones, like the Adani Group “is pulling the largest con in corporate history”.

It cited that while Gautam Adani has claimed in an interview to “have a very open mind towards criticism … Every criticism gives me an opportunity to improve myself …” Adani has, in reality, shown otherwise. “(Adani) repeatedly sought to have critical journalists or commentators jailed or silenced through litigation, using his immense power to pressure the government and regulators to pursue those who question him,” Hindenberg reported.

“We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal.”

“We have included 88 questions in the conclusion of our report. If Gautam Adani truly embraces transparency, as he claims, they should be easy questions to answer.”

The report raised worries about the Adani group’s debt levels.

It also cited Adani’s usage of tax havens.