If shorting is profitable, then shorting does not stop

Let’s start with the core mechanics of shorting. Shorting is essentially an investor’s “vote” on the value of an asset – they believe a stock, bond, or commodity is overvalued. By shorting these investors, these investors push prices closer to their true value, thereby enhancing the efficiency of the market. Economists often see shorting as an important tool for “price discovery.” For example, before the 2008 financial crisis, some astute short sellers such as Michael Burry exposed the hidden dangers of the real estate bubble in advance by shorting subprime mortgage-related securities. Without the intervention of these “bears”, the crisis could have come later and more destructively. From this perspective, shorting is not the enemy of the market, but part of the error correction mechanism. Whenever there is a valuation bubble or corporate governance issue, shorting can act as a magnet to attract an influx of money, as it offers both a hedge against risk and profit.

The “never-ending” of shorting also stems from its profit potential. In a low-interest rate environment, leveraged instruments such as options and derivatives make shorting cheaper and higher returns. In recent years, with the rise of quantitative trading and algorithms, shorting strategies have become more efficient. Take a look at the Tesla case: Despite Elon Musk’s repeated public attacks on bears, the stock’s short sellers lost a lot of money from 2020 to 2023 and never completely exited the market. Because as long as Tesla’s valuation is seen as a bubble (such as the price-earnings ratio once exceeding 1,000 times), the bears will make a comeback. Similarly, in China’s A-share market, although the short-selling mechanism is limited, investors can still indirectly express bearish views through stock index futures or overseas channels. Data shows that global short trading volume hit a record high in 2023, partly due to inflationary pressures and geopolitical uncertainties. These factors make shorting a powerful hedge against inflation or recession – profitable, and no one wants to stop.

If shorting is profitable, it really doesn’t stop. This is not a flaw in the market, but its essence - capital is always chasing efficiency and profit.