Short selling is becoming less common — but the investors involved are making a fortune, new data shows

• The practice of short selling is on the decline, as the bull market created a difficult environment for investors betting against stocks
• So far in 2021, there were only 113 short campaigns, down 33% from the average in the preceding five years and less than half of 2016's tally of 237.
• But for those that continue to lead activist short campaigns, the returns have been impressive.

Despite Friday's rout, betting against the stock market has been a losing game in 2021, with the S&P 500 closing at a record high more than 60 times so far this year. But for investors still in the game of short selling individual companies, the profits have been big.

The bull market created a difficult environment for short-sellers because, quite simply, stock prices have been up more than they've been down. Record corporate earnings, historically low interest rates, and a financially healthy consumer are all factors that short-sellers have to combat.

This environment has led to an ongoing decline in activist short campaigns, according to data from Activist Insight Shorts. So far in 2021, there were only 113 short campaigns, down 33% from the average preceding five years and less than half of 2016's tally of 237.

Similar trends can also be seen in the short interest of broad-based market ETFs and individual stocks that used to be popular with short-sellers. For example, the short interest in Tesla has fallen from 24% in 2019 to just 3% today, according to data from Koyfin.

The environment has no doubt taken a toll on short-sellers. Permabear Russell Clark, who has bet against stocks for most of the past decade, told clients earlier this month that he was shutting down his hedge fund. The RC Global Fund he managed lost 2.6% through October of 2021, while the S&P 500 was up more than 20% over the same time period.

But for the activist short-sellers that have managed to hang in there, the gains have been big. Shares targeted by activist short campaigns are down 25% on average for the first three quarters of 2021, according to data from Breakout Point.

"For their standards, that's very, very good," Breakout Point founder Ivan Ćosović said.

Leading the pack is Night Market Research, which posted four short calls so far this year, with an average decline of 58% in the stock under the microscope. Meanwhile, Hindenburg Research, which rose to fame with its short call on Nikola, has issued eight activist shorts so far this year, with an average decline of 40%.

"It's a great time to be an activist short-seller because there's an infinite number of sketchy companies you can dig into and expose," Kir Kahlon of Scorpion Capital told Insider.