The following article is the text that I use for the Great Business Stories podcast on this topic. To listen to the podcast, click on this link or alternatively listen to Great Business Stories on Spotify or Apple Podcasts.
Ever since we did the episode of the Bill Ackman Carl Icahn feud over Ackmans short position on Herbalife, i wanted to dig into short selling, find out how it started but more than that, I wanted to find other great stories of short selling- now we all know about the gamestop one, that’s one that I’ll leave for another day, and we have a full hourlong episode on the Bill Ackman Herbalife Short in our back catalogue -free for everyone, In this episode we look at the Piggly Wiggly short sell form 1923, Jesse Livermore, the guy who made over $1 billion from shorting before the 1929 crash and considered by many to be the best trader ever, Jim Chanos, the guy who successfully shorted Enron, how Porshce the car company outsmarted the short sellers and look at the Hindenburg group and their Adani short- fascinating stories, enjoy
Shortselling Overview
To briefly explain short selling: it involves borrowing a security/shares whose price you think is going to fall and then selling it on the open market. You then buy the same stock back later, hopefully for a lower price than you initially sold it for, return the borrowed stock to whomever you bought it from, and pocket the difference. The risk with short selling is that if the price goes up the short seller is on the hook and may be forced to buy back the shares at a huge cost thereby incurring a huge loss.
Short selling has always had a bit of a PR problem. At its core, it’s just a bet against a company—a way to profit when a stock price falls. But to many people, that feels wrong. It’s seen as profiting off someone else’s misfortune, and in a way, that’s not entirely incorrect. When a company’s stock tanks, real people get hurt—employees, suppliers, local governments, even pension funds, big investors, big hedge funds- but crucially, also small investors. So short sellers get labeled as vultures, circling over struggling companies, waiting for their moment to strike.
But the criticism doesn’t stop there. Short selling is often accused of causing wild price swings and fueling market volatility. When stocks start dropping, short sellers pile on, pushing prices down even further, sometimes triggering panic selling. They’ve been blamed for everything from market downturns to full-blown crashes. But if you actually look at the history of financial crashes, short selling has never been the real cause. It’s just an easy scapegoat. When things go south, it’s much simpler for governments and companies to point fingers at the short sellers than to admit their own mistakes or acknowledge deeper systemic issues.
The reality is, love them or hate them, short sellers serve a purpose. Markets need both optimists and pessimists—buyers and sellers—to function properly. As we shall see, short sellers expose fraud, uncover overvaluation, and ultimately help keep the market efficient. In other words, they’re a necessary evil—though ‘evil’ might not be the right word.
Shortselling: Inception: Dutch Origins and Early Controversies (1609–18th Century)**
Short selling date back to the early 1600s. The first known short sale was carried out in 1609 by Isaac Le Maire, a former director of the Dutch East India Company (VOC). After being expelled from the company over embezzlement accusations, Le Maire formed a secret group to bet against VOC stock. He and his syndicate used a tactic now known as naked short selling—selling shares they didn’t actually own in hopes of buying them back at a lower price.
Naked short selling bypasses a key step in traditional short selling: borrowing the shares before selling them. It involves selling stock without securing it first- It’s like selling a car you don’t own and hoping you can find one to deliver later. It essentially floods the market with “phantom shares.
This can distort prices and undermine confidence—especially in less liquid markets—and is now largely banned in the U.S. and EU. Still, due to loopholes and quirks in electronic trading systems, it hasn’t disappeared entirely.
Le Maire’s plan wasn’t just financial; it was also strategic. His group spread rumors of VOC shipwrecks and losses at sea, which helped drive the stock price down. The VOC accused him of harming investors, particularly widows and orphans dependent on dividends. But Le Maire saw himself as exposing poor leadership—a kind of early shareholder activist.
The Dutch government quickly responded with the world’s first stock market regulation, banning naked short selling altogether. That spelled disaster for Le Maire’s syndicate. The VOC stock rebounded, and the group was forced to cover their short positions at higher prices. Most of them went bankrupt, and Le Maire lost 70% of his fortune.
The Piggly Wiggly Short Squeeze 1923
Clarence Saunders, an innovative American grocer, revolutionized the retail industry by founding Piggly Wiggly in 1916, the first self-service grocery store.
By 1922, Piggly Wiggly had expanded to over 1,200 stores across the United States. However, that same year, some franchisees in New York encountered financial difficulties, leading Wall Street speculators to believe the company's stock was overvalued. These speculators began short selling Piggly Wiggly shares, betting that the stock price would decline.
In response, Saunders attempted to execute a "corner" in the market by borrowing $10 million and aggressively purchasing Piggly Wiggly stock to drive up its price and force short sellers to cover their positions at higher costs. By March 1923, he claimed to control 198,000 of the 200,000 outstanding shares, causing the stock price to surge from $39 to $124.
However, the New York Stock Exchange intervened by suspending trading of Piggly Wiggly stock and extending the delivery deadline for short sellers, actions that undermined Saunders' strategy. These measures led to a decline in the stock's value and left Saunders unable to meet his financial obligations. Consequently, he resigned as president of Piggly Wiggly and declared bankruptcy, relinquishing his assets, including his Memphis mansion known as the Pink Palace.
Jesse Livermore
Jesse Livermore a legendary figure in short selling and investing. A self-taught trading prodigy, Livermore rose from a $5-a-week board boy (note: a board boy copied share prices onto a blackboard from the ticker tape recordings from the stock exchange) to one of history’s most influential speculators. Known as the "Great Bear of Wall Street," he revolutionized technical analysis and trend-following strategies.
Rather than relying on traditional analysis, Livermore focused on price patterns, volume shifts, and what he called "pivotal points"—key moments in a stock’s price movement that signaled a potential shift in trend. He meticulously tracked market trends, famously stating, "Prices move in trends… the trick is to identify them early."
Beyond technical prowess, Livermore understood the psychological demands of trading. His journals reveal rigorous self-examination, warning traders: "The human side… is the greatest enemy of the average speculator."
During the Panic of 1907, he shorted overvalued stocks, making $1 million in a single day.
His most famous success came during the 1929 crash. Anticipating the bubble, he built stealth short positions and amassed $100 million (≈$1.5 billion today) as the Dow plummeted 89%. This cemented his reputation but also made him a target—public outrage and death threats forced him to hire bodyguards.
Despite his trading genius, Livermore’s fortunes were volatile. Over-leverage led to cycles of bankruptcy and his personal life was tumultuous. In 1935, his wife, Dorothy, shot their son dead in a drunken altercation, creating one of the great scandals of the era. By 1940, Livermore was bankrupt again, and he died by suicide later that year.
Fallout from the 1929 Crash
In the aftermath of the crash short sellers became easy scapegoats. President Herbert Hoover blamed them, calling them “a national discredit.” FBI Director J. Edgar Hoover even launched investigations into alleged market manipulation.
Congressional hearings accused short sellers of orchestrating the crash, but later analysis debunked these claims. Reports revealed that short interest before the crash made up just 0.15% of all shares on the New York Stock Exchange—nowhere near enough to have caused the market collapse.
The legacy of the 1929 crash shaped decades of financial policies. Short selling became widely viewed as a destabilizing force,
The Enron Exposé (2001)
In 2000, Jim Chanos of Kynikos Associates uncovered one of the biggest corporate frauds in history. His short-selling thesis on Enron which collapsed in 2001 erasing $74 billion in market value and exposed deep flaws in Wall Street’s due diligence, was based on a deep dive into the company that revealed red flags to him.
Key Red Flags Identified by Chanos:
Accounting Irregularities: Enron used “gain-on-sale” accounting to recognize future hypothetical profits upfront, a tactic Chanos described as "creating earnings out of thin air." tactic involved booking the projected future profits of long-term contracts as immediate earnings, allowing the company to inflate its current revenue and appear more profitable than it actually was.
Opaque Financial Disclosures: Enron’s 2000 10-K filings referenced off-balance-sheet entities—later revealed as the Raptors and LJM partnerships—used to hide debt and inflate profits.
Insider Behavior: Executives, including CEO Jeff Skilling, sold massive amounts of stock while high-level departures raised suspicions about internal instability.
Chanos began shorting Enron stock in November 2000 at around $60 per share. As his analysis gained traction in early 2001, media coverage forced analysts to re-examine Enron’s finances. By late 2001, the stock had collapsed to pennies, netting Kynikos Associates an estimated $500 million in profits.
Chanos’s approach, blending forensic accounting with behavioral analysis, became a model for identifying corporate frauds. His work on Enron laid the foundation for uncovering later financial scandals, including Wirecard and Valeant, demonstrating the vital role independent short sellers play in exposing financial malpractice.
The Dangers of Short Selling Even When You’re Right
The dot-com bubble presented a unique challenge for short sellers. Betting against tech startups like Pets.com—which went bankrupt within 268 days of their IPO—seemed logical. However, the bubble’s speculative frenzy made it nearly impossible for short sellers to hold their positions.
Between 1998 and 2000, venture capitalists poured $120 billion into unprofitable tech and internet startups, pushing valuations to 40 times revenue, far beyond the historical norm of 2 to 3 times revenue. Despite clear signs of overvaluation many short sellers capitulated under intense market pressure. The Nasdaq’s 86% surge in 1999 trapped bearish investors, turning their positions into what traders call the "pain trade."
One hedge fund manager likened shorting dot-com stocks to:
"Fighting a hurricane with an umbrella—the momentum was unstoppable."
The Fallout:
Short sellers were ultimately proven correct, but many suffered heavy losses before the market corrected.
Julian Robertson’s Tiger Management: A Cautionary Tale
One of the most renowned casualties of the dot-com bubble was Julian Robertson’s Tiger Management. Robertson, skeptical of soaring tech valuations, took significant short positions against dot-com stocks. However, as tech stocks continued rising, Tiger Management hemorrhaged capital. By March 2000, Robertson announced the closure of the fund, citing irrational market behavior favoring tech stocks. Although he was vindicated when the bubble burst, it was too late for his firm- note Roberstons didn’t go broke- he was worth $4.8 billion when he passed away in 2022.
The dot-com era underscored a brutal reality: even when short sellers are right, timing is everything. This episode serves as a stark reminder that rationality often loses in the face of irrational markets.
Porsche-Volkswagen Squeeze (2008)
This happened in the midst of the 2008 financial crisis. It was a masterclass in strategic accumulation and market manipulation—technically legal, yet devastating for short sellers.
The Setup: Porsche’s Quiet Accumulation
Why Short Volkswagen?
At first glance, VW looked like an ideal short target. The company was burdened with debt, and the 2008 crash had decimated demand for new cars. Yet, VW’s stock remained stubbornly high, fueling a belief among hedge funds that a steep decline was inevitable. What they didn’t realize was that as early as 2005 Porsche started quietly buying Volkswagen shares.
By late 2008, short interest in VW had ballooned to 12.8%, and by this stage Porsche had already secured 42.6% of VW’s ordinary shares and controlled another 31.5% through cash-settled options, sidestepping disclosure rules. With the German state of Lower Saxony holding 20%. So this meant that only 6% of VW’s shares were left for trading—yet the short sellers interest was over double that at 12.8% creating a perfect trap for short sellers.
Porsche delivered their coup-de-grace by announcing their position in a press release on a Sunday, ensuring the hedge funds had to watch helplessly as markets remained closed, fully aware of the impending carnage.
The Bloodbath: A 400% Surge in Two Days
When trading resumed on the Monday, short sellers scrambled to buy shares, but there were none left. VW’s stock skyrocketed from €210 to €1,005 in just two days, momentarily valuing the company at €370 billion—Volkswagen briefly became the most valuable company on Earth.
The total losses for the short sellers? An estimated $30 billion.
Hedge funds such as Elliott Associates, Greenlight Capital, Glenhill Capital, and Viking Global Equities took massive hits, later suing Porsche for market manipulation. Their claims failed—Porsche’s strategy, while ruthless, was legal.
This led to one of the most ironic headlines in financial history:
"Porsche: The Hedge Fund That Also Makes Cars."
Porsche had executed one of the greatest financial ambushes ever seen, and few shed a tear for the short sellers left in ruins.
Present Day: High-Stakes Activism and Regulatory Crossroads
So on January 24, 2023, this U.S.-based firm called Hindenburg Research dropped a bombshell report accusing the Adani Group, one of India’s largest businesses of pulling off what they called the “largest corporate con in history.” According to them, Adani was involved in stock manipulation and accounting fraud.
Now, Hindenburg’s not just some random outfit. It was founded in 2017 by Nate Anderson, and they made a name for themselves with the Nikola scandal in 2020. That was the one where they exposed that infamous video of a truck that looked like it was driving on a flat road, but was actually rolling downhill. That led to the fraud conviction of Nikola’s founder Trevor Milton—though he never served the sentence because Trump pardoned him.
Back to Adani. Hindenburg claimed they did deep-dive research: interviews with former Adani execs, site visits, financial sleuthing—you name it. Their key allegations were:
Massive overvaluation of Adani’s stocks, which they said should drop by at least 85%.
Excessive debt, where Adani allegedly pledged inflated shares to secure huge loans.
Governance issues, calling it basically a family business, with key roles filled by Gautam Adani’s relatives.
Offshore shell companies, supposedly used to forge documents.
Adani fired back on January 29 with a 413-page rebuttal. But the damage was done—Adani companies lost $100 billion in market value in just days.
And then came the nationalistic spin. Adani tried to paint the whole thing as an attack on India itself, calling it a “calculated attack on India.” Some outlets even claimed it was some kind of Anglo-American plot to punish India for not picking a side in the Russia-Ukraine war. But honestly, without any proof, that kind of claim just sounds like nonsense.
Anyway, things seemed to cool down for a bit and Adani’s shares have recovered somewhat. But Hindenburg seem to have been onto something- in November 2024 Gautam Adani and seven others were indicted in a New York federal court. The charges? Allegedly agreeing to pay hundreds of millions in bribes to Indian government officials between 2020 and 2024. Adani’s always denied those claims, but accusations of “crony capitalism” have followed him around for years, especially because of his very cosy ties with Modi. So this is a story that’s going to be well worth watching.
And funnily enough, despite causing a $100 billion market crash, Hindenburg only made around $4 million from the short bet.
Then in January 2025, Nate Anderson announced the closure of Hindenburg Research, saying the work had been “intense and, at times, all-encompassing.”
Short Selling: Present Day - High-Stakes Activism and Regulatory Crossroads
Activist short selling is no easy game. It’s a tough business, one that big Wall Street firms tend to avoid. The legal risks are enormous. Just last year, the SEC charged Andrew Left, a very well known short seller, with market manipulation. He’s pleaded not guilty, and the trial is set for September. Other activist short sellers frequently find themselves sued by the very companies they expose.
The short-selling business is losing steam, hampered by a decade-long bull market and the rise of passive investment funds that have made contrarian bets increasingly difficult. With markets continually trending upward, short sellers have found fewer profitable opportunities and more resistance from retail and institutional investors alike.
Renowned short seller Jim Chanos, the short seller who exposed Enron built a legendary career betting against overvalued companies, announced the closure of his short-focused funds in November 2023 after more than three decades in the industry. Meanwhile, Bill Ackman—famous for his costly and highly publicized short campaign against Herbalife—has sworn off the practice entirely.
While some argue that short selling remains a vital check against speculation and deception, the shrinking pool of dedicated short sellers raises questions about the future of this high-stakes financial strategy.
I hope it continues because there are just so many great business stories involving short seller- I hope you’ve enjoyed it as much as I have, and remember if you have any comments, any corrections or any story that you’d like us to cover, email us at: info@gbspod.com
All the best folks