but even with the huge win in 2022 short sellers still lag in recent history in the past five years an average annual return for short sellers was a loss of 44 while the dow gained 68 the sp 500 rose 93 and the nasdaq climbed 125 shorted stocks had a return of 308 in 2022 said ihor dusaniwsky the firms managing director of predictive analytics that means short sellers outperformed the broader market which suffered its biggest losses since 2008 the dow jones industrial average  sp 500 and nasdaq composite lost 88 194 and 331 respectively last year when an investor sells a stock short they borrow shares from a broker and sell them in hopes of buying the stock back later at a lower price its a tactic that does best when the broader market is hurting short seller returns came in below the major indexes when the market gained value in 2019 through 2021 but beat the averages when they ended the year down in 2018 its worth noting that the total amount shorted last year was below 2021 when the 1 trillion threshold was broken but higher than in 2018 through 2020 short sellers still needed to be good stock pickers in 2022 as different sectors and individual holdings could produce vastly different results dusaniwsky said for instance the best sector to short last year was beat down communication services stocks which produced a return on shorted holdings of 567 energy was the worst and posted a 28 loss on shorted holdings s3 partners said short and longterm performance are typically inversed thats because investors usually move short on holdings that they expect to lose value so energy which was the only winning sp 500 sector in 2022 would not be a target for shorting as investors watched share values rise despite the broader markets decline and choosing sector orientation is only half the battle given the variety of stocks within each one within consumer staples for example beyond meat had the biggest return on short selling at 1282 french fry producer lamb weston was the least profitable in its sector and lost 439 carvana  which was beat down as used car demand slid had the best short performance of all stocks with at least 100 million in short interest recording a 3776 gain on the flip side madrigal pharma was the worst to short bets against the company lost 3454 the stock rallied in december on the back of wellreceived drug trial data