Steve Eisman of “The Big Short” revealed a mistake he’s made when trying to deploy his strategy of betting against stocks that made him famous. The senior portfolio manager at Neuberger Berman shorted Tesla in 2018, a position he had to cover two years later at a steep loss. He said the failure of that trade made him realize the challenge of betting against a stock that doesn’t trade on fundamentals. “The hardest thing that I have found over the years, is trying to short cult stocks, or meme stocks, they seem to go up on nothing,” Eisman said on CNBC’s ” Squawk Box. ” Eisman shot to fame by shorting collateralized debt obligations to profit from the demise of subprime mortgage loans before the 2008 financial crisis. His success was chronicled in Michael Lewis’ “The Big Short,” and the subsequent Oscar-winning movie based on the book. The Elon Musk-led electric vehicle company has enjoyed an explosive expansion since the start of the pandemic, incurring losses for many short sellers. Jim Chanos, who has been betting against and trading around the EV player for several years, has called Tesla a cult stock “whereby the market will look at it anyway it wants to, in a glass-half-full kind of mode.” Eisman said he was shocked by the stock’s rally despite the EV company’s drastic price cuts recently. Tesla has cut prices for some of its Model Y and Model 3 electric vehicles in the United States for the sixth time amid concerns about the effect on its profit margins. “If you look at the fundamentals right now, you’d have to say it’s kind of shocking how much they’ve cut prices. Now, investors seem to only focus on volume until they report and then they say ‘wow, margins are really going down, and other people are cutting prices. too.'” Eisman said. “So I think the the bull story on Tesla is not as great as it was, but it’s still very hard to short because of the cultish aspect of the company,” he added. Shares of Tesla are up a whopping 109% this year alone.
