The Most Interesting Short Selling Story in History: The Tale of the Hunt Brothers and Silver

Jordan Milkovich
·3 min read
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In the 1980s, a special duo made decisions that will forever shape the future of one of the most important financial markets. The duo were bold - and that boldness led to an ultimately disastrous bet.

Short selling is a financial strategy in which investors bet against a particular asset, hoping to profit from a decline in its price. While this can be a risky and controversial tactic, it is widely used as a profitable trading strategy. One of the most interesting examples of short selling in history occurred in the 1980s, when two brothers named Nelson Bunker Hunt and William Herbert Hunt made a bold and ultimately disastrous bet regarding the price of silver.

The Hunt brothers, who were members of one of the wealthiest families in America, had been interested in silver for years. In the early 1980s, they believed that the price of silver was artificially low, and they decided to use their vast wealth (and borrowed money) to try to drive up the price. They began buying large quantities of silver, and they also entered into contracts to buy even more in the future.

As the Hunt brothers continued to buy silver, the price began to rise. Using leverage, or borrowed money, the wealthy brothers’ buying power started to outstrip investors who had anticipated the price of silver to decline. When those same investors were forced to cover, or unwind their trades that were geared toward the decline in silver, this added to the buying pressure in silver – a ‘short squeeze.’  This added pressure meant the Hunt brothers' bet was starting to pay off, and the price of silver continued to climb.

As the price of silver surged by nearly 10x, the exchanges that handled this trading started to take notice. In 1980, rules were changed regarding leveraged bets in commodities markets. This decision meant the Hunt Brothers had to immediately reduce their level of holdings. The ensuing panic led to a quick decline in the price of silver. The rush to the exits led to a collapse in both the silver price and in the Hunt Brothers’ positions.

Despite their best efforts, the Hunt brothers were unable to stop the price of silver from collapsing. In the end, they were forced to sell their silver at a huge loss, and they were unable to pay the debts they had incurred as a result of their failed bet. At one point, it was estimated the Hunt Brothers had amassed billions of dollars in positions and approximately one third of the world’s supply of silver.

Today, the Hunt brothers' story is a reminder of the risks and uncertainties of short selling, and of the dangers of trying to manipulate the market. While short selling can be a profitable strategy, it can also be incredibly risky, and investors should be careful to consider all of the potential risks before making a bet against an asset.

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