Hedge Fund Sage Capital Doubles Down On CBA Short Despite Losses

The title of this piece is derived from an article in the AFR, which examines what I consider to be a somewhat baffling decision by a reasonably sized local fund to continue shorting CBA despite its strong price growth.

The decision by Sage Capital to continue shorting Commonwealth Bank (CBA), despite a +36% rally and sustained outperformance, exemplifies a classic flaw in trading and investment psychology: valuing narrative over price.

Sean Fenton’s thesis—that CBA’s valuation is “unsustainable” due to weak earnings growth—may be economically sound, but in markets, being “right” on paper is meaningless if the price disagrees. CBA is not a theoretical construct. It is an absolute security in a real market with genuine buyers who have pushed its price to all-time highs.

This is the core issue: price is truth. Price reflects the net result of all available information—economic, behavioural, macro, and technical. To short a stock in a confirmed uptrend is to argue with consensus, and worse, to do so with diminishing capital.

The hedge fund’s persistence, despite underperformance, suggests a dangerous conviction bias. Their stance—“we’re not alone, others are short too”—amounts to herding, not validation. If price is rising, collective disagreement doesn’t strengthen the short case—it amplifies the risk of a squeeze.

Bottom Line:

Shorting strong stocks because they “shouldn’t” be this high is like shorting gravity because you believe in levitation. The only arbiter that matters is price. If your story contradicts it, it’s your story that needs to change—not the market.

As Paul Tudor Jones put it:

“Losers average losers.”

Sage Capital isn’t just shorting CBA. They’re shorting reality.

PS: I looked up the performance data for Sage Capital, which you can see in the table below –

Upon examining the data, I noticed an interesting detail. They benchmark themselves against the RBA cash rate, not against the S&P/ASX 200 Total Returns Index, despite being an equities-based fund. For the privilege of trying to beat cash in the bank, they charge a performance fee of 20.5%. Even then, they managed to underperform a cash investment.

For interest’s sake, I looked up the five-year return of STW, an ETF that tracks the S&P/ASX 200. STW returned 11.78%. It is somewhat of a no-brainer which one you would choose, as STW offered almost twice the return in the same period without the 20.5% management fee.

PPS: It’s not that hard to work out what the trend is – generate a weekly chart and stick a moving average over it. If the price is above the moving average, you are a buyer; if it is below, then you are a seller.