Melvin Capital lost over $ 7 $ 7 billion and eventually shut down due to a massive short squeeze on its heavy investment in GameStop (GME) in January 2021. Retail investors from Reddit’s r/WallStreetBets drove up GameStop’s share price, forcing Melvin to cover its bearish bets at huge losses, which was exacerbated by other short positions and investor redemptions.
During the height of the squeeze, Melvin was reportedly losing more than a billion dollars a day. The short position adopted by Melvin Capital and others resulted in more than 139% of existing shares of GME being shorted, making GameStop stock the most shorted equity in the world.
Melvin famously shorted GameStop, losing undisclosed billions when retail traders drove the stock price up. Hedge fund Citadel subsequently bailed out Melvin with a $25 billion investment. But it apparently wasn't enough to save the struggling fund in the long term.
To make a long story short: In January, a group of everyday people on Reddit started buying up GameStop stocks. This drove up the low-value stock's price, which counterintuitively cost prominent hedge funds billions of dollars.
But the day after GameStop reached its peak, Robinhood abruptly restricted trading in some meme stocks, claiming that it had been forced to do so by a liquidity crunch, Wall Street rules and clearinghouse limits. The restrictions caused the stocks to plunge, prompting lawsuits, congressional hearings and an S.E.C.
While hedge funds are known for their aggressive strategies and high risk-reward profile, appealing primarily to high-net-worth individuals and institutional investors, mutual funds offer a simpler, regulated approach for individual investors seeking to grow their wealth in the long term.
Short selling means selling stocks you've borrowed, aiming to buy them back later for less money. Traders often look to short selling as a means of profiting on short-term declines in shares. The big risk of short selling is that you guess wrong and the stock rises, causing unlimited losses.
The rising stock value allowed Gill to turn an initial US$53,000 investment into $50 million by January 2021. Between 2021–2024, Gill kept a low profile but continued to increase his GameStop ownership.
Plotkin, whose net worth is estimated at $400 million, is the founder of investment management firm Melvin Capital, which he named after his grandfather and which had been valued at around $8 billion prior to announcing its closure last year.
Highlights GameStop's return to profitability, with adjusted EPS of $0.17, a $44.8 million net profit and a strong balance sheet including $6.4 billion in cash and no long term debt.
The GameStop short squeeze was a significant stock market event that occurred primarily in early 2021, focused on the video game retailer GameStop. This event arose when professional investors engaged in short selling, a strategy predicated on the belief that GameStop's stock would decline in value.
The all-time high GameStop stock closing price was 86.88 on January 27, 2021. The GameStop 52-week high stock price is 35.81, which is 69.7% above the current share price. The GameStop 52-week low stock price is 19.93, which is 5.5% below the current share price.
“The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” Buffett wrote to shareholders.
First off, long/short strategies are VERY expensive to run long term. Secondly, there is a significantly higher risk of a hedge fund going bust than a mutual fund or ETF going bust, so they can afford to take on higher risk.
Michael Burry made approximately $100 million personally and generated over $700 million for his investors by shorting the U.S. housing market, a move that paid off spectacularly during the 2008 financial crisis, with his firm Scion Capital realizing huge returns like 489% between 2000 and June 2008.
As the shares were borrowed, the short-seller must eventually return that number of shares to the lender (plus interest and dividends, if any), and therefore makes a profit if they spend less buying back the shares than they received at the earlier date when selling them.
How Much is Roaring Kitty Worth? Gill's belief in GameStop didn't just make him famous—it made him incredibly wealthy. After exercising his call options, Gill still holds 9,001,000 shares of GameStop. At today's price of $29.70 per share, those shares are worth about $267 million.
Chewy has lost one of its most high-profile feline customers. Keith Gill, better known as the meme-stock messiah Roaring Kitty, has sold off his stake in the online pet retailer, divesting 9 million shares of the company.