With heavy losses, the famous investment fund was forced to surrender to the ‘brutality’ of the Reddit investor group

Tram Ho

The first sign of trouble with Gabe Plotkin’s hedge fund appeared in late October: A photo on the Reddit forum’s r / wallstreetbets chat room was targeting his hugely successful startup.

Member named “Stonksflyingup” refers to the shares of GameStop (GME) and the $ 12.5 billion company of Plotkin: “The explosion of GME and the fall of Melvin Capital”. Not long after that, “eryforestgreen” commented: “Attack on short selling of Melvin Capital.” “greekgod1990” also joined in: “Melvin vs. WSB! Bringing GME a boom.”

 Thua lỗ nặng, quỹ đầu tư nổi tiếng buộc phải đầu hàng trước sự tàn nhẫn của nhóm nhà đầu tư Reddit - Ảnh 1.

That is what is making Wall Street riot and a “star” hedge fund suddenly became the target of “chasing” of day traders on Reddit – one of the most powerful “forces” on the stock market at the moment. in. The confrontation with Melvin Capital changed the “balance of power” in a way that seemed unpredictable just a few months ago. On January 27, this investment fund “surrendered” to a group of amateur investors and was forced to buy up short positions in GME.

F0 investor group transactions boomed – fueled by apps like Robinhood and forums like Reddit’s wallstreetbets, disrupted the old order. Melvin Capital’s move has left a “trail” on the market. Accordingly, members of Reddit have identified the shares that Melvin is betting, then they continuously buy in, pushing up the price so that Melvin “loses”.

Witness a huge loss, about 30% last week, so on January 25, Melvin had to “ask for help” billionaires famous hedge fund founders Ken Griffin and Steve Cohen. As of January 26, the fund’s loss continued to increase despite the adjustment of the portfolio, but the company’s representatives did not disclose the exact number.

 Thua lỗ nặng, quỹ đầu tư nổi tiếng buộc phải đầu hàng trước sự tàn nhẫn của nhóm nhà đầu tư Reddit - Ảnh 2.

Gabe Plotkin.

The risk of buying a stock is a visual factor. If you buy 50 USD shares and the price decreases, you will lose that money. However, losing the down bet will cost you more money, at a faster rate. A short $ 50 trade can cost you more if the share price soars. Even though using options can limit losses, investors still lose all if the stock rises in price.

The short-sold stocks listed in Melvin’s regulatory filing since the third quarter of last year have all skyrocketed in recent weeks. Among them are the stocks Bed Bath & Beyond, iRobot Corp. and GSX Techedu. Typically GME has increased 634% this month, as of January 26. That night, Elon Musk posted a tweet linking the link to Reddit’s chat room with the description “Gamestonk!” (Pun from GameStop, just bad investment decision). By the middle of the next day, GME more than doubled.

Accordingly, investors who fall into a sell-off position may have to close their positions and suffer losses, or attempt to overcome the stock’s appreciation – requiring them to pour more money. Even so, the surprise funding Melvin made seems unprecedented for the hedge fund industry. Griffin – Melvin’s partner and the Citadel hedge fund, added $ 2 billion. Meanwhile, Cohen’s Point71 Capital Management supported an additional 740 million USD.

Before this year, Plotkin was one of the best performing investors in the hedge fund industry. He worked for Cohen for 8 years and is one of the biggest earners. He then left and founded Melvin in December 2014. According to an investor, despite a loss in 2018, the fund’s annual rate of return has remained 30% since its inception, while last year it was 50%.

However, by January of this year, a group of F0 investors on Reddit began targeting this company’s positions. They pushed to “hack” GameStop and many other shares that it shorted. However, the reason why they “chose” Melvin remains a mystery. According to fund managers, Plotkin is the key. He often does not appear at social events. However, his former colleagues and current investors said he was kind, quiet, and did not “make enemies” with anyone.

Melvin’s losses continued to soar in January and surpassed 15% last week. The company spoke to investors and received pledges of about $ 1 billion on December 1. By the end of last week, losses had increased by about 30%.

Meanwhile, some investors have expressed confidence that Plotkin will get through this difficult time. Griffin said on January 25 that he and his partners trusted Gabe very much. Meanwhile, Cohen called him “the outstanding investor and leader.”

A source close to the said the lesson here is: Do not leave a “trace” on the market and only buy “over the counter” put option.

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Source : Genk