By now you may have heard about the whole buying frenzy behind the GameStop stock. It’s personal! As you see the big-time hedge funds is getting a taste of their own medicine according to a group of individual investors at the Reddit forum WallStreetBets. Out for revenge against Melvin Capital a hedge fund that spawned from S.A.C. Capital.
But what started all of this? This all started years ago with the housing bubble and the pain the hedge funds risky bets put the economy. Some hedge funds were employing a strategy called “short selling.” Which is a way to profit off of a stock that is losing value. S.A.C. Capital was accused of the practice and ultimately investigated by the SEC. This resulted in massive fines. Unfortunately, this did not deter these hedge funds from engaging in the practice. This only spawned new companies Melvin Capital, Point72, and Citadel. After a user of WallStreetBets caught wind of Melvin Capital engaging in the practice they took action. It was personal! Not only was Melvin Capital engaging in the same behavior they were doing it with a company favored by the individual investors. GameStop.
This group is made up mostly of millennials and men who enjoy things like playing video games. Stuck inside in the pandemic they turned to what they enjoy most, video games. They were not about to let the big wig hedge fund managers play with their favorite go-to video game retailer. They organized a mass buy of the GameStop stock pushing the price six dollars a share to up five hundred. Some took a cut and ran with their earnings. Others held onto their stock to forced Melvin Capital into a “short squeeze.” Which is a way to increase the percentage of a stock theoretically unlimitedly but in a negative direction. Thereby causing an unlimited loss instead of a profit for short-sellers. This strategy resulted in Melvin Capital going bankrupt and needing a bailout which their buddies at Point72 and Citadel were more than happy to do. But the fight is not over the individual investors at WallStreetBets plan to hold on to their stocks until the short sellers are wiped out.
The hedge funds have long been accused of market manipulation by fueling panic selling through the media. They are using this strategy to stop the fight from the individual investors. By having media outlets like CNBC state that the individual investors have moved onto silver which is not true. They are simply trying to move buyer’s attention away from GameStop to prevent more people from buying the stock. Which would help them recover. As the individual investors at WallStreetBets say this fight is “going to the moon.”