Melvin Capital Management had been betting against GameStop Corp. since 2014 and still believes online video game downloads will outpace the retailer’s business model, the hedge fund founder said in an advance copy of his congressional testimony released Wednesday. .
Gabe Plotkin’s Melvin Capital lost more than 50% of its investments in January as losses accrued from its short bets against GameStop and other companies. GameStop had been hyped on the Reddit WallStreetBets forum and on a few other social media platforms, and rising stock prices hurt the returns of several high-profile firms, including Steven A. Cohen’s Point72 Asset Management and D1 Capital. Daniel Sundheim Partners.
The action on GameStop was driven in part by an army of bullish individual traders urging each other on platforms like Reddit to buy stocks and options and squeeze Melvin, a particular target of the cartels. GameStop’s seemingly relentless upward march also created what marketers described as some kind of contagion effect. Managers lost confidence in their short positions and hedged those bets at the same time they cut their holdings in other companies to reduce risk in their portfolio.
GameStop’s seemingly relentless upward march also created what traders described as a kind of contagion effect, with managers losing confidence in their short positions and hedging those bets. These managers also cut their holdings in other companies to reduce risk in their portfolios.
The episode has raised questions about the integrity of the market and sparked federal polls about possible market manipulation. Prosecutors have cited information from brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors used to trade GameStop and other stocks.