Melvin Capital Management has been betting against GameStop Corp. since 2014. and still believes downloading online video games will catch up with the retailer’s business model, the hedge fund founder said in a preliminary copy of his congressional statement released Wednesday.
Gabe Plotkin’s Melvin Capital lost more than 50% on its investments in January as losses piled up from his short bets against GameStop and other companies. GameStop was touted on the Reddit forum WallStreetBets and a few other social media platforms, with rising stock prices hurting the returns of several high-profile companies, including Steven A. Cohen’s Point72 Asset Management and Daniel Sundheim’s D1 Capital Partners.
The action in GameStop was fueled in part by an army of bullish individual traders who, on platforms like Reddit, urged each other to buy stocks and options and squeeze out Melvin, a particular target of posters. GameStop’s seemingly relentless advance also created what traders described as some sort of contagion effect. Managers lost confidence in their short positions and hedged those bets, while also reducing their holdings in other companies to reduce risk in their portfolios.
GameStop’s seemingly relentless advance also created what traders described as a contagion of sorts, with managers losing confidence in their short positions and hedging those bets. These managers have also reduced their stakes in other companies to reduce risk in their portfolios.
The episode has raised questions about the integrity of the market and spurred federal investigations into possible market manipulation. Prosecutors have information from brokers such as Robinhood Markets Inc. subpoena, the popular online brokerage that many individual investors used to trade GameStop and other stocks.