Actor Christian Bale played Dr. Michael Burry in “The Big Short”, with which he won several film awards … [+]
(Photo by Lester Cohen / WireImage)
In April, Dr. Michael Burry, the hedge fund investor who shorted millions on subprime mortgages during the 2008 crisis and was dramatized by Christian Bale in “The Big Short,” a daring play in the depths of the Coronavirus pandemic.
Burry’s hedge fund Scion Asset Management announced it had bought 5.3% of ailing video game retailer GameStop
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Burry’s game helped kickstart one of the craziest and most out of control transactions in financial history, bringing in billions of dollars in paper profits for some investors, including many amateur speculators, and for some of the world. billions in losses. most advanced hedge funds.
GameStop has risen from a low of $ 2.57 a share when Burry was building its position this spring to more than $ 240 at some point in off-hours trading, as a group of amateur speculators have used social media app Reddit to put GameStop’s heavily short-circuiting stock in trouble. The subsequent surge in GameStop’s stock has resulted in a push reminiscent of Volkswagen’s rise in 2008 to a market capitalization of half a trillion dollars at the bottom of the 2008 crisis, leading to about $ 30 billion in realized losses in hedge funds.
At the urging of investors like Burry, GameStop has repurchased approximately $ 200 million worth of shares since 2019, reducing the number of shares outstanding by 38%. The buyback, combined with massive hedge fund bets against GameStop as it suffers from declining in-store video game sales, meant it ended 2020 as one of the world’s worst shorted stocks.
Enter Reddit thread r / wallstreetbets, where posters have been trying to squeeze out GameStop bears and pump up the company’s stock for months. Because GameStop gained momentum with the addition of Chewy
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founder Ryan Cohen as an investor and rising PlayStations sales, Redditor began to smell blood in the water. A social media squeeze took place in January, fueling an 881% rise in GameStop stock over the past month.
The Battle Royale is reminiscent of a similar showdown from about 15 years ago, albeit one between professional traders, versus today’s iteration where amateurs compete against gigantic funds. In 2006, billionaire John Arnold traded against Brian Hunter of hedge fund Amaranth Advisors in a giant deal (long March / short April) in natural gas futures. The game earned Arnold a fortune, but it cost Amaranth $ 6 billion and caused the fund’s demise.
As GameStop’s valuation has risen to $ 14 billion, turning some retailers into millionaires, it has come at the expense of some successful funds. Hedge fund Melvin Capital, one of GameStop’s biggest short films revealed, has lost a boatload due to the pressure from GameStop. It was reportedly down 30% from Monday, according to the Wall Street Journal, and required a $ 2.7 bailout of billionaires Ken Griffin and Steven A. Cohen of Citadel and Point 72 Asset Management, respectively, to stay afloat.
When the pressure turned into a one-time Wall Street fiasco, the amusing rubberneckers joined in.
Palihapitiya traded in the squeeze by buying call options at GameStop, which appeared to speed up the squeeze on Tuesday-afternoon. After Palihapitiya’s tweet, GameStop rose from $ 90 to $ 147.98.
Minutes after the market closed, Musk joined the party with even more powerful results. With tens of millions of raving fans around the world and a knack for moving stocks with a single inscrutable tweet, Musk simply wrote, “Gamestonk.” He linked to the Reddit thread where the squeeze is coordinated. That was good enough for a 43% jump in GameStop stock in after-hours trading.
Now GameStop’s hedge fund bull Michael Burry, arguably the person who created the current conditions with his massive buyback call, says the buzz is “unnatural, insane and dangerous.” In a tweet, Burry said there should be legal and regulatory ramifications from the wave. (It looks like he later deleted the tweet).
Perhaps Burry is trying to put a lid on Pandora’s box he helped open. Or maybe he’s suffering from a little FOMO, or he’s scared of missing out. The 3.4 million shares that Burry bought for about $ 15 million would be worth $ 710 million at current prices, making him a nearly billionaire.
Unfortunately for Burry, the filings are being reviewed by Forbes State that he sold his GameStop before the fun really started. As of September 30, Burry owned just 1.7 million shares and it is more than likely that he continued to sell as GameStop entered the end of the year.
For more information about GameStop:
GameStop’s massive wave creates a new billionaire as Reddit merchants bet against Wall Street