One of the most interesting stories of the last week was the revelation that a group of Reddit investors on the popular subreddit called Wall Street Bets was able to beat the hedge fund industry at their own game. While the activity tapered off over the weekend, the group said that they plan to forge ahead when the markets open again on Monday.
History of the Trolling
It all began when an investing group on the message board Reddit decided to prop up the GameStop stock after a hedge fund shorted it in an attempt to gain a profit off its inevitable downfall. However, this plan to short the stock backfired when the investing group on Reddit decided to buy up the GameStop stock in droves. This drove the price of the stock up considerably. The situation got so out of hand that various trading apps had to shut down the activity on the targeted stocks in order to protect their assets of the hedge funds.
Melvin Capital Management the Big Loser
One of the biggest losers in this situation is Melvin Capital Management. This hedge fund lost 53% in January, largely due to the shorted stocks suddenly soaring. The fund began 2021 with approximately $12.5 billion on hand. The fund now sits at a bit over $8 billion.
What Is Next?
If the Reddit investors have the fortitude to hold on to their shares of the shorted stocks, the targeted stocks will stay high. This will lead to the hedge funds having to take more losses. These investors are certainly sending a message to Wall Street about predatory short selling.