The hedge fund badly bruised by betting against GameStop is still struggling after ending the first half with a 46% loss, report says

Gabe Plotkin

Gabe Plotkin’s Melvin Capital Management, targeted by the Reddit army of day traders for its bearish GameStop bets, ended the first half of the year with a 46% loss, Bloomberg reported.

The New York-based hedge fund, which suffered a stunning 53% loss in January from the Reddit-trader short squeeze, gained 1% in June. But it is still struggling to recover, Bloomberg said in the Thursday report, citing sources familiar with the matter.

Melvin Capital, founded by star portfolio manager Plotkin, did manage to stage something of a comeback with a 22% gain in February. But its overall first-quarter loss stood at 49%, Insider understands.

The hedge fund got torched by the Reddit army alongside other high-profile firms that had big bets against GameStop when day traders banded together to send shares of the gaming retailer skyrocketing. When the price of a stock rises, short sellers must typically cover their positions by buying shares at that higher price.

Melvin Capital lost a chunk of its assets in the trading frenzy, ending January with $8 billion in assets, down from $12.5 billion at the start of the year. Its assets had risen to $11 billion as of June 1, the Financial Times and Bloomberg reported.

After the January hit, the fund has somewhat recovered. It is up 18% for the five months between February and June, Insider understands. It gained 5.4% in the second quarter.

The hedge fund is understood to be taking smaller-sized positions to limit its exposure to single companies. It exited its public short positions against GameStop, AMC and other stocks in the first quarter, but may have still held non-public, more traditional short positions.

Founder Gabe Plotkin has also asked a team of data scientists to comb through social media and day-trader forums for stock names of interest to retail traders, Bloomberg reported.

A spokesperson for Melvin Capital declined to comment.

Read More: Prominent market bear Albert Edwards warns that investors who prematurely bet on higher inflation are set up for further losses – and lays out the pathway to record-low bond yields

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AMC and GameStop lose momentum as the meme-stock favorites stage multi-day declines

GameStop
  • Since the start of July, AMC and GameStop have fallen 20% and 11%, respectively, as interest in the stocks has begun to wane.
  • Trading volumes in both companies have fallen, especially for AMC, which last month saw a precipitous run-up amid massive volume.
  • The top post on the Reddit forum WallStreetBets was of a 79% loss on AMC call options, which reflected a loss of more than $10,000 for the poster.
  • See more stories on Insider’s business page.

Shares in meme-stock favorites AMC Entertainment and GameStop continued multi-day falls on Wednesday as some Reddit traders took on heavy losses.

AMC ended the day at $45.07, down 9.8%. GameStop closed at $190.66, for a 4.5% loss.

Since the start of July, AMC and GameStop have fallen around 20% and 11%, respectively, as interest in the stocks has begun to wane. Trading volumes in both companies have fallen, especially for AMC, which last month saw a precipitous run-up amid massive volume.

On Tuesday, AMC enjoyed a brief pop in morning hours after CEO Adam Aron tweeted that the company would abandon plans for a share issuance in 2021, following a wave of social-media backlash. AMC shares would later erase gains and close lower on Tuesday, and continue to fall on Wednesday. The stock is down roughly 18% from Tuesday’s highs.

GameStop’s decline has been somewhat more measured. The stock has trended down since a June earnings call that, despite better-than-expected revenue numbers, disappointed some investors and analysts. Still, GameStop has not yet returned to its relatively sluggish April prices – let alone its dismal 2020 numbers, before the meme-stock frenzy kicked in.

Retail traders who had bet big on AMC using call options have taken to Reddit to post their so-called loss porn. At publication time, the top post on the forum WallStreetBets was of a 79% loss on AMC calls, losing the poster over $10,000.

But some commenters noted that the ill-fated poster’s call options did not expire until January 2022, and so could recover value should another price surge occur.

“Plenty of time,” wrote one hopeful Redditor.

Read more: GOLDMAN SACHS: Buy these 11 oil stocks as prices remain high through the next 18 months amid spiking demand and OPEC disagreements

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These are the top 10 meme stocks Reddit’s Wall Street Bets is talking about right now

WallStreetBets

It’s paid to follow what stocks Reddit’s Wall Street Bets crowd are talking about this year, as several have gone through epic rallies.

From GameStop in January to AMC Entertainment last month, the 10.6 million-member forum has driven the conversation in so-called meme stocks that have exploded higher amid overwhelming demand from retail investors. Strong demand for stocks with shaky fundamentals has led to several hedge fund blowups that were caught on the opposite side of the trade betting against the company in question.

GameStop’s short-squeeze, in-part led by the Wall Street Bets crowd, led to a more than 50% drawdown in multi-billion dollar hedge fund Melvin Capital. Meanwhile, the sharp rally in struggling movie theater chain AMC Entertainment caused billions of dollar in losses for short-sellers in May and June.

As traders look to replicate the success of Wall Street Bets stocks, one data aggregator is compiling the most mentioned stocks on Reddit’s forum.

These are the top 10 meme stocks Reddit’s WallStreetBets forum is focused on right now, according to data compiled by SwaggyStocks. The list excludes mega-cap tech stocks and is based on mentions over the past 24 hours.

10. Cleveland Cliffs

Ticker: CLF
Wall Street Bet Mentions Over Past 24 Hours: 89
Market Capitalization: $10.3 billion

GettyImages 1228399692
Hot molten steel in a blast furnace.

9. Virgin Galactic

Ticker: SPCE
Wall Street Bet Mentions Over Past 24 Hours: 124
Market Capitalization: $10.7 billion

Virgin galactic whiteknighttwo
A Virgin Galactic spacecraft attached to its carrier vehicle, WhiteKnightTwo.

8. BlackBerry

Ticker: BB
Wall Street Bet Mentions Over Past 24 Hours: 145
Market Capitalization: $7.0 billion

A shareholder uses his Blackberry while waiting for the Research In Motion annual meeting to begin in Waterloo, July 17, 2007.
BlackBerry shareholder

7. Palantir

Ticker: PLTR
Wall Street Bet Mentions Over Past 24 Hours: 192
Market Capitalization: $46.9 billion

Palantir

6. Clean Energy Fuels

Ticker: CLNE
Wall Street Bet Mentions Over Past 24 Hours: 196
Market Capitalization: $2.0 billion

Clean Energy Fuels

5. SoFi

Ticker: SOFI
Wall Street Bet Mentions Over Past 24 Hours: 227
Market Capitalization: $13.9 billion

sofi fintech

4. GameStop

Ticker: GME
Wall Street Bet Mentions Over Past 24 Hours: 275
Market Capitalization: $14.4 billion

GameStop
Queue in front of Gamestop store in Christmas atmosphere in Milan during coronavirus emergency, Milan, Italy, on November 03 2020.

3. ContextLogic

Ticker: WISH
Wall Street Bet Mentions Over Past 24 Hours: 289
Market Capitalization: $7.7 billion

Wish CFO
Wish CFO Rajat Bahri.

2. AMC Entertainment

Ticker: AMC
Wall Street Bet Mentions Over Past 24 Hours: 297
Market Capitalization: $26.1 billion

AMC Entertainment

1. Clover Health

Ticker: CLOV
Wall Street Bet Mentions Over Past 24 Hours: 468
Market Capitalization: $4.3 billion

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Chamath Palihapitiya, Founder and CEO of Social Capital LP, speaks at the Sohn Investment Conference in New York on May 4, 2016.

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Robinhood is warning investors in its IPO filing it could become a meme stock and that heightened attention from retail traders is a risk

GettyImages 1291817095
  • Robinhood warned investors of price volatility risk if retail-investor interest is high in the IPO.
  • The trading app is making 20% to 35% of its stock available to retail traders through its platform.
  • Other meme stock companies like AMC have warned of volatility and the subsequent risk, as well.
  • See more stories on Insider’s business page.

Robinhood warned investors it’s at risk of becoming a meme stock when it starts trading publicly.

The company, which filed for an initial public offering Thursday, is making 20% to 35% of its stock available to retail traders through its app, meaning a larger proportion of retail investors may participate in the offering “than is typical,” said the company, which will be listed on the Nasdaq under the ticker “HOOD.”

Retail investors have become known for targeting meme-stock companies and driving extreme volatility in share prices. Take GameStop’s epic rally in January and AMC Entertainment’s subsequent rally in May, for example. If they pour into Robinhood shares in its IPO, that could cause price volatility, the company said.

“High levels of initial interest in our stock at the time of this offering may result in an unsustainable trading price, in which case the price of our Class A common stock may decline over time,” Robinhood said in its IPO filing.

Then, if the price is above what investors deem reasonable, some may short the stock, “which would create additional downward pressure on the trading price,” the company said. Robinhood did not immediately respond to Insider’s request for comment on the story.

Other companies popular among retail traders have similarly warned of price volatility – except those warnings didn’t come until after their stocks had already skyrocketed amid its newfound meme status.

In June, AMC Entertainment told investors to prepare to lose all of their money if they invested in the stock amid its dizzying rally. Orphazyme, a small Danish biotech company, told traders they could lose a “significant portion” of their investment if the stock declined from its unprecedented highs. Car rental company Hertz said at one point its stock could be “worthless” and that investing in it involved a “high degree of risk.”

Ahead of filing for its public offering, Robinhood unveiled the new IPO Access feature that would allow users to buy shares of companies at the IPO price, before the stock starts trading on the open markets.

Robinhood, which launched in 2013, said those shares typically only go to institutions or wealthier investors. “Here’s to democratizing IPOs for all!” the company said in the May press release about the new service.

Read more: An investment chief for Lombard Odier says a rise in volatility could knock 10% off the S&P 500 in the next six months. He breaks down the 10 ways to shield, or boost, a cross-asset portfolio

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Michael Burry says the market is on the brink of collapse. A WallStreetBets user argues the famed investor’s predictions have been mostly wrong for the last 15 years.

Michael Burry big short
  • A post that analyzes how often Michael Burry’s bearish forecasts come true is trending on Reddit’s WallStreetBets.
  • The “Big Short” investor often warns about financial bubbles and crashes.
  • The Reddit user concluded that Burry is more often wrong than right with his predictions.
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A post that analyzes how often Michael Burry’s bearish forecasts come true is trending on Reddit’s Wall Street Bets forum.

The legendary investor rose to fame betting against the US housing market in the mid-2000’s, with his billion-dollar bet immortalized in the book and movie “The Big Short.”

Since then, Burry has issued several bearish forecasts, like a 2017 warning that the global financial system is going to collapse, and most recently a warning that the market is in the “greatest speculative bubble of all time.

User “u/nobjos” who told Insider their first name is “Noble” posted an analysis in several Reddit threads questioning how many times Burry has been correct. The user originally posted it on their Substack blog, though the post in WallStreetBets received over 5,000 upvotes.

“I recently observed that in every news article/tweet, he always talks about an impending crash. As recently as last week, he issued another warning stating that there would a ‘mother of all crashes soon due to the meme-stock and *****currency rally that will approach the size of countries,'” Noble said. “Basically, what I wanted to analyze was whether Michael Burry always predicts a crash and gets lucky when there is an actual crash or does his prediction actually turns out to be true most of the time?”

Noble tracked news articles that mentioned Burry forecasts from the last 15 years. He then compared the S&P 500’s return one month, one quarter, and to date after Burry’s bearish call. If Burry specified a stock, he used the particular stock as a benchmark.

The analysis shows that the S&P 500 has gone up 93% since Burry’s 2017 warning about a global financial meltdown and 50% since his 2019 prediction that index fund inflows are the next market bubble. Tesla stock has mostly gone down following Burry’s latest musings.

reddit thing

Noble concludes that “Burry’s only prediction that we can say confidently was right” after 2008 is that he called bitcoin a “speculative bubble” in March 2021. Bitcoin has dropped roughly 30% since his prediction, though Noble noted there isn’t enough data yet to show how Burry’s prediction will turn out over the next few years.

“I have immense respect for Michael Burry and his skills. He was a doctor and worked as a Stanford Hospital neurology resident and then left to start his own hedge fund that became extremely successful. But, as you can see from the above analysis, he is more often wrong than right with his predictions,” Noble wrote.

“But, the stock market rewards predictions disproportionately . Out of the 100 predictions you make, even if you get 99 wrong but get one extremely unlikely event right your overall returns will still be extremely high,” he added.

As for now, it remains to be seen whether Burry’s latest forecasts will come true. Some on Wall Street argue bubbles can take years to form and eventually pop, and it’s nearly impossible to pinpoint when the crash will occur.

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A sharp downturn won’t scare away the horde of retail investors reshaping the market. We spoke to 5 experts and day traders who explained why they’re here to stay.

Wall Street Bets Reddit Retail Traders GameStop
In this photo illustration the WallStreetBets page seen in the background of a silhouette hand holding a mobile phone with Reddit logo. Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images

  • The surge of retail investors will likely be in the stock market for the long haul, experts told Insider.
  • Fee-free trading, access to market data, and social media, are making it easier to trade.
  • “They see it as more than just a trade or an investment. They see it as a movement,” one expert said.
  • See more stories on Insider’s business page.

The horde of retail traders who have flooded the stock market in the past year are here to stay – even when the market turns sour, experts told Insider.

Since January 2020, retail investors bought $400 billion in stocks, doubling their total equity purchases from years prior, according to Vanda Research. Stock buying had been on the upswing for years before that though as more everyday investors had better access to market data and fee-free trading, thanks to brokerage apps like Robinhood, among others.

Dave Lauer, a stock market structure expert who has been interacting with retail investors, said the COVID-19 pandemic simply accelerated the number of day traders joining the market. But now that they’re here, “they’re here to stay,” he said.

For the first time, he’s seeing hundreds of thousands of people wanting to learn about how markets work and improve them.

“They see it as more than just a trade or an investment,” he said. “They see it as a movement.”

Matt Kohrs, a 26-year-old day trader with more than 300,000 followers on his YouTube trading channel, said the community of retail investors came together because they’re “tired of the tilted game” of Wall Street.

“The driving factor is a huge social-cultural movement,” he said. “It just happens to be playing out on a stock chart.”

Retail traders have joined the stock market in droves before.

Kristina Hooper, chief global market strategist at Invesco, said the dot-com bubble in the 90s had an “extraordinary level” of retail participation.

During that time, “it was not Reddit and Wall Street Bets and forums; it was taxi drivers in New York City talking about their favorite dot-com picks,” said Darren Schuringa, the founder of ASYMmetric ETFs, a firm designed to empower retail investors.

The difference now, according to Tuttle Capital Management Chief Executive Officer Matt Tuttle, “is the access now to all sorts of information, it’s the ability to trade for free and to trade quickly, and it’s the fact that they’re connected.”

That connection, Tuttle said, has given them the buying power of institutional investors.

For example, in January, hordes of day traders mobilizing on Reddit drove shares of GameStop to sky-high prices and caused short-sellers to lose billions. The event started the trend of “meme stocks,” and since then, the traders have driven share prices of multiple other companies, like AMC Entertainment and BlackBerry, up as well.

“They’ve got some power,” Tuttle said. “What history tells you is people who have power don’t give it up, at least not willingly.”

Even a market correction isn’t likely to faze retail traders, though they’ll likely face losses and some will exit, the experts said.

Hooper said a market correction could be on the horizon, though it will be short lived and won’t dent retail appetite.

“If you only have a downturn that lasts a few days and then stocks start going back up, will it shake out a lot of retail investors? Probably not,” she said.

However, a correction could hit meme stocks “quite hard,” she said, “because if there is one area where the fundamentals aren’t backing it, it’s meme stocks.”

Lauer, on the other hand, said meme stocks might avoid a correction because they appear to trade “relatively independent of what the market is doing.”

Kohrs said because retail traders make money off volatility, they could have even “bigger gains” in a bear market if executed properly.

“If you have proper risk management,” Schuringa said, “you can make money on both sides of the trade.”

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Bank of America resumes coverage of Bed Bath & Beyond, says stock is trading on fundamentals again as meme-stock madness fades

Bed Bath & Beyond
  • Bank of America analysts resumed coverage of Bed Bath & Beyond after meme mania cooled down.
  • “The momentum from meme investing has likely passed,” said the analysts who briefly paused coverage.
  • BofA rated the stock as a buy with a $38 price target.
  • See more stories on Insider’s business page.

Bank of America analysts say meme mania for Bed Bath & Beyond has cooled off, prompting them to resume covering the stock for investors.

In a Thursday note, Bank of America analysts led by Curtis Nagle said Bed Bath & Beyond shares are “once again trading on fundamentals,” and rated the stock to a buy rating. The analysts stopped coverage of the company on June 3 after the price surged 62% in a single day amid hype from retail traders.

The Union, New Jersey-based home goods retailer became a meme stock in January, along with companies like AMC Entertainment and BlackBerry, after retail traders poured into shares of GameStop to cause a short squeeze. Then in June, retail traders again hyped up shares of Bed Bath & Beyond as other meme stocks also came back into the spotlight.

“While not quite as extreme as GameStop, for example, Bed Bath & Beyond did see a large increase in mentions on retail investor forums in January and late May through early June,” the analysts said. But, “over the past two weeks, Bed Bath & Beyond has seen a sharp reduction in both those factors, which suggests that the momentum from meme investing has likely passed.”

Since the craze earlier this month, shares are trading closer to pre-surge levels, and the social-media hype, trading volumes, and short interest, have all moderated, the analysts said. With that, they added a $38 price target for the stock, which traded at $29.89 at at 11:26 p.m. in New York.

The analysts attributed their bullish view to Bed Bath & Beyond’s long-term turnaround, including the company’s largest-ever new product rollout by year-end, store resets that will improve the shopping experience, closures of 200 underperforming locations, and a pickup in back-to-college and wedding registry purchases as the economy re-opens.

Read more: Bank of America says to buy these 31 small- and mid-cap stocks with average implied upside of nearly 30% as they represent its best ideas for the second half of 2021

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Reddit is auctioning 3 ethereum NFTs featuring its alien mascot Snoo

KIEV, UKRAINE - 2018/08/14: In this photo illustration, the Reddit social networking website seen displayed on a smartphone.
Snoo, the alien mascot of Reddit.

  • Reddit is selling three “CryptoSnoo NFTs” that feature its famous alien mascot.
  • “Take advantage of this rare opportunity to own a piece of Reddit history-snag a CryptoSnoo NFT,” the website said.
  • Once purchased, buyers will get access to a URL that will take them to a webpage dedicated to their NFT.
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Reddit is auctioning three non-fungible tokens powered by the ethereum blockchain, with the social media site taking bid from now until July 1.

The tokens are called “CryptoSnoos NFTs” and feature the famous alien mascot of the social media site. The Block was first to report.

“Take advantage of this rare opportunity to own a piece of Reddit history-snag a CryptoSnoo NFT,” the website said.

The three CryptoSnoos NFTs are named Original Block, Helium, and Snooprematic.

All were minted on June 17 and are on sale on NFT platform OpenSea.

According to Reddit, Original Block is inspired by Reddit’s characteristic Snoo caricature. Helium, meanwhile, is associated with the “contemporary art movement” and “everyday objects that are blue and sparkle.” Snooprematic is influenced by a “geometric vocabulary.”

A screenshot of Reddit's NFT called CryptoSnoos taken from its official website.
Reddit’s NFT called CryptoSnoos.

The current highest bid for Original Block is $3,959.82, for Helium it’s $1,979.91, and for Snooprematic, it’s $1,394.07.

Once purchased, buyers will get access to a URL that will take them to a webpage dedicated to their NFTs.

NFTs are unique digital assets secured on a blockchain. Each NFT has its own signature, which can be verified in the public ledger and cannot be duplicated.

NFTs have soared in popularity in 2021. Artwork, tweets, and news columns turned into digital art have fetched millions of dollars at auction.

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A majority of Millennial and Gen-Z investors are taking personal loans or borrowing from friends and family to invest in stocks

Happy Stock Market Investor
Caroline Purser/Getty Images

  • A majority of Millennial and Gen-Z investors are borrowing money to invest in stocks.
  • Most took out a personal loan or turned to family and friends, a new survey shows.
  • Borrowing puts investors into “risky territory” said Magnify Money, which conducted the research.
  • See more stories on Insider’s business page.

Millennial and Gen-Z investors in the US are borrowing money to invest in stocks, a survey from LendingTree’s Magnify Money shows.

80% of Gen-Z investors and 60% of Millennials surveyed said they took on debt to invest. The survey gathered responses from about 2,000 US consumers from March 30 to April 6. Of those surveyed, about half were investors.

Young investors were most likely to take out a personal loan – oftentimes borrowing $5,000 or more – to invest and turned to family and friends for funds second, the data showed.

Older generations were much less likely to take on debt, with only 28% of Gen Xers and 9% of Baby Boomers borrowing in order to invest, the survey showed. Of those who borrowed money, more than half said they’d do it again.

Ismat Mangla, MagnifyMoney senior director of content, said borrowing puts investors into “risky territory,” and they need to determine if they can afford to take that risk.

“You want to be confident that your investment gains will exceed the costs of your loan. If they don’t, you should be confident that you could take that financial hit,” she said.

Millennials and Gen Zs have joined the market in droves since the COVID-19 pandemic began, and many have used social media sites like TikTok, which can be sometimes be a source of questionable advice, to educate themselves on investing. Data from Vanda Research shows retail traders purchased an additional $400 billion in stocks since January 2020, doubling their total purchases from the year prior.

Many of the young investors have poured into the new phenomenon of meme stocks – a trend that started earlier this year when retail traders coordinating on social media caused shares of GameStop to skyrocket. Since then, companies, including AMC Entertainment and BlackBerry among others, have seen sky-high prices largely thanks to the retail trade.

Wall Street analysts have said meme-stock prices are disconnected from reality, making them a riskier bet and nearly equivalent to gambling. And meme-stock companies have even begun to warn retail traders that they could lose all their investment making risky bets on stock prices trading above fundamentals.

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Goldman Sachs bought into the meteoric rise of a Danish biotech stock that became a meme last week – then sold

Goldman Sachs
REUTERS/David Gray/File Photo

  • Goldman Sachs bought a 5.58% stake in a tiny Danish biotech firm that became a meme stock.
  • It dropped below the 5% threshold the next day when the stock dropped from its meteoric rise.
  • The Danish firm Orphazyme has been on a wild ride since June 10 when it rose 1,387% in a day.
  • See more stories on Insider’s business page.

Goldman Sachs bought – then sold – a noteworthy stake in a tiny Danish biotech firm that became a meme stock last week.

Orphazyme, a Copenhagen, Denmark-based biotech firm, said the bank’s holdings increased to 5.58% of the company’s shares as of June 16. Then, just a day later, the bank’s stake fell below the 5% threshold that triggers a filing.

Orphazyme’s American Depository Shares rallied 61% on June 16 and then fell the following three days. The bank didn’t respond to Insider’s request for comment on the matter.

The stock has been on a wild ride since June 10 when it surged as much as 1,387% in a single trading day. The company rose to popularity on Reddit’s Wall Street Bets that day, though some retail traders questioned if the trade was a hedge-fund pump-and-dump.

In a statement about the share surge, the company said it wasn’t aware of any material changes to the business that would explain the stock move and warned investors they could lose money if the price dropped.

The price of the company’s American Depository Shares has surged then plummeted twice this month. Wednesday, the price was on the rise again, gaining as much as 53%.

The company, founded in Denmark in 2009, is researching and developing heat-shock proteins to treat people living with rare neurodegenerative diseases, according to its website. It went public in 2017. Orphazyme did not immediately respond to Insider’s request for comment.

Orphazyme isn’t the only small firm to be added to the meme-stock basket recently. This week, another small biotech firm, Atossa Therapeutics, saw a huge rally when retail traders poured into the stock, while a tiny Texas oil driller that’s previously warned it could go out of business also surged.

The meme-stock frenzy began earlier this year when investors mobilized on social media like Reddit caused GameStop’s share price to soar. Since then, many other stocks have been pulled into the frenzy.

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