Melvin Capital Management has been betting on GameStop Corp. since 2014. and still believes that downloading video games online will surpass the retailer’s business model, the founder of the hedge fund announced in a preview of his congressional testimony Wednesday.
Melvin Capital, Gabe Plotkin, lost more than 50% on its investments in January due to the short bets against GameStop and other companies. GameStop has been featured on the RedStit forum WallStreetBets and other social media platforms, with its rising share prices hurting the returns of several high-profile businesses, 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 urging each other on platforms like Reddit to buy stocks and options and print Melvin, a specific target of posters. GameStop’s seemingly relentless march upwards also created what traders described as a kind of contagion effect. Managers lost confidence in their short positions and covered the bets, while also shrinking their stakes in other companies to reduce the risk in their portfolio.
GameStop’s seemingly relentless upward move also resulted in what traders described as a kind of contagion effect, with drivers losing confidence in their short positions and covering the bets. These executives have also cut their investments in other companies to reduce the risk in their portfolios.
The episode generated questions about the integrity of the market and allowed the federal probes for possible market manipulation. Prosecutors have sued information from brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors have used to trade GameStop and other stocks.