Actor Christian Bale played Dr. Michael Burry in “The Big Short”, winning some awards for his film … [+]
(Photo by Lester Cohen / WireImage)
In April, Dr. Michael Burry, the hedge fund investor who produced millions in subprime mortgage shortening during the 2008 crisis and who was dramatized by Christian Bale in “The Big Short,” did a bold play in the depths of the coronavirus pandemic.
Burry’s hedge fund, Scion Asset Management, revealed that it bought 5.3% of the struggling video game retailer GameStop
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Burry’s work helped start one of the most brazen and uncontrolled trades in financial history, which has minted billions of dollars in paper profits for some investors, including many amateur speculators, and resulted in the loss of thousands. million for some of the world’s most sophisticated hedge funds.
GameStop has gone from a low of $ 2.57 per share when Burry was building its position this spring to more than $ 240 at some point in off-hours trading, as used by a band of amateur speculators Reddit social networking app to corner the very short actions of GameStop. The consequent rise in GameStop shares has created a squeeze that is reminiscent of Volkswagen’s rise in 2008 to a half-trillion-dollar market cap during the depths of the 2008 crisis, which led to losses in hedge funds. ‘about $ 30 billion.
At the urging of investors like Burry, GameStop has recovered about $ 200 million in shares since 2019, reducing its outstanding shares by 38%. The repurchase, combined with massive hedge fund bets against GameStop as it suffers from declining in-game video game sales, meant it ended 2020 as one of the shortest stocks in the world.
Enter the Reddit thread r / wallstreetbets, where for months the posters try to extract the bears from GameStop and increase the company’s stock. When GameStop picked up momentum due to the addition of Chewy
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Founder Ryan Cohen as an investor and growing seller of PlayStations, Redditors began to smell blood in the water. In January there was an organized crackdown on social media, which fueled an 881% gain in GameStop shares over the past month.
The actual battle is reminiscent of a similar showdown about 15 years ago, albeit between professional traders, compared to the current iteration, where fans are vying for giant funds. In 2006, billionaire John Arnold traded Brian Hunter from the Amaranth Advisors hedge fund for a giant (long March / short April) trade in natural gas futures. The duel turned Arnold into a fortune, but cost Amaranth $ 6 billion and caused the fund to disappear.
As GameStop’s valuation has skyrocketed to $ 14 billion, making some retailers millionaires, it has been at the expense of some successful funds. Hedge fund Melvin Capital, one of GameStop’s biggest disclosed shorts, has lost a boat due to GameStop pressure. It was like that it reportedly dropped 30% on Monday, according to the Wall Street Journal, and required a $ 2.7 bailout from billionaire Ken Griffin and Steven A. Cohen of Citadel and Point 72 Asset Management, respectively, to stay afloat.
When the pressure turned into a sort of Wall Street fiasco, once in a decade, baffling fun joined in, two of Silicon Valley’s greatest, Elon Musk and investor Chamath Palihapitiya.
Palihapitiya switched to buying, buying call options at GameStop, which appeared to accelerate compression on Tuesday afternoon. After Palihapitiya’s tweet, GameStop went from $ 90 to close at $ 147.98.
Minutes after the market closed, Musk joined the party with even more powerful results. With tens of millions of avid fans around the world and an ability to move actions with a single inscrutable tweet, Musk simply wrote, “Gamestonk.” It was linked to the Reddit thread where the narrowing has been coordinated. That was good enough for a 43% jump in GameStop shares in out-of-hours operations.
Now, GameStop hedge fund bull Michael Burry, arguably the person who instigated the current circumstances with his massive call for repurchase, says the pressure is “unnatural, unhealthy and dangerous.” In a tweet, Burry said there should be legal and regulatory implications for the increase. (Looks like he later deleted the tweet).
Maybe Burry is trying to put a lid on the Pandora’s box that helped open it. Either you may suffer from some FOMO or you are afraid of getting lost. The 3.4 million shares Burry bought for about $ 15 million would be worth $ 710 million at current prices, making him a billionaire.
Unfortunately for Burry, the stock presentation revised by Forbes indicate that you sold your GameStop before the fun began. As of September 30, Burry owned only 1.7 million shares and is more than likely going to continue selling as GameStop launched at the end of the year.
For more information on GameStop:
GameStop’s massive rise creates a new billionaire as Reddit marketers bet on Wall Street