Melvin Capital, Hedge Fund Torpedoed By the GameStop Frenzy, is Shutting Down (nytimes.com) 72
Melvin Capital, the hedge fund run by Gabe Plotkin that struggled with heavy losses last year as it reeled from wrong-way bets on GameStop, is shutting down, according to a letter sent to investors on Wednesday that was reviewed by The New York Times. From the report: Mr. Plotkin wrote to his investors that he had decided that the "appropriate next step" was to liquidate the fund's assets and return cash to all investors. Mr. Plotkin, who founded Melvin in 2014, also wrote that he recognized he needed to "step away from managing external capital."
Mr. Plotkin, a protege of the hedge fund billionaire and New York Mets owner Steven A. Cohen, had wagered that shares GameStop, AMC Entertainment and other mall mainstays from the 1990s would fall as their businesses shrank. Instead, the stocks skyrocketed when amateur investors, coordinating via Reddit, Twitter and other social media sites and determined to outsmart big Wall Street funds, kept buying up shares and propping up their price. That caused Melvin, which started 2021 with more than $12 billion, to lose 53 percent in January, forcing it to scramble to cover its so-called short positions. It was propped up by a $2.75 billion bailout from the hedge funds Point72, run by Mr. Cohen, and Citadel, as well as fresh capital from new investors.
Mr. Plotkin, a protege of the hedge fund billionaire and New York Mets owner Steven A. Cohen, had wagered that shares GameStop, AMC Entertainment and other mall mainstays from the 1990s would fall as their businesses shrank. Instead, the stocks skyrocketed when amateur investors, coordinating via Reddit, Twitter and other social media sites and determined to outsmart big Wall Street funds, kept buying up shares and propping up their price. That caused Melvin, which started 2021 with more than $12 billion, to lose 53 percent in January, forcing it to scramble to cover its so-called short positions. It was propped up by a $2.75 billion bailout from the hedge funds Point72, run by Mr. Cohen, and Citadel, as well as fresh capital from new investors.
Good job (Score:3)
I still don't know who buys things at Gamestop, but cool.
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That's where grandma goes to buy that FortMine game.
Re:Good job (Score:4, Funny)
"Is this where I can buy the Fork Knife? And the Ajax Legends?"
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Check the prices, equal or better than amazon, better customer service and fast shipping.
Re: Good job (Score:2)
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The plus to Amazon is that most of the time you simply don't have to deal with a person at all.
That is a HUGE plus for me. One of the main reasons I still buy from them.
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whats the point of going / having a store to interact with an employee just to have it shipped to you.
One time I needed a car part, so I went to the autozone asked the clerk "well I don't have it, but I can order it for you" yea I can order it myself, where can I get one TODAY
Re: Good job (Score:2)
You do realize they have a website right?
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I am trying to figure out where customer service is a plus, a call center in india is a call center in inda, and yes I am aware of their website. Just so happens the unlikely chance of them having what I want in stock, its on the other side of the country. Its pretty bad when my local electronics express has a better selection of switch gear than gamesharts entire website
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You do realize that when your only form of transportation breaks down, and you're poor, you don't give much of a damn about the warehouse logistics of the places likely to give you relief, right?
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Napa is pretty good about having almost everything in stock somewhere near you. Getting it today is unlikely, but unless it's esoteric you can probably have it tomorrow. Everybody else is somewhere behind that. OTOH every time I have had a Napa remanufactured part it has failed, so you are left with getting the expensive stuff.
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1) It was a very common sensor on a very common GM car, yea I kind of expect the auto parts store to have one, or use their centralized database to tell me the autozone 1 mile down the street had it
2) that's not the point you fukin twatwaffle
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They're the only dedicated gaming chain store left, so they can be good for some games and merchandise. But they still have a bullshit "if you don't preorder you can't buy a new game Day 1" thing going, which seems weird to push customers to competitors, but eh.
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So: the people who buy things at Gamestop are the ones who like video games and also random nerd crap.
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Nice FP branch, but only nice and I wanted Funny. This story is SUCH a rich target for karma jokes.
I sure hope Melvin lost his shirt and all of his investors' shirts, too.
Sorry, but that's about the limit of my ability to write a joke. I'll be here all week, but I'm just sitting alone in front of a computer. No laughs around here. The typical story of everyone typing to Slashdot?
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Thinkgeek quit selling cool random tech and nerd crap well before the GameStop acquisition. For the last several years, they were basically just an online Hot Topic; selling branded franchise merchandise from properties such as Marvel, Dr Who, Star Wars, and the like.
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Yeah, this has nothing to do with gamestop, and everything to do with gamblers who spotted the tell of other gamblers and made them pay. Gamestop will eventually fold, there is no doubt. But not before r/wallstreetbets cashes in their big pile of chips. I don't necessarily thing there's anything wrong with shorting a stock, but there really is no reason other than greed to get that far out.
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But not before r/wallstreetbets cashes in
I don't think so. GME is now a bubble stock, with other hedge funds holding most of the cards. When they decide to cash out the bubble will pop, and the retail investors who can't move as quickly as the hedge funds will be left paying the bill.
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You're thinking of this as a 2 body system, but I suspect there are at least 3. There's WSB, the hedge funds, and then there's the wannabe WSB. I have a feeling most of the OG members of WSB have already sold and made their money. All of the people who joined WSB - or simply bought - after the news cycle amplified the hype 100x are the ones still hodling and frankly, they're the ones that are going to lose. I mean really, how would one independently verify that someone on WSB who claims to still be "di
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Nobody does, that's the point. GameStop is dying, these guys were simply over-extended and vulnerable to someone manipulating the stock price.
Melting Capital (Score:2)
Melvin Capital is ben renamed Melting Capital
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They let out the magic smoke.
risk (Score:2)
I wouldn't say the process is working (Score:4, Insightful)
Why is this bad? Well, if you're super rich and you're planning to make money betting on the failure of another business then, well, you have an incentive to make sure that business fails.
And if you're super rich you've got the money and power to make sure that happens. At least in many, many cases.
All I'm saying is that giving incentives to this kind of destructive capitalism isn't a good thing. It's not "the system working" it's the system eating itself.
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the business actively bet against another business
My understanding is that do not just bet and see what happens. Instead, they (or their friends) put out white paper reports on why they decided to bet against the target business.
Seems like it should be illegal. Even making pubic the fact that you made a massive bet for some business to fail seems like market manipulation.
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Re:I wouldn't say the process is working (Score:4, Interesting)
Power is the problem (Score:2)
There are some things you can't allow just because you can think of a scenario where they're "technically" legal. If you do you start to see the cracks in the free market, and before long the dam can't hold back the water that is all the scams and backstabbing humans are prone to doing.
The economy is _never_ "fair". Somebody is ALWAYS got
This. So much This. (Score:2)
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Seems like it should be illegal.
Why would telling everyone why you think another business is going to fail be illegal? Why would it be any more illegal than telling everyone why you think a business is going to be a great success?
Even making pubic the fact that you made a massive bet for some business to fail seems like market manipulation.
I don't understand why you think this is? If anything the large holdings of any company should always be public. It's not a manipulation to say you think Gamestop's business is a dead end, any more than it is a manipulation to say you think Microsoft going all in on Azure will lead to great successes.
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Well, if you're super rich and you're planning to make money betting on the failure of another business then, well, you have an incentive to make sure that business fails.
Did you just describe market competition without a sense of irony? It's literally the status quo of a perfect market, your incentive is to outdo someone else.
You're giving this "betting" thing too much credit. A person doesn't magically have power to make a business fail any more than they have power to make it magically succeed. Especially with a shorted position you're given precisely zero power over a company, the only thing you can do with be a loudmouth on twitter (like the several prominent people who
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Now, now. They did more than just that. They exploited the outmoded way traditional exchanges work in a manner that allowed them to short-sell more of the company than actually existed, which meant their greed set them up to fail when a bunch of internet loons bought every actual share of Gamestop they could, leaving the "professional investors" with having to pay whatever silly prices were on the books for the few real remaining shares which were far from enough to cover what they'd done.
It was the very
A company that tried market manipulation. (Score:3)
I think the whole process of calls and puts as an investment mechanism needs to be outlawed. I'm glad that they're dead but there are others out there who make millions every day on the margins when they actually don't have any of the stock. While the SEC is clamoring for a bigger budget to "regulate crypto" I don't ever expect congress to fix this because they're making money on insider information all the time.
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There are arguments for and against derivatives. Ultimately, they're essentially just banks giving loans, leases and rent-to-own services for rich people.
Rich people, because their only real purpose is hedging. Hedging is a mechanism by which rich people can give up average return in favour of more consistent return. Rich people again, because they're the only ones where it really makes sense to make less money than you could. Maybe old people too.
The ultimate problem is that, for some reason, investment ba
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You make a number of good points, but I cannot imagine outlawing managed funds in the world we live in, as a practical matter. That would imply a massive overhaul of how we handle corporations under the law. That is a very big fish to fry, that might well serve the common weal, but such would be for big picture reasons where this market manipulation is only one of many facets.
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You could compromise and just make it illegal for any corporation to manage more than $1 billion of other people's money. That could probably be justified under existing competition laws in most countries. I think making private corporate retirement savings plans illegal would also be a good idea, for this and lots of other reasons.
These guys going down really has very little effect on anything except some rich people lost some money, and somebody smarter made some. It really only causes problems when someb
Melting Capital (Score:2)
Melvin Capital is ben renamed "Melting Capital"
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I think the whole process of calls and puts as an investment mechanism needs to be outlawed.
Puts and (covered) calls aren't a problem. They're just limited-time contracts to buy stock at a a particular price (for money you presumably have) or sell stock (that you have and won't otherwise dispose of during the limited time) at a particular price, if the other guy decides to go ahead and exercise (do his half of the transaction).
The problem is "shorting" - borrowing and selling stock you don't own, with a pr
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One thing not mentioned (because most here don't actually trade or have never worked in wall street, both of which I personally have done) is that you don't *have* to let contracts expire when they are worthless.
There is in fact another group of people who intentionally force-execute losing positions just to force the other guy to screw up their multi-leg trade even if it was in fact correct/profitable.
Perfect example is a Condor. It's a 4-leg trade where you bet twice that the stock will fall, and twice th
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So you can punish rich investors by ignoring sanity and buying the stock at the more expensive contract price which forces the shares out of their account and ruins other multi-leg trades they had around those shares.
It may be a stupid question, but I have to ask it - if I buy stock from someone at above the market price, why can't he just buy the stock at the market price and keep the difference?
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The real story isn't that they bet and lost (Score:4, Interesting)
The story is that they tried to create the result they needed and failed, because the market manipulation was found out.
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It wasn't that the market manipulation was found out, it just got swamped by a bigger wave of market manipulation in the other direction.
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Nope. It was actually found out. The whole sub-reddit was specifically going after the hedge fund in a "We'll show them!" way.
It was not a coincidental combination of factors.
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What you're neglecting to mention there is that Melvin Capital was engaging in naked shorting, i.e. promising to sell more stock than actually is even theoretically available on the market.
He claims they weren't and I haven't seen any proof either way. I've seen proof that someone was doing naked shorts, just now who.
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The punishers didnt have to be some crowdsourced community effort, and for sure some big players got in on the action to punish those bad decisions.
People really dont understand the magnitude of this error. The shorts exposure is their entire bankroll, and expose it they did.
"But.. but.. thats a $X Billion dollar hedge fund you cant go up against that!"
"That
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Oh dear...
There are quite literally 100's of pages of quality analysis and evidence showing, unequivocally, that Melvin, Robinhood, Citadel and many other colluded, manufactured and manipulated countless companies into bankruptcy. Specifically for GME they colluded to ensure the squeeze was stopped when they fraudulently turned off the buy button in Robinhood. There's plenty of text messages and emails shown in discovery that clearly show they were all in close communication and all discussing what to do, c
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Setting up a massive short position isn't market manipulation, it's betting against the market. The market betted back. In fact at no point did any market manipulation occur. The share price followed the natural trend based on buying and selling volume. The fact that people get together and co-ordinate a large purchase or sale isn't a market manipulation, it's literally just the way the game is played.
Re: The real story isn't that they bet and lost (Score:2)
Read up on how Robin hood manages not to charge you for trading? They sell your flow the other companies that effectively front run it. As a small investor you are always up against it; at least if you use Robin hood you know you are being screwed rather than just wondering.
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How Robinhood is supposed to profit is irrelevant. When big hedge funds get short-squeezed, trading apps suddenly telling their users "no buying for you" is the point. "In fact at no point did any market manipulation occur" is a laughable prospect when the game is rigged.
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Robin hood is neither a share buyer on Reddit, nor are they one of the hedge funds who had a short position. So what's your point? If you want to go off topic start another thread. Buying and selling shares, or shorting them, even if you get together with your mates on a public forum to do so is not market manipulation.
Robinhood's entire business model on the other hand is.
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The topic is literally the Gamestop frenzy, where both Reddit and Robinhood were at the center of the shenanigans.
People got together to stick it to the big shorts, the big shorts came and leaned on the broker the people were using to in order to block the purchase of shares. It's as simple as that. Stop claiming that there wasn't market manipulation, when suddenly a broker is acting on the interests of the short-sellers and screwing over the retail investors.
Business as usual, sure, that I could accept.
Re: The real story isn't that they bet and lost (Score:2)
Actually some of the comments on wall street bets would have been considered collusion if made between investment houses.
The biggest irony is that this is billed as the common people taking on the man and winning, but in fact guess who won the most? Yes ... other hedge funds that rode the wave then cashed out letting the common people that bought at the top lose there money
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Doubt it. The fact that it was disclosed in public for anyone to participate counts against market collusion. Also collusion only applies to companies who normally compete against each other and decide to work together against a 3rd party. You and me could decide together to put as much money as we want into a company. Perfectly legal, not an issue. Microsoft and Google banding together to sink Apple in a secret agreement on the other hand would be illegal market collusion.
Thank God (Score:5, Funny)
A story about good old fashioned money instead of Bitcoin, NFT, or Masturbating Apes Yacht Club.
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But just think, one day you'll be able to tell your grandkids when buying masturbating apes was in fashion. Sure, they'll call you senile and have you put in a home but I think the tradeoff is worth it.
Re: Thank God (Score:2)
They will be on stuff so batshit crazy even by 2022 standards that I might have to put them in a home.
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Except it's about money getting blown up by memestocks, so it's almost as annoying. It is a good demonstration that the rule of thumb about the market staying irrational longer than you can remain solvent also scales up to the big players.
We can remain retarded... (Score:5, Informative)
Longer than they can remain solvent!
And because they're professionals... (Score:3)
...Mr. Plotkin will be ensuring that the majority of the assets will be sold at a steep discount to a newly formed company headed up by a Mr. G. Plotkin (whose first name is totally not "Gabe" and is wearing a real mustache, not a fake one), and the investors will get whatever they couldn't figure out how to transfer before the auditors caught up.
Good riddance. (Score:1)
They belong in jail.