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Hedge fund Melvin sustains 53% loss after Reddit onslaught

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Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#261

Post by autokad »

autokad wrote: post #253
dcolkitt wrote: post #193

It should be noted that Melvin Capital returned over 50% in 2020[1], 44% in 2019[2], and has averaged above 30% annual returns since inception[3]. In other words, even though this is definitely painful, even inclusive of this event, it's one of the best performing hedge funds of the past decade. [1] https://www.wsj.com/articles/citadel-point72-to-invest-2-75-... [2] https://www.bloomberg.com/news/articles/2019-07-19/…

if I gained 50%, 44%, followed by a 53% loss with a 2% fee, I'd be under water for the last 3 years, but the sp500 would have yielded me a 37% gain - virtually no fees. I'd rather the sp500 over these guys

alternatively, you could invest with arkk and not relying on a fund that shorts a gme 140% :P

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#262

Post by smabie »

briefcomment wrote: post #242
tedunangst wrote: post #188

Earlier quoted context omitted.

I think if you had started with "sometimes they don't offer as much price improvement as they promised" that'd have been more accurate.

The upshot of this is that Citadel is selling retail GME at slightly elevated prices for profit. This will certainly contribute to higher GME prices. If Melvin is still short, Citadel is in a predicament. If they want the price as low as possible for Melvin’s sake, they need to actually provide the best price. I thought that was funny.

I guarantee that Citadel Securities isn't taking into considering what Citadel capital is doing. It's just not how firms like that operate.

Every desk is trying to maximize pnl, end of story.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#263

Post by mledu »

autokad wrote: post #253
dcolkitt wrote: post #193

It should be noted that Melvin Capital returned over 50% in 2020[1], 44% in 2019[2], and has averaged above 30% annual returns since inception[3]. In other words, even though this is definitely painful, even inclusive of this event, it's one of the best performing hedge funds of the past decade. [1] https://www.wsj.com/articles/citadel-point72-to-invest-2-75-... [2] https://www.bloomberg.com/news/articles/2019-07-19/…

if I gained 50%, 44%, followed by a 53% loss with a 2% fee, I'd be under water for the last 3 years, but the sp500 would have yielded me a 37% gain - virtually no fees. I'd rather the sp500 over these guys

This is the point Nassim Nicholas Taleb makes in his book Fooled by Randomness. In a long enough timeline luck plays a big part in performance. People or firms like Melvin can perform well in a short timeline but when you stretch the timeline out the reality becomes clearer.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#264

Post by m3kw9 »

kshacker wrote: post #154
m3kw9 wrote: post #130

Earlier quoted context omitted.

Given they lost 53 percent that does indicate the direction they closed a lot of it.

I am more interested to know if they closed a lot the day many brokers blocked buying shares? ... so all the buys could have gone to Melvin at a price under 200 rather than over 300.

You would be sure they would try to close as much as they need during that big dip

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#265

Post by f430 »

fractionalhare wrote: post #49
f430 wrote: post #42

It's really strange. Why would they openly announce that they have closed shorts and that they are sustaining damage so publicly? My theory is that they are not only doubling down but quadrupling down everytime the stock shoots up. Gamestop has no fundamentals going for it, take a look at its other competitors in the industry, they are all gone. Neither do cases for AMC (who themselves acknowledged and WARNED investo…

> My theory is that they are not only doubling down but quadrupling down everytime the stock shoots up. They would not have survived Monday, Tuesday or Wednesday if they doubled down once instead of closing out, let alone if they did it on every significant increase. Even if you cite the investment from Point72 and Citadel: that's a fraction of what they'd have needed to survive the stock going from $100 to $300+.

I guess what I mean is that they are slowly increasing their short positions like when (allegedly) short positions increased on the day when trading disallowed on several broker accounts.

More recently are weird stuff going on on r/wallstreetbets where award spamming on relatively unknown stocks with suspicious upvote activities were being called out which suggests that the hedge funds have realized the huge potential of influencing what makes it on the first page.

I really think its irresponsible people continuing to paint this as us vs them, when in reality the people that will be victimized are the ones that will have bought into the narrative to realize nobody wants to buy GME or AMC at the ridiculous prices.

We are seeing a weird FOMO based on politics not dissimilar to the "evil fiat feds vs crypto" narrative.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#266

Post by gruez »

0xy wrote: post #254
dcolkitt wrote: post #193

It should be noted that Melvin Capital returned over 50% in 2020[1], 44% in 2019[2], and has averaged above 30% annual returns since inception[3]. In other words, even though this is definitely painful, even inclusive of this event, it's one of the best performing hedge funds of the past decade. [1] https://www.wsj.com/articles/citadel-point72-to-invest-2-75-... [2] https://www.bloomberg.com/news/articles/2019-07-19/…

Considering other hedge funds reloaded shorts after getting decimated, there's no indication their losses will stay at 53%. Like a bankrupt gambler returning to the casino after getting bailed out by their parents, Melvin will be back to the shorting slot machines soon enough.

...except that unlike slot machines, the probability of you winning does increase the second time around. It costs more money (in aggregate) to pump from $20 to $200, than from $200 to $2000. I'd also imagine that the buy side will gradually lose steam once meme fatigue starts to set in.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#267

Post by [deleted] »

Moodles wrote: post #9
wrkronmiller wrote: post #5

> On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. The firm moved to reduce risk in its investments following a turbulent start to January when it lost 30 percent in the first three weeks. Melvin’s leverage ratio is at the lowest it has been since the firm’s founding in 2014, said a source familiar with the firm. The news of Melvin’s January performance was first reporte…

A better question is: If Melvin made a huge short position and is now finally out of it, why would they bother telling everyone? ;-)

[deleted]

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#268

Post by f430 »

bluGill wrote: post #136
bedhead wrote: post #84

Earlier quoted context omitted.

This is dead wrong. Melvin got a margin call from their prime broker, which is why they needed to get bailed out abruptly by Griffin and Cohen. The mid-month injection shows how dire it was and how margin calls work. Hedge funds like Melvin typically use monthly accounting, so typically you can only add/withdraw capital for the first of the month. But margin calls are fire drills, all the sudden you get a phone call…

How much does Melvin have? Margin calls are about total value vs short value. If gme was only a small percentage of their shorts at the start they could be well under the 50% capital requirements to not get a margin call. Hedge funds often don't diversify, but they still know the value in it. Though I tend to agree with those who conclude that they wouldn't risk lieing in their public statements.

They have potentially unlimited source of funds at disposal from their parent hedge fund. They often don't shut down especially when they have better information than the public.

They can eat the cost of getting the timing wrong if it means they stand to make a killing which they are poised to do as average retail traders are simply transferring wealth to the pockets of executives and hedge fund managers while thinking they are actually socking it to the big man.

Eventually the stream comes to a stop, a large dip or people cashing out signals an end and a group of retailers who didn't know that they were being pumped are caught holding the bags.

I am now reading on r/wallstreetbets that $30,000/share makes perfect sense and it had like 24k upvotes. This is the type of insanity gripping the subreddit. Now even people who don't even use reddit are asking me how they can buy GME. This is textbook peak bubble even as we are consistently seeing red days across the board.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#269

Post by fractionalhare »

f430 wrote: post #268
bluGill wrote: post #136

Earlier quoted context omitted.

How much does Melvin have? Margin calls are about total value vs short value. If gme was only a small percentage of their shorts at the start they could be well under the 50% capital requirements to not get a margin call. Hedge funds often don't diversify, but they still know the value in it. Though I tend to agree with those who conclude that they wouldn't risk lieing in their public statements.

They have potentially unlimited source of funds at disposal from their parent hedge fund. They often don't shut down especially when they have better information than the public. They can eat the cost of getting the timing wrong if it means they stand to make a killing which they are poised to do as average retail traders are simply transferring wealth to the pockets of executives and hedge fund managers while thinki…

Melvin does not presently have a parent hedge fund, and it never has. It received investments from two other hedge funds, but those were for non-controlling revenue share.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#270

Post by elihu »

newacct583 wrote: post #14
wrkronmiller wrote: post #5

> On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. The firm moved to reduce risk in its investments following a turbulent start to January when it lost 30 percent in the first three weeks. Melvin’s leverage ratio is at the lowest it has been since the firm’s founding in 2014, said a source familiar with the firm. The news of Melvin’s January performance was first reporte…

The stock is currently around $300, up by a factor of five from last week and much more than that over its historical base. The question should be who isn't shorting GME, not leading questions about a conspiracy theory as to whether or not Melvin actually closed its shorts or not. I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

I'm not an expert, but my understanding is that this isn't like a tug-of-war where if there are more people betting short than long then the shorts win. It's asymmetrical. There are a finite number of shares and if enough people are willing to hold them at a certain price, then that will be its price. Someone with infinite money can't force the price to drop. (At least not through normal "market" means that don't involve fraud, theft, coercion, changing the rules, or violence.)

Imagine there's an auction for a one-of-a-kind Stradivarius violin, and it's bid up to a million dollars. Maybe you're a violin expert and know that it's only worth a hundred thousand dollars. But if at least two people are willing to bid it up to a million dollars, then there isn't a bidding strategy to cause the violin to sell for less than a million dollars.

Theoretically you could maybe claim to own an identical violin and be willing to sell it for two hundred thousand dollars, but if you don't actually have one it's a lie, and if people take you up on the offer but the price doesn't go down, you're on the hook for it. Which means you'll have to buy the violin at whatever price the person who wins the auction thinks it's worth, or default on your commitment.

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