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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

#341

Post by koonsolo »

dcolkitt wrote: post #326
runako wrote: post #275

Earlier quoted context omitted.

Context is important, so the Nasdaq 100 (as represented by the QQQ ETF) returned ~49% in 2020, 39% in 2019, and 24% over the last 5 years. Beating the indexes by 5-6 points consistently is very good, but it's important to keep in mind that most equities were doing really well over that period. (Edit: It's been reported elsewhere that these numbers are net of fees. However, it's entirely possible that for taxable acco…

The correct benchmark for a hedge fund is T-bills, not the S&P or the Nasdaq. That's because hedge funds are an absolute return product that offers an income stream uncorrelated to the market. This may sound counterintuitive, but it's the basis of modern portfolio theory. The price that an investor should be willing to pay for an investment has to do with its beta to the broader market. Think of it this way, imagine…

> Investing 50/50 in S&P and Bizarro-S&P, substantially improves the amount of return you can access for the same risk.

I can see how this would lower the volatility of your portfolio. But how do you improve the return in this scenario?

> This is the same reason that a 60/40 stock-bond portfolio has massively outperformed 100% stocks historically

How is this possible? If I invest 100% in stocks, my return after 10 years is higher than 60/40 stock-bond. So why do you say the latter outperforms it?

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

#342

Post by adflux »

gruez wrote: post #310
blackrock wrote: post #284

Earlier quoted context omitted.

At $2000, GME can reinvent itself and become a software/hardware tech company.

...only if they issue shares, which would surely tank prices.

As AMC wisely did in the past week. They are saved by this hype

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

#343

Post by londons_explore »

koonsolo wrote: post #341
dcolkitt wrote: post #326

Earlier quoted context omitted.

The correct benchmark for a hedge fund is T-bills, not the S&P or the Nasdaq. That's because hedge funds are an absolute return product that offers an income stream uncorrelated to the market. This may sound counterintuitive, but it's the basis of modern portfolio theory. The price that an investor should be willing to pay for an investment has to do with its beta to the broader market. Think of it this way, imagine…

> Investing 50/50 in S&P and Bizarro-S&P, substantially improves the amount of return you can access for the same risk. I can see how this would lower the volatility of your portfolio. But how do you improve the return in this scenario? > This is the same reason that a 60/40 stock-bond portfolio has massively outperformed 100% stocks historically How is this possible? If I invest 100% in stocks, my return after 10 ye…

> I can see how this would lower the volatility of your portfolio. But how do you improve the return in this scenario?

Leverage. You can translate reduced risk into greater returns by getting loans to invest more.

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

#344

Post by imtringued »

aaron695 wrote: post #328
robjan wrote: post #309

Earlier quoted context omitted.

This was a common investment scam in the past. Create an email newsletter, split it in half and give opposing advice to each side. You then keep ramping up the fees to the winners until eventually they become one of the losers. Once the list gets too small, create a new entity and start again.

I think you'll find it's not a real implementation. OP's example requires 2^100 people ~10^30 It's a similar problem with the email list. 50+ years ago Scrooge McDuck also had this happen to him. He had a treasure map for gold (In Antarctica I think) which he got conditional on profit sharing and he found gold. The map sellers ran this scam, sold heaps of different maps because someone would find gold. I personally d…

I think this is the first instance of plot armor protecting exclusively against financial loss.

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

#345

Post by imtringued »

gruez wrote: post #266
0xy wrote: post #254

Earlier quoted context omitted.

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.

It's just a matter of holding long enough at this point. The price is high enough.

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

#346

Post by imtringued »

0xy wrote: post #277
gruez wrote: post #266

Earlier quoted context omitted.

...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.

TSLA's valuation can only be described as extremely optimistic, hedging on "huge bubble" status. I don't think we've seen the brakes on the buy side at all, considering the buy side has been artificially constrained by limits and restrictions. Is $2,000 GME possible? Of course it is. It's not even unprecedented considering the other businesses valued at billions of dollars with shaky business models.

>Is $2,000 GME possible? Of course it is.

It is very likely that it reaches this price during the short squeeze and crashes a day later.

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

#347

Post by imtringued »

fractionalhare wrote: post #206
easton wrote: post #184

Earlier quoted context omitted.

This is not what happened, I don't know why people keep perpetuating it. The entire source of the "Melvin Capital has closed their positions" thing is an anchor on Squawk Box on Wednesday morning saying that he just got a call from Melvin's fund manager who said that Melvin closed. There hasn't been any other comment besides that one, which is why people think it may have been less than honest. https://www.cnbc.com/2…

The more compelling reason to believe they didn't lie about it is because we haven't heard they went bankrupt yet. We probably would have heard that it happened by now, and they certainly would have been bankrupt if they didn't get out of GME in the $100s.

If you are already out you don't have to tell anyone. You simply have exited the market and stopped caring.

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

#348

Post by imtringued »

gruez wrote: post #140
hn_throwaway_99 wrote: post #53

Earlier quoted context omitted.

> why wouldn't it attract a bunch more shorts that open their positions at the current highs? The cost to borrow shares for GME is currently astronomical, last I saw was like 50%

...APY, which isn't that bad if you think this meme will blow over in a few weeks.

The problem is that hedgefunds call retail traders stupid and if they are really that stupid then they will hold the bags, which is exactly what the shorts don't want.

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

#349

Post by imtringued »

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 mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

That's extremely foolish because it will only make the long position safer and safer.

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

#350

Post by imtringued »

alasdair_ wrote: post #316
Uehreka wrote: post #123

Earlier quoted context omitted.

I’m far from an expert in this, but this seems wrong. My understanding is that even though shorts can in theory have “infinite downside”, in practice the short-sellers have to bail if they can’t post enough collateral to buy back the stock. And the 140% isn’t some “impossible fraction” thing, it just means that if there were 10 million shares before, well then now there are technically 24 million, and the short-selle…

It may be worth reading up on when this happened before: https://moxreports.com/vw-infinity-squeeze/

Another squeeze: https://moxreports.com/kbio-infinity-squeeze/

And another: https://moxreports.com/how-you-could-have-predicted-the-tilr...

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