Hedge Funds Lose $12 Billion on AMC and GameStop

Hedge funds’ losses on meme stocks have reached staggering levels:

Hedge fund losses since the start of the year from betting against just GameStop, AMC and Bed Bath & Beyond total more than $12bn, according to data group S3, while bets against a number of others have each run up additional losses of hundreds of millions of dollars. More than half short sellers’ $5.1bn of losses betting against AMC this year have come in June.

“In two waves, a few hedge funds have seen modestly sized short positions turn into extinction-level events,” said Andrew Beer, managing member at investment firm Dynamic Beta Investments. Funds that suffer multiple rounds of losses on short bets “will face difficult questions from investors as to whether their risk management failed to adapt to a changed market environment”.

Other short bets haven’t fared much better:

An index compiled by Goldman Sachs of stocks favoured by retail investors has almost doubled since June 2020, while another that tracks companies that are targeted by short sellers has gained 28 per cent.

More here.

Many in the financial industry complain that it’s difficult to know which stock will attract the attention of retail traders next. But watching online message boards is already common practice at Asian funds. There are even some excellent, publicly-available sources that identify the stocks that are most popular on Reddit’s Wallstreetbets, one of the main discussion boards for retail traders.

Swaggy Stocks produces one such chart,which every hedge fund manager should have bookmarked. I would suggest avoiding a bearish position in any stock on this list. A name with moderate interest today could become the most talked about stock tomorrow, leading to a huge price spike. The most dangerous names on this list are those with both high interest and a lot of shares sold short. Those stocks, such as Workhorse Group Inc., are particularly ripe for a short squeeze.

I wonder how long investors will be patient with colossal losses in hedge funds. They are supposed to be the shrewdest players at the poker table. But as the losses mount, they’re no longer looking so smart.

More on AMC and hedge funds:

HEDGE FUNDS’ AMC DOOMSDAY SCENARIO

HOW AMC IS BLOWING UP THE HEDGE FUND INDUSTRY

HEDGE FUND TORCHED BY AMC

Photo: “Police Stationed outside AMC Theater showing Joker film 4573” by Brechtbug is licensed under CC BY-NC-ND 2.0

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