The fund that made $700 million on GameStop knew it was time to sell after an Elon Musk tweet

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Delivering Alpha

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One hedge fund got the GameStop trade just about perfectly right last year — buying it under $10 and selling when the meme stock peaked.

The sell signal it used? An Elon Musk tweet.

That’s how 2021’s top-performing hedge fund Senvest Management was able to notch $700 million in profit from GameStop and bring its annual return to over 85%. The trade was the firm’s single best in its 25 years in existence.

“His piling on with that tweet for us was…we all looked at each other, and thought how do you top that?,” said Richard Mashaal, Senvest Management’s founder, CEO and co-CIO. “And so for that, for us, that signified peak momentum and we proceeded to exit the rest of our position.” 

The Tesla CEO tweeted “Gamestonk!!” on Jan. 26 after the bell. The next day, GameStop reached its top at $347.51 apiece, when Senvest dumped its bet.

The meme stock saga started just days into 2021 when retail traders teamed up on Reddit’s WallStreetBets’ forum, aiming to bid up GameStop‘s shares, which were heavily shorted by hedge funds. The retail buying triggered massive short covering among hedge funds that fueled the rally even further.

Mashaal decided to buy shares of GameStop in September 2020 amid a slew of analyst sell ratings and unprecedentedly high short interest.

“It’s a classic contrarian play for us,” Mashaal said. “Wall Street doesn’t issue very many sell recommendations and GameStop had plenty of those and very few, if not, no, buy recommendations. And then, of course, the short interest, which was over 100% of the shares outstanding …. So both of those would be pretty glaring indicators that this was a stock that was out of favor.”

Senvest is indeed an anomaly in the hedge fund industry where plenty of players got burned by the unprecedented short squeeze.

Melvin Capital was one of the biggest losers amid the meme stock mania. Its steep losses once prompted Citadel and Point72 to infuse close to $3 billion into Gabe Plotkin’s hedge fund to shore up its finances.  Melvin suffered a 39% loss in 2021 after the GameStop short squeeze.

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