Michael Burry, the hedge fund investor who built a massive position in GameStop before it became a meme stock on Reddit and skyrocketed, sold his entire stake in late 2020. The stock sales mean Burry missed out on a Reddit-fueled 2,000% surge in the video game retailer at one point in 2021, which would have made him over $1 billion.
Filings disclosed by Burry’s hedge fund Scion Asset Management on Tuesday reveal the hedge funder, who made millions shorting subprime mortgages during the 2008 crisis and was dramatized in “The Big Short,” sold 1.7 million GameStop shares in the fourth quarter, exiting a position in the company that once stood at 5.3% of the company. At GameStop’s Reddit-fueled high of $483, Burry’s maximum holding could have been worth over $1.5 billion.
Instead of billions, however, Burry looks like he may have made about $100 million on GameStop. In the fourth quarter, GameStop traded between $10 a share and $20, over five times Burry’s cost at their highs.
GameStop’s ascent into meme stock stardom began in the summer of 2019 when Burry uncovered his next great trade in the ailing video game retailer. Burry bought two million shares and recommended an obvious arbitrage. “GameStop could pull off perhaps the most consequential and shareholder-friendly buyback in stock market history with elegance and stealth,” Burry told the company after disclosing his position. “Mr. Market is putting this one right in your hands,” said Burry. Within months GameStop spent $200 million to retire 38% of its heavily shorted stock.
The trade seeped into social media. In September 2019, Keith Gill, a 34-year financial advisor in Massachusetts, got into the GameStop trade, paying $53,566.04 to buy 1,000 call options on the company and posting his position to Reddit on Sept. 8, 2019 under the pseudonym u/DeepF__ingValue, which eventually became a sensation with millions of followers. By July 2020, he was publishing videos to YouTube under the pseudonym Roaring Kitty, presenting in kitten-themed tee shirts his detailed analysis on why GameStop could gain big if the market grew more optimistic on its sales as a new PlayStation console was released.
Others jumped in. Ryan Cohen, the founder of online pet food seller Chewy CHWY -3.3%, bought 10% of GameStop, and joined its board in the fall, hoping to bolster its digital platform. On paper his GameStop investment made him a billionaire at certain points in January and February.
The GameStop play helped set off one of the wackiest and most out of control trades in financial history, which minted billions of dollars in paper profits for some investors, including many amateur speculators, and caused big losses for some of the world’s most sophisticated hedge funds.
GameStop entered 2021 as one of the most shorted stocks in the world, though positive changes were afoot inside the company as online sales surged and customers lined up outside its stores to buy new PlayStation consoles. Moreover, the Federal Reserve has been flooding the market with liquidity and a second round of stimulus checks hit bank accounts at the end of the year, a risk hedge funds should have sidestepped. The complacency was exploited by the Reddit army, to devastating effect.
In 2021, GameStop became a sensation on Reddit threads like r/WallStreetBets. As an army of traders piled in, at times GameStop was the most traded company in the world, with shares trading more volume than Apple AAPL -1.6% or Amazon AMZN -0.3%.
The Redditors bought stock and options, trying to squeeze professional hedge fund investors who were short and it worked. A hedge fund named Melvin Capital, backed by Billionaire Steven A. Cohen of Point72, was the biggest victim, dropping 53% in January according to the Wall Street Journal, in part due to a short position in GameStop. In January, Melvin required a $2.75 billion infusion from Cohen’s Point72 Asset Management and Citadel, owned by billionaire Ken Griffin, due to its losses. Other big funds were hit hard, including Cohen’s Point72, which shed double digits in January. The surge cost Wall Street investors almost $20 billion in mark-to-market losses, according to data from S3 Partners, at the worst of the squeeze.
For Burry, the squeeze could have made him over $1 billion at certain points of January. But as it was occurring, Burry was warning about the trading.
In a Jan 26 tweet, Burry called the squeeze “unnatural, insane and dangerous.” He added, there should be legal and regulatory repercussions from the trading. (It appears he later deleted the tweet). It turns out Burry was entirely out of GameStop by then.
Filings show he sold his remaining 1.7 million share holding of GameStop in the fourth quarter. At its peak, Burry’s position Burry’s in GameStop amounted to 3.4 million shares or 5.3% of the ailing video game retailer, purchased at prices between $2 and $4.20 a share. He spent about $15 million in total, according to Forbes calculations.
Had Burry held onto his maximum holding of 3.4 million shares, they’d have been worth over $1.5 billion at GameStop’s Reddit-inspired 2,000%-plus surge in 2021. Burry, however, seems to have been investing on valuation and fundamentals, instead of a squeeze organized on social media by an army of investors with “diamond hands.”
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