The trial of strength between small investors versus hedge funds is entering the next round. And the professionals should watch out for their experiences at the beginning of the year. When the Reddit army of small investors catapulted Gamestop shares by around 3,000 percent in the first few weeks, hedge funds had to hoist the white flag. Providers like Melvin Personal-Financial.com lost half of their invested assets in January, totaling the losses of the hedge funds amounted to about 11 billion dollars according to data from the research and analysis company Ortex.
In the spring, the situation calmed down in so-called meme stocks. “There was hardly any new impetus from the social media movement and hedge funds have recently expanded their short bets again,” explains Carlo Alberto de Casa, chief analyst at British broker Activtrades. “The short rate for stocks like Gamestop and AMC is currently just under 20 percent,” added de Casa. To put it into perspective: In January, more than 100 percent of the Gamestop shares were temporarily sold short.
Small investors use forums
For a few days now, the activity on the Reddit boards like Wallstreetbets has been picking up again with several thousand posts. And they don’t fail to have an effect: The shares of Gamestop have risen by 60 percent in the past four weeks, AMC prices have risen by 450 percent, and the shares even doubled in one day. The turnover of the AMC share was correspondingly high, also in this country. With providers such as Smartbroker or social trading platforms such as Etoro, the two stocks were traded up and down. The reason for this was the sale of Gamestop shares in the company itself in order to strengthen its equity ratio. As a result, it increased by just under $ 1.3 billion in the second quarter. Even more shares are to be sold in the future.
AMC Entertainment Holdings A Share
It seems to be a successful model that is also putting hedge funds under pressure again. The math of Reddit traders is simple: when the shortsellers close their positions, stocks have to be bought back. The resulting additional demand exacerbates the price upswing. Because of the significantly lower short rate, the effect is likely to be less than in the spring and only set in if the initial situation changes significantly. And this is where things get interesting.
Shares valued very highly
Because operationally the situation is improving. The shares of the AMC cinema chain are now mainly fueled by gambling, but also by the hope that the corona situation will continue to relax and the cinemas will soon be full again. The story at Gamestop is also exciting: Fundamentally, things are still looking poor at the video game retailer after the last reported ninth quarterly sales decline in series. But that could change soon. As the co-founder of Chewy, a US online pet food retailer, the new CEO, Ryan Cowen, has already proven that he understands online business.
However, the Gamestop share now brings around $ 20 billion on the stock market balance and AMC even $ 31 billion. So many visions of the future are priced in, and the rating is very high. In essence, the Reddit community is not about the right rating, but about the trial of strength against hedge funds. Conclusion: The meme titles continue to offer investors the best entertainment, nothing more.
Daniel Saurenz runs the stock exchange portal Feingold Research with his team. It offers a daily market letter that you can test free of charge for 14 days. Sign in at Info@feingold-research.com or try the stock exchange service under this one link out. You can find training days and coaching under NEW feingold-academy.com