• Hedge fund Senvest Management made its best-ever trade in GameStop stock
• Position closed at peak of mania
• Tweet from Tesla boss Elon Musk was decisive
The incredible rally in GameStop stock is now around a year ago. At the beginning of 2021, private investors who had met in the Reddit forum “WallStreetBets” drove the game retailer’s shares to incredible heights and wanted to thwart hedge funds in particular, which had sold the paper heavily short. The strategy worked and numerous hedge funds were forced to close their short positions at huge losses. But not all hedge funds lost money as a result of the GameStop bull market: The hedge fund Senvest Management was able to make a profit of around 700 million US dollars with its bet on GameStop shares and, according to “CNBC”, closed the best single trade in its 25-year history . Largely thanks to these gains, Senvest Management was able to increase its annual return to more than 85 percent, according to the news site, making it the best-performing hedge fund in 2021. About a year after the successful trade, Richard Mashaal, CEO of Senvest Management, explained in an interview with “CNBC” how his hedge fund found the right time to exit – and what Tesla boss Elon Musk has to do with it.
That’s why the hedge fund bet on GameStop stock
The hedge fund Senvest Management had already accessed GameStop shares in September 2020 – some time before the mania began – and bought around five million shares in the game retailer. At that time, these were still listed below the ten US dollar mark – and had actually fallen out of favor on Wall Street. However, as Mashaal explained to CNBC, his hedge fund follows a strategy of “non-conformist value investing” and is therefore looking for stocks that “have fallen out of favor and have the potential to come back into favor”. Exactly this setup was seen at GameStop back then. On the one hand, the decisive factors were the many sell recommendations and the high short quota. “Wall Street doesn’t issue very many sell recommendations and GameStop had a lot of them and few, if not any, buy recommendations. So that was a starting point. And then of course the short rating, which was more than 100 percent of shares outstanding, which was certainly the first time in my career […]”I saw something like that,” Mashaal said. He was also concerned about the high short rating, as it meant the stock was a battleground and one would normally prefer not to touch it, he said hedge fund CEO.
On the other hand, GameStop was able to convince with some positive factors. The company’s management reacted to the fact that the shops could not operate normally due to the corona pandemic, and made numerous efforts to reduce costs and stepped on the gas to expand online business. “We saw how [bei GameStop] some good things have happened in terms of e-commerce, in terms of cost cutting and generally in terms of cleaning up the balance sheet. […] That convinced us the company had room to breathe,” Mashaal told CNBC. “There was also activist investor Ryan Cohen, who bought GameStop in a big way in September 2020. “There was a thought, that this activist, if involved in GameStop’s management or board, could bring about real positive change and help a transformational story,” said the CEO of Senvest Management. Indeed, Cohen then rose to the GameStop board in January 2021 and rolled up the management level of the group again significantly.
Elon Musk’s tweet can no longer be topped, according to hedge funds
At the time of its entry, Senvest Management did everything right, even if the extreme hype surrounding the GameStop share was not foreseeable at the time. However, when things suddenly went up sharply in January 2021 – and the hedge fund claims to have noticed what was going on on Reddit – they started looking for the right time to exit. “We have it [im Januar] recognized as a mania and as soon as you recognize something as a mania you sort of put aside the fundamental analysis that you [
] has done,” said Mashaal. Manias would first reach extreme heights and then slowly die down, the hedge fund manager continued. So you looked for the peak or the best time to sell – and it came in the form of a tweet from Elon Musk.
As GameStop stock began to rally, ending US trading above $100 for the first time on Jan. 26, the Tesla CEO tweeted a link to the “WallStreetBets” Reddit forum after the Wall Street close. along with a single word: “Gamestonk”.
Gamestonk!! https://t.co/RZtkDzAewJ
– Elon Musk (@elonmusk) January 26, 2021
The pun on the name “GameStop” can hardly be adequately translated into German, but “Stonk” means something like “artillery fire”. With his tweet, Elon Musk apparently supported the bombardment of private investors against hedge funds – after all, Tesla is also a favorite of short sellers. “Obviously, Elon Musk is a person that people listen to, especially private investors,” Mashaal said in the interview. “He’s also someone who doesn’t happen to have a very benevolent view of short sellers,” the Senvest CEO continued. So when Musk poured oil on the fire with his tweet, people asked themselves how this could be topped in the future – and apparently came to the realization that that wasn’t possible. “For us, that marked the climax and we moved on to stepping out of the rest of our position,” Mashaal said.
The day after Musk tweeted, when the hedge fund closed its position, GameStop stock opened at $354.83 and hit a closing price of $347.51, a record to date. In the course of trading it went even higher on the following days, but the fluctuations also increased sharply. So Senvest Management hit exactly the right point in time for both entry and exit – and thus rightly pocketed the million-dollar profit.
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