Meme actions are not dead. Despite the fact that stocks like GameStop lose 50% in just two and a half months, those who were betting that the explosion of these values was going to go as it had come, have to see it as a year after the ‘revolution’ of Reddit , the main bets of retail investors continue to trade at double, triple or quintuple what they marked before this phenomenon was unleashed. As a result, major Wall Street hedge funds and investors are adapting their strategies with ‘meme stocks’ in mind.
According to Bloomberg, 85% of hedge funds and 42% of asset managers spend part of their work scouring forums for bets from retail investors. Especially bears want to be very careful that their short investments do not get caught in a bullish spiral triggered by a forum. As happened to Melvin Capital, which almost went bankrupt and lost 53% of its assets in record time due to its positions in GameStop.
In this sense, funds such as S3 Partner, according to the Wall Street Journal, have enabled tools for their clients that notify them of actions that could leave them vulnerable to extraordinary losses due to a “retail attack”. A situation that is already another possibility for Wall Street and with which these funds already operate.
“All of us hedge funds have this option in our minds and you have to do a full-time job to make sure you don’t get hit by the bus.” Says Ihor Dusaniwsky, head of predictive analysis of this fund. In that sense, he concludes by stating that “we don’t want to be on the wrong side of the game of meme actions.”
In addition, at JP Morgan they believe that the entry of retail investors not only changes the rules of the market, but also brings new things to a market like the current one. “This phenomenon cannot be ignored” they say from the company. “It’s a whole new class of investors that has emerged that are really getting these issues right.” JPMorgan estimates that individual investors accounted for more than a third of daily trading activity multiple times over the past 18 months, accounting for nearly 40% of shares traded on peak days.
“Short investors are learning to be more disciplined and break positions earlier”
Another thing that ‘meme stocks’ have changed forever a year after their appearance is the way short investors act. Achieving a sangria in these vehicles was, for many GameStop, AMC or Black Berry investors, a cause for celebration and an end in itself. In this sense, they have minimized the ‘big announcements’ of short positions so as not to attract the attention of these investors according to Michael Pachter, GameStop analyst at Wedbush Securities, who also adds that “short investors are learning to be more disciplined and break positions before.
But it’s not just that funds now have the idea that Reddit can skyrocket the price of a share, but that some funds have jumped on this wave and have managed to take advantage of the situation. An example of this is Roundhill Investment, a fund with more than 500 million in assets under management that has a meme stock ETF founded this December, although announced in the middle of the year.
50% drops in these values
Even though investors already have meme stocks in their focus, it is worth noting that in recent months major stocks that had been caught in a spiral of retail enthusiasm have deflated quite significantly. GameStop falls 52% from its November highs, AMC, the company that owns Cinesa, has an almost identical decline of 54% in the same period. For its part, Black Berry lost 22% and Clover Health 60%.
The experts at Apex Fintech Solutions are clear that this downturn is mainly due to the fact that generation Z has set its sights on the metaverse. They believe that investing in virtual environments (in which the digital square meter trades at levels similar to or higher than reality) is the great opportunity of the moment and, due to this, they move away from meme actions. These experts also say that retailer investment efforts have recently focused on electric cars, with Rivian’s IPO coinciding with the start of the downturn and the rebound of stocks such as Lucid Motors.
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