Melvin Capital announced on Wednesday that it was shutting down after it suffered losses that were too difficult to overcome. Melvin Capital is best known for shorting GameStop ($GME, NYSE) in January of 2021 and being subjected to retail traders banding together to drive the stock price to unprecedented levels.
Before the short squeeze, the brick and mortar video game store was trading below $20 but proceeded to exponentially increase in prices, eventually reaching an all-time high closing price of $347.51.
Melvin Capital made history with this short squeeze in terms of its losses. It closed 2021 down 41% on the year, making it the worst-performing hedge fund. It continued to deliver poor results in Q1 of 2022, ending with a 20.6% loss. Melvin acknowledged the tremendous loss in a letter to the NY Post sent in April 2022.
What happened with GameStop was much more than a simple, yet incredibly effective short squeeze. Hedge funds were forced to acknowledge retail traders as serious players in the stock market, yet there is still animosity displayed by the hedge funds regarding retail traders.
Ken Griffin, the founder and CEO of Citadel, said that retail traders turned the stock market and trading into entertainment. Citadel, one of the largest hedge funds in the world, has long profited from retail traders and the new power shift is concerning for him as he saw another hedge fund collapse. He dug further into this claim as he stated that the “bankruptcy of Melvin Capital” was “not a good moment in America capital market history.”
Price Action: GameStop stock surged on Thursday due to Melvin Capital’s announcement, trading 8.49% higher to $99.19 to close out Thursday’s trading session.