Reddit Jolts Activist-Short Hedge Funds Into 'Adapt or Die' Mode
Comment of the Day

January 27 2021

Commentary by Eoin Treacy

Reddit Jolts Activist-Short Hedge Funds Into 'Adapt or Die' Mode

This article by Michael P. Regan, Bailey Lipschultz and Anders Melin for Bloomberg may be of interest. Here is a section:

The days of “smash-and-grab” shorting are over, according to veteran bear Marc Cohodes, referring to investors who release a critical research report and then quickly cover their positions following an initial share price drop -- or those who piggyback on others’ work and crowd into bearish positions. More
discipline will be required, he says.

“The last thing the referee tells you when you’re in a boxing match before they ring a bell is ‘protect yourself at all times,’” he said. “And these big hedge funds who’ve been short and over-concentrated in these names have been arrogant, pompous and didn’t realize they were overstretched.”

The big lessons of the last week are pretty simple, according to Fraser Perring, founder of Viceroy Research: “If you go short, make sure you have a position that in some way preserves some capital if the trade goes against you in the short term. If the cost of that strategy is too high, the risk isn’t worth it.
Price discovery is officially suspended.”

Eoin Treacy's view

13-f filings are required to be filled out every quarter. They detail what funds managing more than $100 million held over the quarter. Retail investors tend to pour over these filings because some funds also put their options positions in the filings. Activist funds hope that by publicizing their short positions they will gain additional adherents. The opposite is occurring at present which is what landed Melvin Capital in trouble.

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