The closure of Gabe Plotkin’s Melvin Capital Management is vindication for legions of retail traders who banded together last year against Wall Street, providing a rare bright spot for the Reddit crowd as stocks and crypto continue to plunge.
Plotkin’s decision to shut down his $7.8 billion fund was met with celebration on the forums that fueled the initial revolt against his short positions in GameStop Corp. and other troubled companies that became the favorite meme stocks of 2021. At the time, an army of traders on Reddit’s WallStreetBets targeted Melvin and other hedge funds, which they argued were a manifestation of Wall Street’s greed.
Now, despite taking a hit from the market turmoil themselves, the Reddit crowd can at least relish the demise of Melvin, which was brought down in part by the same forces now tearing through their own portfolios. After a single-day selloff that erased $1.5 trillion of market value from US equities on Wednesday, day traders are celebrating.
“This is a victory parade day for everyone part of that movement,” said Steve Khoe, who works in sales in Detroit and is part of WallStreetBets. “It's just joy and satisfaction, especially in the face of some of the negative market indicators these days.”
The 38-year-old traded during the 2021 meme frenzy, especially in AMC Entertainment Holdings Inc., and now invests in some single stocks, but has been cashing out many of his positions in the face of market turmoil.
He called Plotkin's decision a “stunning and fitting end to this historic saga.”
Mike Janavey, a 31-year-old day trader from Westchester, New York, who was active in trading both AMC and GameStop last year, agrees that it’s a historic moment.
“Investors are used to being in control and the ones with all the money, the hand that feeds them, finally bit back,” he said. “I think the suits finally got a taste of their own medicine.”
The GameStop saga rattled markets, attracted the attention of regulators and politicians and caused billions of dollars of losses for Melvin with a 55% slump in January 2021.
Ken Griffin, whose Citadel hedge fund provided a capital infusion to Melvin last year to help it survive, described the attack by retail traders as a poor moment in “American capital markets history.” It caused the hedge fund’s investors, including pension plans, to lose money, Griffin said Thursday at a Bloomberg Intelligence conference in New York.