US Hedge Funds Lose $70 Billion in January Betting Stocks Will Fall

By Staff, Agencies

The battle between small-time online stock traders and professional Wall Street investors has taken its toll on institutional investors, with hedge funds registering an estimated $70.87 billion in loss in the past month alone, thanks to a short squeeze, according to financial data analytics firm Ortex, with $19 billion of that just on shorted GameStop stocks.

Short sellers make their money by borrowing stocks and trading them away, gambling their value will decline before they repay the loan. By buying the stocks back at a lower price, traders get to pocket the difference. However, if they guess wrong, their potential for loss is theoretically infinite.

That’s what’s happened with a number of commonly short-sold stocks over the last few weeks, including American Airlines, AMC Theaters, Bed, Bath & Beyond, and GameStop, which amateur investors coordinating on the WallStreetBets subreddit banded together to buy the stocks of and hold, driving up their value. For small-time investors, the ballooning stock prices have become life-changing windfalls that have enabled them to afford expensive medical procedures and escape debt while simultaneously thumbing their nose at institutional investor giants that sought to gain through the failure of the stock.

According to Ortex, the number of GameStop shares being shorted had fallen on Thursday to 39,000. In the month of January alone the losses on short positions on GameStop’s stock reached $19 billion, with $8 billion lost just on Friday as the brick-and-mortar video game store’s stock surged again, finishing at $328.24. It began the week at $96.80 and began the month at just $18.84.

Those losses are theoretical, as few of the debts have so far been realized. However, professional investors are said to be furious about being the giant in this David and Goliath situation.

Leon Cooperman, chairman and CEO of the New York-based hedge fund Omega Advisors, put the issue in no uncertain terms on Thursday, telling CNBC’s Scott Wapner that "The reason the market is doing what it's doing is people are sitting at home getting their checks from the government, basically trading for no commissions and no interest rates … This ‘fair share’ is a bullshit concept. It is just a way of attacking wealthy people and I think it’s inappropriate.”

Cooperman is said to be worth $3.2 billion as of July 2020, according to Forbes.