Roaring kitty

Olivier Dambrine 15 Feb 2021

The month of January was marked by a new phenomenon. During the last week of the month, the volatility index (VIX) shot up from 20 to 40. A group of retail investors shook up Wall Street by targeting some of its most-shorted firms. They sent the stock prices of these companies to the moon, causing short sellers to cover at huge costs. Melvin Capital, for instance, a fund managing $8bn, lost 53% at the end of January due to bets gone wrong.

Some of the companies targeted actually featured in our US portfolio. We invested twice in Gamestop in the past, and we also held a position in Bed, Bath & Beyond until we stopped covering this portfolio. The last time we took a position in Gamestop was in August 2015, where we bought the shares at $46.10. We sold 2 years later at $22.85. In the years after, the stock continued to plummet to $4, as the games retailer was struggling to deal with the increased competition of online stores and the impact of the pandemic. But then suddenly, the stock was picked up by a value investor named ‘Roaring kitten’, aka DeepF—ingValue, in August 2020, and he posted a youtube video. This video was shared on a Reddit forum called ‘Walstreetbets’ and went viral.

A network of retail investors then started buying massive amounts of Gamestop shares, pushing the stock up from $4 to an intraday high of $483. Since then, Robinhood, a trading platform that offers commission-free stock trading funded by big hedge funds, prevented new purchases of Gamestop shares. In the days after, the stock came crashing down to $52.

Even if we sold Gamestop in 2017, we still had a position in Bed, Bath, and Beyond. Our portfolio was never able to beat the market consistently, but it recovered in 2020. In 2021, it has a YTD return of 21.5%. The S&P500 is only up 4.3% so far, bringing alpha to 17.2! Let’s hope that these recent events motivate other ‘roaring kitties’ to promote fundamentally undervalued stocks.

This month, we discovered a firm that helps companies conserve energy and water.