In this article, we discuss the 5 biggest short squeezes of all time. If you want to read our detailed analysis of these short squeezes, go directly to the 10 Biggest Short Squeezes of All Time.
5. GameStop Corp. (NYSE: GME)
In January, GameStop Corp. (NYSE: GME) surged amid retail investor interest as hedge funds looked to short the stock based on revenue numbers and future growth projections. The company was a video game retailer that had seen sales fall amid falling numbers of visitors to stores during the coronavirus lockdowns. As hedge funds took short positions on the firm, some famous investors, like Michael Burry and Ryan Cohen, as well as influencers on internet platform Reddit, outlined a bull case for the company, sparking retail investor interest.
As these retail investors piled onto GameStop Corp. (NYSE: GME) stock, the share price jumped from less than $5 to almost $325 in a time period spanning just six months. This rally convinced some famous people, like Elon Musk and Chamath Palihapitiya, to back the stock, leading to a snowball effect and the share price continued to climb. In late January, trading app Robinhood suspended trading in the stock, giving short-sellers some time to recover losses.
It is estimated that short-sellers lost close to $2 billion through the whole development. The company is still attracting a lot of retail investor interest and remains one of the most volatile stocks on the market this year. Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in GameStop Corp. (NYSE: GME) with 3.2 million shares worth more than $620 million.
Rhizome Partners, in its Q1 2021 investor letter, mentioned GameStop Corp. (NYSE: GME). Here is what the fund said:
“The first quarter saw some bizarre market reactions. Game Stop is a heavily shorted legacy video game retailer that saw its stock price rise from $17 to a peak of $483 within a month. It appears that retail investors on a Reddit.com forum called WallStreetBets used memes to create a viral feedback loop of forced buying. Game Stop reached $20 billion in market cap and had more daily trading volume than Apple at one point. The Game Stop short squeeze became a black swan event for the short sellers. Large hedge funds such as Melvin Capital suffered 50% losses during a short period and required emergency capital injections that resulted in costly dilution. Shorting is difficult and introduces a risk of ruin. This is especially true in situations where a large percentage of the float is shorted. We want to remind you that we hedge our portfolio via index puts, sector puts, and sometimes buying puts directly in our own portfolio companies. However, we rarely short because 1) we are not good at it 2) the potential for brain damage is too high and 3) we want to avoid the risk of ruin.”
4. Alibaba Group Holding Limited (NYSE: BABA)
Alibaba Group Holding Limited (NYSE: BABA), the Chinese technology and ecommerce giant, remains one of the most active and shorted stocks on the market. In 2017, in perhaps the most famous short-selling event in the stock history of the Chinese firm, research by S3 Partners LLC showed that short-sellers on Alibaba had lost close to $10 billion throughout the year as the firm consistently beat expectations on revenue and earnings per share. S3 Partners said Alibaba was just behind EV maker Tesla as the most shorted stock on the market in 2017.
Alibaba Group Holding Limited (NYSE: BABA) has remained in the headlines since, with the company recently coming under regulatory scrutiny and founder Jack Ma stirring rumors about his personal freedoms in China. It is also one of the most active foreign stocks on the market in the US. During 2017, as short sellers bet against the firm, the stock climbed a record 65% year-on-year at the end of the second quarter, with revenues rising 56% year-on-year and dampening short-seller expectations further.
At the end of the first quarter of 2021, 135 hedge funds in the database of Insider Monkey held stakes worth $15.4 billion in Alibaba Group Holding Limited (NYSE: BABA), down from 156 in the preceding quarter worth $17.9 billion.
In its Q1 2021 investor letter, Polen Capital Management highlighted a few stocks and Alibaba Group Holding Limited (NYSE:BABA) is one of them. Here is what the fund said:
“Alibaba also detracted from performance as the company continues to remain under regulatory scrutiny from both the Chinese State Administration for Market Regulation on antitrust concerns and the U.S. Securities and Exchange Commission on ADR listing requirements. Despite the regulatory overhang, we believe that Alibaba’s competitive positioning and growth outlook remains intact, even if the company must pay fines or modify some business practices. We viewed the current valuation at <20x next twelve month’s earnings as a compelling opportunity to add to our position. Alibaba is the second largest position in the Portfolio.”
3. AMC Entertainment Holdings, Inc. (NYSE: AMC)
AMC Entertainment Holdings, Inc. (NYSE: AMC) is one of the few stocks presently embroiled in a short squeeze as retail investors offset hedge fund bets against the company. The firm primarily controls a movie theatre chain and has suffered in recent years as internet-based streaming services grab the lion’s share of the business and cinemas and theatre companies witness a rapid decline in revenue.
On June 21, research by data analytics firm Ortex revealed that short-sellers of AMC Entertainment Holdings, Inc. (NYSE: AMC) stock had lost more than $500 million in a single day amid a rapid rise in the share price of the company. The stock has climbed more than 2,500% year-to-date and Ortex estimates that losses for AMC short-sellers had climbed above $1.2 billion in the last few weeks.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in AMC Entertainment Holdings, Inc. (NYSE: AMC) with 5.6 million shares worth more than $57 million.
In its Q1 2021 investor letter, Mittleman Brothers highlighted a few stocks and AMC Entertainment Holdings Inc. (NYSE:AMC) is one of them. Here is what the fund said:
“As noted in our Year End 2020 Investment Review (published on 2/1/21), we exited our position in AMC at around $14 during the last week of January. That price exceeded our then $10 estimate of fair value, as the stock went parabolic with the Gamestonk/Reddit/WallStreetBets frenzy that captivated the media, market and general population in January. As longterm shareholders, we were pleased that AMC’s CEO, Adam Aron, did not take the easy way out during AMC’s darkest days when the vast majority of the investment community were writing the company’s obituary. He showed loyalty to shareholders despite being in the zone of insolvency (where fiduciary duty to shareholders extends to creditors as well).”
2. Tesla, Inc. (NASDAQ: TSLA)
Tesla, Inc. (NASDAQ: TSLA) has been one of the most shorted stocks on the market over the past ten years. Since 2011, short-sellers have lost close to $40 billion in bets against the electric vehicle maker. Beginning late 2019, the company’s shares rallied a record 700% before taking a breather at the end of the first quarter of 2021 on the back of demand concerns in China and investigations against the autopilot features of Tesla cars in the United States. Wall Street thinks the firm is overvalued as it is nearly triple in market cap to the two largest automakers in the US.
According to news publication Forbes, short sellers were forced to buy back at least 38 million Tesla, Inc. (NASDAQ: TSLA) shares between late 2019 and July 2020, playing at least some part in the historic rally of the stock through the period. There is institutional interest as well. In the summer of 2020, institutional investors owned 74% of all Tesla stock available to the public. These investors offload Tesla stock during times of crisis, allowing short sellers to buy. Recently, Michael Burry of Scion Asset Management revealed a $530 million short call on Tesla.
Burry, immortalised in Hollywood epic The Big Short for his investment exploits during the 2008 financial crisis, said earlier this year that the reliance on regulatory credits for profits would hurt Tesla. The volatile year that Tesla has had, with supply shortages hitting production and demand worries hitting vehicle deliveries, would lend credence to the argument. At the end of the first quarter of 2021, 69 hedge funds in the database of Insider Monkey held stakes worth $5.6 billion in Tesla, Inc. (NASDAQ: TSLA), up from 45 in the previous quarter worth $2.7 billion.
1. Volkswagen AG (OTC: VWAGY)
Volkswagen AG (OTC: VWAGY) and Porsche were involved in perhaps the most famous short squeezes of all time in the middle of the 2008 financial crisis. The two carmakers had a history going back over seven decades. In the early 2000s, Wendelin Wiedeking, the chief of Porsche, signaled his intent to take over Volkswagen. His stake in the firm soon reached 35%. The shares of Volkswagen were classed into two categories, ordinary and preference. Hedge funds noticed the disparity in prices between the two classes, taking up positions on them.
Soon, Porsche announced that it had acquired a more than 74% stake in Volkswagen AG (OTC: VWAGY). The state of Lower Saxony already owned more than 20% of the firm, making the short-sellers panic as it meant not all short-sellers could hope to cover their positions on the stock. As chaos ensued, the share price of the carmaker climbed to a high of €999 for a brief period, making Volkswagen AG (OTC: VWAGY) one of the largest companies in the world for a brief stint.
However, the share price fell soon afterwards. Volkswagen AG (OTC: VWAGY) eventually hit record lows as environmental scandals hit the firm in late 2018. It is estimated that hedge funds lost close to $30 billion on the Volkswagen AG (OTC: VWAGY) bet. Porsche, the apparent winner, did not come out strong after the ordeal, as debt and declining car sales hit the business, and was ironically bailed out by Volkswagen AG (OTC: VWAGY) in the coming months
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