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The Sharpe Angle Interview: Richard Mashaal Head of 2021's beat-performing hedge fund reflects on GameStop trade  Buy when Wall Street analysts say to sell. Sell when famous business personalities tweet to buy.
That's a short summation of why Senvest Management's Richard Mashaal decided to buy shares of GameStop in September 2020 amid a slew of analyst sell ratings and unprecedentedly high short interest. He sold out of the position last January, following what he describes as a "mania" in the stock. The Elon Musk tweet, one year ago this week, with just one word – "Gametonk!" – signaled to Senvest that it was time to sell and the firm decided to crystalize its gains.
"His piling on with that tweet for us was…we all looked at each other, and thought how do you top that?," said Mashaal in an interview for CNBC's Delivering Alpha Newsletter, his first broadcast appearance since the GameStop investment. "And so for that, for us, that signified peak momentum and we proceeded to exit the rest of our position."
The trade was the firm's single best in its 25 years in existence, notching $700 million in profit and helping bring its 2021 returns to more than 85 percent. Senvest was also the firm that helped buck the narrative that GameStop was all about retail investors versus hedge funds. Senvest, a quintessential, contrarian-style hedge fund, profited alongside many of the retail investors who were championing GameStop on social media sites, like Reddit's WallStreetBets.
The one-year anniversary of these events coincides with tremendous market volatility. A year ago today, shares of GameStop reached $347.51 each. That was 87 times the level GameStop had been trading six months prior. However, GameStop has yet to see $347.51 again, and after a recent selloff in so-called "meme stock" names, the company is trading at less than one-third of those higher levels.
While retail investors comprised as much as a quarter of the U.S. equity trading volume at the start of last year, according to data compiled by Bloomberg from the Securities and Exchange Commission, that's since slid. And volatility in the markets could lead to losses for some of these individual traders, which may discourage greater participation in the future.
"I think a lot of people lost a lot of money," said Jim Chanos – founder of Kynikos Associates, which is known for taking single-stock short bets – on CNBC this week. "And I think that is going to be, and it is very reminiscent of what I saw in '99 and 2000, with the advent of day trading and the first time we saw online brokerages. And those investors, by and large, never came back."
Chanos said that the "wrong lessons were learned" from GameStop because certain hedge funds were squeezed and so the industry "shied away from idiosyncratic shorts and just hedged their exposure using indices."
As a result, hedge funds have largely missed out on an opportunity to generate alpha this year on single-stock declines. Fundamental long/short funds fell about 7 percentage points, based on an asset-weighted average, in just the first 15 trading days of 2022, according to a recent note by Goldman Sachs' prime brokerage division. The declines were driven by long positions that outweighed any positive benefit from short positioning, the firm said.
Mashaal believes there's more opportunity to be had this year for stock pickers like those at Senvest.
"Short squeezes have always been a risk," he said. "And you know, certainly they were a much bigger risk last year, but I think this will be a good year for, you know, for stock pickers to differentiate themselves on the long and short side."
As for specific stocks Mashaal likes right now? He's excited by some names in the rapid-testing space, namely Quidel and LumiraDx. His belief is that the market is underappreciating the durability of at-home testing, both in the extension of COVID and with other viruses in the future.
Mashaal also likes Capri Holdings, which owns luxury brands like Versace, Michael Kors and Jimmy Choo. He thinks this is a value play relative to the individual brands' growth prospects.
He's also bullish on energy, specifically Canadian energy. He likes Paramount Resources, a stock that's nearly quadrupled over the last year.
While Mashaal isn't expecting these names to become the next "GameStop," he is still paying attention to what he calls the "zeitgeist" of the market, reading the message boards to understand what the retail community is saying. He said that apps like Robinhood make commission-free trading so accessible, something he believes is here to stay.
"Sometimes, you know, people treat [the market] like a game. It's not a game. There's real money there and you make money and lose money," he said. "But you also learn, and I do believe in learning by doing, so a lot of these retail investors are doing exactly that."
Delivering Alpha Headlines Big thoughts from the big money David Einhorn predicts inflation will cause a recession Greenlight Capital's David Einhorn said persistently high inflation is going to tip the U.S. economy into another recession, no matter what the Federal Reserve will do to combat surging prices. "Eventually, we believe inflation will cause a recession, regardless of what the Fed chooses to do," Einhorn said in an investor letter. "The higher prices of necessities will ultimately cause low-income consumers to cut back on other things. There are signs this is already happening." The star hedge fund manager revealed his firm has already started hedging against this scenario.
Undeterred Cathie Wood says she's using the tech rout to buy her favorites: 'Innovation is on sale' The ARK Innovation fund losing more than half of its value in the past year is not enough to derail Cathie Wood's unwavering conviction in innovation investing. The closely-followed portfolio manager, founder and CIO of Ark Invest told investors on Tuesday: "We do believe that innovation is on sale." Wood said she has been using the market volatility to her advantage and concentrating her funds to Ark's highest conviction names. Wood said she believes the inflation and interest rate risks are finally priced into the market. Bill Ackman scoops up 3 million shares of Netflix after recent sell-off Pershing Square's Bill Ackman revealed Wednesday evening that he purchased more than 3.1 million shares of Netflix following a steep sell-off in the streaming giant, making him a top-20 shareholder. "I have long admired Reed Hastings and the remarkable company he and his team have built. We are delighted that the market has presented us with this opportunity," Ackman said in a tweet Wednesday. The manager said the recent pullback on slowing subscriber growth provided him a buying opportunity, adding his purchase started last Friday and he kept buying over the last several days.
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Exclusive: The manager of 2021′s top-performing hedge fund on his winning GameStop trade and lessons from it
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