Reddit Crowd Bludgeons Melvin Capital in Warning to Industry

The first sign of trouble for hedge fund wunderkind Gabe Plotkin came in late October: A poster on Reddit’s popular wallstreetbets forum was taking aim at his wildly successful investment firm.

“GME Squeeze and the demise of Melvin Capital,” wrote the user, Stonksflyingup, referring to stock ticker of GameStop Corp. and Plotkin’s $12.5 billion firm. Before long, veryforestgreen weighed in: “Melvin Capital New Short Attack.” Then, greekgod1990: “Melvin vs WSB! And GME to the moon.”

So it was that the tables turned on Wall Street -- and a hedge fund star suddenly found himself at the mercy of the day-trading Reddit bros who have become one of the most powerful, if improbable, forces in the stock market today. The attack on Plotkin’s six-year-old Melvin Capital shifted the balance of power in ways that would have seemed unimaginable only months ago. By Wednesday, the firm had capitulated to the amateurs and covered the GameStop short.

The explosive growth in retail day-trading, powered by platforms like the Robinhood trading app and forums like wallstreetbets, has turned the old order on its head. Melvin Capital’s mistake, if it can be called that, was leaving footprints behind in the marketplace. Reddit users were able to identify stocks that Melvin was wagering against and then buy those en masse, unleashing a violent run-up in prices that turned Melvin’s winning bet into a loser.