The GameStop saga, whether it’s over or not, showed how those placing the largest bets on short positions usually have an implicit influence on how those positions come to an end. The effect small retail investors have when compared to companies like BlackRock and Citadel seems to have been greatly overexaggerated by GameStop’s late-January surge. BlackRock, with roughly $1.9 trillion in assets managed in 2020, and Citadel, with around $29 billion in assets managed last year, have great power in how stock prices behave just by taking large positions in the first place.
The volume of GameStop trades coupled with the short positions of major hedge funds over 2020 gave some small investors reasonable confidence that the stock was over-shorted and underpriced—leading to a growing price that began in the middle of 2020. The short positions persisted however, and a quick boom in small Reddit investors certainly caught many large hedge funds off guard. But many small investors falsely expected a continued surge in stock price even beyond the $400 high it reached—a surge that, as of now, has failed to materialize.
Overall, large hedge funds play a different stock market game than small retail investors. The restricting of trading to small investors—a restriction assumably absent from the trading between large hedge funds—lends itself to that point. Market movers like BlackRock and Citadel don’t just create calculated short positions on companies they believe will decline; the size of the position itself ultimately plays a key role in how well the short position pays off.
