Short seller Mike Wilkins shares his wild take on Q1 – and why the end of June will be a ‘Doozy’
The first quarter of 2021 could be seen in the markets as “a momentous quarter that we would like to forget,” as Mike Wilkins of Kingsford Capital Management puts it.
But the veteran short seller, whose Kingsford Alpha Capture Fund fell 23.05% in the first three months of the year, instead commemorated the time in a 28-page sardonic letter to investors that details the madness apparent that prevailed over the quarter, starting even before GameStop and going through the collapse of Bill Hwang’s Archos Capital Management.
In between, there’s plenty of water for Wilkins’ Mill – from special-purpose acquisition companies to jar stocks. And, he warned, there is more to come.
“In our role as a shriveled witness tree, we’ve been asked several times over the past year, ‘Is this worse than the dot-com bubble?’ He wrote. “We tried to be careful in our answers, and there are many ways to compare the two eras, but now our answer is yes, it’s worse. The main difference: anger.
While the story of GameStop (which Kingsford wasn’t short) is well known, Wilkins pointed to a lesser-known madness. For example, he spoke of “a number of well-known and run-down liars [rising] of the dead in 2020 on the back of growing retail fervor ”and told stories of flawed identity transactions that have caused some stocks to skyrocket.
“A number of flawed identity transactions were based on misreading the thoughts of Elon Musk, the CEO of Tesla and the billionaire you could trust,” Wilkins wrote, tongue firmly in cheek. He noted that Signal Advance “had increased tenfold from $ 7 to $ 70 in 30 minutes… after Musk tweeted“ use Signal. ”(Musk was referring to the encrypted messaging app.) Even afterwards as the error was explained, the stock did not retreat, Wilkins said.
And while much has been written about new retail investors who have turned to Robinhood to trade even Heavenly stocks, Wilkins noted that “in January, the most clicked FAQ on the trading app for Fast Growing Retail Stock Robinhood’s’ Robinhood Learn ‘was’ What is the Stock Market? ”
These new investors saw short sellers as “the enemy,” according to Wilkins. “Short sellers were big cats using their lies and big cat control over the deep state to drive down stock prices and keep the little guy: the little guy who just wanted his chance to double his money by buying out of the money call options expiring in a week’s time on a stock that a stranger had offered him in less than 280 characters, ”he joked.
As to what it was like to be a short seller in such an environment, the hedge fund manager wrote: “It looked like scenes from old war movies where surviving airmen, returning after being bombed in a fast-paced dogfight, sit in a classroom having to support commanders with maps and pointers calmly preparing for the next outing.
The mania subsided by the end of the quarter, but even so, Wilkins admitted that “we need to be discouraged from doing too many plot models,” noting that prominent social media figures Musk, Chamath Palihapitiya and Gali – Youtuber Galileo Russell – all “loved GameStop”.
At that time, he noted that “the Goldman Sachs index of the shortest stocks, although down from all-time highs, [had] gained 33%, a signal that we were still not out of the woods.
As the bulk of Wilkins’ letter looked back in great detail, he noted that the rebalancing of the Russell 2000 at the end of June “is going to be a doozy.”
Wilkins forecasts 30 percent revenue. “The rebalancing is done by ranking US stocks almost solely by market capitalization,” he explained, and “since the rebalancing last June, many silverfish penny stocks have significantly increased their market value”.
“Bigger fools will arrive at the end of June,” he warned, “wallets hang from back pockets”.
Kingsford, which is closed to new investors, is one of the oldest short-biased hedge funds. It started the second quarter with $ 385 million under management, according to the letter. Most of it – $ 375 million – is in separately managed accounts.
The Kingsford Alpha Capture Master Fund, which is market neutral, manages $ 10 million.