he cutthroat full-contact sport that is finance…actually isn’t? Is it possible that parts of Wall Street aren’t competitive zero-sum games of traders fighting one another? In the world of syndication, a lot of deals depend on cooperation and friendly good faith efforts to make the world a better place.
The GME short squeeze story is evidence again that a firm foundation in finance and a deep knowledge of fundamental investing can produce tremendous returns–even if many people wrongly think it shows just the opposite. Did an outsider novice destroy hedge funds? No–rather, one could argue the hedge funds made a big mistake by valuing financial knowledge too little.
One growing meme amongst WallStreetBets and the media broadly is that the Gamestop short squeeze will bankrupt hedge funds and possibly end the practice of shorting stocks. Is this the end of hedge funds as we know it? Not exactly–but it’s not a non-story for hedge funds, either.
The attempt to create a short squeeze amongst $GME shorts is one of the more interesting financial stories to happen in recent weeks, if only because it created a new paradigm of new enemies on Wall Street. But what is a short squeeze and why is it so disastrous to multi-billion dollar hedge funds?
Remember when passive index investing in low-cost index funds was the be all and end all of retail investing? Those days are dead, and Catherine Wood’s Ark Investment Management killed them. How did the internet go from loving low-cost index funds to venerating one of the most active tech investors in the world? Strong performance is just part of the answer.
If you’re trying to get a job as a first-year analyst at an investment bank such as Goldman Sachs, knowing the fine details of financial mathematics and modeling isn’t really important. In fact, you don’t need to be an expert in finance at all–instead, you need this.