On three hours of sleep a night and with no time to eat, one New York-based hedge fund manager overseeing billions in assets called last week the most stressful of his life.
"Nothing was making sense anymore," he said, as he watched the stock of GameStop Corp soar, while he bet it would fall.
Wednesday was the worst. Fuelled by chatter on Reddit and other social media to take on Wall Street, investors used venues like online trading app Robinhood to bid up the brick-and-mortar retailer.
GameStop surged 135 per cent, on its way to gaining more than 1,500 per cent in January without any change in its business outlook. Hedge funds scrambled. By this point trading had become so unpredictable across all sectors that funds were forced to dump their winning stocks to balance out their portfolios.
"It's time to cut out," the manager said he told his team. "Let's live for another day."
The experience of this manager and a handful of others interviewed by Reuters over the last days, who all requested anonymity for fear of personal threats from retail investors, is a keyhole into a week of losses on Wall Street they say was far worse for them than last year's historic pandemic sparked sell-off.
As a new week of trading begins, it remains to be seen how long the Reddit-fuelled rally in traditionally unloved stocks will last.
More immediately, it could mean more market losses if hedge funds have to keep selling to meet redemptions or right their portfolios. Longer term, they may have to shift strategies to find their footing and turn the tide to their advantage.
"What is not clear as yet is whether this disruption will evolve into a market accident,” said Mohamed El-Erian, chief economic advisor of Allianz.
The extent of losses has exposed a big weakness on Wall Street. Analytics firm S3 said GameStop short sellers had mark-to-market losses of nearly $20 billion (16.4 billion) so far this year.
Several hedge fund managers said the idea to short GameStop had long been a favourite at exclusive "idea dinners", where fund managers swap their best trades.
Managers also noted traders, many of whom who work at multi-strategy funds that employ pods of portfolio managers, traders and analysts, often know each other well and may compare notes.
Gabe Plotkin's Melvin Capital, one of the funds gored most by GameStop's gains, took a $2.75 billion (€2.2 billion) bailout from his one-time mentor Steve Cohen and Citadel’s Ken Griffin.
The funds involved have taken a dent: Cohen's Point72 Asset Management lost roughly 15 per cent in January partly because of its investment in Melvin. Melvin's assets slid during the month from around $12.5 billion (€10.3 billion) to $8 billion (€6.5 billion), a source familiar with the situation said.
Maplelane Capital, another fund that bet against GameStop, had lost roughly 45 per cent in January, a person familiar with the fund's returns said. Even Viking Global Investors, one of the world's best-performing hedge funds, was off some 7 per cent, people familiar with the returns said.
Representatives for Plotkin, Cohen and Griffin declined to comment.
"Being short consensus stocks is just bad business," said Dinakar Singh, a former Goldman Sachs trader who now runs hedge fund Axon Capital and was not short the stock.
"It is great while it is working but when it isn't anymore, one guy's problem triggers everyone's headache. It becomes a circular disaster."
Fund managers said the week’s experience is changing the way they do business.
Citron’s Andrew Left, who ignited the retail trading frenzy by publicly detailing GameStop's issues, acknowledged defeat by Friday. He had covered his positions, taken a loss, and said he will stop publishing short-seller reports, a strategy that earned him millions and made him a prominent name in the industry.
Hedge funds will also be much more cautious about having short positions going forward for fear of becoming a "mindless target", said one former hedge fund manager, adding that "kind of defeats the purpose of hedge funds."
Traditionally hedge funds promised investors a cushion against market declines by being able to sell short and make money when stocks drop.
Funds are also less likely to use trading strategies such as put options, a kind of derivative that has to be disclosed and that Melvin and Maplelane used, the managers said.
At the same time, though, one thing will not change: Wall Street thinking of new ways to make money again.
Already the tide started to turn somewhat late in the week for hedge funds as Robinhood and other some online brokerages used by millions of retail investors restricted trading in the stock.
Many hedge funds still remain on the other side of the GameStop trade, with the number of shares shorted having dropped only 8 per cent during the week as firms like Melvin covered positions.
One New York-based banker said his clients were looking for other possible targets of retail trading frenzy and positioning themselves ahead of it to make money if the eye of Reddit turned that way.
"People have spent all week running their screens on other situations that might fit this criteria," the banker said. "You’re going to see more of it."
"This isn’t investing, this is insanity," said Kyle Bass, founder, Hayman Capital Management LP. "A month, two months from now, I will be flabbergasted if GameStop isn’t below $100 (€82).”