You would have thought that hedge-funds and Wall Street bankers should have learnt their lesson with GameStop. But no, Rocket Companies was heavily shorted last week by various Hedge Funds after a major earnings report. Wall street bankers and their analyst predicted that higher interest rates would have a negative impact on the company. Undeterred by Wall Street’s shenanigans, Dan Gilbert the CEO of Rocket Companies announced a USD 1 billion buyback program of his company’s stock and a special dividend of $1.00 to all shareholders on record as of March 9th.
JP Morgan analyst downgraded the company twice over a one week period with mainstream media bashing the company claiming it will be unable to performs if interest rates keep rising. However a due diligence conducted by independent researchers pointed out that while institutions have been selling short the company, they have been buying the underlying shares as the price drops. This method artificially suppresses the price of the stock allowing institutional investors to buy the stock at a lower price. Once the institutional investors have completed the purchase of the stock, they then release reports which are favorable to the stock leading retail and index investors into the company.
It is believed that the average Hedge Fund made only 11.6% returns in 2020 compared to the S&P500 (SPY) index which averaged around 16.3%. 90% of all hedge funds are believed to have actually lost their clients money over a 10 year horizon compared to standard index benchmarks. By now it is surprising how many investors still invest their money in hedge funds and bank analyst whom have been wrong countless of times causing major losses to their investors.