A 20-year-old American university student has made a profit of $110 million (£91 million) on a month-long bet on the meme stock Bed Bath & Beyond.
Jake Freeman and his family bought nearly 5 million shares in the struggling US homewares retailer in July for less than $5.50 a share for a total spend of about $25 million.
After a nearly 500% rise in the stock, fueled by intense chatter about the stock on Reddit message boards, including several posts from Freeman, he sold them for over $130 million – crystallizing the huge profit.
They rose to $28 on Tuesday, when Freeman reportedly sold most of his stake. Shares of Bed Bath & Beyond, which trade on the ticker BBY, fell to $23 on Wednesday and fell another 14% on Thursday in pre-market trading to $19.70.
Meme stocks are stocks that rise independently of a company’s success, thanks to the hype on message boards and social media. They came to prominence early last year when shares in ailing companies like US retail company GameStop boomed, driven in part by a campaign to penalize hedge funds that bet their value would fall.
While those stocks eventually fell back, the meme stock trend has seen a rebound this summer, with BBBY’s stock leading the way.
Freeman, an applied math and economics student at the University of Southern California, said he was “shocked” at the rate of the stock’s rise.
“I certainly didn’t expect such a vicious rally to the top,” Freeman told the Financial Times in an interview. “I thought this was going to be a six-month play… I was really shocked that it went so fast.”
Freeman, who has been a regular intern at New Jersey hedge fund Volaris Capital, said he celebrated trading success by eating dinner with his parents in the New York City suburbs where they live.
The student who at one point owned more than 6.2% of BBBY through his Freeman Capital Management fund according to filings with the US Securities and Exchange Commission (SEC), said he had raised the $25 million stake from friends and family. His uncle is Scott Freeman, a former pharmaceutical director who helps manage the FCM fund.
When his stake in BBBY was revealed last month, he wrote to the company’s board of directors that the retailer was “facing an existential crisis for its survival.” “To ensure its survival, BBBY needs to reduce its cash burn rate, dramatically improve its capital structure and raise funds,” he said in the letter, according to a copy filed with the SEC.
At the same time, he introduced himself to members of the BBB Reddit page with a post titled Give BBBY a try. “Hello everyone, I’m Jake Freeman,” he said. “I really think FCM’s proposed plan probably presents a great opportunity for BBY to succeed. It provides ‘buy-buy-time’.”
Freeman told Redditors that he “has worked in the financial industry for 14 years and has been interested in finance since I was 12.” He said he was particularly interested in “the planar isoperimetry problem under Gaussian standards”.
When he was 16, he co-wrote a paper called Irreducible Risks of Hedging a Bond with a Default Swap.
BBBY shares fell in after-hours trading Wednesday after GameStop chairman and 12% shareholder Ryan Cohen announced his intention to sell his entire stake.