• by January 29, 2021

David Portnoy, the founder of sports blogging site Barstool Sports, posted a four-minute rant and a flurry of tweets Thursday blasting the Robinhood app and hedge funds for rigging markets against small investors.

His complaints made for more drama amid the emerging narrative that hedge funds are seeing a well deserved comeuppance after years of fleecing retail investors. However, he should also warn anyone who's thinking about chasing overvalued momentum stocks that these trades often "end in tears."

Portnoy yesterday criticized Robinhood, a no-fee trading app that's popular among millennials, for not letting people buy stocks in beleaguered companies like GameStop. Hedge funds that expected the video-game retailer's stock to lose value sold it short. A short sale happens when an investor borrows stock from a broker and sells it, profiting by buying it back later at a lower price.

A group of ragtag traders who discuss stocks in message boards and social media banded together and started bidding up the shares of its stock, causing losses for hedge funds with short positions. As those funds tried to stem their losses by buying back the stock, it surged even higher in what is called a "short squeeze."

One hedge fund, Melvin Capital Management, lost 30% of its value -- perhaps more than $4 billion -- since the beginning of the year. Hedge funds Citadel and Point72 Asset Management arranged to rescue Melvin with $2.75 billion in funding.

Portnoy also took aim at Ken Griffin, founder of Citadel, and Steven A. Cohen, the founder of Point72 who owns the New York Mets, practically accusing them of conspiring with online brokerages like Robinhood to protect themselves at the expense of small investors. Portnoy said Griffin and Cohen, along with Robinhood's management, should be jailed or hit with class-action suits.

In the past year, Portnoy has emerged as a more significant force in markets commentary. When the pandemic led many sports leagues to suspend operations, he started trading stocks and providing public commentary about his trades. He amassed a following of day traders in the process.

While Portnoy is positioning himself as a champion of the little guy, he also needs to use his platform to warn less sophisticated investors against getting burned by buying over-hyped stocks.