By Wall Street standards it’s been a whopping good month for Canadian

hedge fund

manager Eric Jackson, whose EMJ Capital Ltd. bought shares of Opendoor Technologies Inc. at around 70 cents and watched them soar more than 250 per cent.

But for 53-year-old Jackson it’s a painful reminder that not everyone wants to come along for a volatile ride, even when you’re winning. One of his investors asked for their money back because of the Opendoor investment. Turns out they didn’t want to be in a “

meme stock

.”

Then his directors started asking questions about the fund’s holdings, which feature an extremely volatile collection of companies that are finding buyers among retail day-traders who respond to chatter on social media platforms. Two other EMJ holdings have leaped this month too — Iren Ltd., which is up 25 per cent, and Cipher Mining Inc., which has jumped 39 per cent.

“I think Opendoor is a real business,” said Jackson, the reluctant face of this summer’s meme stock frenzy, who runs his fund out of his North Toronto home. “I never expected it to be called a meme stock.”

Now Jackson himself is becoming a meme, seeing his face superimposed onto a photo of Keith Gill, better known as Roaring Kitty, the chicken-tender-loving investor behind the 2021 meme stock craze. He said he’s gotten 600 calls and emails in the last three weeks from investors asking about his investment ideas or wondering how to buy into his fund, which he said badly needs to raise money after a rough two years.

“It’s not like an

ETF

,” Jackson said. “It’s not like people can just go and buy it.”

It’s a world that Jackson never expected to find himself in. Positions that he considered long-term stock picks are suddenly part of a retail trading frenzy, stoked by feeds like Reddit’s WallStreetBets that are sparking massive buying in downtrodden stocks Opendoor, Iren, Kohl’s Corp. and Krispy Kreme Inc.

And this new world could be the savior Jackson and his until-very-recently struggling fund have been looking for.

Struggle to survive

“This business almost went under so many times in the last three years,” Jackson said. “I’ve had to try to keep it real lean and to survive.”

The 2022 rout in

tech stocks

hammered EMJ Capital’s returns, leading to an anchor investor pulling out, sapping 99 per cent of the fund’s assets under management. That left Jackson managing “a few million,” far less than the US$20 million he says he needs to justify the large auditor, compliance operation and legal costs that come with running a hedge fund.

So far, he hasn’t managed to pull in any new investors despite the flood of interest.

Jackson first grabbed Wall Street’s attention 10 years ago, with a 99-page presentation to Yahoo Inc.’s board on why the tech media company should oust its former head Marissa Mayer due to mismanagement. Mayer ultimately resigned in 2017 after Yahoo was bought by Verizon Communications Inc.

Years later he was back in the news, talking up Opendoor and used car retailer Carvana Co. “Of these two — Carvana and Opendoor — I have more confidence in Opendoor,” he said in a June 2022 interview on a podcast called “The Compound and Friends.”

He was right on part of that call, as Carvana shares skyrocketed nearly 1,400% from there while Opendoor shares plunged more than 80 per cent.

“It’s been emotionally, like career-wise, it’s such a challenging last two-and-a-half years because you just feel like, ‘I know I’m smart, I’m better than this,’” he said. “But obviously you gotta see reality. It’s not working.”

Opendoor’s performance got so bad that last year he dumped the stock. “I kept lightening my position, lightening my position,” he said. “Eventually I just was like, ‘F—k this.’”

Just looking at the stock was a painful reminder of a decision gone wrong and what he’d lost in the process.

“It’s like having a divorce, and you just don’t want look at your wife’s Instagram,” Jackson said. “You just don’t want to think about it.”

The world changes

Then, a couple weeks ago, everything changed.

A few of his social media followers reached out to ask Jackson about his latest thoughts on Opendoor, and his curiosity was piqued. He began to identify tailwinds that he believed should propel the stock, which was then trading for less than US$1, as high as US$82 by 2028.

Three weeks ago he started buying the stock again, and it has become his largest holding. He sees the shares’ closing price of 51 cents on June 25 as a likely bottom. And he now expects Opendoor’s management to signal that the firm is on its way to profitability as soon as its next earnings report on Aug. 5.

Following a series of posts by Jackson praising the company, Opendoor’s stock price leaped an eye-popping 312 per cent in just six sessions from July 14 to 21. Volume skyrocketed and options activity spiked. The rally has since spread to other heavily-discounted companies like Kohl’s, GoPro Inc. and Krispy Kreme, as retail traders wager on a swath of highly-speculative names.

While the number of stocks being drawn into the frenzy is growing, the rallies have been volatile and often short lived. That raises questions about whether the companies will be able to take advantage of their elevated share prices to raise fresh capital, the way that AMC Entertainment Holdings Inc. and GameStop Corp. did during the original meme stock craze of 2021.

“For the most part, retail investors have been dead right on the ‘buy the dip’ trade this year,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. “That isn’t to say we don’t face risks in the back half of the year, but the fact that non-profitable tech is leading year-to-date tells you everything you need to know in terms of where we are with risk appetite and animal spirits.”

As for Jackson, he plans to stick around for the ride this time.

  • Canadian hedge fund trader gets four years in jail for faking returns
  • How one of the world’s oldest hedge funds went bankrupt

“Carvana didn’t save me because I didn’t realize at the time that this is the hundred bagger,” Jackson said, adding that he sold it too early. But he’s more confident now that Opendoor and some of his other picks can be the “hundred bagger” stock pick that picks his fund up off the ground.

Bloomberg.com