*I asked for a guest post and received one. We publish material as is (I did add a gif or two)*
What if I told you that there’s a tremendous, once-in-a-decade opportunity to invest in an established video game company that has been severely undervalued and who’s true potential isn’t yet priced into their stock? I mean, the video game industry is BOOMING since lockdowns were implemented, right?
Well what if I told you this is a company that in the 1990s-2010s completely dominated the retail video game world; if you wanted that shiny new console or game, there was only one place to go. They also single-handedly cornered the trade-in market; you’d get $5 for a $60 game, and they’d turn around and sell it for $65… Because they could! And you’d take it! This company was a cash cow, the golden goose, just printing more money then it knew what to do with. Then their boomer CEO and even boomier-riddled board failed to notice the water rescind from the shore line as a tidal wave of online retail, e-commerce, and streaming crashed down, slowly eroding away their empire and relevance over the last 10 years, and they still refused to adapt. I’m not talking about Blockbuster, but this is eerily similar…
No! You filthy, pleb. Not Babbages…
GameStop, ahhhh yes. GameStop. Staffed at one time by an elitist group of the finest condescending neck-beards.
You see that photo? That is LITERALLY brick-and-mortar. Just like our other favorite brick-and-mortar community college BUS100 case studies: Toys-R-Us and Blockbuster.
“But wait”, you might ask. “How is this an opportunity? Isn’t this company already one foot in the grave? Are they holding on to their prime 90’s like Cowboys fans?”
Yes, you are correct, to an extent… And not as bad as Dallas fans.
Please take a moment to consider: Would there be a Tesla (TSLA) without Elon Musk? 1… 2… Don’t need more than a few seconds to conclude an overwhelming NO! 100% NO! A small EV company that got its funding through Obama’s green energy initiative in the late 2000s DOES NOT become the largest vehicle manufacturer (by market cap) without a visionary leader.
[Enter stage left] :: Ryan Cohen
Ryan Cohen, the Canadian billionaire investor and steward of RC Ventures, (as of this writing) commands a 12.9% stake ownership of GameStop ($GME)). He bought into GME and started waving his dick around like LBJ talking to a White House page. He is making demands of management – sink or swim, resistance is futile – which will ultimately lead to two different scenarios, both of which are positive: (a) Turn this ship around and push towards digital (already in partnership with Microsoft); or, (b) Give way to a hostile takeover (spoiler alert, the stock moons if that’s the case).
Sooo, who tf is Ryan Cohen and why should I care?
Ryan “Motha Fuckin” Cohen took on Amazon and beat that slave laborer at their own game, e-commerce. And the best part? They did it though… Wait for it… … … … Pet food! Fuckin pet food? Srsly? In 2011 at age 25, Ryan Cohen co-founded Chewy.com. In 2017, Cohen and his co-founder sold Chewy to PetSmart for $3.35 billion. The company later went public and blah blah don’t care. My man founded it in 2011, sold it 6 years later for 3.35 billion, in what is the largest e-commerce acquisition to date. That’s who sees the potential in this undervalued, beaten-up, diamond butt plug of a company
Cohen built his empire through visionary leadership with an unparalleled emphasis on customer service, two things GME severely lacks. Cohen, as evidenced by his ownership stake in GME, is in-it-to-win-it. Note to the reader – I am not invested in TSLA for their cars, I’m in it because Elon. Same here. If Cohen sold his ownership stake tomorrow, I’m out. (Disclaimer, as an “Insider”, he is restricted from selling).
We are witnessing what may be the greatest short squeeze in history, folks. I’m salivating. But to understand the gravity, you need a grasp of what it means when a company (or individual) takes a short position in an equity, commodity, or economy as a whole; simply put, a short position is a strategy to profit when a [stock] price falls. Period. This is ‘Murica! Why should you only profit when stonks go up? Capitalism FTW. I digress. Shorting is done by borrowing the shares (paying interest on the borrowed shares, like a loan) and selling them at X price. When the price falls, buy back the shares and return them. The profit is the difference between what they were sold at and what they were bought back for. E.g. XYZ’s share price is $10/share and you believe the stock price is going to dip. So you borrow 100 shares at $10/ea and sell them for $1,000. You’re on the hook for 100 shares, not $1,000. The price falls to $5/share, you buy back
100 shares at $500 and return the 100 shares to your broker; you sold 100 shares for 1,000, bought back 100 shares for $500, and keep the $500 profit. That’s the gist of it.
I mentioned earlier that (a) When you borrow shares, you are paying interest while the shares are loaned to you; and, (b) Prior to Big Poppa Cohen taking an “insider” position, GME was one big dumpster on the verge of Blockbuster, amirite? Their stock was as low as ~$3. They cancelled their dividend. B&M retail was a ghost town. They were dead to rights and the shorts could smell the blood in the water. Fund managers and institutions took a large, very large – like 130% of available shares large, short position in GME. They were all betting the company would eventually file Chapter 7 and the stock would go to $0. Then the white knight Canadian savior steps in and starts buying up shares. The market reacts when they discover who bought and how much, and the price rises. The shorts try to hold the line and start paying financial journalists to publish negative stories to further drive down the stock price while simultaneously placing more short bets. GME announces a partnership with Microsoft, and the price rises again. The shorts, as a last ditch effort, start naked shorting (essentially selling borrowed shares as IOUs) and there are more shares shorted than available shares in the open market… Weird right? That seems reckless, no? If only there was legislation enacted from the 2008 crisis to prohibit such egregious behavior. Good news, there is! Bad news, it’s enforced by the gaping assholes at the SEC, who would rather spend time harassing small retail investors instead of the blatant market manipulation occurring on the reg. Regardless, the important part here is that the shorts have to eventually buy shares back to return the ones that they borrowed. The more the stock price rises, the more interest is owed, and the larger their losses are. When they buy back the shares to close their position, this creates a demand, which increases the price. In this case, the amount of shorts that need to cover is like a powder keg about to explode… Once the stock price starts increasing and breaks out through its ceiling’s resistance, this will inevitably force the brokers to call in the shares from the shorts that borrowed them. When this happens, that powder keg explodes. The shorts will frantically buy shares in the open market, diminishing available share supply and subsequently driving demand, which increases price. This can happen suddenly, or drawn out over a few weeks. Bulls get fat and bears get fat, but pigs get slaughtered. These pigs could have easily cashed out and closed their positions when GME was a meager $3/share. But they got greedy and doubled down. Now it looks like the spider caught himself a couple of flies, and they’ll have to bend over and take it from Peter Greene.
Separate and aside from what will be one of the greatest squeezes since The Quality Inn Flamingo Atlantic city, circa 2004, GME has some notable events next week (Jan 11, 2021):
- GME reports their 2020 holiday sales. Expect to be underwhelmed as they, not surprisingly, fucked up their supply chain and inventory which resulted in delivery and restocking delays. If the stock dips as I am expecting, “buy the dip” – Warren Buffett. But sales could be better than expected as we are in a console cycle; and,
- ICR Conference, which is essentially a three day investor conference for public and private companies to measure each other’s cocks after giving each other reach-arounds. One big circle-jerk of who’s who. Now, #WeWantCohen and there’s nothing the boomers can say to change that; however, what they CAN do is speak boomerish to other market boomers, and help them understand the e-commerce and technology opportunity that has yet to be valued in any way by the market (da, even at ~$18/share, fundamentals alone warrant a (conservative) 2x-3x valuation through 2022). GME late-subbed last minute from “Retail” category, who was scheduled to present on day 3 after everyone’s already blown their loads, to “Technology” category scheduled to present AH on Monday. There’s speculation as to what announcement will be made, but rumors say they’re going to announce a push into PC gaming (hardware) and digital platform. Edging level: 100.
This is a long play. The safest approach is to buy shares and wait, preferably in a tax sheltered account like a Roth IRA. Then you need to strap in and try to get comfortable, because we’re going to experience more red days than green (short-term 2-3 weeks). But like your wife’s boyfriend says, “I don’t mind ketchup on my hotdog as long as the bun is tight”. And brother, this GME bun is so tight, it’s gonna squeeze like sucking a golf ball through a garden hose! Yeah, get ready for some blood-red ketchup, BUT KEEP JAMMING IT FORWARD. If you can’t do that, leave your shriveled up raisin- nuts on your way out and go invest in an ETF – hUrr DuRr bUht LoW FeEs (and similar returns, cucko).
I am bullish GME shares and options. Averaging on the way down as well as the way up. Short term following call options:
01/15: $15c, $20c, $22c, $25c, $30c
01/22: $17c, $20c
01/29: $20c, $25c
Disclaimer II: I am on the spectrum. And I can barely get through a book unless there are pictures I can color in, and that’s only if I have crayons left over after tasting each color (spoiler alert: the colors do not reflect the flavors). Point being, the views expressed are not affiliated with or endorsed by the publishers of this blog. Additionally, past performance is not a guarantee of future results. With that in mind, I’ve spent much more on much less, so play at your own risk.