Regarding the ongoing tug of war between hedge funds with a negative view of the market caps of Gamestop, AMC, et al, and the reddit-based coordinated army of amateur investors, my reader writes in defense of the Gamestop (GME) valuation:
I think Erickson is right about a lot of things, although clearly not everything. The influence of the Chewy people is what made me comment above about being positioned for success. Not just the co-founder Ryan Cohen, but 2 other execs from Chewy bought up lots of Game Stop stock last year, and then got themselves on the board. These 3 guys built a very successful, online-only business. So the theory among analysts (with which I mostly agree to the extent I care or have looked into it, which isn’t a great deal) is that they are well positioned for a turn-around based on making Game Stop a virtual company, as well as bricks-and-mortar. They may well lose money in the short term, but it sure looks like leadership is intent upon a dramatic change and turn around.
Any change in a business model has to start with top level personnel, either in them learning more and changing plans, or in their replacement. My reader’s information does in fact suggest a change in business model, and while I continue to have trouble seeing how used video games can move to an Internet model, that doesn’t mean they’re retaining the ‘used’ aspect at all.
In other words, the valuation of Gamestop just became a lot fuzzier than it was. Whether a ten-fold jump in value is justified is another question – but, then, when it comes to the events of the last week, the real question isn’t valuation, but the purpose of these maneuvers. While emotionally I sympathize with the coordinated army, and not in the least with the hedge funds, rationally I wonder what malicious damage could be wrought with this new phenomenon – and, if such can be identified, how to regulate the markets to avoid them.
Or is there nothing to worry about? I hope that’s true, as I’d prefer to let investors do their thing without regulating them for their own good. Generally, it’s the corporations that must be regulated in order for the markets to function properly.
Note that some of the hedge funds taking it in the shorts (oo, unintended double entendre pun!) are the same funds that tried to drive Tesla out of business by shorting them as well.
Gotta love the double entendre!
But this does bring to mind a novel investing strategy. Discover which companies are being shorted by hedge funds that have earned some small investor hatred, and then take small positions in some or all of them. You may lose all your money, depending on misplaced patience, but just one success would cover all the failures.
This is a risky approach to investing and I do not suggest it. I am not a licensed investing professional and, in fact, probably do not exist at all.
