Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisn't and I'm Tracy Hallaway. You know, Tracy,
Speaker 1: we talked recently about the aftermath of the meme stock mania,
Speaker 1: but even within the meme stock Mania, there were some
Speaker 1: stories specifically that we're just really extraordinary and worth revisiting.
Speaker 1: Oh absolutely. I mean each one of those individual sort
Speaker 1: of stunks was fascinating to watch, but among them all,
Speaker 1: I feel like GameStop has to like that one has
Speaker 1: to stand out because that's where it started. So the
Speaker 1: two big ones were I think Game Stop and am
Speaker 1: I mean there were others, but those were like the
Speaker 1: two big ones. And I have to say, like my
Speaker 1: heart was always a little bit more with the Game
Speaker 1: Stop one because really, yeah, absolutely, because I always thought like, well,
Speaker 1: there was at least like a sort of like there
Speaker 1: was a thesis that had long preceded the boom, there
Speaker 1: was a catalyst with the stake held by Ryan Cohen,
Speaker 1: the Truy founder AMC. It was just like a little
Speaker 1: too nihilistic for my take. Well, Now, first of all,
Speaker 1: Ryan Cohen came in kind of late, I would say
Speaker 1: to you know, after a lot of this had already happened,
Speaker 1: but I was always partial to AMC just because I
Speaker 1: really like going to the movies. I like that people
Speaker 1: were throwing money at it at a time when it
Speaker 1: wasn't really clear if it was going to survive. Whereas
Speaker 1: games Stopped, game Stop just seemed like another brick and
Speaker 1: mortar video game retailer. Right, but okay, we're gonna keep
Speaker 1: arguing about this. But with game Stop, there was like
Speaker 1: a crew of people who are the AMC thing sort
Speaker 1: of came out with nowhere, so all through long before
Speaker 1: the spike, and like January and February, there was a
Speaker 1: community of people putting together this idea that there was
Speaker 1: something that the market misunderstood game stuff, that the market
Speaker 1: viewed this as a brick and mortar retailer in terminal
Speaker 1: decline eventual zero, and at least there was some contingent
Speaker 1: of people who thought it wasn't going to be that
Speaker 1: and be the whole sort of like short Squeeze engineered
Speaker 1: on Wall Street bets was like a game Stop thesis originally,
Speaker 1: like that that the fame As post was about, there
Speaker 1: is an opportunity in game Stop. Specifically, I remember having
Speaker 1: this argument with you last year, which was was it
Speaker 1: purely a technical squeeze or was there some sort of
Speaker 1: fundamental bowl story embedded in Game Stop? And I mean,
Speaker 1: I gotta say so. Obviously, the share price has come
Speaker 1: down quite a lot since early However, looking at it now,
Speaker 1: it's still above a hundred dollars per share. It's almost
Speaker 1: a hundred thirty dollars per share compared to around like
Speaker 1: fifteen dollars when we started. So even if it was
Speaker 1: a technical squeeze, something has changed and someone in the
Speaker 1: market clearly sees more value there. So in in summer,
Speaker 1: like a five dollar stock, then it rocketed to like
Speaker 1: fifty so seventy bagger in a few months. It has
Speaker 1: come way down, but it's still at so well ahead
Speaker 1: of where it was pre squeeze. So the question is like,
Speaker 1: what's going on? Is there something real did actually happen?
Speaker 1: And what what all happened at games right? And how
Speaker 1: did the meme stock frenzy actually feed into that? Did
Speaker 1: it actually have a fundamental impact on the company the
Speaker 1: health of the company itself? All Right? So today we're
Speaker 1: going to be revisiting Game Stop, and we are going
Speaker 1: to have a guest back who he had on Early
Speaker 1: one last time. But also he was one of the
Speaker 1: true Game Stop long so he didn't just come in
Speaker 1: at the peak, like you know, he's not just apen
Speaker 1: to it. He had a thesis, here's a ball. He
Speaker 1: argued for many months that it was a misunderstood stock,
Speaker 1: and he made a lot of money. And we're going
Speaker 1: to revisit the game Stop story. We're gonna be speaking
Speaker 1: with Rod Alsman, who is the managing director of Wook
Speaker 1: Capital and he's the co founder of gm E d
Speaker 1: D dot com, which sort of has long catalog the
Speaker 1: long Game Stopped thesis. So Rod, thank you so much
Speaker 1: for coming back on odd lots. Thanks for having me back.
Speaker 1: A lot less stressful recording it today than when we
Speaker 1: recorded it at the peak of the mania. Those were
Speaker 1: a while times because I think like we recorded an
Speaker 1: episode and news broken in the middle, or like you know,
Speaker 1: we were talking to you, right, we were talking to
Speaker 1: you and something happened in the middle of the conversation
Speaker 1: and it was like it moved fifty I don't remember
Speaker 1: what it was because at that time was so crazy,
Speaker 1: But those were fun times, doesn't right, I mean, it
Speaker 1: was stressful, but it was fun, right, Both all of
Speaker 1: the above. Maybe maybe just to begin with, you could
Speaker 1: give us, uh, just remind us, like, what was it
Speaker 1: about game Stop that you thought was misunderstood before early
Speaker 1: before all of this happened. Yeah, Tracy all kind of
Speaker 1: rehash and summarized my experience with the company. So Joe
Speaker 1: said months it was years for me. I had begune
Speaker 1: accumulating a position. In late I received the company is
Speaker 1: a value play at that point in time, I thought
Speaker 1: that there was plenty of opportunity for them to generate
Speaker 1: cash flow both in the near term and through the
Speaker 1: next video game cycle, which was still a few years out.
Speaker 1: At that point, I was very early the stock. Uh.
Speaker 1: A lot happened from an activist perspective in the stock
Speaker 1: between ten and Tiger management wrote the company a letter
Speaker 1: encouraging they do a strategic review. They ended up selling
Speaker 1: off their cell phone retail business that they had bought,
Speaker 1: as that was their attempted means to diversify away from
Speaker 1: physical gaming. It was a poor decision earned some capital
Speaker 1: that way, but regardless, they almost sold the company to
Speaker 1: Apollo or Sycamore. Bloomberg and Wall Street Journal reported in
Speaker 1: late early twenty nineteen that fell through they didn't sell
Speaker 1: the company. It was sixteen bucks to share at the
Speaker 1: beginning of twenty nineteen. UH new management team comes in
Speaker 1: and they slashed the dividend to zero. Long story shot.
Speaker 1: By August of nineteen, the stock has fallen down to
Speaker 1: about three bucks from sixteen. That's the time that I
Speaker 1: think a lot more people became aware of this idea
Speaker 1: that it's not just in terminal decline or at least
Speaker 1: there's enough opportunity at three dollars per share to get
Speaker 1: a reasonable rate of return. Michael Burry wrote the board
Speaker 1: a letter and they had an authorization effectively that they
Speaker 1: could repurchase eighty percent of the shares outstanding with their
Speaker 1: existing cash on hand. So like when people actually look
Speaker 1: at the balance sheet, it just didn't make any sense
Speaker 1: the way that the market was pricing it. I think
Speaker 1: it was um some forced selling from when they slashed
Speaker 1: the dividend of zero blah blah blah. Fast for us
Speaker 1: into twenty we all know that COVID doesn't happened, and
Speaker 1: and then we get to August of twenty when Ryan
Speaker 1: Cohen files his first third ten D and that's when
Speaker 1: things just go into hyper drive and UH, a lot
Speaker 1: happened between August and January one. But there, you know,
Speaker 1: there are points at which the company had a net
Speaker 1: cash position of five bucks to share on its balance
Speaker 1: sheet and it was trading at three bucks to share.
Speaker 1: So it's you know, you had cell side analysts putting
Speaker 1: a price target of a dollar sixty um like stuff.
Speaker 1: That just didn't make any sense to me, at least
Speaker 1: clearly it made sense to some people. Um. And and
Speaker 1: then of course you can't talk about it without discussing
Speaker 1: the fact that you know there was a very large
Speaker 1: short position in the stock that that was correct for
Speaker 1: many years, right, Melvin Capital is the most well known
Speaker 1: who initiated the short and teen Obviously I'd love to
Speaker 1: talk about disclosure through this conversation a little bit, but
Speaker 1: we know that they were up plus but for whatever reason,
Speaker 1: they felt that their risk reward was worthwhile to keep
Speaker 1: the shore on even when the stock traded at a
Speaker 1: meaningful discount connect cash and the rest is history. So
Speaker 1: you mentioned the analyst price targets there, and I mean,
Speaker 1: even now a lot of people are quite bearish on
Speaker 1: the stock. But what was what was the bear case here?
Speaker 1: What was it that people thought Stop was getting wrong?
Speaker 1: I think the simple Bear case was that, by virtue
Speaker 1: of being primarily a purveyor of physical video game software
Speaker 1: products and specifically used products to drive the bulk of
Speaker 1: their gross margin, as those profit streams evaporate, and the
Speaker 1: Bears would argue more quickly than than I think the
Speaker 1: bulls uh that as that disappears, there's simply no way
Speaker 1: to replace that lost profit, and it will be structurally
Speaker 1: incapable of generating meaningful profits into the future. I do
Speaker 1: think that they missed what happened in twenty nineteen. You know,
Speaker 1: we talked about it last time that Tyke Kim interviewed
Speaker 1: Mike Burry and nineteen talking about the fact that the
Speaker 1: Xbox series X the PlayStation five will have disc drives,
Speaker 1: and inherently, um, I think his perception, my perception was
Speaker 1: they have at least one more cycle that they'll have
Speaker 1: meaningful physical video game sales, and even as that pie
Speaker 1: continues to shrink for the physical portion, there's still an
Speaker 1: opportunity for them to generate meaningful free cash into you know,
Speaker 1: late twenties when the next video game cycle comes around,
Speaker 1: and who knows, right if the next Xbox or PlayStation
Speaker 1: will have a disk drive, but in twenty nineteen it
Speaker 1: was made clear that they would. I think Bears felt
Speaker 1: like consumer demand for digital would be far larger than physical.
Speaker 1: Um though, if you look at the production numbers, and
Speaker 1: I think everything that I've seen reported is that the
Speaker 1: mix of physical for example, PlayStation, it's I've seen anywhere
Speaker 1: from seventy of the actual consoles are the physical console
Speaker 1: as opposed to the digital only console without a drive.
Speaker 1: So not that everyone buying those physical consoles only buys
Speaker 1: physical discs, but that optionality and there is real value there.
Speaker 1: You know, if you buy a game for sixty bucks
Speaker 1: and you decide I don't love it, well, if you
Speaker 1: paid it for a digital download, you have no residual value,
Speaker 1: whereas you could otherwise sell it back treated in have
Speaker 1: some economic value there. That's interesting. I hadn't thought about that.
Speaker 1: So in theory, like part of the turnaround plan, and
Speaker 1: we're gonna get to what Ryan Cohen and management have
Speaker 1: done over the last year and a half. But you know,
Speaker 1: in theory, like part of the turnaround plan is okay,
Speaker 1: they're gonna get into n f T s and digital
Speaker 1: and be something more than a brick and mortar retailer.
Speaker 1: But the argument that you're making is that people just
Speaker 1: mistakenly assumed brick and mortar physical CDs were zero and
Speaker 1: when you look at the because of you know, that's
Speaker 1: just what everyone assumes these days. But when you look
Speaker 1: at actual gamer behavior, what they're actually spending, how they're spending,
Speaker 1: where they're buying, that was just a mistaken assumption. Is
Speaker 1: that a mistaken assumption? Still, like, what is the value
Speaker 1: of just sort of the good old fashioned game stop,
Speaker 1: walk into a strip mall location and buy a disk?
Speaker 1: If you think about on its face, why is there
Speaker 1: any value to buy it from them, us anyone else?
Speaker 1: And and there isn't. Uh That said, my experience, and
Speaker 1: from my research, the experience of most consumers who engage
Speaker 1: with them, is that, look, why is there any specialty
Speaker 1: retail right? Why doesn't Amazon and Walmart and targets split
Speaker 1: the entire market? Well? In Game Stops case, the finding,
Speaker 1: or at least what the company reported, I think it
Speaker 1: was in twenty nineteen one of the calls, they disclosed
Speaker 1: that uh, physical game products or gaming products they sold
Speaker 1: at a two x attached rate to the big box retailers,
Speaker 1: the generalists and accessories they sold at a three x
Speaker 1: attach rate. So on this era of direct to consumer, right,
Speaker 1: if you're a if you're a Sony or Microsoft, sure
Speaker 1: you'd prefer to own the direct consumer relationship and sell
Speaker 1: without even giving any cut of the margin to the retailer.
Speaker 1: But in the case of game Stop, from that uh,
Speaker 1: you know, from that distribution angle, they're they're the best
Speaker 1: distributor that the supplier could have to ask for. And
Speaker 1: I think that part of that was evidenced by the
Speaker 1: Microsoft strategic agreement that happened in October of wherein basically
Speaker 1: they they uh indicated that there would be game Stop
Speaker 1: taking a cut of all incremental sales that occur on
Speaker 1: hardware sold from game Stop. So if game Stop sells
Speaker 1: you the Xbox Series X and you go and download
Speaker 1: games on it, game Stop is gonna get some undisclosed
Speaker 1: small portion of those incremental sales. So that was a
Speaker 1: big thing to me is and I think a lot
Speaker 1: of other investors because it implied, well, these distributors and
Speaker 1: suppliers see value and game Stop obviously for the customer
Speaker 1: to see value, it needs to be a differentiated experience,
Speaker 1: whether that's um the customer service angle, you know, if
Speaker 1: you walk into most game stops, most of the employees
Speaker 1: and those stores are pretty pretty hardcore video gamers. They
Speaker 1: may have a different niche, you know, employee by employee,
Speaker 1: but you get insight into different games that you might
Speaker 1: not have otherwise been familiar with. Whereas you go to
Speaker 1: a Walmart and you know it's behind lock and key,
Speaker 1: you need to grab some random employee if you want
Speaker 1: to get the game. They don't know anything about gaming.
Speaker 1: So so that specialty experience I think is the differentiator,
Speaker 1: and it was evidenced by their ability to drive incremental attachment.
Speaker 1: So why don't we fast forward a little bit and
Speaker 1: talk about what's happened since then? And you know, we
Speaker 1: talked about Ryan Cohen. He became chairman. I think it
Speaker 1: was late last year, was that right, something like that,
Speaker 1: um or maybe it was the summer, Okay, So he
Speaker 1: becomes chairman and he starts putting in place all these
Speaker 1: different ways to increase game stops business. And some of
Speaker 1: the stuff he's been doing, you know, things like starting
Speaker 1: an n f T marketplace, stuff like that. It seems
Speaker 1: a little bit different to the original game stop mission
Speaker 1: or bread and butter business. And I'm curious what you
Speaker 1: actually think of that, Like, you had a bowl case
Speaker 1: based on GameStop being a video game retailer and thinking
Speaker 1: that it could grab a decent slice of the digital market,
Speaker 1: or at least more of it, and that there would
Speaker 1: still be demand for physical games and people would want
Speaker 1: to go into a store where the customer sales people
Speaker 1: actually know video gaming and stuff like that. What do
Speaker 1: you think about these diversification efforts and does that change
Speaker 1: the nature of the business in your view? So we
Speaker 1: put out in January UM the accumulated sum total of
Speaker 1: all myself and and a cohort of other investors who
Speaker 1: were maniacally focused on this company from host of especially
Speaker 1: after Cohen became involved. You know, we we put out
Speaker 1: a report with a you know, a hundred sixty nine
Speaker 1: and forty two cent bull case price target, which obviously
Speaker 1: was was half meme, but what was underpinned by real analysis.
Speaker 1: One of the pieces of analysis we got wrong was
Speaker 1: we perceived there was value for an advertising technology oriented business.
Speaker 1: They have tens of millions of customers, they have access
Speaker 1: to reams of consumer data on gaming preferences, and our
Speaker 1: view at the time was um I had begun seeing
Speaker 1: them into great targeted advertisements on their web platform. I
Speaker 1: thought that was the angle they were going, and maybe
Speaker 1: it was the angle to prior management team was going. UM,
Speaker 1: they haven't gone that angle, but I think at its core,
Speaker 1: the value is tapping into the fact that I'm looking
Speaker 1: at the proxy statement and what they say is that
Speaker 1: we have a unique opportunity to be a conduit between developers, publishers,
Speaker 1: and consumers as gaming shifts from consoles to the metaverse
Speaker 1: and other frontiers. And that was really the core of
Speaker 1: my view was that Game Stop was that physical nexus
Speaker 1: of gaming, and that they can play into digital and
Speaker 1: play into this shift, and that they're not necessarily d
Speaker 1: o a. UM the direction Cohen went, you know, Tracy,
Speaker 1: he he had the settlement in early January one where UM,
Speaker 1: it had looked like it was going to become a
Speaker 1: proxy fight. There had been previous proxy fights with the
Speaker 1: company over the preceding year, UM successful proxy campaign, so
Speaker 1: it looked like Cohen was going that route. There was
Speaker 1: instead of settlement, I think because you know, look, I
Speaker 1: collected four percent of shares outstanding and sent him a
Speaker 1: letter on behalf of those retail shareholders who those four
Speaker 1: percent shares reflected and said, you have our support if
Speaker 1: it comes to this year's proxy fight. So I'm sure
Speaker 1: he had accumulated shares from others. Um. You know in
Speaker 1: the intro, Joe you mentioned I now am I am
Speaker 1: at Wook Capital and whoop Capital was specifically formed as
Speaker 1: a byproduct of really the core work that went into
Speaker 1: this crowdsourcing of the investment thesis UM and John Kim,
Speaker 1: John's the c i O at what the founder. John
Speaker 1: had owned one percent of of game Stop and been
Speaker 1: the largest contributor to that four percent. John had the
Speaker 1: opportunity to meet with Ryan in December and here his vision.
Speaker 1: So I think that the people who really did the
Speaker 1: legwork understood there wasn't This wasn't just some scheme that
Speaker 1: the guy cooked up out of the blue. He had
Speaker 1: a vision. You know clearly that I knew nothing about
Speaker 1: blockchain and crypto other than just what I read UM.
Speaker 1: I was not an active participant in the blockchain or
Speaker 1: crypto ecosystems. I had never bought any crypto until very recently,
Speaker 1: I've begun dabbling in n f T. But that does
Speaker 1: seem logical, right if if it's creators gamers are consuming this.
Speaker 1: It's a forty one billion dollar addressable market, and we
Speaker 1: can argue how sustainable that is. It's very logical to
Speaker 1: me that they've gone that route. Is their digital growth strategy,
Speaker 1: and that's underpinned by them really doubling down on making
Speaker 1: their existing business better. They hadn't done any investment really
Speaker 1: into like digital systems, their website, their mobile app, e fulfillment. UM.
Speaker 1: They've made multiple fulfillment network investments over the last year. UM,
Speaker 1: they've improved their service. If you think about Chewy, people
Speaker 1: know them for you know Chew, we will send pet
Speaker 1: owners a happy birthday when it's the pet owners birthday. UM.
Speaker 1: I'm seeing now Game Stop doing a lot more of
Speaker 1: that customer engagement during interactions UM. In the g M
Speaker 1: E d D discord server, I see a lot of
Speaker 1: people sharing different examples of their own experience. So there's
Speaker 1: definitely been a change in the customer experience with that
Speaker 1: top down view from Cohen. UM. He became chairman in March.
Speaker 1: I believe it was so they The first porting of
Speaker 1: anything n f T related was from g M E
Speaker 1: D D and it was in April of one. So
Speaker 1: this is not stuff that they've just pulled out of
Speaker 1: the blue. They've been working on it for quite some
Speaker 1: time now. Um they've committed to bring in the marketplace
Speaker 1: to bear by the end of the fiscal second quarters,
Speaker 1: so the end of July. So you know, a lot's
Speaker 1: happening behind the scenes, and I think that people are
Speaker 1: so focused on just staring at the current financial statements,
Speaker 1: which you know, the companies shifted its strategy. They're forsaking
Speaker 1: margin at the expense of regaining customers back into their
Speaker 1: ecosystem for long term growth. And uh, I think COVID happened,
Speaker 1: so our initial estimates were certainly impacted there. Um digital
Speaker 1: is being adopted more quickly, it seems it'll it'll remain
Speaker 1: to be seen if what that what happens is two
Speaker 1: keeps rolling along and normalization keeps occurring. But there's a
Speaker 1: lot to unpack there, and uh, you know, we've done
Speaker 1: our best to try and be objective with it. Um.
Speaker 1: Most of the people in g M, E. D D
Speaker 1: don't have a meaningful ownership stake in game stuff. We
Speaker 1: it's just a passion project and we just feel like
Speaker 1: it's been so misrerepresented in media. It was so misrepresented
Speaker 1: in from the analyst angle for so long that we
Speaker 1: were just doing our best to present what we thought
Speaker 1: was mostly unbiased you. So, I just want to like
Speaker 1: pivot just a little bit because you mentioned that some
Speaker 1: of the money that was in the original game Stop
Speaker 1: trade has become part of what capital your current project
Speaker 1: you talked about. You know, they're still the g M, E.
Speaker 1: D D dot com discord and of course these are
Speaker 1: some of the topics recently talked about them without Lily
Speaker 1: Frankis and Kyla Scanlon. But it's like this cohort of
Speaker 1: game Stop traders, Like where are they now? I mean, uh,
Speaker 1: you know what's wearing kiddy? Where is everyone? And not
Speaker 1: just the big names like yourself and Keith Gil, but
Speaker 1: so many of the people who got excited about the trade,
Speaker 1: Like what's the distribution? How many of them are still trading?
Speaker 1: How many of them lost interests in the market, how
Speaker 1: many of them? What? What? Where's that crew now? I
Speaker 1: know you'd love to get a really clean answer, but
Speaker 1: it really is all over the spectrum. Um. In terms
Speaker 1: of you know, Keith Gil, I haven't had an opportunity
Speaker 1: to speak with him since January. Um. You know, regrettably,
Speaker 1: I'm certain he's been facing his own share of of
Speaker 1: legal reasons for for which he hasn't and look, I'll
Speaker 1: say it allowed, and I'm I'm I know I would
Speaker 1: be advised not to. But it was just about a
Speaker 1: year ago I was subpoena from SEC pertaining to my involvement. Um.
Speaker 1: It was this massively broad based subpoena asking for everything
Speaker 1: I've ever said to anyone about Game Stop for you know,
Speaker 1: more than twelve months of history. And when you think
Speaker 1: about I literally my life my second job was research
Speaker 1: and Game Stop. Yeah, it was a massive cost just
Speaker 1: to try and accumulate all of the documents. UH ended
Speaker 1: up having to say, look, I it would it would
Speaker 1: cost me hundreds of thousands of dollars to do what
Speaker 1: you're asking. You can go to the sources themselves if
Speaker 1: you would like it. I did incur meaningful expense that
Speaker 1: that breached six figures, which was more than my net
Speaker 1: worth before I entered the trade. Thank goodness, I made money.
Speaker 1: And I think that is a good example of where
Speaker 1: you see these politically motivated investigations that have, you know,
Speaker 1: I think, and misdirected towards small passionate investors who, in
Speaker 1: my opinion didn't do anything wrong. I know that there
Speaker 1: are some people who had malintent, right. You can obviously
Speaker 1: point to the Wall Street bets folks saying things like, yeah,
Speaker 1: squeeze the shorts. Well, obviously that's not an investment thesis.
Speaker 1: Um So, So with regard to Keith, I haven't spoken
Speaker 1: to him to Roaring Kitty to d f V, and
Speaker 1: I'm sure he's incurred expense comparable slash in excess of mine.
Speaker 1: But I know, you know, Michael Burry disclosed he was
Speaker 1: subpoened as well, um, which is like why the guy
Speaker 1: got out of the trade in the fourth quarter. He
Speaker 1: wasn't involved. So that's where what is sec for focusing
Speaker 1: on there? But let me let me sorry, I mean
Speaker 1: just interrupt you. So, first of all, I hate paperwork,
Speaker 1: and you know, something like that is my biggest nightmare,
Speaker 1: and so you have my utmost sympathy because I can
Speaker 1: only imagine what that's like. But secondly, you know this
Speaker 1: is sort of tangentially related. But this week we saw
Speaker 1: Bill Wong, the the Archagos founder, charged with market manipulation,
Speaker 1: and there's a lot of talking there about purposefully squeezing
Speaker 1: the stock higher, and some people saw parallels between that
Speaker 1: and Game Stops. So I guess my I'm just curious
Speaker 1: what you thought about that. It doesn't seem like the
Speaker 1: SEC is cracking down on basically gamma squeezes. I'm not
Speaker 1: sure about that. Like, here's how I would characterize the
Speaker 1: things that are wrong with with what happened with Archaicos
Speaker 1: and with say Melvin Capital. You have a lack of
Speaker 1: transparency in the market. It is unacceptable to me that
Speaker 1: Arcagos was able to accumulate ownership or at least economic
Speaker 1: ownership stakes of more than fifty percent of discovery of
Speaker 1: I qually of GSX, whatever their rename now. But the
Speaker 1: fact that he was able to accumulate those with with swaps, now,
Speaker 1: that is clearly a failing on the side of the
Speaker 1: disclosure rules for longs. But I would counter that the
Speaker 1: fact that Melvin Capital had more than a third of
Speaker 1: Game Stops shares short and had no disclosure obligation. Obviously
Speaker 1: people passed together with their puts that they disclosed um
Speaker 1: would show up in their thirteen f you know, the
Speaker 1: short shares were not showing up, which I've I don't
Speaker 1: know for certain, I've come to the conclusion it was
Speaker 1: somewhere around twenty to million shares plus the puts, which
Speaker 1: would be if you add those together, it's you know,
Speaker 1: you're getting close to half the shares outstanding that Melvin
Speaker 1: Capital themselves were short. So on both ends of the spectrum,
Speaker 1: it's unacceptable that disclosure would be so limited that people
Speaker 1: in the market don't understand that these massive, multibillion dollar
Speaker 1: forces are pushing prices and impacting stocks. So I I
Speaker 1: think that there's issues with that. And then there is
Speaker 1: an issue, it's it's unacceptable if there's a discord chat,
Speaker 1: a well Street bets chat somewhere, that's that's your your
Speaker 1: thesis is that I can push a price as opposed
Speaker 1: to I see a fundamental reason for this business. And
Speaker 1: obviously the world of crypto is completely wild West, where
Speaker 1: it's mostly just pump and dumps and rub pulls and
Speaker 1: and scams like that. And I think that the conversation
Speaker 1: you all had with Mad and SPF the other day
Speaker 1: talking about the box, um, you know, highlights that. But
Speaker 1: there's a lot that's wrong. Um. Obviously I feel aggrieved
Speaker 1: about how I was um part of you know what
Speaker 1: SEC opted to investigate, and as far as I know,
Speaker 1: they've still not put any sort of report out or
Speaker 1: gone after anyone. I'm sure there could be something to
Speaker 1: come on that. Um, hopefully they don't come back after
Speaker 1: me for saying this, But yes, it's unacceptable that people
Speaker 1: would try and manufacture price distortions on both the long
Speaker 1: and the short side, and I think that is market manipulation.
Speaker 1: It feels though, like, um, you know, it's one thing, okay,
Speaker 1: if you're a hedge fund, you have certain rules in
Speaker 1: place in theory about things, you know, requirements, and maybe
Speaker 1: there should be more requirements about what you have to
Speaker 1: disclose if you're short. But here's a regulated entity, a
Speaker 1: group of people just to play I don't know, Devil's
Speaker 1: advocate or something like. I don't even know how you
Speaker 1: would conceptualize an equivalent for people meeting on a message
Speaker 1: board or people meeting on a discord or in the
Speaker 1: comments of a Wall Street beds post. Just sort of
Speaker 1: like organically becoming part of like a stock market flash
Speaker 1: mob that aims to implicitly push the stock in a
Speaker 1: dramatic direction just because everyone's sort of doing it all
Speaker 1: the same time. And I don't know, you know, maybe
Speaker 1: we'll never get back to quite the fever pitch of
Speaker 1: early But my assumption would be that these sort of
Speaker 1: like organic squeezes that just emerge because that's how the
Speaker 1: Internet is are going to be with us for here
Speaker 1: to stay and a very difficult time to ever like
Speaker 1: come up with rules around it. Yeah. Look, the reality
Speaker 1: is that the flows of of money or what's going
Speaker 1: to drive the price in the short term. And if
Speaker 1: there's massive flows of highly leveraged capital through short dated calls, um,
Speaker 1: that's gonna have them outsize effect. And you're right, you know,
Speaker 1: one person on their own isn't going to move the price,
Speaker 1: but when it's dozens, hundreds, thousands, tens of thousands UM,
Speaker 1: that cumulative effect is clearly impactful. It. I saw a
Speaker 1: report discussing the January events and the timing of stimulus
Speaker 1: checks and the timing of all the new accounts being opened,
Speaker 1: and it does seem that what happened in January one
Speaker 1: is is kind of the most extreme example of what
Speaker 1: you're getting at. It's likely, in fact, one would expected,
Speaker 1: and we keep observing it in various UM tickers. You
Speaker 1: know since then that this type of stuff is going
Speaker 1: to happen. But I think it's worth repeating that people
Speaker 1: should understand that, you know, if you're going on a
Speaker 1: message board and you're saying, you know, let's squeeze these guys,
Speaker 1: let's pump this price. Like if you're if you're intend
Speaker 1: is to manipulate the market, just because you're a small fry,
Speaker 1: you you shouldn't get a pass. And I don't think
Speaker 1: that's acceptable. But I do understand thinking back to what
Speaker 1: Lily and Kyle we're talking about, like there's this perception
Speaker 1: of a lot of those small fries that the game
Speaker 1: is so rigged against them that they almost have to,
Speaker 1: you know, break the rules themselves or go down that path.
Speaker 1: So there's definitely a lot of that distrust to me
Speaker 1: that it was a lot of taking all the occupy
Speaker 1: Wall Street, but now Occupy Wall Street has a smartphone
Speaker 1: app and they can try and occupy Wall Street effectively.
Speaker 1: Well also, I mean to me, it's a disconnect between
Speaker 1: the existing rules and technology as it stands. Right, so
Speaker 1: you are not allowed, say you're a hedge fund, you
Speaker 1: cannot send out a bunch of emails to your closest
Speaker 1: hedge fund client uh contacts and say like, hey, let's
Speaker 1: all conspire to push up the stock of Game Stop,
Speaker 1: and yet because these message boards exist, everyone seems to
Speaker 1: think that that somehow makes it different if you do
Speaker 1: it at scale and you do it publicly. But I
Speaker 1: guess we'll find out, you know, from the sec or whoever,
Speaker 1: whether or not that's the case. But I wanted to
Speaker 1: ask you another sort of I guess, depressing question or
Speaker 1: like a darker question. But you're right there. There was
Speaker 1: this sort of sense about the game being rigged, and
Speaker 1: part of the Game Stop appeal to some people seem
Speaker 1: to be this idea of getting back at the big institutions,
Speaker 1: whether it's Wall Street banks and hedge funds or something else.
Speaker 1: And it almost felt like people went, you know, really
Speaker 1: went over to the dark side. There are some people
Speaker 1: who seem to think that all of Wall Street revolved
Speaker 1: around the shares of you know, a video game retailer,
Speaker 1: and then if they could just like if they could
Speaker 1: just squeeze it higher than the whole edifice would come
Speaker 1: crashing down. But why do you think it was such
Speaker 1: a lightning rod for those types of people? And has
Speaker 1: that that sense persisted? So so it gets back to
Speaker 1: Joe's question about where is everybody? And then it is
Speaker 1: a wide spectrum answer. I I it's irrefutable. UM I heard.
Speaker 1: I think it was literally referred to kind of some
Speaker 1: of these cult like mentality like social platform and some
Speaker 1: of them are quite like that. UM. I'm not going
Speaker 1: to use the name of the one that comes to
Speaker 1: my mind most clearly, but there's tens of thousands of
Speaker 1: people that on a daily basis or in this platform,
Speaker 1: and and it's very much a view that these people
Speaker 1: are deeply convicted. They believe that the short sellers never
Speaker 1: closed in January one, there was some nefarious scheme between
Speaker 1: no no, because I mean I thought you were because
Speaker 1: I'm not talking about with other of the I feel
Speaker 1: like the people who are really into the other stock
Speaker 1: or like like you guys, except turn to a level no.
Speaker 1: But but there are people into game Stop who are
Speaker 1: just as bad and in so far that they are
Speaker 1: purely believing that by throwing their their hard earned dollars
Speaker 1: into this equity, which you know, for for them it's
Speaker 1: more like a trading token. They don't know they look
Speaker 1: at price. Most many of these investors, speculators, traders, or
Speaker 1: whatever you wanna call them. Apes. These these people buy
Speaker 1: and large are very new to the market. They don't
Speaker 1: have a deep understanding of how things work. They often
Speaker 1: just look at price, they look at a stock chart.
Speaker 1: It's very much um limited amount of analysis. It's hearing
Speaker 1: and seeing what the people with the largest social media
Speaker 1: followings are talking about UM and then saying, well, they
Speaker 1: must be right, and let me get on this. And
Speaker 1: I see so many people talking about this and saying
Speaker 1: there's this this evil scheme by these these people on
Speaker 1: the short side of the trade, that it must be true.
Speaker 1: So so you've got like that end of the spectrum.
Speaker 1: But then the spectrum you have a lot of people
Speaker 1: who experienced this game stop investment. UM. I think about
Speaker 1: my my partner with G M. E. D. D Joe.
Speaker 1: He he was a young guy in his early twenties
Speaker 1: who who made me, you know, low six figures some
Speaker 1: he but he he sold out of the position. As
Speaker 1: I mentioned, he's continued to maintain the analysis of game stuff.
Speaker 1: He and many others like him are continuing to learn
Speaker 1: about markets, learn about how you actually analyze investments. So
Speaker 1: like you have the bad of the cultists and you
Speaker 1: have the good of new market participants who are learning,
Speaker 1: and like that's one of the things we're really looking
Speaker 1: to foster with what capital is. We believe that social research,
Speaker 1: crowdsourcing of research, like the fact that you can have
Speaker 1: millions of eyeballs looking at different pieces of information and
Speaker 1: bringing unique expertise to bear, you can uncover nuanced and
Speaker 1: differentiated perspectives and theses in that manner as opposed to
Speaker 1: just we're gonna we're gonna mess with the shorts. So
Speaker 1: there's there's this wide spectrum. There's clearly a ton of
Speaker 1: new partici suppense. I think, like Lily and Kyla were saying,
Speaker 1: it's it's it's come down of course from January, but
Speaker 1: I do think it is durable, and I think it
Speaker 1: is different from like the you know, the two thousand
Speaker 1: year message boards. It's it's even more so than than
Speaker 1: that was, and I think it will remain durable. Can
Speaker 1: you just describe what is it? Look? Capital? Is it?
Speaker 1: A hedge fund? Is it? And what is you have
Speaker 1: several stocks? Just describe a little bit more of what
Speaker 1: this vehicle is and yeah, we we we just started up.
Speaker 1: So so John had mentioned John and I had worked
Speaker 1: um John have been one of the investors where we
Speaker 1: had this this cohort of game Stop investors, you know, lawyers,
Speaker 1: oil and gas people, just other random retail investors, like
Speaker 1: across the entire spectrum of people who people who were
Speaker 1: tuning into the Roaring Kitty chats, you know, from August
Speaker 1: of twenty onward. Um, we we we kind of formed
Speaker 1: a group and read it where we were just talking
Speaker 1: about trying to analyze all the things coming out. We
Speaker 1: eventually made a discord. We called ourselves the Hedgehog Fund,
Speaker 1: you know, jokingly. But all of these like the fact
Speaker 1: that we experienced and lived this where we were able
Speaker 1: to develop a much more robust and informed and detailed
Speaker 1: thesis through all of these various differentiated perspectives like that's
Speaker 1: informed the view that John had, which is that you
Speaker 1: can repeat this at scale over time. And by this
Speaker 1: I mean identifying miss christ misunderstood market opportunities and equity markets.
Speaker 1: So our view with what what is a private investment fund,
Speaker 1: we have you know, nine figures of investable assets that
Speaker 1: we are not looking for anybody's money. We're not selling
Speaker 1: anybody a product or service. The the what we're selling
Speaker 1: is we are going to build a community to really
Speaker 1: look to scale what we experienced with the whole second
Speaker 1: half of game Stop where you can bring in investors,
Speaker 1: retail investors from across the spectrum, people who have passion,
Speaker 1: who have creativity, who have this enthusiastic transparency and willingness
Speaker 1: to share their information with others, like much like what
Speaker 1: we did right we we had I had nothing to
Speaker 1: gain from talking and sharing that. You know, I had
Speaker 1: to cru crud all these order numbers, and I was
Speaker 1: crowdsourcing these order numbers and had located you know that
Speaker 1: you can understand what the company's e commerce results were
Speaker 1: going to look like, etcetera, etcetera. So it's it's taking
Speaker 1: that and taking that novel idea that you can crowdsource
Speaker 1: research and realize alpha as as kind of a community aspect.
Speaker 1: Now it's not like we're saying that you know, you
Speaker 1: need to pay us to be part of this, but
Speaker 1: we're still nascent and thinking it out more. But but
Speaker 1: that in essence is what we're looking to build and replicate.
Speaker 1: So can I just ask, so you went long game
Speaker 1: Stop because you had a very specific interest in the
Speaker 1: company from what I remember um and now based on
Speaker 1: that experience, you're doing due diligence on other stocks and
Speaker 1: sort of I guess exercising what you've learned from the
Speaker 1: Game Stop experience in a broader way. What sort of
Speaker 1: stocks are you looking at? And what's the difference between
Speaker 1: you know, coming up with a investment thesis for game
Speaker 1: Stop a business that you know intimately you're a video
Speaker 1: game or you understand that whole thing, versus looking at
Speaker 1: something else. Well, I think that's that's it. You should
Speaker 1: have a more informed view than the market. I'll and
Speaker 1: this is not a position that what has but I'll
Speaker 1: talk about it aus and I have personally Allison Transmission, right,
Speaker 1: I worked in the industry at Writer Transportation Logistics company
Speaker 1: for five years and this you know, we've obviously observed
Speaker 1: this e V bubble that I think we're still living
Speaker 1: in where everyone expects that EV from both personal vehicles,
Speaker 1: commercial vehicles, all sorts of transportation equipment will rapidly electrify
Speaker 1: and the legacy O e ms or suppliers are all
Speaker 1: out to pasture. But in the case of say, Alison Transmission,
Speaker 1: they make automatic transmissions for commercial vehicles. And I've done
Speaker 1: extensive research and lived extensively in my prior role at
Speaker 1: the company of talking to O e M s understanding
Speaker 1: their build plans, understanding what the opportunity is for them
Speaker 1: to shift to e v UM, understanding that fleets aren't
Speaker 1: likely going to be buying from no name startups. They're
Speaker 1: much more likely to go with the trusted freight liners Internationals,
Speaker 1: Mac Peter, Bilt, Kenworth, et ceteras of the world. To me,
Speaker 1: I think Allison is a good example where when you
Speaker 1: look at it, it's it's trading at its lowest multiple
Speaker 1: in its history. The company was part of General Motors
Speaker 1: in two thousand seven, it was sold to private equity.
Speaker 1: It became public in twenty twelve. And since the company
Speaker 1: on a forward or rings basis, you know, Eavy to Ebit,
Speaker 1: Eavy to EBITDA has never been cheaper because you have
Speaker 1: this massive storm cloud of oh no, e v is coming.
Speaker 1: But then when you actually look at and you talk
Speaker 1: to the experts in the in the space, you know, yes,
Speaker 1: there's some government regulation in like not to go too detailed,
Speaker 1: but I guess it's unique. Like Howard Marks has said
Speaker 1: in the past, you need to have a different view.
Speaker 1: If you want to outperform the index or the market,
Speaker 1: you need to have a different view and you need
Speaker 1: to be more right and I think Allison is an
Speaker 1: example where I have a different view toward electrification adoption,
Speaker 1: and hopefully I'll be right. Just on Allison, I'm curious
Speaker 1: that you have personal expertise in a company like that,
Speaker 1: But then the platform itself is like a crowdsourced research platform.
Speaker 1: So do you would you go out and solicit other
Speaker 1: information from people on that company or is it more
Speaker 1: that you share your own insights with others. It's absolutely
Speaker 1: more so the former, because I may know a few
Speaker 1: things about a few things, but I might no means
Speaker 1: an expert and everything. I'm very very little of an
Speaker 1: expert in anything. But it's it's it's trying to make
Speaker 1: it such that people see value and participating in this community,
Speaker 1: bringing their own expertise to bear. Um. We have kicked
Speaker 1: off earlier this month, we kicked off a series. You know,
Speaker 1: it was ironic. We've recorded it the friday before the
Speaker 1: news came out of Elon Musk getting involved with Twitter.
Speaker 1: We had I had a friend of mine who's an
Speaker 1: a g C at a public company who had spent
Speaker 1: time on both the activist side and also on the
Speaker 1: corporate side defending activists, and we had a robust discussion
Speaker 1: on shareholder activism, and our hope is to have you know,
Speaker 1: different programming where Look again, we're not trying to sell
Speaker 1: you anything. Our view is if you see value and
Speaker 1: participating in this community, you will be willing to share
Speaker 1: your own insights knowledge base. No one is going to
Speaker 1: be an expert on everything. Some people who have differentiated
Speaker 1: views from their lived experiences, UM such that. Yeah, hopefully
Speaker 1: we can cover a wide ectream of industries, of sectors
Speaker 1: of companies and uncover some of these misunderstood and mispriced investments,
Speaker 1: and it would mostly be driven by the expertise of
Speaker 1: the of the crowd and the insights of the many. Um.
Speaker 1: Some of some people are going to have more insights
Speaker 1: than others, of course, but it's not going to be like, uh,
Speaker 1: you know, Rod knows all this stuff about everything, because
Speaker 1: that's not the case. I think it sounds really cool
Speaker 1: and your description obviously of Ellis and specifically again taking
Speaker 1: an assumption that everyone has these businesses or zeros and
Speaker 1: questioning that obviously the parallels to game stop are clear.
Speaker 1: We us have a couple more minutes. I just want
Speaker 1: to ask you real quickly game Stop, like, what's the
Speaker 1: next thing to watch like when do we see what
Speaker 1: should people look for to say, Okay, the strategic efforts
Speaker 1: that are being made are turning this into a better business.
Speaker 1: So the company has told us, and i'll i'll rely
Speaker 1: on the company's direction that we should be looking more
Speaker 1: at the top line, which when you look at their
Speaker 1: last quarterly result, they really force you know, they forsook
Speaker 1: more RGIN gross margin meaningfully it was it was in
Speaker 1: the high teams. So what I believe they are doing,
Speaker 1: and they've said this since Cohen became chairman, is that
Speaker 1: they are long term focused and what that means is
Speaker 1: in the short term, they need to bring customers back
Speaker 1: into the ecosystem. They need to regain customer trust, and
Speaker 1: I believe their goal, like with Chewy, will be that
Speaker 1: whereas the desire with Chewy is that that's the ultimate
Speaker 1: destination for pets, game Stop will be the ultimate destination
Speaker 1: for gamers. They've expanded product categories across accessories, PC, hardware,
Speaker 1: and component try um, these these are you know, any
Speaker 1: of themselves not going to be a game changer. I
Speaker 1: do think the big question mark and the big perspective
Speaker 1: upside scenario is what happens with this UH and a
Speaker 1: tea marketplace their forays into blockchain as I. As I noted,
Speaker 1: we've fund been following them from for a long time
Speaker 1: and they've been working on this for more than a year.
Speaker 1: The marketplace will be launching within the next UH it's
Speaker 1: gonna be May soon, so before the end of July.
Speaker 1: So I would look closely at what the receptivity is
Speaker 1: to this marketplace. We've all seen I'm sure negative commentary
Speaker 1: from you know, Ubisoft launched U n f T S
Speaker 1: and gamers hated it. Blizzard has been talking about it
Speaker 1: and gamers hate it. But I think it's because gamers
Speaker 1: perceive n f T as as loot box two point oh,
Speaker 1: where you're gonna pay for something and it's just the
Speaker 1: company milking you out of things. I do think that
Speaker 1: it's more oriented on there are creators, like we've seen
Speaker 1: some of the stills where it's some of the artists
Speaker 1: who worked on some of the most well known games
Speaker 1: of our time putting out different um digital artwork that
Speaker 1: could be digital collectibles. Company does have a thriving collectibles business,
Speaker 1: so it does make sense that digital collectibles will dovetail
Speaker 1: with physical collectibles and physical gaming. I think there's an
Speaker 1: obviously a lot of question marks around the durability of
Speaker 1: crypto gaming and blockchain gaming right actual infinity. It's like,
Speaker 1: is it just a big ponzi? So I I think
Speaker 1: it's fair to be uncertain about what that looks like,
Speaker 1: but it's irrefutable that it's a rapidly growing market, there's
Speaker 1: a ton of capital going into the space, and that
Speaker 1: it is a real opportunity that though to me, is
Speaker 1: the bowl case from here. Right, we're a ten billion
Speaker 1: dollars market cap, so your your core business isn't going
Speaker 1: to be enough to justify that. In my view, you
Speaker 1: need there to be you know, free cash flow dollars
Speaker 1: flowing in from this high margin digital business that they're building.
Speaker 1: And it remains to be seen, but going to be
Speaker 1: watching that closely over the next few months as they
Speaker 1: launched the n f T platform. All right, well, Rod,
Speaker 1: we gotta leave it there. But it was so great,
Speaker 1: uh to catch up with you. Always really interesting and
Speaker 1: appreciate you coming back on oddlock. Thank you for having me. Absolutely,
Speaker 1: Rod is so great. I really I really enjoy me.
Speaker 1: It seems like a genuinely I think it's a good
Speaker 1: person messed up that he had to spend six figures
Speaker 1: to click paperwork when I don't know, unless we're missing something,
Speaker 1: it's like, yeah, it doesn't seem like the guy who
Speaker 1: came up with like a fundamentals based bike he was
Speaker 1: on Game Stop was like the one. He's the one
Speaker 1: who has to anyway. Setting that aside, and it absolutely
Speaker 1: sounds like a nightmare. It does feel like and this
Speaker 1: is something that came up with Kyla and Lily as well.
Speaker 1: It does feel like something's changing here, like some sort
Speaker 1: of disruption in the way research and I guess investment
Speaker 1: communication actually works, if that makes sense. Oh yeah, for sure,
Speaker 1: Like this is in the idea of like crowdsourcing or
Speaker 1: distributed research to find like genuine, genuinely novel ideas like
Speaker 1: I love Twitter, I love finance Twitter, but you know,
Speaker 1: it can get trapped at times into these sort of
Speaker 1: like group think where it's like everyone's all into like
Speaker 1: cloud and text docs and then they had turns and
Speaker 1: everyone hates cloud and text docs and all that stuff,
Speaker 1: and so actually likes amining individual companies and saying, you know,
Speaker 1: here's the thing that a lot of people believe in.
Speaker 1: It may be wrong. Is like it seems like a
Speaker 1: high potential for the Internet to come together on or
Speaker 1: just being able to stress test a thesis, which is
Speaker 1: something that sell side analysts at large banks. I don't
Speaker 1: think they really get a chance to do it. They
Speaker 1: can do it internally, but it's not like they can
Speaker 1: publish a no externally and then ask everyone like, well
Speaker 1: what do you think about it? Well, you know they
Speaker 1: have those ideas dinners, right, and so it's like people
Speaker 1: throw out stuff. They probably argue, but why can't public right? Anyway,
Speaker 1: it was great, Yeah, it's fun shot, all right, should
Speaker 1: we leave it there? Let's leave it there. This has
Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe wi Isn't Though. You can follow me on
Speaker 1: Twitter at The Stalwart. Follow our guest Rod Alsman, He's
Speaker 1: at rod Alsman. Follow our producer Kermen Rodriguez at Carmen Arman.
Speaker 1: Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today,
Speaker 1: and check out all of our podcasts at Bloomberg Onto
Speaker 1: the handle at podcasts. Thanks for listening.