What Are Your Thoughts On?

Like a lot of other people, I shorted GameStop in 2012. At one point that year, shorts controlled 75% of the float! But the stock went on a crazy sick run from August to November, gaining 250% and forcing a lot of people like myself to cover.

I don’t remember exactly where I sold and covered, but I didn’t take a big loss. I was actually quite good at taking small losses; My problem was I also took a lot of small gains. Quoting Jesse Livermore is easy, letting your winners run is hard.

I also don’t remember exactly what my thesis (lol) was, but I was probably thinking the internet would be disruptive to their business. Who wants to go into a physical store when you can just buy the game online? Apparently a lot of people. GameStop has done over $8 billion in revenue for each of the last five years.

And over this time, it’s business has defended itself okay against any outside assaults, with its gross margins holding up pretty well.

The problem is GameStop isn’t growing anymore, its net income in 2017 was the same as it was in 2014. It’s stock isn’t growing either, in fact, it has gotten clobbered. It’s now more than 70% off its highs.

I’m guessing this company’s best days are behind it, but has the stock already discounted all of that? Or maybe it hasn’t discounted it enough? Impossible to know.

The stock is trading at .15x sales, and 4x earnings. Yes there is hair on it. Yes it’s future is uncertain. And yes, value investing is hard. After all, stocks don’t get cheap because everybody loves them. But even a bad company (I’m not saying GameStop is a bad company, I have no idea) can be a good investment at a cheap enough price. The tough part is knowing when that point is.

Josh and I hit on GameStop and many other topics in the video below. Please subscribe if you like it, and excuse my appearance.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.