It was past midnight and after turning repeatedly on my bed for some time, unable to fall asleep, I decided to finally share my view on the GameStop frenzy. As I often do with some of my ideas, I created a thread on Twitter. Still unable to fall asleep, I decided to make it a blog post.

GameStop‘s share price is up. Now what?

Based on current fundamentals, the company is unlikely to ever be able to generate enough cash flows in the future to justify its current price or around $328 per share. Not unless it issues new shares to take advantage of the current share price level, and somehow figures out a way to invest this new „free cash” in an entirely different business that turns out to be extremely successful.

As a Director at this company, assuming the US SEC would not come after me for taking advantage of the current market madness by issuing new shares, this is probably what I would do.

However, even that would require way too many decisions to go their way for it to be a successful strategy – what new business should they go into? how profitable would this new business need to be to produce returns that are high enough to justify the current share price? etc. Hence, it is very unlikely that GameStop will ever justify its current share price.

In fact, I will go out on a limb here and assume that the US SEC rules will not allow them issue new shares at the moment.

At the moment, SameStop’s shareholders include three broad categories of investors – institutional investors, knowledgeable retail investors, and retain investors who have no idea how markets work.

So, the question is: What happens when institutional investors and knowledgeable retail investors decide to end the charade and sell off all of their holdings, to realize the profits that they have made so far?

Let us make the unlikely assumption that at this point, there would still be some interest from the less knowledgeable retail investors, and that the supply from this sell-off would not cause the prices to go down significantly. What happens next?

Do people realize that it is the unsuspecting public – mostly inexperienced investors – who will be left holding these extremely expensive shares, when the market eventually comes to its senses?

Institutional investors have the resources (time and technology) to execute trades more efficiently than the other two categories. Many of them will know when the market is about to move and will very likely be able to forerun the knowledgeable retail investor group, who in-turn will forerun the unknowledgeable retail investor group. Some of the knowledgeable retail investors may already have prearranged stop-loss orders. However, stop-loss orders can only stop so much losses when the market (or a single stock) is crashing.

That leaves the masses – the relatively inexperiences retain investor group – to bear the brunt of the madness. They would have paid top dollars for a security that is destined to lose at least 90% of its value in the short to medium term.

Is this really a fight / protest against „the establishment“? is this really Main Street vs. Wall Street? Or is this just a group of people, who somehow managed to build a community, deciding to take advantage of their numbers for profit? With no regard for the masses who will very likely end up losing a lot of their savings?

Yes, one or two hedge funds lost money, but as reported by Reuters institutional investors and hedge funds have also made a lot of money from the GameStop rally.

So is this really Main Street vs. Wall Street? Or is it Main Street vs. Lower Main Street?

This is akin to a ponzi scheme – even those who „cash-out“ early are actively contributing to the loss that those who end up losing their money will ultimately suffer.

As I often say, good investment strategies are mostly boring. If you are an individual / retail investor, you have a significantly better chance of capital preservation, accumulation and appreciation following a boring and consistent investment policy / approach. Choose boring!