My brother texted me today and asked if he should buy GameStop stock.
I stared at my phone trying to figure out how to compose a text that included a brief summary of efficient markets hypothesis, the effect of global pandemics on the future of retail, the future of gaming when games can be downloaded instantly to a console instead of purchased in store, fundamental analysis on a company whose revenue has dropped by half in the last 5 years, the impact of a potentially coordinated group of retail investors via Reddit possibly engaging in market manipulation to short squeeze a group of institutional investors with significant short interest in the stock, the impact of a different company’s CEO tweeting “Gamestonk!!”, the time value of money on various option trades that exist on the stock, and how all of this fits into my overarching view that active management has been evidentially proven to reduce value.
Instead, I sent him a GIF of Kanye West shrugging his shoulders.
There are a lot of reasons to own GameStop at this point but I’m not sure how many of them can rationally be based on a fundamental analysis of the company’s prospects for growth in the short and near term.
You can own the stock from a technical basis that it is going up based on volume. You can own the stock because you recently got a stimulus check and since casinos are closed you want to do some gambling. You can own the stock out of coordinated spite because you think hedge funds have been ripping off the retail investor and you want to be a part of the movement sticking it back to them.
You can also own the stock because you are a market cap index investor who fundamentally believes that all forms of active management have been shown to reduce returns over the long term. You own the stock because GameStop is a, currently though subject to change, $24 billion dollar company and that represents 0.08% of your domestic portfolio. You have seen the evidence that a handful, literally less than ten, of stocks are responsible for over 90% of your returns and being out of the market for the wrong ten days over a decade materially reduces your return. You have realized you must own all the stocks all the time.
Full Sail Capital is an indirect owner of GameStop through exchange traded funds. We own it in an appropriate proportion of its market capitalization relative to the entire United States stock market.
We will leave it to others with a mandate to try to outperform the market to make the perilous decision about whether to buy or sell GameStop. Frankly, we don’t envy their difficult choice of whether to join the momentum trade that has been so profitable recently or dig in based on the fundamentals and sell or even short the stock. Fortunately for us, the evidence shows that a low-cost, evidence-based approach rooted in the idea that discipline trumps conviction is the best path to wealth creation.
We’ll leave bets to the Redditors and continue to focus on investing money in such a way that grows wealth slowly, but safely, over time.
Matt Levine GameStop Articles