…..AND What they said when he started the GME thing.
Who started this GameStop madness? A Reddit user by the name u/deepfuckingvalue is the first known Redditor to pile into that trade. He opened his position in June 2019. One and half years later, it's a frenzy, a wild and mad rally.
For any normal person, this trade doesn't make sense at all and has never made sense. But for this guy, the trade makes a lot of sense. He has continued to hold for such a long period.
As his username says, he is a Value investor (the same worldview as Warren Buffet). But he goes further, he is a Deep Value Investor. Deep Value investing is a concept developed by Benjamin Graham, who wrote the first book on security analysis and is the investing father of fellas like Warren Buffet and Charlie Munger.
Deep Value is a quantitative investing strategy whereby the investor finds the cheapest stocks in a universe of stocks, based on their valuation multiple. Deep Value is essentially going a lot deeper than simple value investing. Its extremism.
So, this fella inserted “fucking” in-between “Deep Value” as a swear word to show his conviction in the value investing school of thought. What we have here is a modern version of a Warren Buffet. A Reddit version with all the profanity. His conviction also shows in the way he kept adding more to his position especially when the share price was down, and he was losing money.
Contrary to what the mainstream media says, the GameStop frenzy was not started by some clueless kids playing in the adult arena of investing. It was not started by a speculator wishing to make money from a short squeeze. A deep value investor started it. A good one for that matter. The short squeeze was just an extra-curricular benefit, a positive by-product of astute value investing.
For a long period of time:
- Fellow Reddit users mocked u/deepfuckingvalue for what appeared to be a silly investment.
- Hedge Funds piled into GME short positions because going long appeared to be as stupid as it can get.
- GameStop is a dying retail shop.
- Its share price should trend downwards until the company files for bankruptcy.
- GameStop is a dying retail shop, but it won't die faster than we think it is. It will be around for a few more years and will be profitable for those years.
- The share price has been oversold. The company should be able to create some value for a while.
Summary of u/deepfuckingvalue’s thesis on GME
I went through the older Reddit sub-threads to get a glimpse of his thesis. His baseline response has been a very consistent sentence.
“ The fact that it’s worth quite a bit more than the prevailing Share Price and there are numerous catalysts that could trigger a reversion to fair value over the next 12 months”
And boy, he was right. The company’s value was evidently worth more at that time, the catalysts that triggered a mean reversion occurred within 12 months and now it's trading way above its fair value.
The thread presented in the picture below paints a picture of someone who had done his homework.
The pivot points in the above thread are better presented in bullet points that summarize his thesis.
- Aggressive share repurchases — if a company is buying back its shares, it is reducing the number of outstanding shares, so the share price should go up. It was there for all to see, but nobody wanted to see it. We all wanted to see the company go into bankruptcy.
- Sentiment analysis of the Conference Calls— this fella had done a sentiment analysis of the company’s conference calls which reads into the mood (upswing or downswing) portrayed by the management of the company. Management knows more than what investors do, and they send signals via conference calls. This fella’s thesis was that management had a positive sentiment regarding near term prospects and had an executable plan (around migrating to online sales).
- The decision to sell corporate jets — signaled a commitment to cutting costs, which should result in higher earnings and a higher share price.
- Revaluation of Inventory — to a lower value now traded in for a higher revaluation on the next reporting season. How it works is like this, let's say you have $1 billion in inventory, you revalue that inventory to $ 700m, thus writing a loss of $300m now. This should drive earnings down as well as the share price. In the next reporting period, you revalue the inventory again, upward from $700m back to $1 billion. This should drive up your earnings and share price.
- Share buybacks at discounted prices — this is also connected to the above point regarding inventory revaluations. Of course, management was buying back shares at the dip (when they wrote-down inventory) further compressing the spring for an eventual upshoot in the share price.
- Product Analysis — product life cycle of the current console and the impact of the next-generation console.
- Quality of Management Estimates — Figuring that the sales of the next-gen console have not yet been priced-in by the markets and management had not yet factored these in forecasts/estimates.
The 7 points above are only taken from that brief chat. He obviously had thoroughly researched this thing and had built a compelling case for a high price target. At some point, he deemed the fair value of the share to be above $12 when it was trading between $3.50 and $4.50. This is value investing at its best.
What did the world of investing say to him? The hedge funds did not say anything to him in writing, but they shorted GME massively. The Reddit world of investing specifically thought he was mad for a very long time until he was proven to be a genius and then they started piling-in on the trade.
What they said when u/DeepFuckingValue was starting this GME thing.
u/j1187064: Remind Me! if this stupid fuck lost it all in 1 week.
u/lovetofuckmarriedwomen: Why would anyone play GME IS BEYOND ME. I mean it’s a fucken 3rd party middle man game Seller or What FUCKEN TECH OR INNOVATIONS THEY FUCKEN HAVE ??? That other retailers don’t !!!!
u/LogicalFaith : oh young grasshopper. You are most if not all the volume at $8 for GME. Please liquidate asap. Warning to newbs. NEVER be majority of volume. Think about liquidation. He’s made $0 and in serious RED. Look at Purchase price vs bid. No one is willing to pay close to purchase price.
u/okgenxer : Oh no child what is you doing
u/Not_reddits: You honestly have a better chance playing roulette.
u/LincolnAtTheTheatre: Damn, you’re really determined to make that money disappear. Props.
u/brutalpancake, I am Tarriff-fied: Dude just…wtf. So many names to be long on and you do this. They cut EPS guidance by 90%. What the hell is your bull thesis here? Edit: I think this guy is rich and he’s doing this just to fuck with us.
u/jgalt5042: Sell ASAP. Why would anyone Long this flaming dumpster fire.
u/satago: I think these options could be worth a lot soon. I think he is posting to let you get your final digs in before he gets the last laugh. I’ve never traded options before but if I knew how/felt comfortable with it, I’d be buying the same.
u/reddit1280819: You fucking retard everyone told you to sell when you were up 121k. I hope you get out of this in one piece.
gferguson520: Please, do yourself a solid…..read their fundamentals and tell me how they are profitable.
kms1990: Good trade, you just mis-clicked, supposed to buy puts.
u/brutalpancake: To have an opinion on whether OP is right or not is to miss the point entirely. He is what the future is made of. One way or another, he will bury all of us. He is a man of focus, commitment, sheer fucking will. (sorry I couldn’t find the gif) p.s. how much more of what did you add today? Just curious.
u/WallStreetBitch: Whenever I’m having a bad day, I can always find comfort in knowing someone out there is balls deep long GME.
u/mojitomannen: You are fucking retarded. You probably short tsla too. Long gm? Jesus! Gm and Ford are going bankrupt in the coming decade. Edit:: looks like I’m the retarded one.
u/BenFrankLynn: You have gained +5 retardation. Your retardation level has reached 100.
u/ArcticGold: I dunno if I should throw in $2k to just follow u. This is some strong conviction if u are throwing money at it like this. Either a complete degenerate or another legend.
The above comments were before the short squeeze started to slowly build-up in Feb 2020. Obviously, from then the gains started building up and comments became more positive.
Read his full thread here.
The guy has balls of steel. He is a value investor. He is a Deep Value investor. And he is now enjoying the fun, squeezing the shorts to the limit.
For me, this is what heroes are made of.