Roaring Kitty and Dogecoin
Roaring Kitty and Doge coin
Gamestop - The best performing Deep Value Play
One of the most recent headline grabbers is the GameStop saga. The stock became a proxy by Reddit wallstreetbet traders to pump up the stock to (wage war) against the supposed faceless hedge fund enemy. As one of the most heavily shorted and illiquid stock (short volume above 100% of available Float), the narrative around Gamestop is not about the fundamental of the company but rather the <mother of all short squeezes> to bankrupt the short sellers.
Privately, I suspect there might be certain huge players orchestrating a pump and dump scheme. This issue is currently being investigated by US congress. There is now widespread coverage of the colorful characters involved such as <Deep F Value / Roaring Kitty, corporate leaders from Reddit / Citadel / Robin hood / Melvin Capital> and most interestingly the absence of important stakeholders such as the members of the DTCC (US clearing house) and stock exchanges which are responsible for the collateral management / trading restriction rules.
Background of Gamestop
The original thesis of Gamestop is a Deep value play based on its property, net cash as well as resalable inventory (second hand games). The stock is heavily battered by the pandemic and reduced human traffic, and the underlying business is sure to face technological obsolescence as gamers switch to online stores / distribution methods to access their needs. This is based on my understanding of the investment style of deep value investing from Michael Burry and Roaring Kitty. This method of investing involve liquidating the investment when a catalyst results in the price appreciating 30-40% or close to its estimated intrinsic value. Deep Value is a relative boring method of investment dedicated to heavily diversified portfolios (against value traps) and the ability to create a catalyst / wait for an event that may/may not happen.
The wallstreetbet cesspool of speculation and rumor mongering turned the deep value stock into a momentum stock resulting in super multibaggers within a month. From my experience in Reddit for Non Gamestop related gaming content, the speculation / dunning Kruger effect is especially strong whereby the herd is usually not that intelligent or great as a whole, but there might be occasional maverick geniuses within the herd that has some superior insight in their area of competence and is able to create / shift metagames in their favor (from Hearthstone, Dota 2, and some other games I follow).
Background of Gamestop
The original thesis of Gamestop is a Deep value play based on its property, net cash as well as resalable inventory (second hand games). The stock is heavily battered by the pandemic and reduced human traffic, and the underlying business is sure to face technological obsolescence as gamers switch to online stores / distribution methods to access their needs. This is based on my understanding of the investment style of deep value investing from Michael Burry and Roaring Kitty. This method of investing involve liquidating the investment when a catalyst results in the price appreciating 30-40% or close to its estimated intrinsic value. Deep Value is a relative boring method of investment dedicated to heavily diversified portfolios (against value traps) and the ability to create a catalyst / wait for an event that may/may not happen.
The wallstreetbet cesspool of speculation and rumor mongering turned the deep value stock into a momentum stock resulting in super multibaggers within a month. From my experience in Reddit for Non Gamestop related gaming content, the speculation / dunning Kruger effect is especially strong whereby the herd is usually not that intelligent or great as a whole, but there might be occasional maverick geniuses within the herd that has some superior insight in their area of competence and is able to create / shift metagames in their favor (from Hearthstone, Dota 2, and some other games I follow).
Most unusually, this concept scaled from discussion of gaming meta-games / mechanics to the stock market. One of the most common reason for a stock price appreciation is simply the concoction of increased stock price, positive reinforcement effects with self congratulatory messages / up-votes, price confirmation bias, herding behaviour, FOMO and dunning Kruger effect which create a spectacular Lollapalooza momentum effect.
Such Price Much Wow
Dogecoin - The best performing Meme Proxy
The recently spike in Dogecoin recently prompted some of my friends to discuss with me about some of the Altcoins they hold. Personally, I have investigated (with limited technical insight) on bitcoin and Dogecoin 3 years ago and decided to stay away from it due to my lack of knowledge on it. I am unable to independently estimate an intrinsic value on it and decide to stay away from it but monitor the embedded key technologies with a keen interest.
My feeble analysis of Bitcoin
My original thesis of Bitcoin three years ago is that is a mediocre currency / transaction medium due to its technological limitations to scale transaction volume up, mediocre transaction processing speed making it a poor substitute for payment networks (compared to Visa), relatively illiquid to replace cash, has an unstable store of value, and not sufficiently accessible by most vendors to be a valid replacement for cash. Moving forward 3 years later, there are alt-coins like bitcash to work around technological limitations of bitcoin protocols, US tax treatment dictates it under commodity and exempt from capital gain tax, major financial institutes are accepting crypto custody services / trading as a revenue stream to earn trading commission, and QE00 ignited heavy retail interest as alternative asset classes for a store of value (Combined with choice supportive bias by certain US companies and Elon Musk). My current best interpretation of cryptos is that they are unique seashells / collectibles with no actual intrinsic value, but there might be periods of ignited interest that might spike up the price as it becomes the trade of the month.
The recently spike in Dogecoin recently prompted some of my friends to discuss with me about some of the Altcoins they hold. Personally, I have investigated (with limited technical insight) on bitcoin and Dogecoin 3 years ago and decided to stay away from it due to my lack of knowledge on it. I am unable to independently estimate an intrinsic value on it and decide to stay away from it but monitor the embedded key technologies with a keen interest.
My feeble analysis of Bitcoin
My original thesis of Bitcoin three years ago is that is a mediocre currency / transaction medium due to its technological limitations to scale transaction volume up, mediocre transaction processing speed making it a poor substitute for payment networks (compared to Visa), relatively illiquid to replace cash, has an unstable store of value, and not sufficiently accessible by most vendors to be a valid replacement for cash. Moving forward 3 years later, there are alt-coins like bitcash to work around technological limitations of bitcoin protocols, US tax treatment dictates it under commodity and exempt from capital gain tax, major financial institutes are accepting crypto custody services / trading as a revenue stream to earn trading commission, and QE00 ignited heavy retail interest as alternative asset classes for a store of value (Combined with choice supportive bias by certain US companies and Elon Musk). My current best interpretation of cryptos is that they are unique seashells / collectibles with no actual intrinsic value, but there might be periods of ignited interest that might spike up the price as it becomes the trade of the month.
Personally, I believe the Lindy effect (espoused by Nicholas Taleb) could feasibly catapult this alternative instrument if it can hold its value / narrative over substantial periods (5-10 years time). I have seen prominent value investors changing their analytical framework as they continue to under-perform the SandP for a decade. As overvalued stocks like Amazon continue to become more overvalued over decades and actually grew to its valuation, certain investors simply changed their Geiger counters and adopted qualitative and alternative metrics to justify their buy positions in Amazon. Similarly, recent attempts to collate news to estimate the Half life of the supply side of cryptos to estimate the sentiment of the stock, could be a new form of technical analysis exclusive to the crypto asset class.
My feeble analysis of Dogecoin
Unlike Bitcoin which has some scarcity value, whereby the price can be moved by supply side news, Dogecoin is the best performing <Meme> which has no algorithmically set limit on the supply of the meme, but merely the rate of production. Any traders of this <memes> are simply at the mercy of the faceless guy whom originated the algo rules behind it. I suspect there will eventually be investigation into this practice when investors whom lost money launch a class action lawsuit <securities fraud> against the proponents / supporters of the stock whom talked the stock up.
My feeble analysis of Dogecoin
Unlike Bitcoin which has some scarcity value, whereby the price can be moved by supply side news, Dogecoin is the best performing <Meme> which has no algorithmically set limit on the supply of the meme, but merely the rate of production. Any traders of this <memes> are simply at the mercy of the faceless guy whom originated the algo rules behind it. I suspect there will eventually be investigation into this practice when investors whom lost money launch a class action lawsuit <securities fraud> against the proponents / supporters of the stock whom talked the stock up.
The era of wanton speculation
To protect my portfolio from FOMO / speculative behaviour and possible human bias, I will continue to do the following as the end of the month approaches
1) Uninstalling the broker app on my smartphone to reduce accessibility to the trading platform, and fall into the retail trader trap of itchy finger syndrome.
2) Taking more time to pour through the CFA curriculum. Although much of the content is kind of theoretical and not useful for the practitioner investor, I shall endeavor to put in my best effort until exam day, get my results, and decide if I want to continue with it.
3) Expanding my watch-list of stocks as I accumulate cash for next market crash
I also made the move to exclude certain stocks in my watch-list that has rubber stamp board of directors with noticeable poor corporate governance, questionable capital allocation, and eventual possibility of engaging in lawsuits involving securities manipulation.
Hi Caveat Emptor,
ReplyDeleteCurious, "noticeable poor corporate governance" how do you spot that?
Hi RainbowCoin
ReplyDeleteI mainly regard corporate governance as self imposed discipline from key managers to take actions to align their circumstances with shareholders and not abuse them. Most board of directors have very little power to influence matters. There can be companies which rank highly on CG yet run their business poorly, and companies with great economics but lousy CG.
I will try to look for managers with a strong track record of execution, honest character with shareholder-manager alignment (huge personal stake in shares) . This can be gleaned through interviews or attending AGMs, Glassdoor reviews, scuttlebutt through contacts / vendors of the company to gauge their personality and character.
I will try to avoid companies with below charateristics.
1) Promotional and megalonaic CEOs whom like to use buzzwords to talk up the stock. Rewarded with short term share options which create the incentive to play accounting games. And little skin in the game / actual equity holdings.
2) Managers which are unfocused and divorced from the core business, with diwosification and empire building tendencies.
3) Displayed tendencies to freely use shareholder funds to acquire questionable assets / perks for the managers without opposition from a (rubber stamp) Board of directors
4) Continual share dilution of the shareholders to raise funds to run the business. Instead of being self sufficient from cash flow from operations.
5) Heavy use of legal legalese in the annual report / quarter earnings, and promote the use of creative metrics to attempt to puff up numbers to mislead shareholders.