The first true meme stock was GameStop, which went wild in early 2021, delivering brutal losses to short sellers, and a fortune to a handful of independent retail investors who participated in the squeeze. The episode shined a bright light on the WallStreetBets subreddit and the power of social media in disseminating trade ideas. One investor who did well was Rod Alzmann, who had been long GameStop for years as a value/turnaround play. On this episode of the podcast, we speak with Rod, the founder of Wook Capital and the proprietor GMEdd.com. We discuss where the company is now and what happened to the cohort of traders who scored big during that episode. Transcripts have been lightly edited for clarity.
Points of interest in the pod:
Rod’s pre-2021 bull case for GameStop — 04:48
What was the pre-2021 bear case for GameStop — 08:02
On GameStop’s diversification efforts under Ryan Cohen — 14:03
What happened to RoaringKitty and other GME traders? — 19.25
On being subpoenaed by the SEC — 20:11
Market manipulation and transparency — 22:46
The meme stock cultists — 30:05
What is Wook Capital? — 32:26
What comes next at GameStop — 39:47
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Joe Weisenthal: (00:11)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:16)
And I'm Tracy Alloway.
Joe: (00:17)
You know, Tracy, we talked recently about the aftermath of the meme stock mania, but even within the meme stock mania, there were some stories specifically that were just really extraordinary and worth revisiting.
Tracy: (00:30)
Oh, absolutely. I mean, each one of those individual sort of stonks was fascinating to watch, but among them all, I feel like GameStop has to -- that one has to stand out because that's where it started.
Joe: (00:43)
So the two big ones were, I think GameStop and AMC. I mean, there were others, but those were like the two big ones. And I have to say, my heart was always a little bit more with the GameStop one, because…
Tracy:
Really?
Joe:
Yeah, absolutely. Because I always thought like, well, there was at least this sort of, there was a thesis that had long proceeded the boom. There was a catalyst with the stake held by Ryan Cohen, the Chewy founder. AMC, it was just like a little too nihilistic for my taste.
Tracy: (01:13)
Well now, first of all, Ryan Cohen came in kind of late. I would say to, you know, after a lot of this had already happened. But I was always partial to AMC just because I really like going to the movies. I like that people were throwing money at it at a time when it wasn't really clear if it was gonna survive. Whereas GameStop, GameStop just seemed like another brick and mortar video game retailer.
Joe: (01:35)
Right. But, okay, we're gonna keep arguing about this. But with GameStop, there was like a crew of people who, I mean the AMC thing sort of came out with nowhere. So all through 2020, long before the spike and January and February of 2021, there was a community of people putting together this idea that there was something -- that the market misunderstood GameStop. That the market viewed this as a brick and mortar retailer in terminal decline, an eventual zero. And at least there was some contingent of people who A) thought it wasn't going to be that. And B) the whole sort of short squeeze engineered on WallStreetBets was like a GameStop thesis originally. The famous post was about, there is an opportunity in GameStop specifically.
Tracy: (02:18)
I remember having this argument with you last year which was, was it purely a technical squeeze or was there some sort of fundamental bull story in embedded in GameStop? And I mean, I gotta say so obviously the share price has come down quite a lot since early 2021. However, looking at it now it's still above a hundred dollars per share. It's almost $130 per share, compared to around like $15 when we started. So even if it was a technical squeeze, something has changed and someone in the market clearly sees more value there.
Joe: (02:54)
So in the summer of 2020, it was like a $5 stock. Then it rocketed to like $350. So 70 bagger in a few months, it has come way down, but it's still at $126, so well ahead of where it was pre squeeze. So the question is like, what's going on? Is there something real? Did it actually happen? And what all happened to GameStop?
Tracy: (03:13)
Right. And how did the meme stock frenzy actually feed into that? Did it actually have a fundamental impact on the company, the health of the company itself?
Joe: (03:22)
Right. So today we are going to be revisiting GameStop, and we are going to have a guest back who we had on in early 2021 last time. But also he was one of the true GameStop longs. He didn't just come in at the peak, like, you know, he didn’t just ape into it. He had a thesis, he was a bull. He argued for many months that it was a misunderstood stock and he made a lot of money. And, we are gonna revisit the GameStop story. We're gonna be speaking with Rod Alzmann, who is the managing director of Wook Capital. And he is the co-founder of GMEdd.com, which sort of has long cataloged the long GameStop thesis. So Rod thank you so much for coming back on Odd Lots!
Rod Alzmann: (04:05)
Thanks for having me back. A lot less stressful recording it today than when we recorded it at the peak of the mania.
Joe: (04:11)
Those were a wild times, because I think we recorded an episode and news broke in the middle or like, you know, we were talking to you, right. We were talking to you and something happened in the middle of the conversation and it was like, it moved 50%. I don't remember what it was because that time was so crazy. But those were fun times. Those were, right.? I mean, it was stressful, but it was fun. Right?
Rod: (04:31)
Both. All of the above
Tracy: (04:34)
Maybe maybe just to begin with, you could give us, just remind us, what was it about GameStop that you thought was misunderstood before early 2021 -- before all of this happened?
Rod: (04:48)
Yeah, Tracy, I’ll kind of rehash and summarize my experience with the company. So, you know, Joe said months, it was years for me. I had begun accumulating a position in late 2017. I perceived the company as a value play at that point in time, I thought that there was plenty of opportunity for them to generate cash flow both in the near term and through the next video game cycle, which was still a few years out. At that point, I was very early the stock, a lot happened from an activist perspective in the stock between 2018 and 2020. Tiger Management wrote the company a letter encouraging they do a strategic review. They ended up selling off their cell phone retail business that they had bought. That was their attempted means to diversify away from physical gaming. It was a poor decision earned some capital that way, but regardless, they almost sold the company to Apollo or Sycamore, Bloomberg and Wall Street Journal reported in late 2018, early 2019 that fell through, they didn't sell the company.
It was 16 bucks a share at the beginning of 2019. New management team comes in and they slash the dividend to zero. Long story short by August of 2019, the stock has fallen down to about three bucks from $16. That's the time that I think a lot more people became aware of this idea that it's not just in terminal decline or at least there's enough opportunity at $3 per share to get a reasonable rate of return. Michael Burry wrote the board a letter and they had an authorization effectively that they could repurchase 80% of the shares outstanding with their existing cash on hand. So like when people actually look at the balance sheet, it just didn't make any sense the way that the market was pricing. And I think it was some forced selling from when they slashed the dividend to zero, blah, blah, blah, fast forward us into 2020.
We all know that Covid then happened. And then we get to August of 2020 when Ryan Cohen files his first 13D and that's when things just go into hyperdrive. And a lot happened between August of 2020, right, and January of 2021. But there were points at which the company had a net cash position of five bucks a share on its balance sheet and it was trading at three bucks a share. So it's, you know, you had sell-side analysts putting a price target of $1.60, stuff that just didn't make any sense to me at least. Clearly it made sense to some people. And then of course you can't talk about it without discussing the fact that, you know, there was a very large short position in the stock that that was correct for many years, right? Melvin Capital is the most well-known who initiated the short in 2014. Obviously we could, I'd love to talk about disclosure through this conversation a little bit, but we know that they were up, you know, 90%+, but for whatever reason, they felt that their risk reward was worthwhile to keep the short on even when the stock traded at a meaningful discount to net cash and the rest is history.
Tracy: (07:48)
So you mentioned the analyst price targets there. And I mean, even now a lot of people are quite bearish on the stock, but what was the bear case here? What was it that people thought GameStop was getting wrong?
Rod: (08:02)
I think the simple bear case was that by virtue of being primarily a purveyor of physical video game software products, and specifically used products to drive the bulk of their gross margin, as those profit streams evaporate the bears would argue more quickly than I think the bulls, that as that disappears, there's simply no way to replace that lost profit. And it will be structurally incapable of generating meaningful profits into the future. I do think that they missed what happened in 2019. You know, we talked about it last time that Tae Kim interviewed Mike Burry in 2019 talking about the fact that the Xbox Series X, the PlayStation 5 will have disc drives and inherently I think his perception, my perception was they have at least one more cycle that they'll have meaningful physical video game sales.
And even as that pie continues to shrink for the physical portion, there's still an opportunity for them to generate meaningful free cash into, you know, late 2020s when the next video game cycle comes around. And who knows, right, if the next Xbox or PlayStation will have a disc drive? But in 2019, it was made clear that they would, I think bears felt like consumer demand for digital would be far larger than physical. Though, if you look at the production numbers, and I think everything that I've seen reported is that the mix of physical, for example, PlayStation, I've seen anywhere from 75% to 80% of the actual consoles are the physical consoles as opposed to the digital only console without a drive. So not that everyone buying those physical consoles only buys physical discs, but that optionality, and there is real value there. You know, if you buy a game for 60 bucks and you decide, I don't love it. Well, if you paid for a digital download, you have no residual value, whereas you could otherwise sell it back, trade it in, have some economic value there.
Joe: (09:54)
That's interesting. I hadn't thought about that. So in theory, like part of the turnaround plan, and we're gonna get to like what, what Ryan Cohen and management have done over the last year and a half, but, you know, in theory, part of the turnaround plan is, okay, they're gonna get into NFTs and digital and be something more than a brick and mortar retailer. But the argument that you're making is that people just mistakenly assumed brick and mortar physical CDs were zero. Because, you know, that's just what everyone assumes these days. But when you look at actual gamer behavior, what they're actually spending, how they're spending, where they're buying, that was just a mistaken assumption. Is that a mistaken assumption still? Like, what is the value of just sort of the good old fashioned GameStop, walk into a strip mall location and buy a disc?
Rod: (10:43)
If you think about on its face, why is there any value to buy it from them versus anyone else? And there isn't. That said my experience and from my research experience of most consumers who engage with them is that, look, why is there any specialty retail, right? Why doesn't Amazon and Walmart and Target split the entire market? Well, in GameStop’s case the finding, or at least what the company reported, I think it was in 2019 on one of the calls, they disclosed that physical game products or gaming products, they sold at a two X attach rate to the big box retailers, the generalists and accessories they sold at a three X attach rate. So in this era of direct to consumer, right, if you're a Sony or Microsoft, sure, you'd prefer to own the direct consumer relationship and sell without even giving any cut of the margin to the retailer.
But in the case of GameStop from that, you know, from that distribution angle, they're the best distributor that the supplier could have asked for. And I think that part of that was evidenced by the Microsoft strategic agreement that happened in October of 2020 wherein basically they indicated that there would be GameStop taking a cut of all incremental sales that occur on hardware sold from GameStop. So if GameStop sells you the Xbox Series X and you go and download games on it, GameStop's gonna get some undisclosed small portion of those incremental sales. So that was a big thing to me, and I think a lot of other investors, because it implied well, these distributors and suppliers see value in GameStop. Obviously for the customer to see value, it needs to be a differentiated experience, whether that's the customer service angle, you know, if you walk into most GameStops, most of the employees in those stores are pretty hardcore video gamers. They may have a different niche, you know, employee by employee, but you get insight into different games that you might not have otherwise been familiar with. Whereas you go to a Walmart and, you know, it's behind lock and key. You need to grab some random employee if you want to hit the game, they don't know anything about gaming. So that specialty experience, I think, is the differentiator and was evidenced by their ability to drive incremental attachment.
Tracy: (13:00)
So why don't we fast forward a little bit and talk about what's happened since then. And, you know, we talked about Ryan Cohen, he became chairman. I think it was late last year. Was that right? Something like that. Or maybe it was the summer. Okay. So he becomes chairman and he starts putting in place all these different ways to increase GameStop’s business. And some of the stuff he's been doing, you know, things like starting an NFT marketplace, stuff like that, it seems a little bit different to the original GameStop mission or bread and butter business. And I'm curious what you actually think of that, like you had a bull case based on GameStop being a video game retailer, and thinking that it could grab a decent slice of the digital market or at least more of it. And that there would still be demand for physical games and people would wanna go into a store where the customer salespeople actually know video gaming and stuff like that. What do you think about these diversification efforts and does that change the nature of the business in your view?
Rod: (14:03)
So we put out in January the accumulated sum total of all myself and a cohort of other investors who were maniacally focused on this company for most of 2020, especially after Cohen became involved. You know, we, we put out a report with a, you know, $169.42 cent bull case price target, which obviously was half meme but was underpinned by real analysis. One of the piece of analysis we got wrong was we perceived there was value for an advertising technology-oriented business. They have tens of millions of customers. They have access to reams of consumer data on gaming preferences. And our view at the time was, I had begun seeing them integrate targeted advertisements on their web platform, I thought that was the angle they were going in. And maybe it was the angle the prior management team was going. They haven't gone that angle, but I think at its core, the value is tapping into the fact that look, I'm looking at the proxy statement.
And what they say is that we have a unique opportunity to be a conduit between developers, publishers, and consumers as gaming shifts from consoles to the metaverse and other frontiers. And that was really the core of my view was that GameStop was that physical nexus of gaming and that they can play into digital and play into this shift. And that they're not necessarily DOA. The direction Cohen went, you know, Tracy, he had the settlement in early January of 2021 where it had looked like it was going to become a proxy fight. There had been previous proxy fights with the company over the proceeding year – a successful proxy campaign. So it looked like Cohen was going that route. There was instead of settlement, I think because, you know, look, I collected 4% of shares outstanding and sent him a letter on behalf of those, you know, retail shareholders who those 4% shares reflected and said, you have our support if it comes to this years' proxy fight. So I'm sure he had accumulated shares from others. You know, in the intro, Joe, you mentioned, I now am at Wook Capital and Wook Capital was specifically formed as a byproduct of really the core work that went into this crowdsourcing of the investment thesis. And John Kim -- John's the CIO at Wook,, the founder -- John had owned 1% of GameStop and been the largest contributor to that 4%. John had had that opportunity to meet with Ryan in December of 2020 and hear his vision. So I think that the people who really did the legwork understood there wasn't just some scheme that the guy cooked up out of the blue. He had a vision, you know, clearly I knew nothing about blockchain and crypto, other than just what I read. I was not an active participant in the blockchain or crypto ecosystems.
I had never bought any crypto until very recently, I've begun dabbling in NFT, but that does seem logical, right? If its creators, gamers are consuming this, it's a $41 billion addressable market, we can argue how sustainable that is. It's very logical to me that they've gone that route as their digital growth strategy, and that's underpinned by them really doubling down on making their existing business better. They hadn't done any investment really into like digital systems, their website, their mobile app. eFulfillment. They’ve made multiple eFulfillment network investments over the last year. They’ve improved their service. If you think about Chewy, people know them for, you know, chewy will send pet owners a ‘happy birthday’ when it's the pet owner's birthday. I'm seeing now GameStop doing a lot more of that customer engagement during interactions in the GME Discord server.
I see a lot of people sharing different examples of their own experience. So there's definitely been a change in the customer experience with that top down view from Cohen. He became chairman in March, I believe it was. So the first reporting of anything NFT-related was from GMEDD and it was in April of 2021. So this is not stuff that they've just pulled out of the blue. They've been working on it for quite some time now. They've committed to bringing the marketplace to bear by the end of the fiscal second quarter. So the end of July, you know, a lot's happening behind the scenes. And I think the people are so focused on just staring at the current financial statements, which, you know, the company's shifted its strategy, forsaking margin at the expense of regaining customers back into their ecosystem for long term growth.
And I think, you know, Covid happened. So our initial estimates were certainly impacted there. Digital is being adopted more quickly. It seems it'll remain to be seen if what happens is 2022 keeps rolling along and normalization keeps occurring, but no, there's a lot to unpack there. And, you know, we've done our best to try and be objective with it. Most of the people in GMEDD don't have a meaningful ownership stake in GameStop. It's just a passion project and we just feel like it's been so misrepresented in media. It was so misrepresented from the analyst angle for so long that we were just doing our best to present what we thought was a mostly unbiased view.
Joe: (19:25)
So I just want to pivot just a little bit, because you mentioned that some of the money that was in the original GameStop trade has become part of Wook Capital, your current project you talked about, you know, there's still the GMEDD Discord. And of course, these are some of the topics recently t alked about them with Lily, Frank and Kyla Scanlon, but it's like this cohort of GameStop traders — where are they now? I mean, you know, Roaring Kitty, where is everyone? And not just the big names like yourself and Keith Gill, but so many of the people who got excited about the trade, like what's the distribution, how many of them are still trading? How many of them lost interest in the market? Where's that crew now?
Rod: (20:11)
I know you'd love to get a really clean answer, but it really is all over the spectrum. In terms of, you know, Keith Gill, I haven't had an opportunity to speak with him since January. You know, regrettably, I'm certain he's been facing his own share of legal reasons for which he hasn't. And look, I'll say it aloud and I know I would be advised not to, but it was just about a year ago, I was subpoenaed from SEC pertaining to my involvement. It was this massively broad-based subpoena asking for everything I'd ever said to anyone about GameStop for, you know, more than 12 months of history. And when you think about, literally my life, my second job was researching GameStop. Yeah. It was a massive cost just to try and accumulate all of the documents, ended up having to say, look, it would, it would cost me hundreds of thousands of dollars to do what you're asking.
You can go to the sources themselves, if you would like it. I did incur meaningful expense that breached six figures, which was more than my, you know, net worth before I entered the trade. Thank goodness I made money. And I think that, you know, is a good example of where you see these politically motivated investigations that have, you know, I think been misdirected towards small passionate investors who, in my opinion, didn't do anything wrong. I know that there are some people who had malintent, right? You could obviously point to the WallStreetBets folks saying things like, yeah, squeeze the shorts. Well, obviously that's not an investment thesis. So with regard to Keith, I haven't spoken to him, to Roaring Kitty, to DFV, and I'm sure he's incurred expense comparable/in excess of mine, but I know, you know, Michael Burry disclosed he was subpoenaed as well. Which, it's like why? If the guy got out of the trade in the fourth quarter he wasn't involved. So, you know, it's like, what is SEC focusing on there?
Tracy: (22:03)
So, I mean, just interrupt you. So first of all, I hate paperwork and you know, something like that is my biggest nightmare. And so you have my utmost sympathy because I can only imagine what that's like, but secondly, you know, this is sort of tangentially related, but this week we saw Bill Huang, the Archegos founder charged with market manipulation. And there was a lot of talk in there about purposefully squeezing the stock higher. And some people saw parallels between that and GameStop. So I guess my I'm just curious what you thought about that. Does it seem like the SEC is cracking down on basically gamma squeezes?
Rod: (22:46)
I'm not sure about that. Like, here's how I would characterize the things that are wrong with, with what happened with Archegos and let’s say Melvin Capital. You have a lack of transparency in the market. It is unacceptable to me that Archegos was able to accumulate ownership or at least economic ownership stakes of more than 50% of discovery of discovery of …
Tracy: (23:12)
GSX I think was.
Rod: (23:13)
GSX, whatever that renamed now, but the fact that he was able to accumulate those with swaps, you know, that is clearly a failing on the side of the disclosure rules for longs. But I would counter that the fact that Melvin Capital had more than a third of GameStop’s shares short and had no disclosure obligation. Obviously people parsed together with their puts that they disclosed, would show up in their 13F, you know, the short shares were not showing up. I don't know for certain, I've come to the conclusion, it was somewhere around 20 to 25 million shares, plus the puts, which would be, if you add those together, it's, you know, you're getting close to half the shares outstanding that Melvin Capital themselves were short. So on both ends of the spectrum, it's unacceptable. That disclosure would be so limited that people in the market don't understand that these massive multi-billion dollar forces are pushing prices and impacting stocks.
So I think that there's issues with that. And then there is an issue, it's unacceptable if there's a discord chat, a WallStreetBets chat somewhere that's your thesis is that I can push a price as opposed to, I see a fundamental reason for this business. And obviously the world of crypto is completely Wild West, where it's mostly just pump and dumps and rug pulls and scams like that. And I think that the conversation you all had with Matt and SBF the other day, talking about the box kind of, you know, highlights that, but there's a lot that's wrong. Obviously I feel aggrieved about how I was part of, you know, what SEC opted to investigate. And as far as I know, they've still not put any sort of report out or gone after anyone. I'm sure there could be something to come on that, hopefully they don't come back after me for saying this, but yes, it's unacceptable that people would try and manufacture price distortions on both the long and the short side. And I think that is market manipulation.
Joe: (25:12)
It feels though, you know, it's one thing, okay, if you're a hedge fund, you have certain rules in place in theory about things, you know, requirements, and maybe there should be more requirements about what you have to disclose if you're short. But here's a regulated entity, a group of people -- just to play devil's advocate – or something like, I don't even know how you would conceptualize an equivalent for people meeting on a message board or people meeting on a Discord or in the comments of a WallStreetBets post, just sort of organically becoming part of like a stock market flash mob that aims to implicitly push the stock in a dramatic direction, just because everyone's sort of doing it all the same time. And I don't know, maybe we'll never get back to quite the fever pitch of early 2021, but my assumption would be that these sort of organic squeezes that just emerge because that's how the internet is, are going to be with us, or here to stay and [it’s going to be very difficult to ever like come up with rules around that.
Rod: (26:16)
Yeah. Look, the reality is that the flows of money are what's going to drive the price in the short term. And if there's massive flows of highly leveraged capital through short-dated calls, yeah, that's going to have an outsized effect and you're right. You know, one person on their own isn't going to move the price. But when it's dozens, hundreds, thousands, tens of thousands, that cumulative effect is clearly impactful. I saw a report discussing the January events and the timing of stimulus checks and the timing of, you know, all the new accounts being opened. And it does seem that’s what happened in January ’21 is kind of the most extreme example of what you're getting at. It’s likely -- in fact one would expect it -- and we keep observing it in various tickers, you know, since then, that this type of stuff is gonna happen.
But I think it's worth repeating that people should understand that, you know, if you're going on a message board and you're saying, you know, let's squeeze these guys, let's pump this price. If you're your intent is to manipulate the market, just because you're a small fry, you shouldn't get a pass and I don't think that's acceptable, but I do understand. And thinking back to what Lily and and Kyla were talking about, there's this perception of a lot of those small fries that the game is so rigged against them that they almost have to, you know, break the rules themselves or go down that path. So there's definitely a lot of that distrust to me, it was a lot of taking all the Occupy Wall Street, but now Occupy Wall Street has a smartphone app and they can try and occupy Wall Street effectively.
Tracy: (27:49)
Well also, I mean, to me it's a disconnect between the existing rules and technology as it stands, right? So you are not allowed, say you're a hedge fund, you cannot send out a bunch of emails to your closest hedge fund contacts and say like, ‘Hey, let's all conspire to push up the stock of GameStop.’ And yet, because these message boards exist, everyone seems to think that that somehow makes it different if you do it at scale and you do it publicly. But I guess we'll find out, you know, from the SEC or whoever, whether or not that's the case. But I wanted to ask you another sort of, I guess, depressing question or like a darker question, but you're right -- there was this sort of sense about the game being rigged and part of the GameStop appeal to some people seemed to be this idea of getting back at the big institutions, whether it's Wall Street banks and hedge funds or something else. And it almost felt like people went, you know, really went over to the dark side. There were some people who seemed to think that all of Wall Street revolved around the shares of, you know, a video game retailer . And then if they could just squeeze it higher, then the whole edifice would come crashing down. But why do you think it was such a lightning rod for those types of people and has that sense persisted?
Rod: (29:08)
So it gets back to Joe's question about where is everybody and it is a wide spectrum answer. It's irrefutable. I heard, I think it was Lily referred to kind of some of these cult-like mentalities, cult-like social platform, and some of them are quite like that. I'm not going to use the name of the one that comes to my mind most clearly, but there's tens of thousands of people that on a daily basis are in this platform. And it's very much a view that these people are deeply convicted. They believe that the short-sellers never closed in January of 2021. There was some nefarious scheme between…
Joe: (29:47)
Wait, are you talking about the other stock?
Rod: (29:49)
Oh, no. No
Joe: (29:51)
Oh, I thought you were talking … I feel like the people who are really into the other stock were like you guys except turn to 11.
Rod: (30:05)
No but there are people into GameStop who are just as bad and insofar that they are purely believing that by throwing their hard earned dollars into this equity, which, you know, for them, it's more like a trading token. And they don't, you know, they look at price, most many of these investors, speculators, traders, whatever we wanna call them -- apes. These people by and large are very new to the market. They don't have a deep understanding of how things work. They often just look at price. They look at a stock chart. It's very much limited amount of analysis, it's hearing and seeing what the people with the largest social media followings are talking about and then saying, well, they must be right and let me get on this. And I see so many people talking about this and saying, there's this evil scheme by these people on the short side of the trade, that it must be true.
So you got like that end of the spectrum. But on the end of the spectrum, you have a lot of people who experienced this GameStop investment. I think about my partner with GMEDD, Joe, he was a young guy in his early twenties who made, you know, low six figure sum. But he sold out of the position. As I mentioned, he's continued to maintain the analysis of GameStop. He, and many others like him, are continuing to learn about markets, learn about how you actually analyze investments. So like you have the bad of the cultists, and you have the good of new market participants who are learning. And like, that's one of the things we're really looking to foster with Wook Capital is we believe that social research, crowdsourcing of research, the fact that you can have millions of eyeballs looking at different pieces of information and bringing unique expertise to bear, you can uncover nuanced and differentiated perspectives, as opposed to just, we're going to mess with the shorts. So there's this wide spectrum, there's clearly a ton of new participants. I think like Lily and Kyla were saying, it's come down of course from January ‘21, but I do think it is durable. And I think it is different from like the 2000-era message boards. It's even more so than that was. And I think it will remain durable.
Joe: (32:16)
Can you just describe what is Wook Capital? Is it a hedge fund? And what is — you have several stocks — just describe a little bit more of what this vehicle is and how, yeah.
Rod: (32:26)
We just started up, so, so John I had mentioned. John and I had worked, John had been one of the investors who we had this cohort of GameStop investors, you know, lawyers, oil and gas people, just other random retail investors like across the entire spectrum of people who were tuning into the RoaringKitty chats, you know, from August of ‘20 onward. When we kind of formed a group in Reddit where we were just talking about trying to analyze all the things coming out. We eventually made a discord and we called ourselves the Hedgehog Fund, you know, jokingly, but all of these, like the fact that we experienced and lived this, where we were able to develop a much more robust and informed and detailed thesis through all of these various differentiated perspectives. That's informed the view that John had, which is that you can repeat this at scale over time.
And by this, I mean, identifying mispriced, misunderstood market opportunities in equity markets. So our view with WookWook is a private investment fund. We have, you know, nine figures of investible assets that we are not looking for anybody's money. We're not selling anybody a product or service. What we're selling is we are going to build a community to really look to scale what we experienced with the whole second half of 2020 GameStop, where you can bring in investors — retail investors from across the spectrum. People who have passion, who have creativity, who have this enthusiastic transparency and willingness to share their information with others, much like what we did, right? I had nothing to gain from talking and sharing that, you know, I had accrued all these order numbers and I was crowdsourcing these order numbers and had located, you know, that you can understand what the company's e-commerce results were going to look like, etc., etc. So it's taking that and taking that novel idea that you can crowdsource research and realize alpha as kind of a community aspect. Now, it's not like we're saying that you, you know, you need to pay us to be part of this. We're still nascent and thinking it out more, but that in essence is what we're looking to build and replicate.
Tracy: (34:58)
So can I just ask, so you went long GameStop because you had a very specific interest in the company from what I remember. And now based on that experience, you are doing due diligence on other stocks and sort of, I guess, exercising what you've learned from the GameStop experience in a broader way. What sort of stocks are you looking at? And what's the difference between, you know, coming up with an investment thesis for GameStop, a business that you know, intimately, you're a video gamer, you understand that whole thing versus looking at something else?
Rod: (35:33)
Well, I think that's it. You should have a more informed view than the market. And this is not a position that Wook has, but I'll talk about a position I have personally — Allison Transmission, right? I worked in the industry at Ryder Transportation Logistics company for five years. And we've obviously observed this EV bubble that I think we're still living in, where everyone expects that EV from both personal vehicles, commercial vehicles, all sorts of transportation equipment, will rapidly electrify and the legacy OEMs or suppliers are all out to pasture. But in the case of say Allison Transmission, they make automatic transmissions for commercial vehicles, and I've done extensive research and lived extensively in my prior role at the company of talking to OEMs, understanding their build plans, understanding what the opportunity is for them to shift to EV, understanding that fleets aren't likely going to be buying from no-name startups.
They're much more likely to go with the trusted freightliners, internationals, Mack, Peterbilt, Kenworths, etc., of the world. To me, I think Allison is a good example where when you look at it, it's trading at its lowest multiple in its history. The company was part of General Motors in 2007, it was sold to private equity. It became public in 2012. And since 2012, the company on a forward earnings basis, you know, EV to EBIT, EV to EBITDA, has never been cheaper because you have this massive storm cloud of ‘Oh no, EV is coming.’ But then when you actually look at, and you talk to the experts in the space. You know, yes, there's some government regulation in like 2027, 2024, 2031, not to go too detailed, but I guess it's, you need… Like Howard Marks has said in the past, you need to have a different view. If you want to outperform the index or the market, you need to have a different view and you need to be more right. And I think Allison is an example where I have a different view toward electrification adoption, and hopefully it’ll be right
Tracy: (37:37)
Just on Allison, I'm curious. So you have personal expertise in a company like that, but then the platform itself is like a crowdsourced research platform. So would you go out and solicit other information from people on that company or is it more that you share your own insights with others?
Rod: (37:56)
It's absolutely more so the former. Because I may know a few things about a few things, but I am by no means expert in everything. I'm very, very little of an expert in anything, but it's trying to make it such that people see value in participating in this community, bringing their own expertise to bear. We have kicked off earlier this month, we kicked off a series, you know, it was ironic. We recorded it the Friday before the news came out of Elon Musk getting involved with Twitter. I had a friend of mine, who's an AGC at a public company who had spent time on both the activist side and also on the corporate side, defending activists. And we had a robust discussion on shareholder activism. And our hope is to have, you know, different programming where look, again, we're not trying to sell you anything.
Our view is if you see value in participating in this community, you will be willing to share your own insights, knowledge base. No one is going to be an expert on everything. Some people who have differentiated views from their lived experiences, such that, yeah, hopefully we can cover a wide spectrum of industries, of sectors of companies and uncover some of these misunderstood and mispriced investments. And it would mostly be driven by the expertise of the crowd and the insights of the many. Some of some people are gonna have more insights than others, of course, but it's not gonna be like, you know, Rod knows all this stuff about everything, because that's not the case.
Joe: (39:22)
No, I think it sounds really cool in your description, obviously of Allison specifically again, taking an assumption that everyone has, ‘Oh, these businesses are zeros and questioning that — obviously the parallels to GameStop are clear. We just have a couple more minutes, so I just wanna ask you real quickly GameStop — what's the next thing to watch? What should people look for to say, okay, the strategic efforts that are being made are turning this into a better business?
Rod: (39:47)
So the company’s told us, and I'll rely on the company's direction that we should be looking more at the top line, which when you look at their last quarterly result, they really forsook margin, gross margin, meaningfully. It was in the high teens. So what I believe they are doing, and they've said this since Cohen became chairman, is that they are long-term focused. And what that means is in the short-term, they need to bring customers back into the ecosystem. They need to regain customer trust. And I believe their goal, like with Chewy, will be that whereas the desire with Chewy is that that's the ultimate destination for pets, GameStop will be the ultimate destination for gamers. They've expanded product categories across accessories, PC, hardware, and componentry. These are, you know, in and of themselves not going to be a game changer.
I do think the big question mark and the big prospective upside scenario is what happens with this NFT marketplace, their forays into blockchain. As I noted we've been following them for a long time. And they've been working on this for more than a year. The marketplace will be launching within the next, it's gonna be May soon, so before the end of July. So I would look closely at what the receptivity is to this marketplace. We've all seen, I'm sure negative commentary from, you know, Ubisoft launched NFTs and gamershated it. Blizzard has been talking about it and gamers hate it. But I think it's because gamers perceive NFTs as ‘Loot Box 2.0,’ where you're gonna pay for something. And it's just the company milking you out of things. I do think that it's more oriented on, there are creators, like we've seen some of the stills where it's some of the artists who worked on some of the most well known games of our time, putting out different digital artwork that could be digital collectibles
The company does have a thriving collectibles business. So it does make sense that digital collectables will dovetail with physical collectables and physical gaming. I think there's obviously a lot of question marks around the durability of crypto gaming and blockchain gaming, right? Axie Infinity, is it just a big Ponzi? So I think it's fair to be uncertain about what that looks like, but it's irrefutable that it's a rapidly growing market. There's a ton of capital going into the space and that it is a real opportunity. That though to me, is the bull case from here, right? We're at $10 billion-ish market cap. So your core business isn't going to be enough to justify that in my view, you need there to be, you know, free cash flow dollars flowing in from this high margin digital business that they're building. And remains to be seen, but I’m going to be watching that closely over the next few months as they launched this NFT platform.
Joe: (42:32)
All right, well, Eod, we gotta leave it there, but it was so great to catch up with you, always really interesting. And I appreciate you coming back on Odd Lots.
Rod: (42:40)
Thank you for having me.
Joe: (42:54)
Absolutely. Rod is so great. I really enjoy him. He seems like a genuinely, I think he’s a good person. It's messed up that he like had to spend six figures to collect paperwork when I don't know, unless we're missing something, it's like...
Tracy: (43:07)
Yeah, it doesn't seem like the guy who came up with a fundamentals-based bike on GameStop is like the one...
Joe: (43:15)
… Is the one who has to…
Tracy: (43:18)
Yeah, anyway setting that aside — and it absolutely sounds like a nightmare — it does feel like, and this is something that came up with Kyla and Lily as well, it does feel like something's changing here. Like some sort of disruption in the way research and I guess investment communication actually works, if that makes sense.
Joe: (43:36)
Yeah. Oh yeah. For sure. And the idea of like crowdsourcing or distributed research to find like genuinely novel ideas. I love Twitter. I love Finance Twitter, but you know, it can get trapped at times into these sort of like group think where it's like, everyone's all into like cloud and tech stocks. And then that turns and everyone hates cloud and tech stocks and all that stuff. And so actually examining individual companies and saying, you know what, here's the thing that a lot of people believe, and it may be wrong, seems like a high potential for the internet to come together on stuff like that.
Tracy: (44:09)
Or just being able to stress test a thesis, which is something that sell-side analysts at large banks, I don't think they really get a chance to do it. They can do it internally. But it's not like they can publish a note externally and then ask everyone like, well, what do you think about it?
Joe: (44:24)
Well, you know, they have those like ideas dinners, right? And so people throw out stuff and they probably argue, but why can't the public have something equivalent?
Tracy: (44:33)
The scale is not there, right?
Joe (44:34):
Anyway, it was great.
Tracy: (44:35)
Yeah, it was a fun chat. All right. Shall we leave it there?
Joe (44:37):
Let's leave it there.
You can follow Rod Alzmann on Twitter at @RodAlzmann.