Home » CEO relies on new investment policy: Will the meme stock GameStop become the next Berkshire Hathaway? | 01/25/24

CEO relies on new investment policy: Will the meme stock GameStop become the next Berkshire Hathaway? | 01/25/24

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CEO relies on new investment policy: Will the meme stock GameStop become the next Berkshire Hathaway?  |  01/25/24

• GameStop is pursuing new investment policies
• Is a radical change in strategy now imminent?
• GameStop could transform into a holding company like Berkshire Hathaway

The showdown between professional short sellers and organized retail investors in January 2021 will probably still be well remembered by most investors. As part of this short-selling war, many private small investors mobilized via Reddit and other Internet forums and made concerted purchases to artificially increase the prices of heavily shorted stocks, such as US video game retailer GameStop. In doing so, they caused high losses and almost ruin for some hedge funds, which speculated on falling prices and were therefore caught on the wrong foot.

Crisis at GameStop

It was actually not surprising that short sellers had zeroed in on GameStop; after all, the company had been in a crisis for a long time due to changing gamer behavior, which was made even worse by the outbreak of the corona pandemic. For about two years, GameStop has been working to say goodbye to the outdated and weak business model of a classic retail chain for computer game supplies and to become a modern technology provider for online gamers. This conversion from a chain of stores to a technology company with a focus on e-commerce was initiated by the activist investor Ryan Cohen, who invested in the struggling company long before small investors discovered the stock in Reddit forums.

Strategy change

Ryan Cohen acquired a significant portion of GameStop shares in mid-2020, before the “meme” hype, and then steadily increased this holding until he became the video game retailer’s largest individual shareholder through his venture capital firm RC Ventures. As such, he actively supported the restructuring of GameStop and even took over as CEO in September 2023.

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Under his leadership, GameStop is now going one step further and also changing its investment policy. Cohen and his management team were allowed to invest in stocks and a wide range of other on-exchange and over-the-counter financial instruments, whereas they were previously limited to short-term, investment-grade fixed-income securities such as U.S. Treasury bonds or certificates of deposit. According to TheStreet, it’s likely that in 2024 Cohen will use GameStop’s significant cash assets of nearly $1 billion to invest in other companies’ stocks, just as he is doing with RC Ventures.

Cohen remains permitted to invest – either personally or through affiliated investment vehicles such as RC Ventures – in the same companies as GameStop. Because it was emphasized the coincidence of the interests of GameStop and Ryan Cohen as its main shareholder.

Warren Buffett as a role model

This change in investment policy could signal that GameStop plans to spend its cash reserves on equity investments in the future rather than on its core video game and collectibles business. TheStreet expects GameStop to move away from the retail business and believes this strategic move is a wise one given the fierce competition faced by brick-and-mortar retailers from the digitalization of physical media as well as from e-commerce giants.

In this way, Cohen could follow the example of his role model Warren Buffett. After taking over the company, he transformed Berkshire Hathaway from a textile manufacturer into a holding company with investments in various segments and is now considered one of the most successful investors of all time.

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