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September 01, 2020 1:29pm
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Unlike with GameStop, Ryan Cohen Cashes In His Chips Just In The Nick Of Time

“Why on earth would I pay an advisor when I can trade for free with Robinhood on my phone?” - 27 year-old meme stock trader I am asked about meme stocks and my opinion of people like Ryan Cohen all the time. Cohen was interesting because while he has amassed a fortune over the last decade (all due credit to him), each move had also resulted in him leaving a lot on the table. He hasn’t really had a Mark Cuban moment yet (Cuban sold Broadcast.com at the top for all stock and immediately hedged the Yahoo shares he received before they crashed) so his loyal cult-like following is interesting. Consider that: Cohen sold Chewy in 2017 for $3 billion in cash, but the buyer (PetSmart) took it public in 2019 at a value of $9 billion and today it’s worth $18 billion. About $15 billion left on the table at current prices. Cohen bought 5.8 million shares of GameStop in August of 2020 for a mere $6 apiece (pre-split). But when they skyrocketed more than 80-fold in just five months (peaking at a stunning $483 apiece) he didn’t sell or hedge a single share. About $2 billion left on the table at current prices. His Bed Bath and Beyond common stock investment appeared on its way to the gutter. The purchase of nearly 8 million shares at ~$15 apiece during Q1 2022 had lost 2/3 of its value as of 3 weeks ago and his proclamation that the chain’s buybuy Baby unit was worth more than $15 per share by itself was proven to be totally off the mark after buyout offers came in nowhere near that price. Perhaps Mr. Cohen has learned a lot. When his followers bid up BBBY stock to $30 from $5 in just 12 trading days this month, Cohen unloaded quickly, selling it all in just 2 days and netting a profit of nearly $70 million or 56% while his Twitter followers were claiming he wasn’t going to sell. This trade was timed perfectly, though his business valuation skills aren’t yet in the same league as other prominent activist investors. The move reminded me of Silver Lake Partners’ stake in the convertible debt of AMC back in 2021. Cohen’s followers hate the “smart money” hedge funds and private equity funds, but Silver Lake did what they all try to do; play the hand you are dealt the best you can. Silver Lake was sitting on losing hand of underwater AMC convertible debt in a company that nearly went bankrupt during the pandemic, but the meme stock folks bailed them out. By bidding up shares of AMC, it allowed Silver Lake to convert their debt into equity and on the very same day sell every single share at a profit. It turns out Ryan Cohen lacks “diamond hands” when it becomes obvious that is the right move. I don’t know if people will turn on Cohen after this BBBY experiment (as with GameStop, most of them will show big losses after following him blindly), but I do know that we should not be cheering amateur investors who are gambling on these stocks without understanding valuations, balance sheets, or SEC filings. It was obvious to professionals that Cohen’s amended 13D from August 16th showed no new positions in BBBY. The filing itself even said so: “This Amendment No. 2 was triggered solely due to a change in the number of outstanding Shares of the Issuer.” But most people didn’t actually read it. Instead they just relied on posts on Twitter and Reddit to get bullish and pile in. And the ensuing rally gave Cohen his selling opportunity. Even after Cohen filed to sell his entire stake and the filing was made public on August 17th, the believers were saying he hadn’t yet sold, even though the filing itself said he expected to sell on the 16th. And what do you know? By the close of trading on the 17th he was out completely after 2 days of selling. These are easy things for an investment advisor to understand and offer guidance on. There were other silly rumors too, being spread by novices, like the one that said since he hadn’t held his stock for 6 months every dollar of profit Cohen made would have to be returned to BBBY, which would help them repay their debt. Sure. Look, I am not saying that everyone needs to hire an advisor and be completely hands off with their investment portfolio. But having a pro to bounce ideas off of and direct questions to can literally pay for itself in a single trade if one is inexperienced and making speculative bets without understanding what is really going on. It can be a collaborative business relationship that adds value. And over the long term, many novices will become knowledgeable enough through experience that they can rely less and less on their advisor and eventually jettison them completely if they prefer. The investing environment today reminds me a lot of 2000-2002 when I started in this business as an advisor. People had gotten burned by the tech stock bubble and were swearing off investing completely (not completely clear if the Robinhood crowd will get to this point yet - but their trading volumes suggest probably). They sold their Invesco tech mutual fund and put what was left in bank CDs. Those kinds of moves almost never work out well, but after you’ve been burned it’s hard to venture back into the kitchen. I am afraid that the same thing is going to happen with the new young generation of investors. First, it was about screwing over the large hedge funds and leveling the playing field for the little guy and gal. But the field is not level when we are dealing with understanding the markets. It’s fine to hate Citadel but blindly following people on Twitter and Reddit is not going to help you build wealth. If people like Ryan Cohen start acting like the same Wall Street activist hedge funds that they love to hate, it will likely turn off this new generation from the markets.
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