Peter Brooke  00:01

 Good day. My name is Peter Brooke, and I'm a Portfolio Manager at the Old Mutual Investment Group. This is week five of 2021, and there can be only one topic for this week's podcast: WallStreetBets and the GameStop share price. 

 On a personal note, I have to declare a positive bias here. The GameStop code "GME" is the same as our internal abbreviation for our Global Macro Equity Fund. So, I like the publicity. Secondly, my wife has a small position in silver mining. So, I like that they're now pushing silver this week. And finally, this is great entertainment! Way better than watching Netflix. 

 From a professional perspective, I think it's wrong to dismiss this as a mob or dumb money. Firstly, by attacking short sellers, they're targeting a huge opportunity to make money. Having run a hedge fund before, shorts are much more dangerous than longs. Let me explain: if we take a share, and invest in it at R100, our downside is set at R100, as we can only lose the money we put in. However, our upside is unlimited, as the share can keep going up. Think about Naspers. On the other hand, if we short a share, which means sell a share we don't own, then our best case is that it goes bust, and we could make R100. However, our downside is unlimited. If the share goes up to R1000, we lose 900. 

 And this is exactly what has just happened in GameStop. The GameStop share price went from $3 to $325, absolutely destroying the short sellers. These losers were hedge funds, but also some banks, through forced buying where options were involved. Importantly, as the share runs up, and the losses for the short sellers increase, they are forced to buy in as their risk management kicks in. 

 Now personally, I don't know what GameStop is worth. I suspect it is close to zero in the long run, if we look at Clicks who has just shut down Musica. I also think everyone who now owns shares at $325 a share will lose more than 90% of their money. This is a Ponzi scheme. But the original participants would have made a lot of money. So, don't call them dumb money. 

 So, what does this mean for us? Generally, when we see irrational behavior from retail money, think pets.com in the tech bubble, we get nervous. I think in this case, it is telling us that:

 ·         there's loads of liquidity out there, 

·         that social media can be used to stir the madness of crowds, 

·         that the original pushers of the scheme were smart, and late arrivals are not. 

 It tells us that short selling is inherently dangerous, but I'm not sure it is telling us about irrational exuberance in markets. Personally, I would steer well clear of these shares which are overhyped, like GME and Tesla. Companies that do not produce profits are more dangerous than those that do. Global markets are much more expensive than they were a couple of months ago. 

 But there are still pockets of value available, particularly in value shares in emerging markets. In South Africa, we actually have the opposite effect to irrational exuberance. Most people are extremely pessimistic. This may well be justified, but we can conclusively say there is no bubble in South African assets. 

 I hope you enjoyed this perspective. Until next week.