GMG.L (Game Group) has announced today its suspension from trading
GAME has assessed the status of the ongoing and regular discussions between GAME and its lending banks and between its lending banks and a potential third party provider of finance to the business. The Board now considers itself to be unable to assess the business’s financial position, and is of the opinion that there is no equity value left in the Group. Therefore the Company has requested that the listing of its securities on the Main Market of London Stock Exchange plc be suspended from trading with effect from 7:30am today.
It has certainly been a fascinating share to watch. It highlights the extreme dangers that value investors can suffer . It’s also interesting in the way that it brings out different mindsets. It exemplifies all the dilemas that value investors face. Everybody is aware of the facts in terms of the basic pros and cons of the share. Where investors face problems is working out which of the likely facts and tensions are the ones that are going to be relevant. The tension is around whether the company is structural decline (online retailers and supermarkets stealing market share) or at a cyclical low (with new consoles and blockbuster titles just around the corner).
It’s the whole Joel Greenblatt versus Jim Chanos thing. Whilst they were talking about GME (Gamestop) in America, GMG is a close parallel here in the UK. There’s the Greenblatt bull case that "Mr Market is always worried about ephemera, buy cheap" versus the Chanos bear case that "this thing is going to look cheap all the way down".
There have been intelligent people arguing the cyclic case. There have been investors, far far superior to me, who have dabbled in the shares; reasoning that they have option-like characteristics.
Pre-suspension, GMG was down 68% YTD, down 98% over 5 years. If you were a skilled trader, you could have bought on Mar 12 at about 1.56p, and sold yesterday at 2.39p, for a monster gain of 53%. But here’s the thing: what are you more likely to be: the guy that buys at 1.56p when GMG announces that it seeks a buyer to fend off insolvency and sells before insolvency, or are you more likely to be the guy who buys at the beginning of the year, only to see the value decline by 68%, and then get wiped out completely? It’s like what I said on Motley Fool: when other people do it, they end up millionaires. When I do it, I lose my shirt.
The problem with value investing is that contrarianism can get so baked into your thinking that you forget what the crowd is telling you.
I always said that a major chain relying on second-hand sales was a stupid idea anyway.
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