Last week, the Board of Directors of GameStop Corp. (GME) approved a mandate for the company’s CEO Ryan Cohen to manage the company’s securities portfolio, which will expand to include investments in the stocks of other companies on behalf of the company.
Is GameStop Acting Like a Mutual Fund?
In its third-quarter report, GameStop announced the new investment policy, allowing the company to invest in securities and granting Cohen the authority to oversee these investments.
Typically, companies across various industries buy and sell securities that can be quickly converted to cash. These securities can include bonds, certificates of deposit, mutual funds, and similar vehicles.
However, changing the investment policy to include securities is unconventional. Analysts from Wedbush Securities, Michael Pachter and Nick McKay, even stated in a research note dated December 7 that such a decision was “confusing” and “illogical.”
Despite Cohen’s successful track record investing in companies like Apple Inc. and Bed Bath & Beyond, there is minimal potential benefit for investors if GameStop starts operating as a mutual fund, given the vast array of dedicated funds that retail investors can buy, hold, and sell.
Furthermore, GameStop could choose to demonstrate its belief in the value of its own stock by buying back its shares, a common practice for many publicly traded companies. In fact, if GameStop chooses to use excess cash to invest in the stocks of other companies instead of its own shares, it could indicate that Cohen believes these other companies are more likely to outperform GameStop’s shares, which is a worrying signal for investors.
Cohen’s Investment Track Record
Given his new role overseeing a portfolio that will certainly include securities on behalf of GameStop, Cohen’s investment track record is bound to attract the interest of GameStop shareholders.
Cohen rose to prominence as the founder of the online pet supplies retailer Chewy (CHWY). After scaling up the company and its annual sales over several years, Cohen sold the business to PetSmart for over $3.3 billion in 2017.
Since then, Cohen has made at least four significant investments in other companies, typically through his firm RC Ventures. Cohen drew attention after selling Chewy by aggressively investing in Apple (AAPL) and Wells Fargo & Co. (WFC).
While it’s unclear when Cohen invested in those two companies, the first of them at least has paid off significantly. Apple’s stock has risen in recent years, increasing in value by nearly fivefold since late 2018. Wells Fargo’s stock has not seen the same success, with its gains not exceeding double digits during the same time frame.
Cohen’s other major investments have been meme stocks, including Bed Bath & Beyond and GameStop.
Cohen acquired a stake in GameStop of about 13% of the total shares outstanding in the latter part of 2020. After a sharp rise in its shares amid the meme stock craze in 2020 and 2021, GameStop’s shares have since fallen to a price slightly higher than what Cohen paid at the time of his purchase.
In March 2022, Cohen’s RC Ventures revealed that it was one of the top five investors in Bed Bath & Beyond, holding 9.5 million shares or 9.8% of the company’s equity. By August of that year, Cohen sold all of his shares and options in Bed Bath and Beyond. He sold his investment of about $120 million for a profit estimated at around $60 million over five months, drawing the attention of the U.S. Securities and Exchange Commission (SEC), according to The Wall Street Journal.
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