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30 - GameStop stock investment post-mortem (2017-2019)

The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management

Release Date: 06/08/2019

Mental Models discussed in this podcast:

  • Zero Based Thinking
  • Resulting
  • Skin in the Game

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GameStop Stock Investment Post-mortem - Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode30

Initial Buy Thesis

Investment Results

  • Loss of 50-55% of the principal invested in GameStop stock

Investment Process

  • Was my Buy Thesis correct?
  • Root Cause of my Investment mistakes
  • Was my Sell Thesis correct?
  • I did not sell solely because the dividend was eliminated
  • Free cash flow from declining businesses ought to be distributed to shareholders

Conclusion

  • My bad process led to bad results in this case
  • Could have been better or worse

Lessons Learned

Investment Rules

  1. Never buy a retail company with declining revenue
  2. Never buy a physical retail company with debt on its balance sheet (If they lease their locations)
  3. Do not hold onto a stock once you know your investment thesis is wrong
  4. Prioritize investing in companies where management has skin in the game

Red Flags

  1. A combination of large stock price declines without insider buying or stock buybacks
  2. Non-investors you talk to think the company will be a bad investment

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