The Entire History of Roaring Kitty...he WAS a billionaire 😔 transcript

in today's episode I'm going to share with you the entire history of roaring Kitty and his positions in GameStop that began in 2019 with approximately $50,000 as you may know he turned that account into a total unrealized gain of nearly $1 billion making roaring Kitty an absolute Legend in Yolo trading and deep effing value investing and we're going to begin with his very first post that he ever made on Reddit under the user name deep effing value now his first post was 5 years ago and was actually removed but the second post which is still visible right here shows his position this was in 2019 and he's holding the GameStop $8 strike price calls a number of different expirations and his account's already up $466,000 giving him a total value of $133,000 bucks incredible right there to be up nearly 50% but of course as We Know it didn't stop there he continued through 2019 engaging with people on Reddit chatting about GameStop answering questions about GameStop and posting periodic p&l updates you can see here his account was up at $117,000 and so this was in September of 2019 the account continues to grow it's now at $230,000 here in November of 2019 so he's up 400% well yeah about 400% 300% % on that $50,000 account more or less now here the account takes a little bit of a hit we can see that it's down quite a bit down $449,000 on the day and back to 83 Grand that would be enough to shake most beginner investors not roaring Kitty he stayed the course with Incredible confidence and what I'm going to share with you in a moment is the thesis behind this investment because this gives us the context to help us understand why and how how he was so confident in this position now the goal of this episode is to document the the history of roaring Kitty especially for people watching this month or even years from now because right now in this moment it's Super Fresh in my mind but I know even for me a few years from now you know you start to forget certain little aspects of it so I like to document these just for you know just for sort of the historical sake of being able to look at it and reference it later so I hope you guys enjoyed as well and hit that thumbs up on this episode so if we continue to scroll up what we'll see is that uh through 2020 he continues to make these posts this was January of 2020 and he account's back at 42,000 bucks and he's read like on everything across the board and I think probably at this time there are a lot of people who are saying wow you know I can't believe you didn't take profit when you when your account was up as much as it was you know this is crazy why are you still holding nonetheless he continued to hold and now in April of 2020 you see the the account has bounced back one of the things that you'll recognize is that roaring Kitty is doing a lot of options trading and the thing with options trading is that they're a derivative they their value is derived from the value of something else in this case the underlying stock which is GameStop but with options trading you can see incredible percentage returns far greater than what you would ever see just by holding the outright stock and so he's using that to leverage his account because he has such strong conviction he's using options trading them very well and that's allowing his account to grow as quickly as it is so in April of 2020 we get some more updates he continues to post them this was May of 2020 account sitting at 148,000 he's got a decent amount of cash in the account uh we get fast forward to June of 2020 the account's at 121,000 and in July of 2020 roren Kitty begins making posts on YouTube and in these posts he shares his trading strategy his investment style and he sort of makes an introduction to what he plans on doing which are um periodic streams and live broadcasts sharing really his um his philosophy on on what he thinks uh is going on in the market and uh obviously some of these have gotten a lot of views and he talks quite substantially as you can imagine about GameStop because that at the time was the the only position that he had in his portfolio now one of the things that I really admire about these older videos here is the level of depth that he goes into uh when it comes to his technical analysis so he's a security analyst and he's very good at doing valuations so he's doing different types of valuations looking at the financials looking at the balance sheets looking at the earning statement so he's really getting into a lot of depth here now um as the 2020 continues on he is able to lay out a very succinct thesis for his position and it's broken down into three main points so kind of like an essay would have a thesis um which in this case is I guess to summarize the risk of digitalization for GameStop is overblown bearish sentiment is uh sentiment is overly bearish and value is overlooked so those are really The Three core components and then he proceeds to back up each one of them with examples so part one the risk related to digitalization is overblown this refers to the fact that as we know GameStop is a uh historically has been a brick and mortar business and their business has been uh related to buying consoles and buying and selling games they buy games so you could do trade in on actual video games and so for the longest time of course games were on discs like a DVD but for the game so you could go and trade that in at GameStop now you wouldn't get a lot of money for the tradein but you could use it to buy a new game and so they had a big uh business around trade-ins on these used games now at the time in 2020 the stock was being heavily shorted and people were extremely bearish on GameStop essentially saying that they have an Antiquated business model and they're going to be imminently obsolete those that's the exact phrase that um RoR and kitty used that they're facing imminent obsolescence and so what ended up happening um was because there was such a strong perception that the new gaming consoles would just have a big hard drive you wouldn't need digital G you wouldn't need physical games anymore so the tradein market would be gone right just like record shops are more or less gone CD shops are more or less gone well they thought GameStop is going to be more or less gone because when it comes to actually buying the console you can buy that at Walmart or on Amazon you don't need to go into a GameStop store just to buy the new PlayStation right most people are going to buy that online so the Legacy business model around buying and selling trading these games is going to be gone but that was in 2019 and as we had the new launch of a new game in console that came out in the fall of 2020 roaring Kitty believed that for a variety of reasons because of the size of the hard drives compared to the very large amount of uh data that these games require and the fact that internet although it is widely available for a high-speed internet there are people that don't have high-speed internet and so there would still be a market for physical discs and he was absolutely right so he said that the risk to digitalization is overblown still strong demand for physical games and the transition to digital has been slower than expected partly because of just some tech technological obstacles so he said physical discs still represented significant number of sales for the company in 2019 and 2020 and he believed that they would continue to represent a significant number of sales for the foreseeable future number two he said sentiment is overly bearish it's it's it's like all extremes with GameStop people saying it brick and mortar is dead nobody shops there digital is the future people buy the consoles elsewhere I download everything and he speculated that bearish investors believe that everyone else does like what they do now I have a friend um just in my own life that who for the longest time has been a big gamer and when where he was living in Vermont he never had Wi-Fi so even though it's crazy for me to think about not having Wi-Fi he didn't have Wi-Fi so he said sometimes what he would do is he would bring his console somewhere that had Wi-Fi to download updates and stuff like that to a friend's house but he wasn't downloading games or playing on Wi-Fi he was doing all physical discs and I'm like yep there you go that's just a one person but that is a was very common so the bear sentiment was overdone and he believed roring Kitty that the pric the shares were priced as if bankruptcy was imminent and of course short interest was incredibly high and what we now know is that it peaked at approximately 140% now we'll talk more about that that in just a moment but uh the third part of his thesis was that he believed value was overlooked and he thought that GameStop represents the epitome of value investing because negative sentiment was out of balance with Book value in fact their Book value was higher than the market cap trading price of the stock and he believed fundamentals had improved in the previous 12 months they had some new management a new board of directors and he sort of agreed that the management in the past hadn't done a good job but that things were changing and now with the launch of a new console cycle in the fall of 2020 that should provide the company with the cash flow to support a transition to a digital uh business model he also commented that Michael bur who was the investor in The Big Short had taken a 5% stake in the company and Ryan Cohen purchased a 12.9% stake in the company between August and December of 2020 Ryan Cohen founder of chewy.com you know internet entrepreneur and if he believes in GameStop and the potential for digitalization and turning it into an e-commerce type of business you know that sort of further reaffirm that this was deep value so at that time um roor and kitty put this out in uh YouTube videos a series of YouTube videos uh some of them were a little bit longer others were more succinct just very clearly kind of outlining his thesis and naturally you know people began uh to kind of pick up on that now this was in August of 2020 when basically right after he's putting out these videos it does start to gain some traction we get Ryan Cohen investing his value on his portfolio now goes up to 600,000 it's a record the highest it's ever been coming into the fall it goes even higher 800,000 in September right so now things are getting exciting he's got 1.5 million on September 22nd 1.3 on September in a little bit later in September now it goes up to over 2 million in October okay now this is when things start heating up as you may recall so if we look a little bit more about um his thesis uh in the summer of 2020 roring Kitty stated that he's essentially betting on three simple things when it comes to GameStop number one that the equity is worth more than $250 million so what we know is that GameStop had a float of approximately 50 million shares that was the total number of shares available to trade from when the company had ipoed and done either offerings or BuyBacks this is the total number of shares available and so you multiply that by the current trading price which was about $5 and you get a$ 250 million do market cap all right so this was the market cap at the time and he said he believed the market cap was worth more than that based just on the book value alone and he felt that at this point he was buying a stock below Book value because he did his um his analysis as a security analyst and he estimated Book value to be approximately $435 million so when Book value is 435 million and the stock is trading at 250 million it's obviously trading at a discount why would a stock trade at a discount to its Book value well it could be because people don't believe in the book value for instance some companies will put a lot of value in Goodwill or brand which may or may not be you know True Value it's kind of hard to sometimes put that into actual dollars in the bank so that can be sitting on the balance sheet uh there was also a lot of inventory on the balance sheet now one of the things that's notable with the inventory is they were pricing the inventory of used games based on the price they paid for the games now GameStop historically always paid really like low Dollar Bottom Dollar when they gave you a trade when you got a trade in so in theory even if they sold that for only a little bit more than what they paid for it it would still be a ridiculous discount because typically they turn around and sell it with a nice margin nice profit margin so he felt good about the fact that the book value um was 435 million and that that was that was probably a pretty good number and the fact is at that point it was currently trading at only 4% of revenues because here's the thing the market cap was 250 million but they were deal they were still doing $6 billion of Revenue this company's doing $6 billion of Revenue which is kind of I mean that's kind of crazy when you think about it so in theory if you went and bought the entire company you're buying the entire company for 250 million in theory and they're doing six billion a year in Revenue now the problem was they weren't financially their profit margin was not what it used to be and this was you know sort of the argument that it was partly because of bad management but with this cash flow that should come at the beginning of a new gaming cycle console cycle that should support them so he believed that the Legacy business value which you know was part of the market cap of 250 million was really worth closer of 500 to 1.5 billion and he based that on um what he saw as the sales likely coming in through the new console launch and he currently he mentioned it in 2020 that he currently had 42 million rewards members a 15 million of who had shopped uh in the last year at GameStop so potentially these are people that could be um converted to Loyal U loyal buyers during the new console launch and then the third thing that he was betting on is that there's a greater than zero% chance that they'll be able to transition the business because as I said since they were trading at only 4% of Revenue and uh had such a low market cap essentially below Book value investors collectively on Wall Street and by investors I mean the big hedge funds the big institutional Traders they were basically basically pricing the stock as if it was going to go bankrupt and had 0% chance that they would find any way to transition the business and he just believed that there was a better than 0% chance and based on all of this he had a chance of seeing a nice maybe 5x 10x on GameStop within the next 12 to 18 months now he said I don't know where GameStop's going to be you know 10 years from now 20 years from now but just in a short medium short duration of a few years he felt good and this was again because of the launch of the new cycle so was he right well his original thesis was right in a lot of ways and of course if we measure it just on the price of the stock we know that the price went all the way up to $500 a share now some of you will look at this chart with a magnifying glass and notice that it's showing the all-time high at $120 so it's worth noting that GameStop uh ended up doing a uh 4: one uh stock split and so when they do that they the entire uh price is divided by four so if it's trading at $400 it now trades at $100 a share so the price Goes Down And if you had 10,000 shares right here at 400 then you would have 40,000 shares at uh $100 so the number of shares goes up and the price goes down and this is what happens during a stock split so as a result of the stock split the float went from you know around 50 million up to approximately 200 million or something like that right so the the number shares available to trade in the float went up and the price went down now what we also know is back in uh 2020 short interest reached uh 140% which is unprecedented now for those that are familiar with short selling I'll just give you um a crash course for those that aren't familiar a crash course for those that are familiar we'll just we'll go through this quick so in order to short a stock you want to create a negative position and sell so let's say you want to sell minus a th000 shares you sell a th000 shares and in order to sell 1,000 shares and go negative you have to first borrow those shares from someone who is holding that and your broker right here is the intermediary they sit in the middle and so clients that trade with the same broker who are holding long positions the broker takes those shares and will lend them out to people who want to short the stock and you might think well that's not fair and uh well it maybe it's not but it happens every day now there are ways that you can prevent your shares from being borrowed out or lent out for other people to shore one is some Brokers will allow you to remove your shares from the lending program and number two you could remove your shares entirely from your broker and directly register them so this is almost like off-market it's it's they're still shares but they're not registered with any broker so they can't be lent out now the process of lending out these shares what then ends up happening is someone shorts a th000 shares and remember when they short a th000 shares they're selling them so they now sell shares to a buyer so now you have another person somewhere who bought the 1,000 shares that this person shorted if there at another broker then that broker makes those shares available for someone else and so on and so forth so you get this cycle where all of a sudden because there was so much bearish sentiment short interest went to 140% which means out of a total float of uh sorry 50 million shares so you had 50 million shares that was the total float so at most there should only be minus 50 million that could be sold to the short side but instead as we know it was actually substantially higher than that it was 140% higher so 50 million plus 40% so approximately 80 million shares give or take right just back back of the napkin math so with this incredibly High short interest RoR and Kitty um of course was posting and commenting on that and talking about this short interest as part of the bearish sentiment and what ended up happening was uh these firms got absolutely wrecked as we know Melvin Capital lost billions of dollars billions short in GameStop they had to get bailed out by Citadel I don't think we know exactly what happened how that worked if Citadel took on the position and closed it out for Melvin or what happened but nonetheless the stock went all the way up to $500 a share which is now reverse or split adjusted to about $120 so when that happened um we had this epic short squeeze and of course roaring Kitty's position explodes in value so now we're going to fast forward here it's 2021 his position's now 3 million and that's it's 5.7 million now the stock price is moving fast it's 7 million and that's 7.5 million now it's 11 million now it's 13 million 22 million and all of a sudden $47 million what was the highest Mark 46 million might have been around 46 million so absolutely no it pulled back and then it came back up but I think 46 million might have been the highest Mark that he recorded it was so $46 million from an account that began with around 50 Grand incredible but what we know is that the price came up and then it came back down then it went back up and came back down went back up and came back down it was like it was just incredibly volatile but uh nonetheless currently today the price is 20 times his initial entry which is it's great but how does his thesis perform on each of the three main points that he shared with us Equity yes he was right that Equity was worth more than $250 million 100% right on that Legacy business value well as of today what we know is that um the business is actually down 29% year-over-year for q1 from 1.2 billion down to 800 million so if they continue at approximately 880 or 900 million uh a quarter they're going to be at 3.6 billion for the year versus previous revenues of closer to five to six billion so right now we are seeing total sales declining which is not good and the transition for the business to the digital space well I don't think it's been um it hasn't been successful it's been four years later five years later from when you began posting about his thesis and that transition has yet to occur so yes on the basis of um you know his position and his profit he was a winner and he did right and everything worked but if we really look at the biggest contributors to equity growth for his trade it was um a short squeeze we had a massive short squeeze which he was able to correctly identify through high levels of short interest um but nonetheless this was the biggest contributor and then what created more equity for the company was actually selling shares onto the market so the uh the cash that the company now has is not from uh is actually not from operations it's not because the company's producing a ton of cash flow it's because the company did secondary offerings and sold shares on of the market they raised about 1.5 billion doll in uh 2020 sorry 2021 with uh two offerings they did one of 3.5 million shares and another of I believe 5 million shares so this was offering one in to in April and then again in junee of 2021 so the money they currently had in January of this year which was around 900 million in the account cash well most of that came from this it wasn't from um from actually the business operating at a profit so I don't think we've seen the significant improvements in the business uh Legacy business value or the transition um to a digital business but from his entry at $4 a share adjusted to remove the um the stock split the stock has remained between 80 and $100 a share which is absolutely incredible that is a huge win so now the question is is his original thesis valid today because what we know is that when he posted on um on Reddit back here in June for the first time in three years what he showed was a 210 million doll account which I think we all have to assume he grew it to this level from approximately 40 million to 210 million through more deep effing value investing maybe YOLO trading on GameStop perhaps some others we don't know at this point it's speculation but what we know is that he has 210 million and he said that's his own money we also don't know for sure if this is a a retirement account if it's a tax deferred account uh you know we don't know if he had income tax in 2018 2019 2020 2021 Etc we're not really sure on that um and and actually um apologies here I I'll have to just double check the um the secondary offerings were those in 2020 or was it in 2021 um let me just double check my notes on those two offerings and I'll just confirm that before the end of this episode I just want to make sure I give you the right um the right dates but nonetheless um he comes back with this massive position so he's showing a 5 million share stake at $23 a share and sorry at $21 a share and what I was thinking when I saw this was well wait a second adjusted for the reverse split he's buying this at like $84 a share with 5 million shares so he's obviously incredibly confident what's giving him the conviction now that this is still a you know deep value in investment and I think that's something that a lot of us have been uh looking for and and kind of hoping for but we have not we haven't yet seen it so it's kind of been um you know we've we've just been like are we going to um you know are we going to get that from him or not so if we look to his 2020 thesis I I I just don't think that it that his position in 2024 really matches the 2020 thesis based on the equity well currently the equity is well 1.3 billion yes they paid off most of their debt they've got good cash cash position um but currently at $20 a share GameStop is actually trading at 20% of Revenue because the revenue has been declining in 2020 it was trading at only 4% of Revenue this is something you know you look at from a valuation perspective and a security analyst I'm sure he he knows this so the Legacy business value well earnings are down 29% q1 year-over-year declining free cash flow declining revenue and something that he said was that usually companies that are deteriorating and falling apart uh gross margins are also falling apart and what we see here is that gross margins have begun to decline from the stability that they had from 2015 actually from truly 2012 all the way through 20120 so as we look forward to 2024 and 2025 we still see challenges for GameStop especially being invested here because of uh just the current the current price it doesn't feel like a deep value position and although we still have the potential for a transition LED no out by Ryan Cohen who became the CEO in uh September of 2023 at this point I'm not sure what's going to happen you know roran Kitty posted this highest p&l of 586 million but what we know is that that was when the stock was at $46 a share and it hit it after hours high of nearly $70 which would have given him an unrealized p&l of nearly a billion dollar but now as of his last update his account back at 268 but this wouldn't be the first time that we've seen his account go up you know from 50,000 to 200,000 and then back to 42,000 and then it did eventually go all the way up to 46 million and then we know it came back down and then it came back up again and so it just hit a high of nearly a billion dollars and came back down so he's down but he's not out he's done really well in the past but what I think was a wild card that he wasn't expecting was that the day before he did the morning the was going to do his live broadcast GameStop released these big earnings Miss and they announced a shelf registration to sell 75 million shares on the open market so effectively GameStop has now sold 120 million shares in the last five weeks they have diluted the value of the stock by like 30% they raised $3 billion which is now going to go on the balance sheet is cash but for individual investors these types of offerings hurt our position and so it certainly hurt hurt um roran Kitty's position and we haven't really gotten any clear indication from him to be honest of what his thesis is for um for 20204 for 2024 so you know we know that we have high short volume we may have high short interest um but I think at this point the only thing that we've really gotten from Roar and kitty for a 2024 thesis is that he believes in Ryan Cohen and and I can respect that you know that he believes in Ryan Cohen and that he thinks he's got potential but it's a huge stake that he's got here and he's not on the board of directors yet we don't know if that'll happen he's not an employee of the company again yet it may happen in the future but as we sit right now he's posting a lot of memes um but you know you can interpret different things from them but we're not getting a lot of clear Direction and he's keeping his cards it seems like held a little bit tight so so the future of GameStop I think at this point I find it to be a bit unlikely that we see another epic short squeeze and I'll tell you why it's because the float which was originally 50 million shares went up to close to 200 million plus that's is 300 million right so 300 million share float and then it goes up again to a high of now 425 million shares approximately so you've got such a big float float is Supply so now you would need almost I think an unimaginable level of demand in order to have this equation you know balance out where the price goes parabolic again so through the company's own decisions of doing a reverse of doing a traditional split and doing offerings I think they may have effectively made it almost impossible that we see another um short squeeze at least anytime soon based on the reported short interest that we're seeing it's not high enough to support a short squeeze it is possible that people uh big investors institutional Traders are using Equity swaps to short with synthetic um shares but we don't know that for sure and we don't know exactly how that would affect market prices unless they default and are forced to cover or the banks that have uh the investment banks that have written those swaps are not already hedging their position but they should be hedging their position especially after seeing what happened with GameStop in 21 so this is the chart right now it's not the worst chart I've ever seen holding at $24 $25 but it's certainly off of its highs and you know for raren Kitty to be back in at such a high position um was with such a large amount of money clearly he's very confident and I wish I could tell you exactly what he's thinking and exactly what his strategy is today but as of right now that part of the story is still yet yet to be told so if you found this history of roaring Kitty and his GameStop position interesting I hope you hit that thumbs up I hope you're subscribe to the channel my goal is to create content like this that is to document history because people will watch this months from now years from now maybe decades from now and they'll be able to look back and see this incredible move so this is an installment there will be I'm sure more to come in the future but thank you as always for tuning in I'll see you for the next episode real soon [Music]