- GameStop's board says CEO Ryan Cohen is now managing its portfolio and he's free to buy stocks.
- Cohen may be emulating his role model, Warren Buffett, who picks stocks for Berkshire Hathaway.
Ryan Cohen is a big fan of Warren Buffett, and he's just taken his emulation of the famed investor one step further.
GameStop's board of directors approved a new investment policy this week that allows the video-games retailer to invest in stocks instead of just safer assets like Treasury bonds. It also handed control of its securities portfolio to Cohen, its CEO and chairman.
As the chairman and CEO of Berkshire Hathaway, Buffett not only oversees the conglomerate's sprawling operations, but also manages its roughly $350 billion stock portfolio. Buffett picked stocks for his Buffett Partnership before acquiring Berkshire when it was a failing textile mill in the 1960s. Since then, he's built the company's asset base to $1 trillion by snapping up entire businesses and investing in stocks and other assets.
Berkshire is ideally suited for Buffett to buy stocks as he can invest the "float" — the difference between premiums and claims — from its insurance businesses, along with any spare cash generated by its myriad subsidiaries, without incurring taxes. Buffett's greatest skill is arguably capital allocation, and he's built his company in service of it.
As for Cohen, he cofounded and ran Chewy before selling the online pet-supplies retailer for $3.4 billion in 2017. He plowed virtually his entire cut of the proceeds into just two stocks, Apple and Wells Fargo — two of Buffett's biggest bets over the years. He went on to invest in GameStop in 2020, fueling the epic meme-stock rally of early 2021, and parlayed his stake into running the company. He also revealed a big stake in Bed, Bath & Beyond last spring, but exited the meme stock less than six months later.
A better parallel for GameStop than Berkshire may be Daily Journal, a newspaper publisher and legal-software supplier. It counted the late Charlie Munger as its chairman for around 45 years, and trusted the legendary investor to deploy its spare cash into stocks — which he did to great success with winning bets such as Chinese EV maker BYD.
GameStop had $909 million of cash and cash equivalents, $301 million of short-term government bonds and notes as well as time deposits, and $400 million of borrowing capacity at the end of October. Cohen may want to deploy some of the company's spare cash in the market, or shift a chunk of its funds out of fixed-income assets into stocks.
The board's decision was met with derision by at least one Wall Street analyst. Wedbush's Michael Pachter slammed it in a research note this week as "one of the most inane moves we have ever seen," arguing that investors have plenty of ways to deploy their money and "do not need GameStop to act as a mutual fund."
Pachter added that if GameStop believes its shares — down by a third in the past year — are undervalued, it should use its spare cash for buybacks. "The company's decision to invest in equities other than its own is alarming, implying that GameStop management believes it will achieve better returns by buying equities aside from its own," he said.
While Cohen now has the option to buy GameStop some stocks, he might not make any purchases at all. Still, given his admiration of Buffett and history of making single-stock bets, it won't be surprising if he puts GameStop's cash to work in the market.