Tremendous

An angel investor's take on life and business

  • There Could Be Another GameStop Short Squeeze, But Beware Weak Fundamentals

    GameStop shares have come back to earth since the short squeeze a few weeks ago:

    But this story may not be over. GameStop remains one of the most heavily shorted stocks in the entire market:

    This tells me that the epic short squeeze could happen again. Many short sellers still have their position. Maybe they’re wary of closing it out for fear their buying would set the stock on another upward tear? (If you’re not familiar with short squeezes, see this post for a brief explanation.)

    But Redditors should be careful because the fundamentals of this business are weak. And you don’t want to be stuck holding a rotten stock if the squeeze doesn’t happen.

    GameStop has 5,000 stores. Why? Where do you buy toilet paper, pillows, or plates today? Probably online, and videogames are going the same way. Publishers are selling them directly to the public online, and in general, people are losing the habit of going to physical stores.

    If you got your games virtually or delivered from Amazon when stores were closed, why would you go back to the store once it’s open? You’ve already been forced to build a new habit by the lockdowns, and people don’t change habits readily.

    And let’s not blame the lockdowns for everything. COVID only accelerated an existing trend. GameStop’s business has been shrinking for some time, and losses were actually even bigger in 2019. From Nov 2019 to Oct 2020, sales dropped from $4.3 billion to $3 billion, per their latest financial report.

    Management talks about increasing online sales, and has had some very real success in growing that business:

    …e-commerce sales, which increased 257.4% and 432.9% in the current quarter and year-to-date periods, respectively, compared to the prior year periods.

    But where is the discussion of abandoning all physical stores? Why do those 5,000 stores make any sense in today’s environment? It’s a business model created in another time that made sense then, but doesn’t today.

    When one part of your business is growing very fast (e-commerce) and another is producing consistent losses (stores), it’s pretty clear what you need to do. But I don’t see a willingness at GameStop to make those hard choices.

    I get the impression management is really trying. When things got really tough in spring 2020, the top executives and the board took big paycuts of 30-50% (generally larger than those taken by hourly staff) and sold the corporate jet. That’s the kind of self-sacrifice you want to see from top leadership in a crisis. But can they bring GameStop to a new business model? I don’t see a lot of evidence of that yet.

    Two months ago, before it attracted the attention of Wallstreetbets, GameStop was trading around 15. It could easily return there, based on the fundamentals. Wallstreetbets better hope for that short squeeze, and soon.

    P.S. Another big focus for the Reddit crowd has been pot stocks. See more info about why their position is weak, how favorite Sundial Growers may be headed for bankruptcy, and how insiders are taking big loans at Sundial.

    P.P.S. Don’t you love that sign?

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “the Great Hedge Fund Hei$t” by eyewashdesign: A. Golden is licensed under CC BY-NC-ND 2.0

  • Big Loans at Almost No Interest for Sundial Insiders Are a Rip Off For Shareholders

    They say the best way to rob a bank is to own one. Turns out that’s true for weed farms, too.

    I came across an interesting piece of info deep in Sundial Growers’ financial statement. Two employees have taken out loans totalling $200,000 (CAD) from the company at almost no interest.

    But first, if you’re not familiar, what is Sundial Growers? The Canadian cannabis company is a favorite of Reddit’s Wallstreetbets, but it’s losing a fortune and may not be around much longer (more info on that here and here).

    These employees (presumably top executives, not low wage bud tenders) got these loans at between 0 and 1.5% interest. See this section of their financial report:

    Good luck finding a personal loan at a bank that cheap. If a bank won’t loan these guys money at such low rates, why should the shareholder? This is a rip off for shareholders.

    This is particularly egregious in a company that is losing a fortune and could be out of business soon. When employees are in danger of losing their jobs and the company is in danger of losing 100% of the shareholders’ money (the usual outcome in bankruptcy), low interest loans to insiders are particularly gross.

    I’d avoid this stock like the plague. But do consider applying for a job there if you need a cheap loan! 🙂

    For more about another Wallstreetbets favorite, Gamestop, check out this post.

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “Bear & Moneybags” by edenpictures is licensed under CC BY 2.0

  • How I Fall Asleep Instantly, Night After Night

    I was chatting with some friends during the UFC fight on Saturday, and they both mentioned the same problem. Neither could fall asleep for at least an hour, night after night.

    Many people I meet seem to have the same issue. They lay down, ready to get a good night’s rest, and wind up tossing and turning endlessly. Entirely too soon, the alarm clock sounds and they’ve lost out on precious time to restore themselves.

    This stands out to me because I fall asleep instantly, night after night. Why do I seem to be (almost) immune to this common problem?

    It’s because of the system I have around me that promotes sleep. I’m going to break that system down right now, so you can get the same benefits of health and relaxation that I do:

    1. Avoid screens for 30-60 minutes before bed time. The glowing, the clicking, the distraction, the endless stream of largely pointless information…none of this is conducive to winding down for the day. Instead, I like to read a physical book or magazine or chat with my wife. Although occasionally, I find a BBC nature documentary by David Attenborough lulls me right to sleep.
    2. Lower the lights. About 30-60 minutes before bed time, I dim the lights, generally to the lowest setting. This helps the wind down process. That gradual winding down gets me in the mood to sleep.
    3. No screens in the bedroom. Ever. Extra points if you turn your phone completley off a solid 30-60 minutes before bed. It’s so freeing!
    4. Sleep mask. A recent addition to my routine that has cut my middle of the night tossing and turning to almost 0. I didn’t think light affected my sleep much, but turns out it did!
    5. Humidity. In this drier part of the year, dry nasal passages tended to make it harder for me to breathe. Then, I’d wake up. When I got a humidifier, the problem was solved. And sure enough, if I forget to turn it on before bed, my labored breathing comes back!
    6. Physical exhaustion. I work out 5 times a week and also walk 4-8 miles in a typical day. This means that when I lay down, I’m exhausted and grateful to be off my feet! That goes a very long way to helping me sleep. It’s hard to sleep if you’re not really tired.
    7. Meditation/journaling. I usually do these in the morning, not the evening. But, they could easily be used at night if you’re struggling to relax. If thoughts are keeping you awake, you can get up and write them down. Then, they’re preserved and you can pick them all up tomorrow! But more likely you’ll never look at it again. 🙂
    8. Temperature. 60’s is generally best. But, my wife would turn blue if I kept the bedroom that cold. So, I’ll often sleep with just a sheet, even in the New Jersey winter. I find I fall asleep more easily and stay asleep longer.
    9. Bed. Not as important as you might think. But, I’ve taken no chances here either. I bought a Tempurpedic memory foam mattress 11 years ago and it’s still as good as the day I bought it. It wasn’t cheap: $1700. But there are memory foam mattress toppers you can get for far less. I’ve gotten great sleep in much less expensive beds, and as long as you’re comfortable, so can you!
    10. Shower before bedtime. The gradual lowering of your body temperature after you come out of a hot shower promotes sleep. If you want to take another in the morning, you always can and I sometimes do.
    11. Remove stress from your life. Easier said than done, I know! But you can gradually work toward a lower stress existence. I often found my work in tech stressful, so over a period of years I transitioned to running my own investment business instead. And I’m sleeping better than ever.

    A lot of this system came out of the superb book Why We Sleep by Matthew Walker, PhD. He directs a sleep lab at the University of California-Berkeley and knows as much as anyone about the subject. He helped me enormously. If you want to understand sleep and improve your sleep, get this highly readable volume ASAP.

    What I Don’t Do

    Ambien. Dangerous and doesn’t provide real sleep. Unconsciousness and sleep aren’t the same thing.

    What About Melatonin?

    Not helpful for sleep unless you’re jet lagged according to the Walker book, but if you feel like it’s helping you, go for it! I do actually take 5 mg a day at around 8:30 pm generally, but I made that decision based on its possible ability to prevent COVID rather than sleep benefits.

    And finally, when you get to lay down after a long day, enjoy it! Avoid anxiety over whether you’ll fall asleep.

    Walker recommends an 8 hour “sleep opportunity.” I love that phrase because it focuses on what you can control (laying down), rather than what you cannot (falling asleep). If you’re there ready to rest, you’re doing what you can do.

    Don’t worry too much if you can’t fall asleep sometimes, because that’s normal. Just keep giving yourself that opportunity to rest!

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “Baby sleeping POV” by robscomputer is licensed under CC BY 2.0

  • How I Know The Need Out There Is Real

    I was at the grocery store recently when the woman behind me in line tried to return a pair of hubcaps.

    There’s nothing wrong with them. I just need groceries more than I need hubcaps.

    That’s what she said. The hubcaps cost $14. Fourteen dollars was the difference between her eating or not eating.

    You may be picturing her in your mind. I’d wager your picture is wrong. She was a nicely dressed woman in her 50’s who would have fit right in at a corporate office. Perhaps she used to work in one.

    “Like I said, there’s nothing wrong with them,” she repeated.

    The store manager took pity on her and let her return the perfectly good hubcaps. In place of them, she slid a small pile of groceries down the conveyor belt.

    It’s easy for us to make excuses. Isn’t this the government’s job? What about food stamps? But it’s easy for people to fall through the cracks of a system that’s largely indifferent to them. Paperwork gets lost, caseworkers don’t show up, appointments are all booked until three weeks from Tuesday, etc.

    The economic devastation of this pandemic is very real. And it may be a lot closer than we think. I certainly didn’t expect it right behind me in line at the grocery in my well-off town.

    How can we help? A favorite charity of mine is the Salvation Army. It provides food to people who have nowhere else to turn. You can donate here.

    Have a great weekend and a happy Valentine’s day, everyone!

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “Swan, homeless, on Mission St.” by Franco Folini is licensed under CC BY-SA 2.0

  • Reddit’s Favorite Stock Is Losing a Fortune And May Be Headed for Bankruptcy

    How do you lose money selling weed in a pandemic when everyone’s stuck at home? Sundial Growers, Inc. has found a way.

    Sundial is the darling of Reddit’s Wallstreetbets. It’s mentioned far more than any other stock currently:

    But popularity on Reddit may not save this failing business. It lost $176 million (CAD) in the first 9 months of 2020 (much more than in 2019), despite a growing cannabis market:

    How? Part of the story is something called “inventory obsolence.” Sundial lost $38 million because of it in the first three quarters of 2020. Sounds like their weed isn’t selling and winds up sitting in warehouses until it’s no longer any good.

    Revenue growth is minimal. Gross revenue only went from $51 million to $56 million, if you compare Jan-Sept of 2019 to 2020. Growth is poor enough that Sundial is actually shutting down parts of their grow operation. From their financial report:

    Due to decreasing estimates for the size of the potential Canadian cannabis market, the Company has curtailed the number of flowering rooms being used for cultivation at its Olds facility.

    The situation is so bad that the company may soon run out of money. Sundial had $21 million in cash left as of 9/30/20. They burnt $25 million in the first 9 months of the year. Are they gone 9 months after that (mid-2021)?

    The one thing keeping them afloat is reprieves from lenders and selling more shares. They’ve done new share sales on a grand scale, which means you own less of the company:

    Any delay or failure to complete any additional financing would have a significant negative impact on the Company’s business, results of operations and financial condition, and the Company may be forced to curtail or cease operations or seek relief under the applicable bankruptcy or insolvency laws.

    And the patience of those lenders is already probably running out, since Sundial keeps violating its loan agreements with poor performance. Sundial is:

    in non-compliance with its loan covenants (note 11a) as at December 31, 2019 and March 31, 2020.

    Those lenders forced the sale, at a loss, of a major asset recently: the Bridge Farm, that was supposed to sell CBD to the UK market.

    The overall picture is of a company selling off some operations, shutting down others, burning cash faster than they can get customers to burn their weed, and barely skirting bankruptcy.

    My friends at Reddit might get lucky if they can pump up the price enough by getting other small traders to buy in. But the risk here is off the charts. It’s a fundamentally terrible business and it would be hard to even engineer a short squeeze like they did on GameStop. (If you’re not familiar with short squeezes, read this.)

    Bottom line: the fundamentals are terrible and the technical factors aren’t much better. Pass on this one and live to fight another day.

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

  • Killer Kittens Can Be Placated With Meat and Playtime, New Study Finds

    It would be wise not to anger him.

    Cats kill billions of animals yearly, but feeding them a meaty diet and providing lots of playtime can redirect them to less violent pursuits, a new study finds.

    The mother of one cat in the study had seen her furry friend wreak havoc:

    “We’ve had birds in the bedroom, rats in the paper bin, rabbits in the utility room, and several vermin that have died of fright,” says her owner, Lisa George from Cornwall, U.K.

    But redirecting their prey drive to play, plus keeping them sated with meat, greatly reduced the body count:

    the high-meat diet and playtime approaches had the most sweeping impacts, slashing all types of animals on the doorstep by 36% and 25%, respectively.

    See the full study out today in Current Biology here.

    A surprisingly large number of species have a prey drive. Our gerbil stalked, attacked and ate caterpillars, leaving only the legs. He also ripped the head off a cockroach and wisely left the remains for my wife to clean up rather than eating them.

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “killer kitty” by Ayeshah Ijaz is licensed under CC BY-NC-ND 2.0

  • GameStop Tanked, So Wallstreetbets Is Moving to Pot Stocks. They’re Headed for Trouble.

    Vice President Kamala Harris introduced a bill to decriminalize marijuana as a senator.

    GameStop was the darling of the merry band of traders on Reddit’s Wallstreetbets. Then this happened:

    Ouch. Now the community is looking for its next play. I nosed around the message board a little today to see what that might be.

    Wallstreetbets users are increasingly enthusiastic about marijuana stocks, in particular two companies called Sundial Growers, Inc and Tilray, Inc. Though both took a hit today, they are up significantly in the last month as the online buzz builds.

    Reddit seems to have two main theories on why these stocks will continue to rise: a short squeeze and/or decriminalization of marijuana at the federal level in the United States. (If you’re not familiar with short squeezes, check out this post for a quick explanation.)

    But their position here looks much weaker than with their last love, GameStop.

    GameStop was much riper for a short squeeze than Sundial or Tilray. As of Dec 31, 2020, 71 million GameStop shares had been sold short. This is more than all the shares in GameStop that exist (70 million)! This can happen because the same share can be borrowed and sold short many times.

    Meanwhile, Sundial and Tilray are nowhere near as heavily shorted. Sundial has 5% of shares sold short, and Tilray is at 19%. Compared to over 100% for GameStop, the likelihood of a short squeeze looks much, much lower.

    Maybe marijuana gets decriminalized in the US. But maybe not. In any case, the Reddit traders aren’t likely to have any special information on that (nor do I). Everyone buying and selling Tilray and Sundial know about that possibility already. So it’s hard for the Reddit traders to get an edge.

    Even if marijuana is legalized in the US tomorrow, Tilray and Sundial may not make a dime on it. Why? Both companies are based in Canada! To say that marijuana may be legal in America is one thing…to say we’re going to let it come across the border rather than favor our own domestic producers is quite another. Remember that we’re in a jobs crisis, so the good move for politicians is to (at least appear) to support jobs in the US.

    So these are two possible rational cases to buy into these money losing companies. But what I notice over and over on Wallstreetbets is the lack of any justification at all, with people simply repeating the names of stocks over and over. Maybe Wallstreetbets doesn’t need much of a theory…they just need to get their fellow traders involved. (Or maybe it’s increasingly populated by bots.)

    Thing is though, without any real rational basis for holding the stock, that same group of traders will have to get out eventually. What’s supporting the stock then?

    Wallstreetbets would be better served buying broad index funds and waiting for corporate America’s money machine to work its predictable magic. But that’s just not as fun, is it?

    I find this roving band of Reddit traders a very interesting phenomenon in markets. But I won’t be joining them any time soon.

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “Kamala Harris” by Gage Skidmore is licensed under CC BY-SA 2.0

  • Did You Know Dragonflies Can Do Backflips?

    I came across this interesting new study today showing dragonflies can do backflips, even unconscious!

    They found that conscious dragonflies, when dropped from the upside-down position, somersaulted backwards to regain the rightside-up position. Dragonflies that were unconscious also completed the somersault, but more slowly.

    Check out the video below!

    I happened to be watching a wonderful David Attenborough documentary on insects, including dragonflies, last night with my wife, so this interesting tidbit caught my eye! Nature continues to amaze me, day after day.

    See the full study here.

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “White-faced meadowhawk dragonfly” by Tibor Nagy is licensed under CC BY-NC-ND 2.0         

  • From COVID Vaccines to Library Cards, Government is Failing Us. Here’s the Way Out.

    It’s bigger than party.

    The Problem

    This all started when I had to renew my library card.

    I got an e-mail requesting a picture of a photo ID with my current address on it. I got my driver’s license and passport before I moved here two years ago, so I asked how else I could renew my card and continue to experience the joys of reading. The friendly folks at the library demanded a photo ID and two (!) proofs of residence.

    This got me thinking about how a lot of things in this country are working. In short: not well.

    We are carefully following rules and accomplishing nothing. We put in place an arcane system of regulations and lose sight of our overall goal. And it goes way beyond your little local library.

    The Problem is Everywhere

    Early in the pandemic, getting a COVID test was next to impossible. I volunteered to schedule them at a nearby hospital in March, and the desperation in the voices of the callers struck me.

    Why was it so hard to get a test? The CDC first required all labs to use their test, which did not work, rather than letting labs develop their own.

    The University of Washington sought to make a COVID test on its own in February. Widespread testing at that time might have stopped the pandemic in its tracks. They made a test, filled out the mountain of documents the government required, and sent them off.

    One problem: regulations required they also mail a USB drive or CD-ROM containing the documents. Here’s the lab’s director, Keith Jerome:

    We’ve got a lot of scientists and doctors and laboratory personnel who are incredibly good at making assays. What we’re not so good at is figuring out all the forms and working with the bureaucracy of the federal government.” Jerome said that Greninger had to call and e-mail the F.D.A. multiple times to figure out what they needed to secure an E.U.A. “At one point, he was very frustrated because he’d e-mailed them what we were doing so they could review it,” Jerome said. “But legally you also had to mail a physical copy. Here we are in this SARS-CoV-2 crisis, and you have to send them something through the United States Postal Service. It’s just shocking.” (The F.D.A. has since dropped the requirement to send a CD-ROM or USB drive with a copy of the application.)

    The New Yorker

    Frankly, as much as I try to stay calm, reading this sort of thing makes my blood boil. Still not convinced? Well, let’s mosey over from the CDC to the Pentagon.

    The Department of Defense took a year to get cloth masks for our soldiers. A year! But at least they got a great deal. Each one comes at the bargain price of $45:

    It took a full year for the service to design, approve and distribute a face mask — called a Combat Cloth Face Covering, or CCFC — for its soldiers, an effort that required an additional $43.5 million in contracts to provide temporary solutions. That comes out to about $45 per mask, if you assume every active-duty, National Guard and Reserve soldier received one. A pack of 20 N95 masks at Home Depot costs about $20.

    And yet, the Army congratulated itself on the “expedited” timeline, compared to the 18- to 24-month procurement cycle such an effort would normally take.

    “The system worked as designed,” tweeted a former Marine.

    And that is precisely the problem.

    This from Defense News, by way of the excellent Alex Tabarrok at Marginal Revolution.

    If you’re still unconvinced we have a problem here, I’ll give you one last example. Here are some of the ways you can get a COVID vaccine in Hudson County, NJ where I live. Each one has a separate website, and some have no website at all! I haven’t been able to find an appointment on any of them yet:

    An AirBnB engineer in New York, Huge Ma, made his own website for $50 that aggregates the similar patchwork of vaccination sites in New York into one slick system. Government had most of 2020 and millions of dollars to do something similar, but never saw fit to do it.

    How We Can Fix It

    Huge Ma shows us what one capable person can do, freed of constraints. What government needs to do is to get some capable people together, give them an overall goal, and let them do the work.

    What might that look like? Get together a few of the best IT people in the New Jersey state government, call in a couple outside experts (perhaps Mr. Ma!), and tell them “We need to get people vaccines. Make it happen.”

    Getting together a group of capable people, giving them an endpoint, and letting them figure out how to get there is how the best organizations work. The superb book Good to Great details how that process has succeeded at one organization after another.

    In addition, we need all the Huge Ma’s we can get. Let’s have private citizens make things without permission, and also agitate to get government to work better.

    With that in mind, I will now politely submit all the required documents for my new library card, but also enquire how we might make this process easier for others in the future. 🙂

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “President Trump Meets with the Governor of New Jersey” by The White House is marked with CC PDM 1.0

  • The Man Who Wrote the Book on CRISPR and What He Taught Me

    Kevin Davies literally wrote the book on CRISPR, the revolutionary new gene editing technology that earned Jennifer Doudna and Emmanuelle Charpentier a Nobel Prize a few months ago. Today, I had the wonderful opportunity to attend a talk he gave on that superb book, Editing Humanity.

    If you’re not familiar, CRISPR is a technology based on the immune systems of bacteria. Bacteria find a particular genetic sequence they recognize from past infections and cut the genes in order to protect themselves. Scientists have harnessed this primordial system to cut and splice genes.

    In today’s talk, Davies highlighted how accessible this revolutionary new technology really is. The equipment is not expensive and many labs could potentially use it. This presents great opportunities but also very real risks of misapplication.

    CRISPR has been used successfully to treat sickle cell anemia in early trials. Davies noted that it has also been used to treat progeria in mice, which might some day bring an end to this deadly disease that ages children before their time.

    I even got the opportunity to ask Davies a question, and inquired which other applications of CRISPR excite him most. He mentioned possible applications for cystic fibrosis and cancer therapy. He also said that as a graduate student in genetics, the idea of precisely editing genes seemed like science fiction, but today is a reality. It amazed me to think of how much the field has evolved.

    Another interesting tidbit from the talk: due to COVID, Doudna accepted her Nobel Prize in the backyard of her home in Berkeley! I found that image to be quite a beautiful one.

    One great silver lining of COVID has been how much easier it’s become to attend talks like this! In the past, one might have had to be in Cambridge, MA to attend, but now it’s open to everyone. I hope we continue to offer a remote option for these discussions even once in person events are possible again.

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “File:Emmanuelle Charpentier and Jennifer Doudna.jpg” by For Emmanuelle Charpentier portrait, credit Bianca Fioretti of Hallbauer & Fioretti. For Jennifer Doudna portrait, credit User:Duncan.Hull and The Royal Society. is licensed under CC BY-SA 4.0