Many students have asked me to analyse the GameStop phenomenon that has taken Wall Street and the popular press by storm.
And it is healthy that a new crop of MBAs should be keen as mustard to learn from the experiments and mistakes of others to seek new ways of deriving profit from strategic street smarts.
This article is based on three of the most fundamental principles of MBA Finance:
- Principles of risk and return
- Time value of money
- Profitability and liquidity
- Hedging principle
I have decided to focus on Adelaide Adventure Rooms as the candidate investment focus because my experiments didn’t work when using shares for the MBA School Of MBA Credentials. This was due to the fact that there are only two shares, one held by me and one held by my good lady wife, and when I tried to borrow her share to sell it short she told me to stop disturbing her during Midsomer Murders or risk there being an unexpected fourth murder in that episode!
What happened with GameStop shares?
The short version of the long story is that Hedge Funds started short selling GameStop shares in the hope that when the share price plummeted, they’d be able to buy back the shares at a lower price having just sold them for a higher one.
However, a rag tag bunch of citizen investors saw that more than 100% of available shares had been sold short, which meant that if they swooped in and bought them the “professional” investors would have no option other than to buy them back from these smart cookies who’d applied MBA Thinking 101.
The result? Due to increased demand, GameStop share values hit the roof and beyond forcing Hedge Funds and other Institutional Investors to buy back as many shares at a great loss, for those shares that were available, noting that many of these “Robin Hood” investors are still holding on and not budging.
What a wonderful display of how exciting and expensive the “free market” can be.
How might GameStop apply to any other business here in Adelaide?
This is a wonderful question.
Firstly, it is important to note that this happened to a store that sells games. Therefore, we must ask ourselves, do such institutions exist in Adelaide.
They do.
I have analysed the Hungry Hippo Cafe in Hindley Street but, alas, it has been permanently closed.
Next, I looked at Games World but it seemed too similar GameStop in some ways and therefore lacked the potential for brinkmanship that a worldly wise professor yearns for.
So, I settled upon Adventure Rooms Adelaide because it has all the elements needed for teaching my students.
Before we think about short selling, let’s see how the company fares as an investment target in terms of MBA Finance Principles.
Risk and Return
The wonderful thing about Adventure Rooms Adelaide is that the risk users face is a fabricated one. There is a theatrical sense of being locked away but at all times there are emergency doors one can use, should one be failing to solve the mystery or puzzle and “escaping” the room.
This means we have artificial risk and real returns. A perfect candidate for investors.
Time Value Of Money
With Adventure Rooms Adelaide money most certainly has a time value.
Typically speaking, with only two players, games are often $80, meaning that $40 per person for a 90-minute experience provides a Time Value Of Money of approximately 45 cents per minute.
Can you see the sort of clarity that MBA Thinking brings? Astounding, isn’t it.
Profitability and Liquidity
Interestingly, Adventure Rooms Adelaide is again a perfect candidate for investors because not only to players need to pay a deposit to hold a booking (ensuring profitability) but they also run a bar.
Therefore, there is much liquidity to be had.
Hedging Principle
This is an important one.
What would happen if Adventure Rooms Adelaide lost its premises in Rundle Mall?
It’s simple, really. The company could relocate to Mintaro where there exists a maze already popular with game lovers, and it’s been made out of hedges.
Can we short sell?
This is the $64 question and the answer is, yes.
I believe Adventure Rooms Adelaide is perfect for short selling as long as you note some restrictions.
Firstly, while advertised for people aged 16 years and older, Adventure Rooms Adelaide DOES short sell, allowing children aged 5-14 to buy tickets. There will be some exceptions in which certain children will be taller than adult customers but generally this will be classic short selling.
Secondly, short selling has its limits because really short children, aged 4 and younger, are admitted free.
So there you have it. If you’re game to apply MBA Thinking in Adelaide, the MBA School Of MBA Credentials can help you roll the dice strategically!
And throughout the Adelaide Fringe, you can forget playing the odds and book in for our one hour show, A Lunchtime MBA, in which you come for lunch and leave with an MBA.
Game on!
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