Gamehost Inc T.GH

Glad to be back in GH stock!

[Thelongview]

Greetings fellow owners!
 
In September 2022, I had the opportunity to work with a person that I greatly admire. I had been aware of him since my early days in the industry and had met him a few times. Over the years, a long-term conversation developed – based on a shared interest and philosophy.
 
In 2022, he asked me to join “The Fund”. Would I be interested? Of course, I would. Would I be willing to sell all of my securities so that there would be no conflict of interest?
 
This was a tougher one.
 
I love owning stock directly. The reason I left the industry in 2014 was to concentrate my efforts on studying the businesses that I wanted to focus on and not strictly be limited to those that were assigned to me. I gave it a good deal of thought and decided that the opportunity to work with someone that you admire and shares your way of thinking and that you could have daily, engaging and mentally stimulating conversations with, about a subject that you are both passionate about, well worth it.
 
I knew that this would not last forever as he is of a certain age but it lasted for a shorter period of time than I had anticipated. For various reasons, he started coming to the office less often and soon down to every two weeks of so. There was no longer a reason for me to be there. It was a wonderful experience and we are still in touch and still have “our” conversations. That will never change. What has changed is that I am once again out of the industry and free to buy stocks. While I am what would be called middle-age – I will leave which part of the middle I am in to your imagination – I am once again “retired”. This time permanently.

I just wanted to let you all know why I haven't been around for a while. I wasn't permitted to post or to talk about stocks publicly.
 
I do love stock ownership!
 
Greetings to Malx1, Cpeczek, Sage, Nukester, TheBridge, and of course to the amazing Kasking – sounds a bit like a magician – and to all new owners that have joined the GH club – long-term owners that understand that they have purchased part of an actual operating business and not short-term thinkers who have purchased a fluctuating stock price, in the hopes of selling it a few pennies above their purchase price, and to repeat in perpetuity.
 
Okay, by now you are all thinking enough already – get on with it. And so, I shall.
 
How to lose money
The 19^th century German mathematician, Carl Jacobi, said: “Invert, always invert”. The usefulness of inversion is not strictly limited to the science of mathematics and is one of the tools I routinely use when looking at company specific operating problems and financial statement analysis.
 
A close cousin to inversion, and inspired by Charlie Munger, is to figure out what you don’t want to happen, and devise a strategy for what you don’t want to happen, to actually happen.
 
An example will help to illustrate: If you want to lose weight, first try and figure out what you need to do to gain weight.  
 
To gain weight you would eat an excessive number of calories. It is much easier to eat a lot of calories if the food contains little or no fiber, as fiber expands and takes up volume in your stomach – which has volume receptors and not calorie receptors - and when triggered, sends a signal to the brain that says you are full. This is why we can eat way more calories from pizza than from lettuce and other vegetables. So, you would eat pizza and burgers and chips etc., as these fibreless foods avoid detection by the volume receptors and allow you to pack in the calories. You also would want to move as little as possible, so that all of your hard calorie-ingesting efforts would not be negated by the calorie-burning effect of movement, such as exercise.
 
Knowing that this lifestyle will make you gain weight, you now have a blueprint to lose weight, which is by doing the exact opposite: eat fiber rich foods like fruits, vegetables, and legumes and move around more by adding exercise to your lifestyle. Over time your problem will be solved. This type of thinking is another form of inversion and also one of the tools that I use.
 
Charlie Munger once said: “To the man with a hammer, every problem looks like a nail”. If you only have a hammer in your tool box, then you try to solve all of your carpentry problems with this hammer, as you don’t have any other tools – which may be better suited – to solve your carpentry issues.
 
When it comes to business problems (as with many other type of problems in life), it helps to have a big tool box filled with a wide variety of tools, from which you can select the appropriate tool to solve the problem you are focusing on.
 
Understanding the big elementary concepts in mathematics, physics, chemistry, biology, psychology, history, anthropology, etc. will help you in finding solutions to business and life problems. The large tool box helps you to think in a fashion that was practiced by Carl Jacobi, Charlie Munger and others, and to come up with solutions that would normally escape the vast majority of retail investors and market professionals.
 
How would you go about making money on a stock investment? How would you stack the odds in your favor?
 
In honor of Charlie Munger and Carl Jacobi, let’s flip this task around.
 
How would you go about losing money on a stock investment? How would you stack the odds against making money?
 
I’ll submit some key points:
 

1. Invest in a business that is very complicated and that you don’t understand

 

2. Invest in a business that does not have a competitive advantage over its peers

 

3. Invest in a business that has dishonest and incompetent management

 

4. Pay a ridiculously high price for this business (the higher the better)

 

5. Pay very close attention to world economic-impacting events. Pay close attention to the levels of inflation and other economic indicators and to what the Bank of Canada’s strategy will be over the next year. Let these events dictate your buying and selling - When news is dire: sell. When news is exciting: buy.

 

6. Listen to business media give their opinions and especially listen to investment professionals – after all they are “experts” and always know what they are talking about.

 

7. Focus on the short-term price fluctuations of your holdings. When the price of the stock falls: sell. When it rises: buy (especially if a brokerage firm has “upgraded” it). Sell your stock if it misses earnings estimates. Buy more stock if it beats earnings estimates. Above all become obsessed with the day-to-day; hour-by-hour; and minute by minute stock quotes. After all, the price at which a stock is quoted is always the correct price. It is always its intrinsic value and there are never any bargains to be found. Take your lead from stock prices and don’t even bother to think for yourself. There is safety in numbers so act like others and follow the heard. Lemmings are intelligent creatures.

 

8. Increase frictional costs. Trade frequently so that you will pay more commissions to your brokerage house. This will increase the odds of attaining your goal of losing money. Fear not if the above factors have not made you lose money. You always have and ace up your sleeve with the following strategy: In case of paper capital gain, break glass with hammer and sell so that you now must pay a capital gains tax to your government. While this strategy will still leave you with a profit, chin up, at least it will be a smaller profit than holding on to your position and deferring the capital gains to the future. Take solace in knowing that you gave your best effort in attempting to lose money. Your profit will not make us think less of you.

 

9. When contemplating the purchase of a stock, never think longer than what the company can achieve over the next few months. We all know that the long-term is unimportant and that the short-term is everything. Eat and drink tonight for tomorrow we die.

 
I’m quite confident that if you follow the above 7 rules, you will be successful in your quest to lose money.
 
Now the above sounds ludicrous, but it will allow you to achieve your goal of losing money.
 
This however, is exactly how your typical retail investor behaves. Want to hear something scarier? This is exactly how your typical market professional (an oxymoron) also behaves.
 
Yes, there are some superior investors out there, and some even work in the industry, but you don’t really hear about them – they are too busy studying businesses and buying when it makes business sense, and selling when it makes business sense. They tune everything else out. To these real investors, the rest is just noise, which at best is a waste of time, and at worst will steer you down the wrong path. The path of poor investment decisions, courtesy of your emotions.  
 
You see, the reason these real investors don’t focus on the noise is that they always own great business. Businesses that can withstand difficult periods brought on by terrible world events and suffering, and disastrous economic conditions. The real investors only invest in these great businesses because they know that over time, they will witness just about everything the world and the economy can throw at them. This is normal. It is not new.
 
They believe that other “investors” will behave in a predictable way by focusing on the short-term only and not seeing the opportunities that are being created by their short-term actions. The real investors focus on the long-term, knowing that “this too shall pass”. History does not repeat itself but it does indeed rhyme. Real investors never lose sight of the long-term. Not one month, but 10 years, 20 years out. Investing is one of the few areas that it is easier to see the long-term over the short-term. However your typical investor and market professional focuses on the opposite.
 
By focusing on the noise, the emotion of fear will prevent you from buying when businesses trade below their intrinsic values, and much worse, will cause you to sell at irrationally low prices.
 
The emotion of greed will make you believe that castles can indeed be built to the sky, and you will be very willing to pay far above intrinsic value when under its spell.
 
This fear and greed, in others, allow real investors to outperform over time. The great John Templeton has said: “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest of fortitude and pays the greatest ultimate reward.”
 
There is something bizarre about human behavior when it comes to money. Investors want to over-complicate what needs to be focused on.
 
Now, knowing how to lose money on a stock investment, lets do the exact opposite to make money on a stock investment:
 

1. We must buy a simple business. One in which we understand the product or service. A business in which we understand how it generates revenues, how it incurs expenses, what its capital expenditure needs are, who its competitors are, etc.

 

2. We must buy a business that has a competitive advantage, so that it can maintain strong margins and generate high levels of free cash flow, that this competitive advantage will permit. This competitive advantage needs to be long-term in duration.

 

3. Since management will operate the business for us, they need to be honest and competent. It will not do if management only has one of the above two qualities. If they are honest but incompetent, we will not do well. If they are competent but dishonest, we will be taken to the cleaners.

 

4. We must not pay more than a fair price to buy the stock – and preferably well below intrinsic value to allow ourselves a margin of error in our estimate and for a larger investment return.

 

5. We cannot base investment decisions on world events, Bank of Canada policy, as it keeps changing over time, and inflation and other economic indicators. However, we do need to pay attention to interest rates but only with respect to how it changes our intrinsic value calculation and not as an indicator to buy or sell stock.

 

6. We need to ignore the media talk (facts are important but opinions are not). Ignore market “experts” – men and women with an opinion on every stock but very little knowledge on any of them and with no clue of their real value.

 

7. We must avoid looking at stock prices and the market. Focusing on stock prices will likely make us act irrationally and lead us to trading in and out of those stocks in an attempt to make very small sums of money at the expense of very large amounts of money we will make over time. Replace short-term focus of stock price observation with a long-term focus of understanding our businesses in greater and greater detail. This will give us the conviction to stay the course and make significant long-term gains. Modify Carl Jacobi’s “Invert, always invert” to “Long-term, always long-term”. Not Wall Street and Bay Street’s long-term. We need to focus at least ten years out.

 

8. We must avoid frictional costs. Avoid trading when not necessary. Over time this will leave you with a bigger profit. Defer paying taxes on capital gains to the future, after all this is paper gain is an interest-free loan from the government. Of course, you should never simply let tax implications be the overriding reason to do or not do something in investing – the investment merits must come first – but it is nonetheless an important consideration.

 

9. When contemplating the purchase of a stock, we should not overly pay attention to current corporate news, as typically, investors attribute too much importance on current items that a company releases and not enough attention on the key variables, long-term in nature and importance, that will drive long-term free cash flow generation and progression. Our attention should always be on competitive advantage creation / protection and on valuation.

 
Currently I’m in the process of rebuilding a portfolio. It’s a fun process. I’m happy with the prices I’m getting but there is a long way to go as I’m only in the neighborhood of about 25% invested. I’m patient and will add when valuation and prices allow me to do so. Investor emotions have been helping me in that quest and no doubt will continue to do so. :)
 
As far as shares of GH go, I do have some that I’ve purchased recently, in the neighborhood of $8.55 - $8.60. It’s a small holding but a holding nonetheless.
 
Unfortunately, “The Fund” had given me a certain timeframe to exit my GH shares and other stock holdings and so my exit price was lower than current purchase prices but I was willing to pay the purchase prices I did as GH’s intrinsic value is much higher. In effect what I did was sell low and buy high: not a trick to teach your children. :)
 
As you can see, this post is not very GH specific. However, I do intend to write a series of very specific posts on GH in the future. For the time being, I need to be putting cash to work in those stocks that I am interested in and once more appropriately invested, I’ll get to that. :)
 
All the best to all GH owners. I’m looking forward to us making money in this very good little business, over time.
 
TLV