Franklin Hugh Money

In August of twenty twenty, a thirty-four-year-old who had never worked in the video game industry started buying shares of GameStop.

He did not buy a few. By the time he was finished he owned roughly ten percent of the company, which he later pushed to about thirteen. And once you cross five percent of a public company with the intent to influence it, American securities law stops treating you as a passive investor and starts treating you as something else.

That is worth understanding before the rest of the story, because the filing is the mechanism.

If you buy more than five percent of a public company's voting shares and you intend to be passive — you just think it is cheap and you plan to sit there — you file a form called a 13G. It is short. It is quiet. Nobody reads it.

If you intend to influence how the company is run, you file a 13D instead. And a 13D is a different animal. You have to disclose who you are, how much you own, where the money came from, and — this is the part that matters — your purpose. You have to write down what you intend to do. It becomes public, and every other shareholder gets to read it.

The 13D is the legal moment an investor becomes an activist. It is the point where you stop being an owner and start being a threat.

Ryan Cohen filed one.

He was born in Montreal in nineteen eighty-five. He never finished college. His father ran a glassware importing business, and Cohen has said the thing he learned there was to be suspicious of anyone who tells you the way it has always been done is the way it has to be done.

In twenty eleven he co-founded an online pet supply company called Chewy. The prevailing wisdom at the time was that this was a bad idea, and the prevailing wisdom had evidence — Pets dot com had died spectacularly a decade earlier and its sock puppet had become the permanent symbol of dot-com stupidity. Selling heavy, low-margin bags of dog food over the internet was the canonical example of a business that does not work.

Cohen's argument was that Pets dot com had not failed because the idea was wrong. It had failed because it was built during a period when nobody had the logistics to do it, and because it spent its money on advertising instead of on service.

So he built the service first. Chewy became known for a specific and slightly strange thing: hand-written condolence cards, sent by actual employees, when a customer's pet died. Sometimes flowers. Sometimes a painted portrait of the animal. This is not a growth hack. It does not scale, and it was never supposed to.

In April of twenty seventeen, PetSmart bought Chewy for three point three five billion dollars. At the time it was the largest acquisition of an e-commerce company on record. Cohen stayed on as chief executive, grew the business to roughly three and a half billion in revenue, and left in twenty eighteen.

Then his father died, and by his own account that is what changed the next part.

He was thirty-two years old with more money than he could spend and no job. He has described what followed as a period of not knowing what he was for. He put most of the money into two stocks — Apple and Wells Fargo — and went looking for something to do.

What he found was GameStop.

GameStop in twenty twenty was a company that sold physical video game discs out of shopping mall storefronts at a moment when the entire industry was moving to digital downloads. It was closing hundreds of stores a year. The consensus view on Wall Street was not that GameStop was cheap. The consensus view was that GameStop was going to zero, and a great deal of money was positioned for exactly that.

Cohen's thesis was that the mall stores were a liability, the brand was an asset, and the company had enough cash and enough customers to become an online retailer if somebody forced it to.

In November of twenty twenty he wrote a letter to the board. It is a public document and it is worth reading, because it is short and it is not polite. He told them the company was being run by people who did not understand what they were running. He told them the stores were the problem. He told them they were treating a structural collapse as a temporary downturn.

In January of twenty twenty-one, he and two former Chewy executives joined the board.

And then the thing happened that made all of this famous, and it is important to be precise about what Cohen did and did not do.

GameStop was one of the most heavily shorted stocks in the United States. A large number of investors had borrowed shares, sold them, and were waiting to buy them back cheaper. When a stock like that starts rising, those investors have to buy to close their positions, and their buying pushes the price up further, which forces more of them to buy. That is a short squeeze. It is a mechanical consequence of the position, not a conspiracy.

In late January the price went from under twenty dollars to several hundred. Retail brokerages restricted buying. It became a congressional hearing.

Cohen did not organize that. He was not on the forums directing it. He had filed a public document months earlier saying what he intended to do, and a very large number of people read it and reached their own conclusions. The squeeze was a market event that happened around his position, not one he manufactured.

He became chairman of the board in June of twenty twenty-one, and later chief executive.

Here is the assessment, and it requires holding two things apart.

The first is the method, which is legitimate and teachable. Cohen did the thing the securities laws are built to permit: he bought a large stake, he disclosed it, he stated his intentions in writing, and he took his argument to the other shareholders. Every step of that is on the public record, in the correct form, in advance. If you want to understand what an activist investor actually does — as opposed to what the phrase suggests — the sequence of GameStop filings from twenty twenty onward is the clearest teaching document available.

The second is the outcome, which is not the same thing as the method. Being right about a company's strategy and being right about its share price are separate propositions, and they can come apart for years. Anyone who bought GameStop at the top of January twenty twenty-one because they trusted the thesis learned that distinction in the most expensive way available.

That is the useful thing here, and it is not a lesson about GameStop.

Concentrated conviction is what makes an activist stake work. It is also what makes it dangerous, and the danger does not decrease because the conviction turns out to be correct. Cohen put a large share of his own fortune into a single company he intended to run. He had operational knowledge, a public filing obligation, board control, and years of time.

Most people copying the position had none of those things.