The Reflexive Case for Gamestop > $700: An Analysis

Gamestop rose to over $30 a couple of weeks ago, and to over $200 today. This post is a rational explanation of why GME can be worth more than $400 or even $700 through reflexivity. We explain why the short sellers are not guaranteed to win at the end. This post shows you the exact signals that will play out if the reflexive bull thesis is correct. It explains when and how you should buy GME in order to profit most from the reflexive thesis.

Past Analysis

Many great analysis exist on the bull case of GME. This one on Reddit highlights the fundamental VC bull case: larger online gaming markets, high CAGR of GME’s online division, plus an experienced founder like Ryan Cohen. This other Reddit DD (with coarser language) emphasize the strength of the credit market in helping GME. Likewise, there are well-argued bear analysis on Gamestop; for example, Andrew Left highlights that Gamestop is still first and foremost a mall retailer.

A New Factor: Reflexivity

This analysis looks at a major new factor that will drive GME prices to $400 or even $700: the reflexive factor. The basic sketch of the reflexive factor is as follows:

  • Price of GME goes up (can be due to any reason: fundamental or just positive sentiment).
  • Higher price of GME actually gives GME better fundamentals:
    1. It attracts the attention of investors, like /r/wallstreetbets. This directly continues the feedback loop of higher prices. Moreover, this increased attention will have value even when this rally is over. Gamestop will have more fans and more customers.
    2. More actual cash in GME. A higher stock prices mean GME can raise more money. GME has probably already raised $100mm at these new elevated valuations. Veteran founders (like Ryan Cohen) and the silicon valley startup machine is a known formula for turning a smaller base of cash into a high multiple of valuation.
    3. It attracts the attention of influencers, advisors and VCs, who act as coordinators of cash multiplication. These stars are operators know how to turn a smaller amount of cash into a higher actual value for the world (and hence market value). By having more creative and skilled advisors and operators on your side, your pile of cash is worth a much higher multiple.
    4. Short sellers recognize the truth. Not just that the market price of GME has gone up (this whets their appetite to short more, and to find backstops like Melvin Capital did with Point72 and Citadel). Rather, more importantly to them, the fundamental terminal value of the stock has gone up. Then they will start covering shorts. Short sellers will realize they’re not in a temporary, liquidity short squeeze, but rather they are in a fundamental, permanent, bankruptcy short squeeze.
  • The above represents a fundamental improvement to GME, which then causes prices to go up, and the cycle starts over again.

1-4 above form a positive spiral of reflexivity to drive Gamestop to higher and higher fundamental and market prices. The factors are additive and not all necessary. For example, even if short sellers don’t see the truth, if enough coordinators gather, the fundamental and market price of GME will go up.

Reflexivity means that the actual market value of GME does not need to be pinned down by earnings, book value, or multiples. It means GME can trade at $700 and be worth $700 because the newfound fundamental gains. Reflexivity is the reason a SPAC lead by a great investor can be worth more than book value.

What should you look for as this thesis plays out?

For 1) you should look for increasing attention on Gamestop. Look at friends who are not usually speculators asking about Gamestop. Look for Google Trend increases in Gamestop — you see all of this right now.

For 2) you should look for share issuance. If Gamestop issues say, 5% equity, it might seem bearish due to the selling pressure. But actually equity issuance is hugely bullish because Gamestop will have way more cash. Since Gamestop is trading at a very high multiple of book value, issuance of equity is highly accreative to shareholders! If I were Ryan Cohen, or any of the GME executives, I would find the best possible way to issue equity now. Millions of investors are telling you they trust you to generate returns with their cash — step up to the job and issue equity!

For 3), you should look for coordinators of cash multiplication to join in on the long bet. Chamath Palihapitiya joining in counts. He has returned 355% in a set of investments just last year, and has multiple startups he’s invested in that took his $1 and returned $100. If Chamath actively helps, Ryan Cohen can much more easily grow the company. Conversely, if you want the fundamentals of GME to go up, you should rally as many star operators as you can to take a long position in GME. Petition influencers like Elon Musk to invest. Petition VCs like Peter Thiel and others. Petition great serial founders to invest. It’ll be easier to get them to invest a little into GME, and then reflexivity can take over and they’ll help.

For 4), you should look out for short-sellers capitulating, not just because they are facing liquidity issues, but also because they recognize the reflexive hypothesis. Look for statements like “our thesis has changed given recent developments” or “the fundamental data has changed”. You’ll know when the short sellers in GME have finished capitulating when the short ratio (shares short divided by shares outstanding) is less than 40%. As a point of comparison, TSLA’s short interest is <10% now, while GME is over 100% short!

How should you invest?

Standard disclaimer: none of this article is financial advice. It is expository and also arguing a thesis. Do your own research. I am not not advocating you take any action, but rather explaining my own view of the world. Do not invest what you are not willing to lose. Follow all applicable regulations.

If you are following the factors of reflexivity, you should invest when the thesis above is more playing out. For example, invest more as 1) the popularity of Gamestop rises and your friend asks you about it. Invest more if 2) you see GME using its high stock price in the physical world to improve it’s fundamental position (e.g. acquiring another company for stock, recruiting great talent using stock).

Invest more if you see actual coordinators enter the ring on the positive side. Chamath going long GME was a watershed moment. More coordinators, especially those with true past experience, is better. If you see these coordinators start taking active action, like Chamath arranging a deal, or actively join the company as a board member, that would be hugely positive. Finally, you should invest more as you start seeing short sellers starting to capitulate (the short ratio go from 100% down to 60%), but then invest less as you see the short ratio bottom out around 40% or less.

Should you invest in calls or underlying stock? What should you be buying? One way is to see what the experts are buying. For example, Chamath bought 115 strike calls expiring February 19th, 2021, so that might not be a bad bet! You’ll win when the pros win, and the pros have a way of winning.

When will the rally be over? If over many days, or a few weeks, the above reflexive factors stop dominating, then it means GME may be at the new stable high value.

How can you support GME Price?

Standard disclaimer: You may not influence the price of a stock to deceive or defraud. If you are supporting any stock’s prices, you must abide by local regulations. This article does not advocate either increasing or decreasing the price of any stock.

Purely hypothetically, suppose you wanted to support GME price. How would you do it?

First, the reflexivity thesis is itself reflexive! Share this article on Twitter, Facebook, in your local chat group, etc. You don’t have to use this specific article — as long as you get across the idea of reflexivity.

Second, you can help the reflexive arc above. For 1), share your thesis about GME, and get attention and influence focused on GME. Ideally, they’re investors, but anyone is fine. Attention on Gamestop increases its fundamental value, even as a store! Most users on /r/wallstreetbets are doing exactly this paragraph.

For 2) if you are a shareholder, advocate the executives in Gamestop to use the value of their shares to create fundamental value. Ask them to raise equity. Ask them to acquire other companies in a stock deal that support the core VC thesis (e.g. online gaming platform).

For 3), bring GME to the attention of influencers and coordinators! What Alexis Ohanian did to Chamath is a perfect example. As more influencers get onboard, especially investors and founders, they will start being creative to find a solution to multiply the cash that GME has. They’ll be creative in growing GME’s value from scratch.

For 4), you can tell short sellers of the reflexivity thesis. You also can disable loaning out of your shares in your brokerage account, so the shares can’t be used against you to short. If your brokerage doesn’t allow you to “disable loaning out” — transfer the shares to a broker who will, like Interactive Brokers.


In summary, reflexivity is a powerful new bullish factor on GME stock prices. As market prices increase, the fundementals of GME don’t stay the same, but rather increase as well. This can lead to a flywheel effect where GME’s fair value is $400 or even $700. If you like this article, please share!

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