Wook Capital believes the path forward for achieving investment outperformance lies in the novel realm of social media and retail investors.
We collaborate with retail investors to crowdsource equity research, uncover overlooked information, and develop actionable insights.
Together, we seek to (fill in the blanks) and realize long term outperformance.
Rise of Retail Investors
Financial markets have changed dramatically since the industry-wide elimination of most trading commissions and initial outbreak of coronavirus in late 2019.
There are more retail participants than ever before, and investing has truly become mainstream. Millions of enthusiastic investors are constantly engaging in complex and nuanced discussions online.
They come from all walks of life and offer a spectrum of perspectives, often sprinkled with (unique insights) stemming from their personal experience and professional expertise.
~83%
According to S&P Index Versus Active (SPIVA) Scorecard, ~83% of actively managed Wall Street funds have underperformed the S&P 500 Index over the past decade.
The Irony of Wall Street
However, Wall Street has historically dismissed what these retail investors have to offer.
We find this ironic considering that over the past decade ~83% of actively managed Wall Street funds have underperformed their benchmark index.(1)
This failure is astonishing given the vast array of resources funds bring to bear to accomplish this singular task. Many employ entire buildings filled with some of the world’s brightest individuals.
Why do they still fail?
It’s not that it’s impossible. It’s not that they’re unintelligent. It’s just that difficult to do. And if they can’t consistently realize superior insights, you probably can’t either.
But through (collaboration) we just might have a chance.
Retail investors are constantly engaging in complex and nuanced discussions online.
Wook Capital engages with and combs through diverse online communities and platforms to collect the creative and differentiated takes from retail investors with deep expertise, while sifting nuggets of knowledge from the noise.
We use these (golden nuggets) to form a superior insight relative to the market consensus and share them with the public, capturing and yielding alpha—excess returns above market—for anyone through this transparent and collaborative process.
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As leading players that identified the deep value opportunity in GameStop, we were fortunate to live through an experience that showcased the power of (crowdsourced research).
Lessons from GameStop
Wall Street’s extraordinarily negative sentiment towards GameStop resulted in an unusually high short interest, despite the company’s relatively strong balance sheet and upcoming tailwinds from the newest generation of console hardware (Sony’s Playstation and Microsoft’s Xbox). We dove in deep, beyond the pervasive headline “Blockbuster 2.0” narrative, to collaboratively uncover an asymmetric opportunity overlooked by most.
The most salient examples include when, upon Ryan Cohen’s filing of his initial Form 13D to reveal his 9% stake, one retail investor with legal expertise brought to light that the lawyer listed on the form was a renowned M&A specialist. This nugget of information implied Ryan Cohen’s initial stake was likely the start of more to come, leading to our due diligence that found Cohen’s Chewy.com experience aligned perfectly with GameStop.
Another was discovered by Wook’s Managing Director, Rod Alzmann, when he identified that GameStop.com order numbers could be used to estimate the company’s e-commerce sales volume. Armed with this key insight, he crowdsourced order numbers across Twitter, StockTwits, and beyond, to build a model he then freely shared online.
The successful crowdsourcing of retail investors’ knowledge, creativity, and passion culminated in a public thesis (GMEdd.com) that drew upon a vast array of individuals’ insights and expertise.(2)
(2)
The successful crowdsourcing of retail’s knowledge, creativity, and passion culminated in a public thesis (GMEdd.com) that drew upon a vast array of individuals’ insights and expertise.
Wall Street firms ignored or missed these golden nuggets of information, with some paying the ultimate price for turning a blind eye until it was too late. We, along with many other retail investors, were able to develop superior insights & realize alpha through our collaborative research.
The Path Forward
The GameStop story shows that collaborating with retail investors and crowdsourcing research can offer a new pathway to outperforming the market in the digitally connected era.
In the past, the world’s greatest investors such as Warren Buffett and Howard Marks developed and applied unique strategies focusing on areas largely ignored by the market. Buffett found deals by scouring balance sheets when public accessibility was low, and Marks specialized in distressed debt when most intentionally avoided it.
The common denominator has always been rooted in their abilities to discover and act on unique insights not yet recognized or appreciated by the market.
How can we consistently achieve long-term alpha?
Alpha can only be realized by skillfully capturing the delta between the consensus (market) view and the investor’s variant perception.
This means that we must know more than the market.
In the modern world where everyone has instant access to the same set of rapidly evolving information, the game is less about gaining faster access to information than others. It is instead about combining the available information with the specialized expertise of others to form a superior insight.
Without specialized expertise, the likelihood of a lone investor consistently developing exceptional insights is extremely slim.
We believe that collaborating with retail investors—tapping into their boundless passion, creativity, and expertise—provides an opportunity to uncover golden nuggets that the market has missed and (achieve alpha together).
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We have little regard for how we march towards truth; we only care that we get there.
This involves the humble acknowledgement that alone, our knowledge and potential is now extremely limited in the investing world. We don’t know much, and that’s the truth.
We are therefore completely transparent with our thoughts and openly encourage all retail investors to challenge our thinking. This requires collaboratively (filling in the blanks) together in this unwavering pursuit of truth.
We are delighted when we are corrected—this is a prerequisite for learning and growth.
Investing does not have to be a zero-sum game, and Wook Capital exists to prove it. Anyone can contribute, and everyone can win. We welcome all retail investors to join us together on this journey.