Above the Noise
Distilling insights and key lessons from new concepts and current invents. In this post, one of our founding partners, Jon Mayes, explains the broader implications of the recent GameStop trading drama
Prior to becoming a strategy consultant, I cut my teeth as a financial litigation consultant. My colleagues and I would analyze big financial data and qualitative facts to support expert witness testimony in financial cases. Think Enron.
Effects from two cases from that time have now converged in the form of the latest GameStop drama. The first was our defense of Allied Capital vs David Einhorn, the renowned short seller from Greenlight Capital.[1] Mr. Einhorn had believed that Allied Capital, a closed end mutual fund, had been misrepresenting their assets and took a very public short position, not dissimilar to the variety of hedge funds shorting GameStop.
The second was in defense of the NYSE specialists[2] accused of “fraudulent trading.” These were humans who matched trades back when people yelled on the trading floor and provided liquidity for stocks to prevent overly large price movements. This case hastened the removal of humans from the market machinery, paving the way for fully automated, High Frequency Trading (HFT) algorithms to provide market liquidity, algorithms used now by companies like Citadel which power Robinhood.
Which brings us to the events of the past week. Several hedge funds taking large, public, short positions against GameStop is not new. What is new is that a group geographically distributed, yet like-minded individuals decided to “fight back,” empowered by the convergence of disruptive communication (Reddit), disruptive information access (Wikipedia, Google, and others), and disruptive market access (Robinhood).
This event demonstrates a key fact for all organizations. These “rare” events will occur with greater frequency due to accelerating Convergence, Divergence, and Emergence (CDE), that is, a convergence of people and ideas powered by technology, a divergence of attitudes a way from a mainstream, and a resulting emergence of new challenges to the status quo and your ability to compete in the marketplace.
How quickly organizations identify and respond to such CDE events will play a major role in their success. Given their nature, it is unlikely that traditional forms of strategic management will capture the weak signals that foreshadow these events. The lesson is that companies need to upgrade their external sensing capabilities and strategic paradigms to survive and thrive.
We at Quantum Logik Consulting are committed to helping clients navigate these events and build out strategic ways of thinking to be in the best position to capture the opportunities that emerge in a calculated and disciplined fashion.
[1] Made famous in the book, Fooling Some People All of The Time, and recounted in the link below, https://www.fool.com/investing/general/2015/03/26/allied-capital-5-years-after-its-downfall.aspx
[2] https://www.sec.gov/news/press/2005-54.htm
Image taken from GameStop.com