On Feb. 3, four professors of finance at the Gabelli School of Business came together to try to make sense of it all.

“GameStop: Comedy? Tragedy? or Both?”—an hour-long virtual discussion—brought together Sris Chatterjee, Ph.D., Gabelli Chair in Global Security Analysis; James Russell Kelly, senior lecturer, finance and business economics; Kevin Mirabile, D.P.S., clinical associate professor, finance and business economics; and Steven Raymar, Ph.D., associate professor and area chair, finance and business economics.

The webinar, which was moderated by Gabelli School Dean Donna M. Rapaccioli, Ph.D., delved deep into the vagaries of the stock market that led to the GameStop saga, from call options to delta hedging and gamma squeezes. There was also discussion about whether the meteoric rise of GameStop’s stock price, which was driven by members of the Reddit forum r/wallstreetbets, was a one-off event or the start of a trend of market disruption.

From a historical perspective, it was unprecedented. On Jan. 15, Mirabile noted, approximately 62 million shares of GameStop shares were sold short, which occurs when an investor borrows stock shares and sells them on the open market, planning to buy them back later for less. This was unusual because the company only has 70 million shares, and normally only 5 to 25% of a company’s shares are sold short at any point in time.

Because prominent hedge funds such as Melvin Capital had taken a position that the stock would decrease, they lost billions when investors such as Reddit followers of r/wallstreetbets drove the price to an astronomical $483 a share on Jan. 28.

The story took another turn when Robinhood, the free app that the Redditors had used to make the trades, suspended trading in GameStop, enraging retail investors.

Raymar voiced skepticism that it’s necessary to impose new government regulations.

“Is it best for investors? Who would it penalize? Some of the free thinkers in Reddit? Just think how that would play out when everyone understands how courts as high as the Supreme Court have essentially made it impossible to prosecute insider trading,” he said.

Kelly said the chaos reminded him of a section of the book Pitch: The Perfect Investment (Wiley, 2017) where the authors note that the wisdom of the crowd can be transformed into madness when there is “a lack of diversity or independence of the participants.”

“What we have observed is both a bubble and a crash in GameStop over the past few weeks, caused by the madness of crowds. The Redditors are nothing more than speculators. They are the polar opposite of investors, which is what we teach our students to become at Fordham,” he said.

Kelly did also wonder how hedge funds’ risk management departments allowed them to take such spectacularly risky positions.

Mirabile pinned it on “a failure of the imagination.”

“When the Wall Street analysts were saying that the price of the stock was $14 a share, [hedge fund managers]perceived that the risk of new buyers entering the market was next to zero. What they failed to consider was that retail investors [using Robinhood]could act as a block, not as individuals,” he said.

Ultimately, Chatterjee said this is a warning that leaders should take seriously the genuine anger Americans have for the current status quo. He noted that just 10% of Americans control 80% of the market wealth, so it’s not surprising that the average American is not benefitting from the market.

“We all need an orderly capital market, but unless we’re able to convince everybody that this is to everybody’s benefit, we’re going to see more acts of ‘rebellion.’ The fact that we are having disruptions in the market, going back to 2008, means we are seeing the system show cracks,” he said.

But the fund’s return has never been as large as it was this spring. Students produced a 5.44 percent return for the semester, outperforming their benchmark of 4.64 percent by 80 basis points.

How did the group surpass its record? “Excellent stock picking through comprehensive security analysis,” said James Kelly, senior lecturer in finance and SMIF instructor.

Two other factors contributing to the accomplishment were the leadership of the fund’s chief investment officer, Dan Gerard, GABELLI ’17, and the analysts and portfolio managers’ teamwork.

Many of the program’s Class of 2017 members will apply their experience to the real world, as they have all landed jobs with leading investment banks, including J.P. Morgan, Barclays, and Bank of America Merrill Lynch, and with consulting firms such as EY. Another recent graduate, Shuai Shao, GABELLI ’17, has been admitted into a master’s program at the London School of Economics, where he will study investment management.

As part of the Fordham University Jubilee celebration on June 3, a group of six students gave a presentation on how they managed the fund. Clarissa Cartledge, rising senior, said that part of the students’ success rested on the choice of a pharmaceutical company, Acorn, that had a merger and rose 52 percent.

“That was a really nice investment,” she said, adding that the course was also invaluable for its real-world aspect, said Cartledge.

“Because it’s real money you feel it is a real job, even though it’s a for-credit class. Everyone is motivated to improve the fund’s performance. We watch the news, we follow the companies and challenge each other to make correct decisions.

“We’re grateful for the opportunity to invest the endowment, and to have the confidence of Fordham behind us as well as the learning experience they are giving us.”

–Chelsee Pengal

Michael Price, president of the Price Family Foundation, Inc. and managing member of the New York-based hedge fund MFP Investors, offered students and alumni a glimpse into the world of value investing, the methodology behind the success of professionals such as Warren Buffett.

Developed in the 1930s by Benjamin Graham, value investing involves buying stocks that are trading for less than their intrinsic value. The presumption underlying this strategy is that the stock market overreacts to good and bad news, which means that even small setbacks could cause a company’s stock prices to fall. If the company is strong, these prices will eventually rebound.

To value investors, this temporary drop represents an opportunity to buy into a valuable company while the price is unusually low. The trick, however, is to scout around for companies that are in this situation.

“You want to go where the action isn’t. When we read the newspaper in our office, we look for the earnings that disappoint, not the ones that increase,” Price told a standing-room-only crowd gathered at Fordham’s Lincoln Center campus.

“It’s our job as value investors to pick through all the paper that Wall Street prints and find those pieces of paper, whether bonds or stocks, that are too cheap based on their underlying asset value.”

The task requires patience as well as ingenuity, Price said, and you must be willing to go out on a limb.

“But that’s what’s fun about this business,” he said. “Every morning you wake up and ask, ‘Where can I find value?’ It’s not what Wall Street wants to sell you. You have to look the other way. You want to go where no one else does.”

The event was part a lectures series sponsored by Fordham’s Gabelli Center for Global Security Analysis, which promotes the study and practice of value investing. Launched in 2013, the center was created as part of the historic gift to Fordham from the school’s namesake, Mario Gabelli, GABELLI ’65.

In addition to the lecture series, the center sponsors conferences for academics and practitioners, alumni networking events, and an undergraduate concentration in value investing.

“Fordham is one of the very few business schools that offers value investing at the undergraduate level,” said James Russell Kelly, director of the center. “The program is growing rapidly. We currently have 77 students studying value investing, and in January we’re launching our first graduate course.”