1 00:00:03,120 --> 00:00:08,320 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:11,080 --> 00:00:13,960 Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly 3 00:00:14,000 --> 00:00:16,320 Speaker 2: podcast where we talk about stuff if you want it 4 00:00:16,400 --> 00:00:20,160 Speaker 2: to money. I'm Matt Levian and I write the Money 5 00:00:20,200 --> 00:00:21,279 Speaker 2: Stuff column for Bloomberg. 6 00:00:21,800 --> 00:00:24,200 Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and 7 00:00:24,239 --> 00:00:25,720 Speaker 1: an anchor for Bloomberg Television. 8 00:00:26,640 --> 00:00:27,600 Speaker 2: What's going on, Katie? 9 00:00:27,680 --> 00:00:30,720 Speaker 1: We're going to talk about trader school and hedge funds. 10 00:00:30,800 --> 00:00:33,519 Speaker 1: Then we're going to talk about fake m and A, 11 00:00:34,240 --> 00:00:36,000 Speaker 1: and then we're going to talk about kind. 12 00:00:35,720 --> 00:00:38,120 Speaker 2: Of M and A real weird NA. 13 00:00:38,479 --> 00:00:43,680 Speaker 1: Yeah, let's get to it. Let's get into it. So 14 00:00:43,880 --> 00:00:48,280 Speaker 1: Traders School, we're talking about zero point seventy two Citadel. 15 00:00:48,479 --> 00:00:52,080 Speaker 1: The list goes on other giant hedge funds basically creating 16 00:00:52,120 --> 00:00:56,880 Speaker 1: an in house trading school to turn their nines into 17 00:00:56,960 --> 00:00:57,800 Speaker 1: perfect tens. 18 00:00:58,280 --> 00:01:01,920 Speaker 2: Yes, this is a Bloomberg News Big Take article today yesterday. 19 00:01:02,680 --> 00:01:03,360 Speaker 2: It does matter. 20 00:01:03,440 --> 00:01:06,200 Speaker 1: Time is a construct. As we keep going over, this is. 21 00:01:06,120 --> 00:01:08,959 Speaker 2: A big take article at Bloomberg about how these hedge 22 00:01:08,959 --> 00:01:11,479 Speaker 2: funds are building their own in house trading schools. Here 23 00:01:11,520 --> 00:01:12,560 Speaker 2: we are talking about it. 24 00:01:12,840 --> 00:01:16,679 Speaker 1: Yeah, reading this, I kind of feel like, shouldn't you 25 00:01:16,800 --> 00:01:19,200 Speaker 1: have an in house training program anyway. 26 00:01:19,520 --> 00:01:22,440 Speaker 2: So a couple of points of that one is that no, 27 00:01:22,720 --> 00:01:25,480 Speaker 2: historically all of the like buy side like used to 28 00:01:25,560 --> 00:01:27,920 Speaker 2: hire from the seull side, right, Like it used to 29 00:01:28,000 --> 00:01:30,000 Speaker 2: be that if you're a hedge fund, the way you 30 00:01:30,360 --> 00:01:33,080 Speaker 2: acquired new talent was from the banks. And one thing 31 00:01:33,120 --> 00:01:35,199 Speaker 2: that's happening here is like the banks are a less 32 00:01:35,200 --> 00:01:38,000 Speaker 2: of a source of talent for these places, in part 33 00:01:38,040 --> 00:01:40,560 Speaker 2: because like banks get rid of prop trading and so 34 00:01:40,720 --> 00:01:43,360 Speaker 2: like the ability to source good risk takers from banks 35 00:01:43,400 --> 00:01:45,160 Speaker 2: has gone down, but also a part because these places 36 00:01:45,160 --> 00:01:47,640 Speaker 2: have gotten huge, and it's just like you're not looking 37 00:01:47,720 --> 00:01:50,200 Speaker 2: to like identify one good trader from somewhere, you're looking 38 00:01:50,200 --> 00:01:52,840 Speaker 2: to like mass produce them. And so having a training 39 00:01:52,880 --> 00:01:55,000 Speaker 2: program is kind of a new need for these big firms. 40 00:01:55,040 --> 00:01:57,520 Speaker 2: Right used to be a hedge funds, like one manager 41 00:01:57,800 --> 00:02:00,320 Speaker 2: and when that manager got rich enough, they just the 42 00:02:00,360 --> 00:02:04,000 Speaker 2: firm went away. So like, having this very institutional structure 43 00:02:04,120 --> 00:02:05,680 Speaker 2: is kind of a new thing, and so you need 44 00:02:05,720 --> 00:02:07,840 Speaker 2: a training program. The other thing about it, though, it's 45 00:02:07,840 --> 00:02:11,600 Speaker 2: not just training you know, incoming people to be good analysts. 46 00:02:11,840 --> 00:02:14,480 Speaker 2: It's taking the people who are analysts and have been 47 00:02:14,520 --> 00:02:17,760 Speaker 2: there for a while and trying to find out if 48 00:02:17,800 --> 00:02:20,400 Speaker 2: they will be good portfolio managers and promoting them to 49 00:02:20,480 --> 00:02:24,320 Speaker 2: being portfolio managers as carefully and scientifically as you can. 50 00:02:24,520 --> 00:02:26,240 Speaker 2: So instead of being like, yeah, you've been here a while, 51 00:02:26,240 --> 00:02:30,160 Speaker 2: here manage a book, it's like taking the analysts and 52 00:02:30,520 --> 00:02:32,480 Speaker 2: seeing if they'd be good at managing a book and 53 00:02:32,520 --> 00:02:33,880 Speaker 2: teaching them how to manage a book. 54 00:02:34,120 --> 00:02:37,919 Speaker 1: So two points. So we're talking about it as trader school, 55 00:02:37,960 --> 00:02:40,560 Speaker 1: and the article talks about it as trader school. It's 56 00:02:40,600 --> 00:02:43,400 Speaker 1: more fun to me is this sort of just be 57 00:02:43,480 --> 00:02:46,120 Speaker 1: in vision where it's actually just like a factory and 58 00:02:46,160 --> 00:02:49,720 Speaker 1: you're just putting this person into the machine. It does 59 00:02:50,000 --> 00:02:53,320 Speaker 1: some combination of lights and sounds and things to the 60 00:02:53,360 --> 00:02:56,320 Speaker 1: person that they spit out as this stock picker. 61 00:02:56,480 --> 00:02:58,280 Speaker 2: Well, that is sort of how these things are supposed 62 00:02:58,280 --> 00:03:00,400 Speaker 2: to work, right. The idea of these multi strategies is 63 00:03:00,440 --> 00:03:04,120 Speaker 2: they're very like scientifically managed and they really like carefully 64 00:03:04,160 --> 00:03:06,640 Speaker 2: monitor your trading and they make sure you're neutral to 65 00:03:06,680 --> 00:03:09,040 Speaker 2: all the factors, and if your portfolio goes down by 66 00:03:09,040 --> 00:03:11,080 Speaker 2: a little bit, they like pull some capital, and if 67 00:03:11,120 --> 00:03:12,960 Speaker 2: it goes down by a little bit more, they fire you. 68 00:03:13,160 --> 00:03:15,080 Speaker 2: It's you know it is like an alpha factory, right, 69 00:03:15,120 --> 00:03:19,000 Speaker 2: it is like trying to somewhat dehumanize the management of traders. 70 00:03:19,040 --> 00:03:21,040 Speaker 2: So yeah, it is a machine that flashes some lights 71 00:03:21,040 --> 00:03:23,360 Speaker 2: that you But wait, I also want to take it 72 00:03:23,400 --> 00:03:26,240 Speaker 2: seriously as a school because I would like to go 73 00:03:26,280 --> 00:03:27,040 Speaker 2: to Trader School. 74 00:03:27,080 --> 00:03:28,760 Speaker 1: I want to audit a class at Trader School. I 75 00:03:28,800 --> 00:03:31,280 Speaker 1: don't think I would do very well, so I don't 76 00:03:31,280 --> 00:03:33,680 Speaker 1: want to receive a grade at the end, but I 77 00:03:33,720 --> 00:03:35,280 Speaker 1: would like to see what happens. 78 00:03:35,400 --> 00:03:38,160 Speaker 2: Apparently they greate them out of ten, right, yeah, right, 79 00:03:38,720 --> 00:03:40,960 Speaker 2: Like usually the analysts come in as ninees and they're 80 00:03:40,960 --> 00:03:43,640 Speaker 2: supposed to leave as ten. Portfolio managers for that come 81 00:03:43,680 --> 00:03:45,040 Speaker 2: in coming at like a two. 82 00:03:45,440 --> 00:03:47,880 Speaker 1: I was gonna say, I'd be, you know, a solid one, 83 00:03:48,160 --> 00:03:52,680 Speaker 1: maybe a two on a good day and maybe come out. Yeah. 84 00:03:54,200 --> 00:03:58,080 Speaker 2: Two points on that one is that I hope that 85 00:03:58,200 --> 00:04:01,000 Speaker 2: by saying that you want to audit a class Trader School, 86 00:04:01,400 --> 00:04:03,800 Speaker 2: you have manifested that and that we will be invited 87 00:04:04,040 --> 00:04:06,560 Speaker 2: to audit a class at point seventy two or someone 88 00:04:07,000 --> 00:04:09,800 Speaker 2: or said it, or anyone's Trader School, any multi strategy 89 00:04:09,800 --> 00:04:11,480 Speaker 2: hedge fund that wants to have us audit a class 90 00:04:11,480 --> 00:04:15,040 Speaker 2: at Trader School, and maybe yeah, do some field recording. 91 00:04:15,080 --> 00:04:17,039 Speaker 1: We doesn't even have to be top tier. We go 92 00:04:18,080 --> 00:04:19,960 Speaker 1: we don't need to go to like the Ivy League 93 00:04:20,080 --> 00:04:22,279 Speaker 1: of Trader School. I'd be willing to go, you know, 94 00:04:22,360 --> 00:04:25,960 Speaker 1: in state, but yeah, I would love to do that. 95 00:04:25,960 --> 00:04:29,200 Speaker 1: That would be our first like field podcast recording. 96 00:04:29,279 --> 00:04:30,880 Speaker 2: I feel like we'd learn a lot at Trader School, 97 00:04:30,880 --> 00:04:32,919 Speaker 2: and so at our listeners, and so would possibly the 98 00:04:32,920 --> 00:04:33,960 Speaker 2: Hedge one that hosts us. 99 00:04:34,160 --> 00:04:36,599 Speaker 1: I mean, point seventy two sounds like it is the 100 00:04:36,760 --> 00:04:40,680 Speaker 1: place to go because the article mentions that more than 101 00:04:40,720 --> 00:04:44,000 Speaker 1: half of Steve Cohen's stock pickers have come through its 102 00:04:44,040 --> 00:04:47,360 Speaker 1: program rather than big expensive outside hires that they've had 103 00:04:47,400 --> 00:04:47,680 Speaker 1: to make. 104 00:04:47,800 --> 00:04:49,599 Speaker 2: So it does seem a lot cheaper to run a 105 00:04:49,600 --> 00:04:51,960 Speaker 2: trader school than to pay someone a fifty million dollar 106 00:04:52,040 --> 00:04:54,160 Speaker 2: guarantee to come be a portfolio manager. 107 00:04:54,360 --> 00:04:56,760 Speaker 1: Yeah, I mean, maybe it's less good for you, that 108 00:04:56,880 --> 00:04:58,919 Speaker 1: star stockpicker, because right. 109 00:04:58,839 --> 00:05:00,760 Speaker 2: It's like you're like on the Rickie contract, right, Like 110 00:05:00,800 --> 00:05:02,839 Speaker 2: you get paid like an employee rather than in a 111 00:05:02,880 --> 00:05:04,080 Speaker 2: bidding war for your talent. 112 00:05:04,279 --> 00:05:04,559 Speaker 1: Yeah. 113 00:05:04,680 --> 00:05:06,560 Speaker 2: The other thing about Trader School is my dream has 114 00:05:06,560 --> 00:05:09,080 Speaker 2: always been to do my job as like I write 115 00:05:09,080 --> 00:05:11,920 Speaker 2: my newsletter for like and do my podcast right, thank you, 116 00:05:12,040 --> 00:05:14,800 Speaker 2: six months of the year. And then I go, like, 117 00:05:15,320 --> 00:05:19,159 Speaker 2: intern in a financial job somewhere for six months of 118 00:05:19,160 --> 00:05:20,719 Speaker 2: the year, Like, wouldn't that be fun? 119 00:05:20,880 --> 00:05:23,640 Speaker 1: I feel like this company would let you do whatever 120 00:05:23,680 --> 00:05:24,240 Speaker 1: you want, I. 121 00:05:24,240 --> 00:05:25,640 Speaker 2: Know, but like who would hire me for that? 122 00:05:25,839 --> 00:05:25,960 Speaker 1: Who? 123 00:05:26,240 --> 00:05:28,920 Speaker 2: Like hopefully some of our listeners, But who would be like, oh, yeah, come, 124 00:05:29,000 --> 00:05:31,719 Speaker 2: like do a bad job at our job for six 125 00:05:31,760 --> 00:05:32,440 Speaker 2: months and then. 126 00:05:32,320 --> 00:05:35,800 Speaker 1: Go write about it right heavy handed section we've ever. 127 00:05:35,640 --> 00:05:38,479 Speaker 2: Hed, I know, right, like please have us come into 128 00:05:38,520 --> 00:05:38,880 Speaker 2: your things. 129 00:05:38,920 --> 00:05:39,240 Speaker 1: Yeah. 130 00:05:39,279 --> 00:05:41,440 Speaker 2: I didn't even mean it that way. It's so it's 131 00:05:41,440 --> 00:05:44,480 Speaker 2: hard to know what these jobs are like unless you've 132 00:05:44,520 --> 00:05:46,960 Speaker 2: done them in some way. Yeah, And I feel like 133 00:05:47,000 --> 00:05:49,080 Speaker 2: I could learn a lot by like spending a few 134 00:05:49,120 --> 00:05:50,159 Speaker 2: months me too. 135 00:05:50,360 --> 00:05:52,239 Speaker 1: I mean, I feel like I was born and raised 136 00:05:52,279 --> 00:05:56,160 Speaker 1: inside this building. I've been here since I was twenty 137 00:05:56,200 --> 00:05:59,800 Speaker 1: three years old. Isn't the point of journalism to go 138 00:05:59,839 --> 00:06:02,560 Speaker 1: off and have broadening experiences and really get to know 139 00:06:02,680 --> 00:06:04,280 Speaker 1: the industries and the people that you cover. 140 00:06:04,440 --> 00:06:06,760 Speaker 2: So and I've had some jobs in finance and that 141 00:06:06,800 --> 00:06:09,640 Speaker 2: was nice, but I haven't had all the jobs in finance. Yeah, 142 00:06:09,880 --> 00:06:12,520 Speaker 2: you know, you know, manage a little portfolio for for 143 00:06:12,640 --> 00:06:14,320 Speaker 2: point sevenue two. I feel like that could be good. 144 00:06:14,720 --> 00:06:16,640 Speaker 1: I feel like that's something you do in high school, right, 145 00:06:16,680 --> 00:06:18,880 Speaker 1: you sign up and have like a paper portfolio. 146 00:06:19,200 --> 00:06:21,800 Speaker 2: Well, I think that. I think the traders school is 147 00:06:21,800 --> 00:06:23,520 Speaker 2: to train them to run a real portfolio. But yeah, 148 00:06:23,560 --> 00:06:25,680 Speaker 2: some of these schools do have you run a paper portfolio. 149 00:06:25,800 --> 00:06:27,760 Speaker 1: Yeah, I think I bought like shares of hot Topic. 150 00:06:28,040 --> 00:06:30,440 Speaker 2: Okay, that sounds right. Yeah, I like this is at 151 00:06:30,520 --> 00:06:32,560 Speaker 2: least the second appearance of hot Topic on this show. 152 00:06:32,640 --> 00:06:35,000 Speaker 1: I spent a lot of time at Hot Topic. What 153 00:06:35,040 --> 00:06:37,320 Speaker 1: else should we say about this? I mean, again, it 154 00:06:37,360 --> 00:06:40,440 Speaker 1: seems like a cheaper way of doing things. There's a 155 00:06:40,440 --> 00:06:43,839 Speaker 1: lot of conversation in this article about the talent war 156 00:06:43,960 --> 00:06:45,719 Speaker 1: going on in hedge funds right now. 157 00:06:45,920 --> 00:06:47,960 Speaker 2: I think that it's just like these funds pay so 158 00:06:48,080 --> 00:06:52,600 Speaker 2: much to portfolio managers, They charge clients so much. There's 159 00:06:52,680 --> 00:06:54,760 Speaker 2: so much demand for this, and I think part of 160 00:06:54,760 --> 00:06:57,599 Speaker 2: it is like these are places that are pretty good 161 00:06:57,680 --> 00:07:01,120 Speaker 2: at identifying alpha and being able to say, like we 162 00:07:01,160 --> 00:07:03,680 Speaker 2: can strip out all the elements of luck and market 163 00:07:03,680 --> 00:07:07,400 Speaker 2: exposure and just identify who is skillful at managing investments, 164 00:07:07,720 --> 00:07:09,640 Speaker 2: and then we can offer you that sort of pure 165 00:07:09,720 --> 00:07:13,480 Speaker 2: uncut investment skill, and the clients apparently love that because 166 00:07:13,560 --> 00:07:16,160 Speaker 2: it's uncorrelated to everything else and it usually goes up, 167 00:07:16,600 --> 00:07:19,200 Speaker 2: and so they're willing to pay basically whatever fees these 168 00:07:19,240 --> 00:07:23,440 Speaker 2: funds charge. And given that, it's clear that there's the 169 00:07:23,480 --> 00:07:26,720 Speaker 2: shortage of people who can generate alpha, and it's not 170 00:07:26,760 --> 00:07:28,960 Speaker 2: clear that would be like a natural shortage, right, It's 171 00:07:28,960 --> 00:07:30,720 Speaker 2: just like there's only so many people who've like come 172 00:07:30,720 --> 00:07:33,640 Speaker 2: through the pipeline of becoming portfolio managers at point seventy 173 00:07:33,640 --> 00:07:36,360 Speaker 2: two or whatever. So if you can train more of them, like, 174 00:07:36,840 --> 00:07:41,400 Speaker 2: you're filling this like enormous unmet demand and you can 175 00:07:41,440 --> 00:07:42,880 Speaker 2: make a lot of money, right if you can like 176 00:07:43,000 --> 00:07:45,720 Speaker 2: bring someone in cheaply and turn them into a fifty 177 00:07:45,760 --> 00:07:47,680 Speaker 2: million dollar a year portfolio manager, Like, yeah, that's a 178 00:07:47,680 --> 00:07:48,280 Speaker 2: great business. 179 00:07:48,360 --> 00:07:50,760 Speaker 1: I don't think I have any ideas, but wouldn't it 180 00:07:50,760 --> 00:07:52,880 Speaker 1: be fun to like do a thought exercise of like 181 00:07:52,920 --> 00:07:55,800 Speaker 1: what would your trading school look like? Like what are 182 00:07:55,840 --> 00:07:57,520 Speaker 1: they learning in trading school classes? 183 00:07:57,600 --> 00:07:59,200 Speaker 2: What are they learning in training school classes? So I 184 00:07:59,240 --> 00:08:01,120 Speaker 2: think that we're sort of exaggerating by saying this is 185 00:08:01,120 --> 00:08:02,360 Speaker 2: trading school, right, Like this is. 186 00:08:02,360 --> 00:08:04,240 Speaker 1: Like that isn't it fun to go along this flight 187 00:08:04,320 --> 00:08:04,800 Speaker 1: of fancy? 188 00:08:04,920 --> 00:08:06,600 Speaker 2: Sure? So I think that this is like a lot 189 00:08:06,640 --> 00:08:09,040 Speaker 2: of It is like some sort of combination of like 190 00:08:09,240 --> 00:08:12,720 Speaker 2: actual classes and like mentorship and meetings and whatnot, for 191 00:08:12,920 --> 00:08:15,640 Speaker 2: like existing analysts who want to move into a portfolio 192 00:08:15,640 --> 00:08:18,040 Speaker 2: manager roles where they're trying to figure out if they'd 193 00:08:18,040 --> 00:08:20,560 Speaker 2: actually be good at it. But I will say there 194 00:08:20,560 --> 00:08:23,480 Speaker 2: are people who run trading schools, and those people are 195 00:08:23,760 --> 00:08:24,800 Speaker 2: the big prop trading firms. 196 00:08:24,880 --> 00:08:26,080 Speaker 1: Right. Oh, I thought you were going to say that 197 00:08:26,120 --> 00:08:28,480 Speaker 1: people that keep trying to scam me you on Instagram. 198 00:08:28,840 --> 00:08:31,200 Speaker 2: Oh yeah, I don't think those people even run trading schools. 199 00:08:31,400 --> 00:08:33,360 Speaker 2: I think those people just run Instagram ads. But no, 200 00:08:33,520 --> 00:08:35,839 Speaker 2: like Jane Street and Susquehanna and all those sort of 201 00:08:35,840 --> 00:08:39,600 Speaker 2: big prop trading firms are very invested in training people 202 00:08:39,640 --> 00:08:42,480 Speaker 2: how to think like traders, because you can't really hire 203 00:08:42,480 --> 00:08:44,560 Speaker 2: people out of school who know how to do that 204 00:08:44,960 --> 00:08:47,960 Speaker 2: if you're hiring investment bankers. It's like some combination of 205 00:08:47,960 --> 00:08:50,000 Speaker 2: like can they do a DCF model and like will 206 00:08:50,040 --> 00:08:52,760 Speaker 2: they work really hard? And there are ways to figure 207 00:08:52,800 --> 00:08:55,400 Speaker 2: that out, but knowing if people are good at operating 208 00:08:55,440 --> 00:08:58,480 Speaker 2: under uncertainty and like estimating probabilities in their head and 209 00:08:58,520 --> 00:09:01,640 Speaker 2: sort of being decisive and like taking risks in the 210 00:09:01,720 --> 00:09:03,840 Speaker 2: right way. It's just harder, and so a lot of 211 00:09:03,840 --> 00:09:06,880 Speaker 2: what these firms do, both in their like lengthy interview 212 00:09:06,880 --> 00:09:09,800 Speaker 2: process and then like in their like internship programs, is 213 00:09:09,880 --> 00:09:12,800 Speaker 2: like they sit them down to like play poker every night, 214 00:09:13,040 --> 00:09:16,000 Speaker 2: and they play like fake trading games where they evaluate 215 00:09:16,040 --> 00:09:18,640 Speaker 2: their ability to like make these decisions. So it's a 216 00:09:18,679 --> 00:09:22,520 Speaker 2: really like very organized trading school where they're trying to 217 00:09:22,559 --> 00:09:26,079 Speaker 2: see who is like overconfident, who is too timid, and 218 00:09:26,120 --> 00:09:28,040 Speaker 2: who has like the right ability to take risk. 219 00:09:28,360 --> 00:09:31,920 Speaker 1: There were some examples in The Big Take. At Citadel, 220 00:09:32,040 --> 00:09:34,520 Speaker 1: for example, trainees are taught how to back pitches from 221 00:09:34,559 --> 00:09:38,120 Speaker 1: colleagues lower down the food chain. At bally Asny, they 222 00:09:38,120 --> 00:09:39,880 Speaker 1: get a limited pot of cash, then they have to 223 00:09:39,880 --> 00:09:42,319 Speaker 1: deliver returns that match or beat the firm's older hands. 224 00:09:42,360 --> 00:09:45,080 Speaker 1: Zer point seventy two wants it's cadre to think like CEOs, 225 00:09:45,360 --> 00:09:47,640 Speaker 1: meaning they'll need to create and run a book of ideas, 226 00:09:47,679 --> 00:09:50,760 Speaker 1: all while getting total buy in from their teams. That 227 00:09:51,520 --> 00:09:55,319 Speaker 1: doesn't quite fit my fantasy of my dream trading school, right. 228 00:09:55,240 --> 00:09:57,720 Speaker 2: Because this is not really at trading school. This is 229 00:09:57,720 --> 00:10:00,840 Speaker 2: a like developing like soft skills. Yeah, it's like developing 230 00:10:00,880 --> 00:10:03,679 Speaker 2: like senior portfolio managers. Like that's a management job. That's 231 00:10:03,679 --> 00:10:06,160 Speaker 2: an investing job, but it's also like a risk taking job, right, 232 00:10:06,200 --> 00:10:08,160 Speaker 2: Whereas like if you're like a twenty two year old 233 00:10:08,160 --> 00:10:09,120 Speaker 2: the Jane Street, you're. 234 00:10:09,000 --> 00:10:12,160 Speaker 1: Being taught to indian options. Yeah yeah, right. 235 00:10:12,760 --> 00:10:15,920 Speaker 2: There's great stories in Michael Lewis's about going infinitely No, 236 00:10:16,320 --> 00:10:21,320 Speaker 2: just kidding. I've at Sam Bachminfried's training days at our 237 00:10:21,400 --> 00:10:24,480 Speaker 2: internship days at Jane Street, where he like learned to 238 00:10:24,640 --> 00:10:27,760 Speaker 2: like make positive expected value coin flip bets with his 239 00:10:27,960 --> 00:10:30,199 Speaker 2: fellow interns. Right. Part of the goal of the trading 240 00:10:30,200 --> 00:10:33,040 Speaker 2: program was to like have the interns bet against each 241 00:10:33,040 --> 00:10:34,960 Speaker 2: other and sort of see who was good at betting 242 00:10:35,080 --> 00:10:37,600 Speaker 2: and who is good at like finding and exploiting edges. 243 00:10:37,920 --> 00:10:39,760 Speaker 2: I would not want to go to that trading school, 244 00:10:39,840 --> 00:10:41,600 Speaker 2: but I like the idea of the trading school as 245 00:10:41,600 --> 00:10:44,520 Speaker 2: a sort of like Darwinian fight between the interns, for like, 246 00:10:44,720 --> 00:10:47,040 Speaker 2: you know, there's only so many jobs, and whatever intern 247 00:10:47,120 --> 00:10:49,480 Speaker 2: can like out trade the fellow interns gets the job. 248 00:10:49,520 --> 00:10:49,720 Speaker 2: You know. 249 00:10:49,960 --> 00:10:52,600 Speaker 1: See again, that's something I would like to audit. Since 250 00:10:52,600 --> 00:10:55,160 Speaker 1: I would do terribly in that program. But boy would 251 00:10:55,200 --> 00:11:12,360 Speaker 1: it be fun to watch, right, it's stressful. I would 252 00:11:12,440 --> 00:11:16,360 Speaker 1: find fake m and ice dress, It's just so good. 253 00:11:16,960 --> 00:11:20,680 Speaker 2: Virgin Orbit Space company went bankrupt like last year, right, 254 00:11:20,880 --> 00:11:22,680 Speaker 2: but before that, it sort of announced that it was 255 00:11:22,760 --> 00:11:25,520 Speaker 2: in its last stages, like it furlowed all of its employees. 256 00:11:26,000 --> 00:11:29,360 Speaker 2: And this guy named Matthew Brown sent them a LinkedIn 257 00:11:29,400 --> 00:11:31,520 Speaker 2: message being like, hey, I would like to invest two 258 00:11:31,559 --> 00:11:34,000 Speaker 2: hundred million dollars in your company, and they were like, hey, great, 259 00:11:34,040 --> 00:11:37,400 Speaker 2: that sounds good, thank god, and they like negotiated the 260 00:11:37,440 --> 00:11:42,119 Speaker 2: deal with him, and eventually the deal fell apart, probably 261 00:11:42,200 --> 00:11:45,640 Speaker 2: because he didn't have the money. SEC brought a case 262 00:11:45,640 --> 00:11:48,360 Speaker 2: against them this week, certainly claiming he didn't have the money, 263 00:11:48,360 --> 00:11:51,480 Speaker 2: and in fact, he sent a screenshot of his bank 264 00:11:51,480 --> 00:11:53,560 Speaker 2: account showing like one hundred and eighty two million dollars 265 00:11:53,840 --> 00:11:56,199 Speaker 2: to Virgin Orbital, but it was a doctored screenshot and 266 00:11:56,240 --> 00:11:59,400 Speaker 2: actually it had less than one dollar. Yeah, strange amount 267 00:11:59,400 --> 00:12:00,680 Speaker 2: of money to having bank account. 268 00:12:00,760 --> 00:12:02,240 Speaker 1: Yeah, quite a discrepancy. 269 00:12:02,520 --> 00:12:06,040 Speaker 2: So deal fell apart, and the SEC sued him for fraud, 270 00:12:06,080 --> 00:12:08,880 Speaker 2: saying that it was a fake takeover offer. But what 271 00:12:08,920 --> 00:12:10,160 Speaker 2: I think about It is like I read a lot 272 00:12:10,160 --> 00:12:12,320 Speaker 2: about fake takeover offers, and they're all the samewhich is 273 00:12:12,320 --> 00:12:14,959 Speaker 2: that someone like buys stock in a company and the 274 00:12:15,120 --> 00:12:16,760 Speaker 2: like puts out a press release saying, hey, I'm taking 275 00:12:16,760 --> 00:12:19,000 Speaker 2: this company over, and the stock goes up and they 276 00:12:19,000 --> 00:12:21,280 Speaker 2: sell the stock and then they like fizzle away. But 277 00:12:21,320 --> 00:12:23,400 Speaker 2: this guy did not do that. He did not buy 278 00:12:23,440 --> 00:12:25,160 Speaker 2: stock in the company. He did not put out a 279 00:12:25,160 --> 00:12:27,839 Speaker 2: press release. He might have just been doing it for fun. 280 00:12:28,200 --> 00:12:30,480 Speaker 1: This obsessed me because I don't understand the motivation. 281 00:12:30,760 --> 00:12:32,439 Speaker 2: So he says it's real, right, I mean, like he 282 00:12:32,520 --> 00:12:35,480 Speaker 2: gave a statement saying no, no, I love. 283 00:12:37,120 --> 00:12:38,960 Speaker 1: Let me read it for you. The SEC's complaint is 284 00:12:38,960 --> 00:12:44,160 Speaker 1: filled with egregious errors, fabrications, and biased allegations that undeniably 285 00:12:44,679 --> 00:12:49,000 Speaker 1: favor the culprit and the corporate his virgin orbits management. 286 00:12:49,440 --> 00:12:51,920 Speaker 1: I love that he says that they're the culprit here 287 00:12:51,960 --> 00:12:53,520 Speaker 1: for doing due diligence. 288 00:12:53,960 --> 00:12:56,760 Speaker 2: Yeah right, I mean I have talked to previous fake 289 00:12:56,800 --> 00:13:00,320 Speaker 2: takeover guys and they're like, why won't this company take 290 00:13:00,360 --> 00:13:02,600 Speaker 2: my calls. I'm offering to give them all this money 291 00:13:02,600 --> 00:13:04,200 Speaker 2: as soon as I can raise it. But the company 292 00:13:04,240 --> 00:13:06,200 Speaker 2: would take my calls. Virgin took his calls like they 293 00:13:06,200 --> 00:13:08,160 Speaker 2: signed an NBA, They sent him a term sheet. They 294 00:13:08,200 --> 00:13:10,960 Speaker 2: like sat down and negotiated a deal with him. Yeah, 295 00:13:11,160 --> 00:13:14,400 Speaker 2: eventually started asking questions like do you actually have this money? 296 00:13:14,600 --> 00:13:16,920 Speaker 2: Could you put it in an escrow? And he walked away. 297 00:13:17,200 --> 00:13:19,040 Speaker 2: But I don't know it was a motivation, like he 298 00:13:19,080 --> 00:13:21,640 Speaker 2: says it was real. I would like to think that 299 00:13:21,760 --> 00:13:23,480 Speaker 2: he just wanted to be on TV, like he did 300 00:13:23,520 --> 00:13:27,040 Speaker 2: this thing. Yeah, and he did eventually get on CNBC 301 00:13:27,240 --> 00:13:28,760 Speaker 2: to talk about his proposed deal. 302 00:13:28,960 --> 00:13:31,440 Speaker 1: He could have just started a fake AI company and 303 00:13:31,440 --> 00:13:32,679 Speaker 1: gone on TV that way. 304 00:13:33,000 --> 00:13:35,440 Speaker 2: But this is so fun. I don't know, right, there 305 00:13:35,440 --> 00:13:36,679 Speaker 2: are a lot of ways to get on television, but 306 00:13:36,720 --> 00:13:38,280 Speaker 2: this is a good one. And you grew up in 307 00:13:38,280 --> 00:13:39,920 Speaker 2: this building. I grew up as an m and a lawyer, 308 00:13:40,040 --> 00:13:43,760 Speaker 2: and I always thought that like drama of negotiating deals 309 00:13:43,800 --> 00:13:46,240 Speaker 2: was kind of interesting and exciting. And he not only 310 00:13:46,240 --> 00:13:47,719 Speaker 2: got to go on TV to talk about his deal, 311 00:13:47,720 --> 00:13:49,920 Speaker 2: he got to like actually negotiate a deal, like he 312 00:13:50,160 --> 00:13:52,120 Speaker 2: got a term shet. He was like doing calls with 313 00:13:52,200 --> 00:13:54,240 Speaker 2: the CEO. He had a lawyer involved, but he's like, 314 00:13:54,320 --> 00:13:56,000 Speaker 2: let's not bring the lawyers into this. Too much. I'll 315 00:13:56,040 --> 00:13:59,400 Speaker 2: just will to negotiate this deal together, so I don't know, 316 00:13:59,559 --> 00:14:02,480 Speaker 2: seems like it would be fun. I would totally roleplay 317 00:14:02,559 --> 00:14:04,240 Speaker 2: negotiating and M AND ideals. This is another thing I 318 00:14:04,280 --> 00:14:06,600 Speaker 2: would do, like besides go to Trader school, I would 319 00:14:06,679 --> 00:14:09,600 Speaker 2: roll play negotiating M AND ideals for fun. And this 320 00:14:09,679 --> 00:14:10,520 Speaker 2: guy might have done that. 321 00:14:10,559 --> 00:14:12,559 Speaker 1: I would find that so enormously stressful. 322 00:14:12,760 --> 00:14:15,040 Speaker 2: Not if you knew you weren't going to do the deal, 323 00:14:15,440 --> 00:14:18,080 Speaker 2: that's true, you know, oh you know instead of two 324 00:14:18,120 --> 00:14:19,920 Speaker 2: hundred million dollars, like two hundred and ten million dollars, 325 00:14:19,920 --> 00:14:21,800 Speaker 2: you like, sure, two hundred ten million dollars. I'm not 326 00:14:21,840 --> 00:14:23,800 Speaker 2: paying that money anyway. But the other thing is like 327 00:14:23,840 --> 00:14:26,880 Speaker 2: the SEC claims that what he was trying to do 328 00:14:27,000 --> 00:14:31,200 Speaker 2: was extract money out of Virgin. So what happened is that, 329 00:14:31,440 --> 00:14:32,720 Speaker 2: you know, he was like, I'll put in two hundred 330 00:14:32,720 --> 00:14:34,520 Speaker 2: million dollars and that at some point he sent them 331 00:14:34,520 --> 00:14:37,880 Speaker 2: an email complaining that the deal had leaked. This is 332 00:14:37,880 --> 00:14:39,960 Speaker 2: before he went on TV. Unclear why the deal leaked, 333 00:14:40,040 --> 00:14:42,840 Speaker 2: but he said, I want a breakup fee. So if 334 00:14:42,920 --> 00:14:45,640 Speaker 2: this deal doesn't go through for any reason, if I 335 00:14:45,680 --> 00:14:48,080 Speaker 2: can't actually invest the two hundred million dollars. I want 336 00:14:48,120 --> 00:14:51,440 Speaker 2: you to pay me like three percent, like six million dollars, right, 337 00:14:51,800 --> 00:14:55,600 Speaker 2: which is an unusual ask, but people get breakup fees, 338 00:14:55,600 --> 00:14:57,640 Speaker 2: but not for like deciding not to do the deal. 339 00:14:57,960 --> 00:15:00,880 Speaker 2: But if it had worked, if Virgin Orbit had said, sure, 340 00:15:00,920 --> 00:15:03,240 Speaker 2: will give you six million dollars if you can't give 341 00:15:03,280 --> 00:15:05,320 Speaker 2: us the two hundred million dollars, then he might have 342 00:15:05,360 --> 00:15:06,720 Speaker 2: walked away with six million dollars. 343 00:15:06,880 --> 00:15:08,360 Speaker 1: But wouldn't that have been clawed back? 344 00:15:08,640 --> 00:15:11,120 Speaker 2: Yeah, of course it's not a good plan because they 345 00:15:11,120 --> 00:15:13,240 Speaker 2: were going into vocracy and they didn't infect going to vocracy. 346 00:15:13,240 --> 00:15:15,320 Speaker 2: Like the idea that they'd pay him six million dollars 347 00:15:15,320 --> 00:15:18,240 Speaker 2: for like pretending to do an equity investment not that likely. 348 00:15:18,640 --> 00:15:22,920 Speaker 1: Again, this just seems totally, totally stressful. The CNBC appearance 349 00:15:23,000 --> 00:15:25,880 Speaker 1: in and of itself was pretty weird. I didn't watch it. 350 00:15:25,920 --> 00:15:27,360 Speaker 1: I don't think I could watch it. I find it 351 00:15:27,440 --> 00:15:28,440 Speaker 1: very stressful to watch. 352 00:15:28,480 --> 00:15:29,640 Speaker 2: It was stressful to watch. 353 00:15:29,800 --> 00:15:34,640 Speaker 3: We fully plan on transacting with the company within the 354 00:15:34,680 --> 00:15:40,240 Speaker 3: next twenty four hours. I have positions in over thirteen 355 00:15:41,200 --> 00:15:45,560 Speaker 3: space companies, and I view them all as neighbors. 356 00:15:45,920 --> 00:15:50,360 Speaker 2: He did not seem like an experienced investor in space investor. 357 00:15:50,440 --> 00:15:53,000 Speaker 1: Yeah, I would also struggle to name thirteen space companies. 358 00:15:53,000 --> 00:15:54,320 Speaker 2: But that's why I think he would have as well. 359 00:15:55,360 --> 00:15:56,160 Speaker 1: That's a good joke. 360 00:15:57,680 --> 00:16:00,560 Speaker 2: It felt stressful and it did not make me confident 361 00:16:00,600 --> 00:16:01,600 Speaker 2: that the deal was going through. 362 00:16:01,760 --> 00:16:04,320 Speaker 1: What do you do after this? He's thirty four, right, 363 00:16:04,440 --> 00:16:06,960 Speaker 1: so I don't know. Maybe he was a long career 364 00:16:07,000 --> 00:16:08,560 Speaker 1: of you know, fake M and I in front of him, 365 00:16:08,560 --> 00:16:10,040 Speaker 1: but I feel like this kind of blew his cover. 366 00:16:10,520 --> 00:16:12,640 Speaker 2: Sometimes these things are like people who actually do do 367 00:16:12,720 --> 00:16:15,400 Speaker 2: a little investing and bite off more than they can chew, right, 368 00:16:15,600 --> 00:16:18,400 Speaker 2: And like, maybe he can go invest money in other 369 00:16:18,480 --> 00:16:21,360 Speaker 2: companies and be like the SEC got it all wrong 370 00:16:21,440 --> 00:16:23,960 Speaker 2: that time. Yeah, I'm good for this one million dollar investment. 371 00:16:23,960 --> 00:16:27,000 Speaker 1: I don't know, I mean at this time. But you 372 00:16:27,080 --> 00:16:32,240 Speaker 1: also think about Virgin Orbits perspective during all of this, 373 00:16:32,440 --> 00:16:35,760 Speaker 1: because this was sort of like a White Night Savior moment. 374 00:16:35,960 --> 00:16:38,280 Speaker 2: Yeah, they did start asking him questions like do you 375 00:16:38,320 --> 00:16:40,840 Speaker 2: have the money? But like they definitely like, you know, 376 00:16:40,960 --> 00:16:43,080 Speaker 2: he sent them an email and they engaged right, like, yeah, 377 00:16:43,080 --> 00:16:44,840 Speaker 2: he sent them like a cold LinkedIn message? 378 00:16:44,880 --> 00:16:47,840 Speaker 1: Anything done over LinkedIn? I mean, come on, there's like. 379 00:16:47,800 --> 00:16:49,720 Speaker 2: No record of him, right, Like he's you know, he's like, 380 00:16:49,760 --> 00:16:52,120 Speaker 2: I've invested seven hundred and fifty million dollars in space 381 00:16:52,160 --> 00:16:55,640 Speaker 2: companies and they're like, sure you have, right anyone? Yeah, 382 00:16:55,680 --> 00:16:57,440 Speaker 2: it was good, right, Like they would take anything at 383 00:16:57,480 --> 00:16:59,200 Speaker 2: that point, right, Like this is not the first, you know, 384 00:16:59,520 --> 00:17:01,840 Speaker 2: the top person on their list of potential investors. But 385 00:17:01,840 --> 00:17:04,280 Speaker 2: at this point they're like a week from bankruptcy. They're like, yeah, 386 00:17:04,280 --> 00:17:06,439 Speaker 2: we'll take what we can get. And so they'd returned 387 00:17:06,480 --> 00:17:08,520 Speaker 2: his calls, right, it is tough for them, right, Like 388 00:17:08,560 --> 00:17:10,760 Speaker 2: they jumped all in on engaging with this guy who 389 00:17:10,840 --> 00:17:13,560 Speaker 2: turned out to be fake. Apparently that not a lot 390 00:17:13,560 --> 00:17:14,440 Speaker 2: of other good options. 391 00:17:14,680 --> 00:17:15,040 Speaker 4: Yeah. 392 00:17:15,160 --> 00:17:18,000 Speaker 1: I think someone from the company I read called it 393 00:17:18,080 --> 00:17:21,680 Speaker 1: in unneeded distraction, but what was a very critical time? 394 00:17:21,720 --> 00:17:23,399 Speaker 1: And I'm sure they yes and no? 395 00:17:23,520 --> 00:17:26,199 Speaker 2: Right, I mean like, yeah, was he distracting them from 396 00:17:26,240 --> 00:17:27,360 Speaker 2: other better investments? 397 00:17:27,480 --> 00:17:47,640 Speaker 4: Maybe? Probably not, But maybe. 398 00:17:40,000 --> 00:17:41,920 Speaker 1: Let's keep the conversation going on M and A. And 399 00:17:41,960 --> 00:17:44,760 Speaker 1: let's talk about a weird M and A that's going 400 00:17:44,800 --> 00:17:48,280 Speaker 1: on with Brad Jacobs and QX. 401 00:17:48,880 --> 00:17:52,120 Speaker 2: I'm not familiar with the naming structure for his companies, 402 00:17:52,160 --> 00:17:52,600 Speaker 2: but he's. 403 00:17:52,480 --> 00:17:54,840 Speaker 1: Like a XBO QXL, Right. 404 00:17:54,680 --> 00:17:56,280 Speaker 2: He's like a logistics guy who. 405 00:17:56,160 --> 00:17:58,960 Speaker 1: Likes I guess it's just there's certain letters that he likes. 406 00:17:59,040 --> 00:18:00,960 Speaker 2: Right, he's a fan of an but not only an 407 00:18:01,080 --> 00:18:01,720 Speaker 2: X likes. 408 00:18:01,840 --> 00:18:05,199 Speaker 1: You need some yeahs. 409 00:18:04,600 --> 00:18:07,760 Speaker 2: Anyway, so he like ran XPO. He's made a lot 410 00:18:07,760 --> 00:18:11,120 Speaker 2: of money doing logistics, and he wrote a book called 411 00:18:11,119 --> 00:18:12,359 Speaker 2: how to Make a Few Billion dollars. 412 00:18:12,400 --> 00:18:16,040 Speaker 1: I have it on my desk. I still haven't made 413 00:18:16,040 --> 00:18:16,960 Speaker 1: a few billion dollars. 414 00:18:16,960 --> 00:18:19,119 Speaker 2: No, but it's like such a good aspiration. It's like 415 00:18:19,240 --> 00:18:23,120 Speaker 2: not one billion dollars, yea like a lot of billion dollars, 416 00:18:23,160 --> 00:18:24,080 Speaker 2: but a few billion. 417 00:18:23,840 --> 00:18:25,720 Speaker 1: Dollars, you know, can get comfortable. 418 00:18:26,200 --> 00:18:29,240 Speaker 2: Yeah, events these businesses really like rolls up smaller businesses. Rightly, 419 00:18:29,280 --> 00:18:31,080 Speaker 2: he goes out and acquires a bunch of smaller companies, 420 00:18:31,520 --> 00:18:34,399 Speaker 2: and uh, he's decided he's going to do that in 421 00:18:34,480 --> 00:18:37,480 Speaker 2: the building products distribution business. 422 00:18:37,520 --> 00:18:37,920 Speaker 1: Sexy. 423 00:18:38,080 --> 00:18:40,360 Speaker 2: Yeah, it's like companies that distribute I don't. 424 00:18:40,160 --> 00:18:42,480 Speaker 1: Know it's important, Okay. 425 00:18:42,320 --> 00:18:43,920 Speaker 2: Like I haven't read the book, but this is apparently 426 00:18:43,920 --> 00:18:47,840 Speaker 2: how you make a few billion dollars. Find like a large, lucrative, 427 00:18:47,880 --> 00:18:49,280 Speaker 2: kind of boring niche and then you buy all the 428 00:18:49,320 --> 00:18:50,840 Speaker 2: companies in that space. 429 00:18:50,520 --> 00:18:53,280 Speaker 1: And you know, make them more in an industry. 430 00:18:52,960 --> 00:18:56,239 Speaker 2: Yeah, so he's done that before. His plan is to 431 00:18:56,240 --> 00:18:59,359 Speaker 2: do it in this building products distribution space. So he 432 00:18:59,400 --> 00:19:02,400 Speaker 2: started q SO in QXIT, Like he's raised like four 433 00:19:02,440 --> 00:19:04,520 Speaker 2: point five billion dollars. Like some of that is his 434 00:19:04,520 --> 00:19:07,120 Speaker 2: own money, some of us from big outside investors. And 435 00:19:07,600 --> 00:19:09,240 Speaker 2: you know, he's like got a four point five billion 436 00:19:09,280 --> 00:19:12,320 Speaker 2: dollar fund to go out and buy building products distribution 437 00:19:12,440 --> 00:19:16,200 Speaker 2: companies and roll them up into a big QXO thing 438 00:19:16,280 --> 00:19:17,840 Speaker 2: and then you know, make a lot of money out of it. 439 00:19:18,280 --> 00:19:20,280 Speaker 2: But he didn't do it as like a fund or 440 00:19:20,320 --> 00:19:23,840 Speaker 2: as a private company. He did it by acquiring this 441 00:19:24,040 --> 00:19:28,399 Speaker 2: little public company called Silver Sun Technologies, which is like 442 00:19:28,440 --> 00:19:29,040 Speaker 2: a real company. 443 00:19:29,040 --> 00:19:30,840 Speaker 1: It sells software. 444 00:19:30,960 --> 00:19:34,200 Speaker 2: Yeah, it's like it like sells business software to it 445 00:19:34,320 --> 00:19:38,080 Speaker 2: like resells business software to businesses and then consults them 446 00:19:38,080 --> 00:19:40,240 Speaker 2: on how to use the software. It sort of seems 447 00:19:40,280 --> 00:19:43,480 Speaker 2: like it's vaguely in the same like building products universe, 448 00:19:43,800 --> 00:19:47,000 Speaker 2: but it's like selling software instead of building products. Anyway, 449 00:19:47,240 --> 00:19:49,200 Speaker 2: it exists. It's a real company. It's a public company, 450 00:19:49,280 --> 00:19:52,560 Speaker 2: publicly traded small as like you know, one and a 451 00:19:52,600 --> 00:19:54,679 Speaker 2: half million dollars of net income a year on like 452 00:19:54,680 --> 00:19:57,080 Speaker 2: fifty million of revenue, and like you know, it was 453 00:19:57,119 --> 00:20:01,840 Speaker 2: like a like fifteen twenty million dollar market gaps. It's 454 00:20:01,840 --> 00:20:05,080 Speaker 2: like a small company that's a public company. And he 455 00:20:05,400 --> 00:20:08,399 Speaker 2: called them up, apparently through Goldman, like his investment bankers 456 00:20:08,400 --> 00:20:10,560 Speaker 2: called up silver Sign and was like, we want to 457 00:20:10,600 --> 00:20:13,680 Speaker 2: put in a billion dollars into silver Sun. Take it over. 458 00:20:13,920 --> 00:20:16,000 Speaker 2: We'll own basically all the stock, but not all the stock, 459 00:20:16,119 --> 00:20:17,879 Speaker 2: most of them, ninety nine percent of the stock, and 460 00:20:17,920 --> 00:20:20,720 Speaker 2: we will change its name to QXO and make it 461 00:20:20,760 --> 00:20:24,879 Speaker 2: into this you know, platform for rolling up building products distributors. 462 00:20:25,680 --> 00:20:28,360 Speaker 2: And silver Son was like, yeah, sure, And so he 463 00:20:28,400 --> 00:20:29,960 Speaker 2: bought silver Sun for. 464 00:20:29,920 --> 00:20:32,320 Speaker 1: A billion dollars insane. 465 00:20:31,880 --> 00:20:32,800 Speaker 2: And so now he owns. 466 00:20:32,640 --> 00:20:36,200 Speaker 1: Basically all just like a twenty five million dollar market cap. 467 00:20:36,280 --> 00:20:38,119 Speaker 2: Yeah, it was like as low as like fifteen ish 468 00:20:38,200 --> 00:20:41,040 Speaker 2: or something like not that long ago, but yeah, it's 469 00:20:41,080 --> 00:20:43,720 Speaker 2: like double digit millions. Yeah, so now he owns like 470 00:20:43,720 --> 00:20:45,840 Speaker 2: basically all of it. But there's a little bit. There's 471 00:20:45,840 --> 00:20:49,240 Speaker 2: like six hundred thousand shares that trade. Yeah, and all 472 00:20:49,320 --> 00:20:51,680 Speaker 2: these people not that many people, but like the people 473 00:20:51,680 --> 00:20:53,680 Speaker 2: who buy the six hundred thousand shares, you know, there's 474 00:20:53,720 --> 00:20:57,240 Speaker 2: like retail demand for people who want to invest alongside 475 00:20:57,240 --> 00:20:59,760 Speaker 2: Brad Jacobs, Right, they're like, we've read he's a guy 476 00:20:59,760 --> 00:21:01,400 Speaker 2: who I make a few billion dollars a few times. 477 00:21:02,320 --> 00:21:04,399 Speaker 2: This is a good plan. He's going to make money 478 00:21:04,400 --> 00:21:07,240 Speaker 2: doing this roll up, So let's put our money into it. 479 00:21:07,280 --> 00:21:09,800 Speaker 2: But like there's so few shares that are publicly available 480 00:21:10,040 --> 00:21:12,600 Speaker 2: that they're trading it like they've gone down there in 481 00:21:12,600 --> 00:21:14,400 Speaker 2: like the seventies now, but like there are like two 482 00:21:14,480 --> 00:21:16,840 Speaker 2: hundred and thirty dollars a share a couple of days ago, 483 00:21:17,119 --> 00:21:20,440 Speaker 2: which if you multiply that by like the total shares, 484 00:21:20,560 --> 00:21:23,120 Speaker 2: like the people who put in the four point five 485 00:21:23,160 --> 00:21:26,480 Speaker 2: billion dollars to actually do this company, you get a 486 00:21:26,520 --> 00:21:29,720 Speaker 2: market cap of like almost two hundred billion dollars. So 487 00:21:30,119 --> 00:21:33,480 Speaker 2: I think that the retail investors applying the stock do 488 00:21:33,560 --> 00:21:38,560 Speaker 2: not quite understand how the capital structure works, and so 489 00:21:38,640 --> 00:21:41,080 Speaker 2: they're buying this stock at a price applying a two 490 00:21:41,119 --> 00:21:43,679 Speaker 2: hundred billion dollar valuation for company that again is just 491 00:21:43,800 --> 00:21:46,080 Speaker 2: a fund of cash, right, Yeah, it's just a four 492 00:21:46,080 --> 00:21:49,280 Speaker 2: point five billion dollar pot of money that Brad Jacobs 493 00:21:49,280 --> 00:21:51,119 Speaker 2: will use to go out and find companies. Right now, 494 00:21:51,119 --> 00:21:51,760 Speaker 2: it doesn't do anything. 495 00:21:51,760 --> 00:21:54,800 Speaker 1: So as this tiny little tech business well to be fair. 496 00:21:54,880 --> 00:21:59,080 Speaker 1: This is an extremely weird capital structure. YEA, Like why 497 00:21:59,280 --> 00:22:01,399 Speaker 1: is my first question? Like, why not just do this 498 00:22:01,520 --> 00:22:04,520 Speaker 1: the normal way and eventually IPO and go about it 499 00:22:04,560 --> 00:22:07,040 Speaker 1: that way? Like why buy this small cap with the 500 00:22:07,080 --> 00:22:09,879 Speaker 1: plan to spin it off. I went back to a 501 00:22:09,920 --> 00:22:13,000 Speaker 1: December twenty twenty three interview that Brad Jacobs did and 502 00:22:13,440 --> 00:22:16,600 Speaker 1: he said, basically, we're putting it into a small cap. 503 00:22:16,760 --> 00:22:19,119 Speaker 1: We're going to spin that company back to the leglacy 504 00:22:19,200 --> 00:22:21,840 Speaker 1: shareholders in a few months when the deal closes, the 505 00:22:21,880 --> 00:22:24,840 Speaker 1: Silverstone shareholders will have their company back. They'll also have 506 00:22:24,880 --> 00:22:27,320 Speaker 1: a two and a half million dollars dividend, and they'll 507 00:22:27,320 --> 00:22:30,359 Speaker 1: get zero point three percent share in my new company. Like, 508 00:22:30,440 --> 00:22:32,200 Speaker 1: that is a lot of steps. 509 00:22:32,480 --> 00:22:34,199 Speaker 2: Yeah, by the way, they didn't do that. They were 510 00:22:34,240 --> 00:22:36,280 Speaker 2: planning to do that. Yeah, they changed their mind and 511 00:22:36,280 --> 00:22:38,920 Speaker 2: they didn't spin out the legacy business to the old shaholders. 512 00:22:38,920 --> 00:22:40,920 Speaker 2: They're keeping the legacy business, which by the way, is 513 00:22:40,960 --> 00:22:42,760 Speaker 2: like it's a small business, but it has like two 514 00:22:42,840 --> 00:22:44,919 Speaker 2: hundred employees. It's not like a nothing, it's like a 515 00:22:44,920 --> 00:22:47,600 Speaker 2: real company that does stuff. So they're keeping the legacy business. 516 00:22:47,640 --> 00:22:49,399 Speaker 2: They're not spinning it out to the sharelders and instead 517 00:22:49,400 --> 00:22:50,800 Speaker 2: of paying them two and a half million dollars, they're 518 00:22:50,800 --> 00:22:53,480 Speaker 2: paying them like seventeen million dollars, which again is like 519 00:22:53,520 --> 00:22:55,200 Speaker 2: sort of a round where the market cap was before 520 00:22:55,240 --> 00:22:57,640 Speaker 2: Brad Jacobs came along. Why do it? I don't know, 521 00:22:57,720 --> 00:23:00,480 Speaker 2: it's weird. I mean he had Goldman Sachs like calling 522 00:23:00,520 --> 00:23:01,320 Speaker 2: small caps forever. 523 00:23:01,359 --> 00:23:04,120 Speaker 1: Importantly, they called and they didn't send a LinkedIn message. 524 00:23:04,400 --> 00:23:06,399 Speaker 2: Yeah right, I mean that's the normal way to do 525 00:23:06,520 --> 00:23:08,720 Speaker 2: m and A is like your banker knows someone calls 526 00:23:08,760 --> 00:23:11,159 Speaker 2: them rather than sending me a cold linked in. But anyway, 527 00:23:11,560 --> 00:23:14,439 Speaker 2: the answer is it's nice to be publicly traded. Sometimes 528 00:23:14,560 --> 00:23:17,679 Speaker 2: it gives you some advantages in fundraising. I think that 529 00:23:17,720 --> 00:23:19,320 Speaker 2: a big part of the answer is probably if you're 530 00:23:19,320 --> 00:23:21,359 Speaker 2: doing a roll up, you want to be able to 531 00:23:21,400 --> 00:23:25,080 Speaker 2: give people stock, and it is perhaps more convenient to 532 00:23:25,119 --> 00:23:27,199 Speaker 2: be able to give people publicly traded stock. So if 533 00:23:27,240 --> 00:23:30,600 Speaker 2: he's going to buy a small building products distribution company, 534 00:23:30,600 --> 00:23:32,200 Speaker 2: he can be like, you know, I have this pot 535 00:23:32,240 --> 00:23:34,440 Speaker 2: of money. I have like four point five billion dollars. 536 00:23:34,480 --> 00:23:36,679 Speaker 2: I can give you some money for your company, or 537 00:23:36,720 --> 00:23:38,920 Speaker 2: I can give you some of my publicly traded stock 538 00:23:39,040 --> 00:23:41,159 Speaker 2: or some combination of them. And so you know, if 539 00:23:41,200 --> 00:23:44,119 Speaker 2: you're rolling up these businesses, people who have built these 540 00:23:44,160 --> 00:23:47,240 Speaker 2: businesses over time want to have some continued economic exposure 541 00:23:47,280 --> 00:23:48,520 Speaker 2: to the thing they built, and so like you can 542 00:23:48,560 --> 00:23:50,280 Speaker 2: give them stock, it's like you know you'll still have 543 00:23:50,320 --> 00:23:53,399 Speaker 2: some you know, diluted economic interest in the thing you built. 544 00:23:54,240 --> 00:23:56,120 Speaker 2: There's a bit of a problem where like what price 545 00:23:56,160 --> 00:23:58,000 Speaker 2: do you give them the stock at? Because he is 546 00:23:58,040 --> 00:24:01,080 Speaker 2: like raising money at call nine dollars a share, which 547 00:24:01,119 --> 00:24:03,879 Speaker 2: is like kind of roughly like you're putting in cash 548 00:24:03,880 --> 00:24:05,919 Speaker 2: into a fund, right, Like you're buying it at like 549 00:24:05,920 --> 00:24:08,399 Speaker 2: sort of the cash value of the fund. But like, meanwhile, 550 00:24:08,440 --> 00:24:10,120 Speaker 2: the stock is trading it like seventy dollars a share, 551 00:24:10,200 --> 00:24:13,040 Speaker 2: because it's like people's hopes. So I don't know the 552 00:24:13,080 --> 00:24:15,680 Speaker 2: first roll up he does, the first acquisition he does, like, 553 00:24:15,800 --> 00:24:18,280 Speaker 2: is he going to pay in stock valued at nine 554 00:24:18,280 --> 00:24:19,879 Speaker 2: dollars a share seventy dollars a share? 555 00:24:19,960 --> 00:24:22,600 Speaker 1: Yeah, it feels I mean in some ways similar to 556 00:24:22,920 --> 00:24:26,320 Speaker 1: the Destiny Tech situation in d xyzes when we're talking 557 00:24:26,359 --> 00:24:29,120 Speaker 1: about enormous, enormous premiums here. 558 00:24:29,000 --> 00:24:31,879 Speaker 2: Right exactly, Like Destiny Tech is a pot of money 559 00:24:31,920 --> 00:24:34,840 Speaker 2: that owns it's like a pot of shares in private companies, 560 00:24:35,240 --> 00:24:38,800 Speaker 2: and you know, it's like cool private companies that retail 561 00:24:38,840 --> 00:24:41,520 Speaker 2: investors can't invest. It's like you know, SpaceX and whatever. 562 00:24:42,000 --> 00:24:46,000 Speaker 2: And so when they took Destiny Tech public, there was 563 00:24:46,000 --> 00:24:49,199 Speaker 2: more demand for the shares than the actual value of 564 00:24:49,240 --> 00:24:51,040 Speaker 2: the companies it owned, and so it was trading it 565 00:24:51,119 --> 00:24:54,200 Speaker 2: like one thousand percent premium to net asset value. This 566 00:24:54,240 --> 00:24:55,800 Speaker 2: is a little bit like that, right, Like this is 567 00:24:55,840 --> 00:24:59,159 Speaker 2: your chance to invest in Brad Jacob's private investment vehicle 568 00:24:59,280 --> 00:25:02,600 Speaker 2: rolling up the building products distribution business. But the trade 569 00:25:02,600 --> 00:25:04,520 Speaker 2: off is like you're not really investing in that. You're 570 00:25:04,560 --> 00:25:08,160 Speaker 2: really investing in like the sort of MEMI retail premium 571 00:25:08,200 --> 00:25:11,399 Speaker 2: to the actual value of the company, because like if 572 00:25:11,400 --> 00:25:13,680 Speaker 2: he does really well and like triples the value of 573 00:25:13,720 --> 00:25:15,960 Speaker 2: the company, that's still way less than what people are 574 00:25:16,000 --> 00:25:17,280 Speaker 2: paying for the retail stock today. 575 00:25:17,480 --> 00:25:18,000 Speaker 4: Yeah. 576 00:25:18,200 --> 00:25:23,600 Speaker 1: I also am curious about how Silver Sun executives feel, 577 00:25:23,600 --> 00:25:25,879 Speaker 1: because in some ways it kind of feels like winning 578 00:25:25,920 --> 00:25:28,520 Speaker 1: the lottery. I would imagine, like, how did he pick 579 00:25:28,600 --> 00:25:29,600 Speaker 1: this company? 580 00:25:30,560 --> 00:25:32,480 Speaker 2: I think that I think that the bankers must have 581 00:25:32,480 --> 00:25:34,400 Speaker 2: had a list of very small companies that we could 582 00:25:34,440 --> 00:25:37,120 Speaker 2: acquire because it's not like he paid them a billion dollars, right, Yeah, 583 00:25:37,119 --> 00:25:38,840 Speaker 2: it's like you put a billion dollars into the company 584 00:25:39,040 --> 00:25:41,639 Speaker 2: and like the existing shareholders, what do they get. They 585 00:25:41,680 --> 00:25:43,879 Speaker 2: get a divot end, right, which is in round numbers 586 00:25:44,000 --> 00:25:45,920 Speaker 2: like fifty to one hundred percent of the value of 587 00:25:45,960 --> 00:25:48,560 Speaker 2: their shares. Right, They're getting paid in cash, and then 588 00:25:49,480 --> 00:25:52,440 Speaker 2: they also keep their shares, which have you know, gone 589 00:25:52,560 --> 00:25:54,960 Speaker 2: up from like nothing to to dollars tell. 590 00:25:54,840 --> 00:25:56,680 Speaker 1: Them right now, Yeah, I think a lot of them. 591 00:25:56,920 --> 00:25:58,680 Speaker 2: I would think a lot of them probably would have. Yeah. 592 00:25:58,760 --> 00:26:01,439 Speaker 1: Yeah, again, it just feels like winning the lottery. This 593 00:26:01,560 --> 00:26:03,760 Speaker 1: is so strange, it's very strange. Yeah. 594 00:26:03,920 --> 00:26:06,440 Speaker 2: Now, there's always been this sort of like industry of 595 00:26:07,400 --> 00:26:12,080 Speaker 2: little public companies that are useful for reverse mergers, because 596 00:26:12,320 --> 00:26:15,240 Speaker 2: every soft and someone wants to become a public company, 597 00:26:16,000 --> 00:26:18,639 Speaker 2: not by doing an IPO, but by like merging with 598 00:26:18,680 --> 00:26:22,520 Speaker 2: an existing public company that doesn't have much there, right. 599 00:26:22,640 --> 00:26:24,200 Speaker 2: And so with silver On, the idea was like, there's 600 00:26:24,200 --> 00:26:25,880 Speaker 2: a little bit of a business there, and we'll spin 601 00:26:25,920 --> 00:26:28,359 Speaker 2: it out to the existing shareholders, so we'll end up 602 00:26:28,600 --> 00:26:30,439 Speaker 2: keeping its listing but getting rid of its business. Then 603 00:26:30,480 --> 00:26:32,119 Speaker 2: they changed their mind and they're keeping its business. 604 00:26:32,119 --> 00:26:33,640 Speaker 1: Too, And why do you think they did that. 605 00:26:34,240 --> 00:26:37,160 Speaker 2: I don't know. My guess would be it's just logistically easier, 606 00:26:37,200 --> 00:26:37,879 Speaker 2: but I don't know. 607 00:26:38,720 --> 00:26:39,200 Speaker 1: Curious. 608 00:26:39,440 --> 00:26:41,800 Speaker 2: A lot of like reverse mergers are done with companies 609 00:26:41,840 --> 00:26:44,040 Speaker 2: that like don't really have any business at all anymore. 610 00:26:44,520 --> 00:26:46,720 Speaker 2: They did exist and they closed down. So you see 611 00:26:46,720 --> 00:26:49,480 Speaker 2: all these companies that were like gold miners and then 612 00:26:49,480 --> 00:26:53,040 Speaker 2: they became cannabis companies, and then they became crypto miners, 613 00:26:53,080 --> 00:26:55,800 Speaker 2: and then they became AI company. Yeah, they did like 614 00:26:55,800 --> 00:26:58,359 Speaker 2: like every buzzword because they keep being like reused for 615 00:26:58,400 --> 00:27:00,879 Speaker 2: their public listing. Yes, quite like that. This is like 616 00:27:00,880 --> 00:27:02,880 Speaker 2: the sort of high end version of that, but it's still, 617 00:27:02,920 --> 00:27:04,720 Speaker 2: you know, a twenty five million dollar company. This is 618 00:27:04,760 --> 00:27:07,720 Speaker 2: like a billionaire calling Goldman to call a company, and 619 00:27:07,720 --> 00:27:09,080 Speaker 2: they're not going to call like the worst of the 620 00:27:09,080 --> 00:27:11,120 Speaker 2: cannabis companies, but like it's a small company. 621 00:27:11,280 --> 00:27:11,480 Speaker 1: Yeah. 622 00:27:11,520 --> 00:27:13,600 Speaker 2: The best of these is, of course, the New Jersey Deli. 623 00:27:13,720 --> 00:27:17,040 Speaker 1: Oh my god, your hometown Hometown Deli. 624 00:27:17,119 --> 00:27:19,679 Speaker 2: Hometown International is a public company that had one deli 625 00:27:20,200 --> 00:27:22,760 Speaker 2: and at some point in like twenty twenty one, David 626 00:27:22,760 --> 00:27:25,560 Speaker 2: Einhorn called it out because it was a single deli 627 00:27:25,600 --> 00:27:27,160 Speaker 2: that was trading at one hundred million dollars. 628 00:27:27,280 --> 00:27:30,040 Speaker 1: That was such a bull that was full time. 629 00:27:30,200 --> 00:27:32,639 Speaker 2: It was amazing, And like I wrote a column about it, 630 00:27:32,720 --> 00:27:35,439 Speaker 2: pointing out that actually the fully diluted value of the 631 00:27:35,440 --> 00:27:37,520 Speaker 2: Deli when you counted for all the warrants, was two 632 00:27:37,600 --> 00:27:40,680 Speaker 2: billion dollars. Yeah, and like the Deli was very perplexing, 633 00:27:41,040 --> 00:27:43,040 Speaker 2: but like, ultimately it sort of turned out it was 634 00:27:43,119 --> 00:27:46,800 Speaker 2: like some reverse merger promoters who were hoping that you 635 00:27:46,840 --> 00:27:49,000 Speaker 2: would have a sort of valuable enough public company that 636 00:27:49,040 --> 00:27:51,600 Speaker 2: someone would want to do a reverse merger with it 637 00:27:51,880 --> 00:27:54,399 Speaker 2: and go public by merging with the Deli, and the 638 00:27:54,440 --> 00:27:56,480 Speaker 2: Deli was just sort of like an easy business to 639 00:27:56,960 --> 00:27:59,800 Speaker 2: hive off the eventual public company. But then they were 640 00:27:59,840 --> 00:28:02,879 Speaker 2: so for fraud because they were sort of allegedly manipulating 641 00:28:02,920 --> 00:28:03,359 Speaker 2: the stuff. 642 00:28:03,480 --> 00:28:05,399 Speaker 1: Is the Deli still an operation? Like is there a 643 00:28:05,440 --> 00:28:06,040 Speaker 1: physical Deli? 644 00:28:06,160 --> 00:28:08,480 Speaker 2: I believe the Delhi closed that. At the time, there 645 00:28:08,480 --> 00:28:11,760 Speaker 2: was so much financial journalism about the Delhi, like several 646 00:28:12,119 --> 00:28:14,800 Speaker 2: business reporters went to this town in New Jersey and 647 00:28:14,920 --> 00:28:16,120 Speaker 2: ordered sandwiches. 648 00:28:15,680 --> 00:28:17,120 Speaker 1: To be naturally the sandwiches are good. 649 00:28:17,119 --> 00:28:18,720 Speaker 2: I always found that puzzling because if you looked at 650 00:28:18,760 --> 00:28:21,440 Speaker 2: the financial statements of the Delhi, which were public because 651 00:28:21,480 --> 00:28:23,600 Speaker 2: it was a public company that was also deli, their 652 00:28:23,680 --> 00:28:26,680 Speaker 2: employee costs were so low, Like I was like, how 653 00:28:26,680 --> 00:28:29,480 Speaker 2: could they be open even ten hours a week? So 654 00:28:29,600 --> 00:28:31,920 Speaker 2: I don't know, but apparently financial journalists would go to 655 00:28:31,960 --> 00:28:34,320 Speaker 2: the Delhi and order sandwiches and the sandwiches are pretty good. 656 00:28:34,600 --> 00:28:38,920 Speaker 2: So it was a real enough deli but also somehow front. 657 00:28:39,000 --> 00:28:41,920 Speaker 2: But anyway, this is a real public company that was 658 00:28:42,160 --> 00:28:45,040 Speaker 2: kind of small and now was like a tiny part 659 00:28:45,080 --> 00:28:45,880 Speaker 2: of a big fund. 660 00:28:46,200 --> 00:28:50,480 Speaker 1: Yeah, Della's do some roll ups and consolidate this industry. 661 00:28:50,680 --> 00:28:56,040 Speaker 2: Yeah, yeah. And that was The Money Stuff Podcast. 662 00:28:56,200 --> 00:28:58,440 Speaker 1: I'm Matt Levian and I'm Katie. 663 00:28:58,560 --> 00:29:00,360 Speaker 2: You can find my work by subsco having to the 664 00:29:00,400 --> 00:29:03,280 Speaker 2: Money Stuff newsletter on Bloomberg dot com. 665 00:29:02,920 --> 00:29:05,240 Speaker 1: And you can find me on Bloomberg TV every day 666 00:29:05,240 --> 00:29:07,080 Speaker 1: between ten to eleven am Eastern. 667 00:29:07,400 --> 00:29:09,080 Speaker 2: We'd love to hear from you. They can send an 668 00:29:09,120 --> 00:29:12,239 Speaker 2: email to your moneypot at Bloomberg dot net, ask us 669 00:29:12,280 --> 00:29:13,800 Speaker 2: a question and we might answer it on air. 670 00:29:14,360 --> 00:29:16,480 Speaker 1: You can also subscribe to our show wherever you're listening 671 00:29:16,600 --> 00:29:18,600 Speaker 1: right now and leave us a review. It helps more 672 00:29:18,640 --> 00:29:19,520 Speaker 1: people find the show. 673 00:29:20,160 --> 00:29:23,720 Speaker 2: The Money Stuff podcast is produced by Anna Maserakis and Moses. 674 00:29:23,400 --> 00:29:27,000 Speaker 1: On Our theme music was composed by Blake Maples, Brandon. 675 00:29:26,760 --> 00:29:27,640 Speaker 2: Frances Nanimss. 676 00:29:27,640 --> 00:29:31,080 Speaker 1: Our executive producer and stage Vallman is Bloomberg's heead of podcasts. 677 00:29:31,280 --> 00:29:33,880 Speaker 2: Thanks for listening to the Money Stuff podcast. Get back 678 00:29:33,920 --> 00:29:35,200 Speaker 2: next week, Course Stuff