Speaker 1: This is Mesters in Business with Very Results on Bloomberg Radio.
Speaker 1: Verry would helps you're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest this week is Spencer Jacob.
Speaker 1: He is an editor at the Wall Street Journals heard
Speaker 1: on the Street column. Before that, he wrote the Ahead
Speaker 1: of the Tape column and was the lex column author
Speaker 1: for The Financial Times. He just wrote a new book,
Speaker 1: The Revolution That Wasn't Game Stop. Read It and the
Speaker 1: Fleecing of Small Investors. Spencer Jacob, Welcome to Bloomberg. Thank
Speaker 1: you so. First of all, I really enjoyed the book.
Speaker 1: I read it on the beach this summer and a
Speaker 1: couple of weekends. Uh. Really reads like a fascinating novel. Um.
Speaker 1: If it wasn't a work of nonfiction, it could never
Speaker 1: have been made into a work of fiction because it
Speaker 1: just wouldn't be believable with it. It's crazy, right It's
Speaker 1: it lends itself to a to a book, and I
Speaker 1: knew that right away. When the story began to unfold,
Speaker 1: I sent an email. I had a three quarters written
Speaker 1: book proposal about something else, sitting at home during the pandemic,
Speaker 1: and I wrote an email to the acquisitions editor Penguin
Speaker 1: random House person. I don't even know. I didn't know then,
Speaker 1: and when I saw this story begin to unfold, I
Speaker 1: had first article had not been written about it. One
Speaker 1: of my sons, let me stop you and and just
Speaker 1: say the book came about and please pardon my language,
Speaker 1: because your son's self describe themselves as degenerates, apes and retards.
Speaker 1: Can you explain why a group of people would self
Speaker 1: describe themselves that way. So I have three sons, and
Speaker 1: two of them are are very online. They're all online,
Speaker 1: but two of them are very online. They are on
Speaker 1: read It all the time. And they were on this
Speaker 1: forum on Reddit called Wall Street Bets, which was at
Speaker 1: the epicenter of this story and the people on this forum.
Speaker 1: It's an investing forum, but not really an investing corn.
Speaker 1: There's a different investing forum on unreddit called r investing.
Speaker 1: This is our Wall Street Bets, which is an entirely
Speaker 1: different speculative lots of access to grind, lots of social
Speaker 1: issues come up. It's not a straight up investing group. Now.
Speaker 1: It's like Jackass for finance, That's what it is. It's like,
Speaker 1: you know, you do crazy stuff on there, and you
Speaker 1: show off crazy stuff and you. I don't know if
Speaker 1: a lot of the crazy stuff actually ever happens because
Speaker 1: you can't tell people are using pseudonyms. But they were
Speaker 1: all over that. And my oldest boy, he's not twenty three,
Speaker 1: he was a college senior when this happened, came over
Speaker 1: and he said, Dad, are you going to write something
Speaker 1: about Game Stop? And you know, so game Stop they're
Speaker 1: all into video games. I've driven them there lots of times.
Speaker 1: They were going there less and less over time, which
Speaker 1: is a problem with Game Stop as a business. It's
Speaker 1: you know, it's in a mall, it's it's old school,
Speaker 1: it's it's the block uster video games. Totally, totally, that's
Speaker 1: and that's the problem. That's why I had been losing
Speaker 1: money for years. That's why that's how it found itself
Speaker 1: at the center of the story. The book is not
Speaker 1: really about game Stop. And people always asked me about
Speaker 1: don't you think this? Don't you think that about Game Stopped?
Speaker 1: Like I can talk to about game stuff, But that's
Speaker 1: not really the interesting thing here. The interesting thing is
Speaker 1: this unprecedented thing that made it the most traded security
Speaker 1: in the world for a while, the most search term
Speaker 1: in the world for a while, you know, and from
Speaker 1: just total obscurity, and um, I said no, why you know?
Speaker 1: And his friend of mine, this kid who I've known
Speaker 1: since he was you know, my as tall as my
Speaker 1: knee had had bought it. And uh, I took a
Speaker 1: look and said, well, he's doubled his money in the
Speaker 1: last two days. Maybe he should sell. They're talking about
Speaker 1: it on Wall Street bets. And I've seen this dozens
Speaker 1: of times before, you know, it's a kind of a
Speaker 1: flash in the pan. And he I really wouldn't hang
Speaker 1: on too long. And and what kind of got my
Speaker 1: attention was he said, no, he's not going to sell. Ever,
Speaker 1: No he can't sell. So what I he can't sell?
Speaker 1: And so the you know, I started reading the board
Speaker 1: and I was like, oh my god, they're they're executing
Speaker 1: a corner on this stock. So they all sort of
Speaker 1: agreed online to buy as much as they could and
Speaker 1: not sell and then buy options to which forces further
Speaker 1: buying buy options dealers. So it was this trap is
Speaker 1: this thing that you can't really do, as you know, Barry, like,
Speaker 1: you can't not legally legally right when I can't get
Speaker 1: together and do this. But a bunch of anonymous teenagers
Speaker 1: and others. It wasn't just teenagers could talk about it
Speaker 1: in this venue without real fear of reprisal, because there
Speaker 1: are a bunch of little guys engaging in some speculative
Speaker 1: wishful thinking. That's right. And if you take at that point,
Speaker 1: there were about one point nine million people on the forum.
Speaker 1: By the end of the next month, there were eleven
Speaker 1: million people. So they quadrupled in in four days the
Speaker 1: number of people on this forum. As it just became
Speaker 1: people got so excited by it and so there that
Speaker 1: those people individually may not have had a lot of money,
Speaker 1: but they did two things. First all their a lot
Speaker 1: of them, and they all rushed in in the same
Speaker 1: way into the same stocks, especially game Stop. And also
Speaker 1: people were telling them, hey, if you want to get
Speaker 1: real bank for your buck, don't even buy the stock
Speaker 1: by way out of the money, call options on the stock.
Speaker 1: And then the options dealers will have to basically as
Speaker 1: it goes up, they'll have to buy, and they'll buy
Speaker 1: a lot more than the money that you put down.
Speaker 1: In professional terms, that's a gamma squeeze. Yes, it's a
Speaker 1: gama squeeze. And most of these these kids were very
Speaker 1: few of these kids knew what a Gama squeeze was,
Speaker 1: but it was all explained there. I was reading all
Speaker 1: about it on the board. I don't think they were
Speaker 1: breaking the law because they're talking about it openly, right, right,
Speaker 1: This this was no dark conspiracy. So so let's talk
Speaker 1: a little bit about Wall Street bets. When it first
Speaker 1: started to erupt, I think the knee jerk response, and
Speaker 1: I'm as guilty as anybody was. How is this any
Speaker 1: different than the nine nineties and Yahoo message boards and
Speaker 1: raging bull But there was a slightly different factor what
Speaker 1: made this so different than what we saw thirty years
Speaker 1: So you've heard it. It's a cliche by now, but
Speaker 1: it is true more or less that the four most
Speaker 1: dangerous words and investing are This time is different, right,
Speaker 1: And that's that's something I'm a real student of financial history.
Speaker 1: I was Templeton very famously said that totally, and I
Speaker 1: went into this with that echoing, and I had to
Speaker 1: go into everything with that echoing in my head. Whenever
Speaker 1: there's a crash or mania or panic that people. Human
Speaker 1: psychology is basically unchanged since Paleolithic times, and so the
Speaker 1: way that that we react to something financially is never good,
Speaker 1: but it's always very similar. So history rhymes, doesn't repeat,
Speaker 1: but it rhymes that that's the reason it's it's the
Speaker 1: way that our our brains are wired. But this was different,
Speaker 1: and tell us, tell us what was different about it.
Speaker 1: The difference is that private companies understand psychology too. They
Speaker 1: have psychologists who work for them, They have social psychologists
Speaker 1: who work for them, and the same people who Uh.
Speaker 1: You go into a Vegas casino and there are no
Speaker 1: fox on the wall, there are no windows. People are
Speaker 1: bringing you drinks. The same people who designed sports gambling
Speaker 1: apps and things like that, designed social media and designed
Speaker 1: the the brokerage apps that that these young people were
Speaker 1: using to access this, and they induced all kinds of
Speaker 1: They just put these speculative tendencies on steroids, basically is
Speaker 1: what they did. Social media and the investing apps together
Speaker 1: on the same device on your smartphone being used by
Speaker 1: the same people al along with Wall Street, Bets and Reddit.
Speaker 1: So the difference this time was different because uh, and
Speaker 1: to the fact that everybody stuck at home. Most of
Speaker 1: us got stimulus checks, so people have cash in their
Speaker 1: pocket and there's no gambling, there's no sports. Their usual
Speaker 1: entertainment is shut down. This really seems and you describe
Speaker 1: it in the book as a perfect storm that teed
Speaker 1: up to send this, to use their parlance, to the moon. Yeah.
Speaker 1: I mean it's so interesting because several things had to
Speaker 1: happen really all at once for this to happen. Um.
Speaker 1: And so I trace that and explain the social forces,
Speaker 1: because I think that's I mean that that's how you
Speaker 1: tell the whole story. Uh, And it's very interesting, but
Speaker 1: it's also how you understand what it means going forward.
Speaker 1: And I want there, you know, and I hope that
Speaker 1: there are lessons in the book for people who invest,
Speaker 1: people who invest their own money, people on Wall Street
Speaker 1: to take away from this, to understand how it happened,
Speaker 1: not that it's going to happen exactly this way again,
Speaker 1: because as I said, it was a perfect storm. But
Speaker 1: you have to go back to two thousand and eighteen
Speaker 1: when you had sports gambling legalized outside of Vegas in
Speaker 1: most of the US, and so you had all these young,
Speaker 1: mainly men playing daily fantasy sports. They had the apps already,
Speaker 1: the Vanduel Draft Kings and what have you on their phones,
Speaker 1: and all of a sudden they were actually gambling there's
Speaker 1: a legal distinction between daily fantasy sports and gambling gambling.
Speaker 1: It's the only type of sports that that negatively correlates
Speaker 1: with with age is sports gambling. Uh then then totally
Speaker 1: everything else is the older you are, the more likely
Speaker 1: are to play slots and things like that, but not this.
Speaker 1: Then you had um in late so you had a
Speaker 1: five year period when half of the new brokerage accounts
Speaker 1: opened in the US were opened by robin Hood, which
Speaker 1: is a tiny broker Even then in that data point, again,
Speaker 1: half of all new brokerage counts were robin Hood. Yeah,
Speaker 1: not in dollar value because they were tiny's The median
Speaker 1: value of those accounts was two forty one dollar, which
Speaker 1: is peanuts. But the number of accounts, that's that's something.
Speaker 1: And I would love to to go into how what
Speaker 1: made robin Hood possible? Okay, because there's some changes there.
Speaker 1: So let's let's just blow that right now. Why was
Speaker 1: robin Hood and ps um? You know, I looked at
Speaker 1: robin Hood and in a seed round and I wait,
Speaker 1: you want to give free trade in two millennials. This
Speaker 1: is the single dumbest investing idea I've ever heard of,
Speaker 1: and I passed on it. What made that possible, robin
Speaker 1: Hood possible, where twenty years ago you couldn't have had
Speaker 1: the sort of app on your phone like robin Hood. Well,
Speaker 1: our our mutual friend Howard Lind'son was one of the
Speaker 1: early investors in robin Hood. He's the one to pitch
Speaker 1: me on it. Literally, Howard, that's the dumbest blank idea
Speaker 1: I've ever Wait, the trades are free and you're giving
Speaker 1: it to the least wealthy people in the world. How
Speaker 1: are they ever going to make money? Howard will video.
Speaker 1: He was kind of a dummy about it too, because
Speaker 1: he was smart enough to invest, but then he was
Speaker 1: dumb enough to say, guys, this is a great app.
Speaker 1: You should charge like a dollar or two dollars for it,
Speaker 1: like people will pay that, which was totally wrong because
Speaker 1: the fact that and and so you still have to
Speaker 1: link it to a bank account, right, but you could
Speaker 1: download it for free, and once you went through the
Speaker 1: process of opening the account, that's when you found out
Speaker 1: they need this info, they need your phone number, they
Speaker 1: need that, they need your bank account, And before you
Speaker 1: know it, you've opened up your financial life completely to
Speaker 1: robin Hood and your first brokerage account and it's it's
Speaker 1: cost seventy bucks to get out to sort of, you know,
Speaker 1: to move your account to somewhere somewhere else, so you
Speaker 1: don't you liquidated and move on exactly. Yeah, that's that
Speaker 1: would be the smarter thing to do. Not that their
Speaker 1: customers always did the smarter thing, but we'll get into
Speaker 1: that later. But yeah, so they, I mean, in late
Speaker 1: every other broker said we'll screw this, you know, we're
Speaker 1: if you can't, you know, can't beat them, then join
Speaker 1: them and for a Schwab or fidelity that has much
Speaker 1: wealthier customers. They sell all kinds of services that Robin
Speaker 1: who doesn't. They're like, well, well, we're gonna lose some
Speaker 1: money on this, but we have to match them. And
Speaker 1: it shows you how dumb they were, because they all
Speaker 1: were wringing their hands about cutting their commissions to zero.
Speaker 1: It was no longer the bulk of the money they
Speaker 1: made anyway, but it was still a pretty nice chunk
Speaker 1: of change for them, and they thought that it would
Speaker 1: cost them money, and it made them money because you
Speaker 1: had an explosion in trading activity as a result of
Speaker 1: everyone going to zero. And so that there's a psychological
Speaker 1: concept that's not appreciated. I mean, you have you learn
Speaker 1: all about e losticity of demand, and you learn that
Speaker 1: that when things get cheaper, people will desire more of it.
Speaker 1: But it depends what kind of thing it is. There's
Speaker 1: only up to a point, only up to a point,
Speaker 1: but there's a special kind of product where people once
Speaker 1: you go from costing something doesn't matter how little to nothing,
Speaker 1: people will go crazy that it will explode. And that's
Speaker 1: specifically fun things. And so you don't think about buying
Speaker 1: a stock is a fun thing, but robin Hood made
Speaker 1: it fun the same dopamine hit as as gambling or
Speaker 1: getting on a roller coaster or just a smidge in
Speaker 1: a heroine for the weekend. Totally, and it's the same
Speaker 1: thing as think about when you're you're a few years older,
Speaker 1: the means, so you remember like if you had to
Speaker 1: call somebody long distance. I mean, you know, my family,
Speaker 1: my parents are immigrants, and we had you know, relatives
Speaker 1: far away, and I remember, like, you know, the very
Speaker 1: rare occasion they would spring for a phone call. Like
Speaker 1: everyone had to be lined up next to the phone
Speaker 1: and you got your you know, your one minute on
Speaker 1: the phone and then hand the phone to the next person.
Speaker 1: And then it was like, oh, they're tearing their hair
Speaker 1: out about how much it would cost. Now calling anyone
Speaker 1: in the world anywhere is free, and so people do
Speaker 1: it all the time. You know, they do it way
Speaker 1: way more than if it just cost a tiny amount
Speaker 1: of money, because these there's no cost to it. There's
Speaker 1: no incremental cost to it, right And and as a
Speaker 1: note with Schwab, when they and they were the first
Speaker 1: major broker that seemed to have introduced um free trading,
Speaker 1: and that all the other dominos fell after them. When
Speaker 1: you looked at their revenue the next quarter, I think
Speaker 1: something like fift of their pre free um revenue came
Speaker 1: from just float on cash and trading volume was really
Speaker 1: really you know, high single digits, low double digit and
Speaker 1: then eventually payment for order flow more than made that up.
Speaker 1: So and a lot of assets flowed into them. So
Speaker 1: old told this was a win win at least four
Speaker 1: established Wall Street farms, and they were like, why don't
Speaker 1: we wait so long to do this? This is great?
Speaker 1: They were all, you know, just gushing about how smart
Speaker 1: they were to do this, even though they had held
Speaker 1: off on doing it for a while. And then that
Speaker 1: was late. Then what happened early is you had the pandemic,
Speaker 1: and the pandemic was just the perfect thing to kick
Speaker 1: off the speculative excess. Of course, you you know, you'd
Speaker 1: had free money for many years, basically, you know, you'd
Speaker 1: had zero would real cause credit, but but literal free
Speaker 1: money showing up in the mail in the form of
Speaker 1: a check or a direct deposit that that kicked in
Speaker 1: um in the second quarter of If you were twenty
Speaker 1: three years old and you you know, had been let's say, working,
Speaker 1: maybe living with friends, all of a suddenly you're mom
Speaker 1: and Dad's basement. You get this check for bucks. Uh,
Speaker 1: you might be getting extended unemployment benefits. Uh, you're not
Speaker 1: spending money going out every night. You know, you're at
Speaker 1: the age where you you spend money as soon as
Speaker 1: you make it. All of a sudden, you weren't your board.
Speaker 1: You're sitting there looking at your phone for twelve hours
Speaker 1: a day, and you're looking you're looking at social media.
Speaker 1: All of a sudden, all these new social media people
Speaker 1: are popping up talking about stocks, the stock market. You know,
Speaker 1: there's this whole rise of of influencers, and so you
Speaker 1: go and you know, your buddy tells you to open
Speaker 1: up a robin Hood account, and you open up robin
Speaker 1: Hood account because he already has a robin Hood account,
Speaker 1: and he'll get he got a free shriff stock when
Speaker 1: he opened it, and he'll get another free shaff stock. Mystery,
Speaker 1: Like it's like a sweepstakes because it could be a
Speaker 1: two dollar stock, but it could possibly be a fifty
Speaker 1: dollar stock. Right, you don't know, it's it's it's like
Speaker 1: you know, I mean, it's like, that's a cheap cost
Speaker 1: of acquisition for a brokerage firm. Right. All told, the
Speaker 1: average payback period was five months for that investment, so
Speaker 1: they didn't really need to add. They did have advertisements,
Speaker 1: and their advertisements were really kind of too kind of um,
Speaker 1: you know, make themselves look it. Basically, it wasn't to
Speaker 1: get new customers. Their their their ads. We're all touchy feely.
Speaker 1: You were born an investor. I never thought I could
Speaker 1: do this. And the people they show in their ads
Speaker 1: are not the typical lucrative customers they had either. They
Speaker 1: were you know, um, mainly female, a few older people.
Speaker 1: It was young males primarily. And and the thing is
Speaker 1: they did most of their customers they don't make money
Speaker 1: on but there's a subset on which they make a
Speaker 1: lot of money, and so those are the people they're
Speaker 1: trying to get. It was young risk seeking, uh, you know,
Speaker 1: kind of not maybe not two wise men. And as
Speaker 1: a father of three young men, I can I know
Speaker 1: what I'm talking about. Uh. And and you know, and
Speaker 1: so that that's when you had the explosion during the panemic,
Speaker 1: and you had all this volatility which was just just addictive.
Speaker 1: It was like crack cocaine, you know, you couldn't stop.
Speaker 1: And then in the year from the pandemic bear market
Speaker 1: bottom to a year after nine percent of American stocks rose,
Speaker 1: which was crazy number. So so let's talk a little
Speaker 1: bit about the revolution that that wasn't by using game
Speaker 1: Stop as an example, as you did so well in
Speaker 1: the book. And and it has to begin with a
Speaker 1: guy whose name we now know as Keith gill Um.
Speaker 1: Since this is a family station, I can only use
Speaker 1: an acronym. He went by DFV on on Reddit and
Speaker 1: on YouTube. He was Roaring Kitty and he basically takes
Speaker 1: all of his money, some fifty something thousand dollars buys
Speaker 1: leaps like a year or two oft in the future,
Speaker 1: way out of the money and this just looks like
Speaker 1: a wild So he buys calls betting the stock will
Speaker 1: go up on game stop, which is a couple of
Speaker 1: bucks a buck or two or three at the time,
Speaker 1: and he posts it um without a whole lot of
Speaker 1: commentary on game Wall street bets on Reddit, just to
Speaker 1: picture of his brokerage account with the options there in
Speaker 1: his portfolio, apparently nothing else, and the word phrase I
Speaker 1: like the stock, yep, yolo. You only live once. So
Speaker 1: he is a really really fascinating character and unusual character.
Speaker 1: And one of the interesting things is, let me tell
Speaker 1: you that. I mean, of course, his whole history is
Speaker 1: there to be seen, but for ninety percent of of
Speaker 1: this story, he's there in the background doing these these
Speaker 1: videos four hour five hour long, you know, videos, talking
Speaker 1: about the stock and talking about investing, making these posts,
Speaker 1: responding to people who mainly made fun of him on
Speaker 1: this message board, like a lot. He took a lot
Speaker 1: of heat, and you know, he was he was unusual
Speaker 1: in a lot of ways on this forum Wall street Bets.
Speaker 1: One thing is he wrote in complete sentences. The other
Speaker 1: is like he was, I mean you I think can
Speaker 1: advocate people go out and buy it. He just said
Speaker 1: I like the stock that basically as much as as
Speaker 1: much influencing as he did was here's a picture of
Speaker 1: my account. I'm gonna live and die on it. You guys,
Speaker 1: go do what you want. You want a textbook example
Speaker 1: of not how not to influence people online and that
Speaker 1: and that's it. Because he was cerebral, he was polite,
Speaker 1: uh you know he people would kind of make fun
Speaker 1: of him and said, well, that's not the way I
Speaker 1: think about it, because you know, behavioral finance dictates that
Speaker 1: blah blah blah, and uh, as I follow the teachings
Speaker 1: of as Watamurana and whatever like, you know, stuff like that,
Speaker 1: no one knows, yeah, exactly the valuation guru and n
Speaker 1: y u No, I think these kids know who that
Speaker 1: was or there you know, right, I mean, And so
Speaker 1: he was just basically sort of you know, it's like
Speaker 1: a tree falling in the woods. I mean, some people
Speaker 1: were like, you know, sometimes he would make money and
Speaker 1: then I say hey, you should sell and like no, no, no,
Speaker 1: And then he'd lose half of it. And people were
Speaker 1: following and said, wow, what an idiot. You know, for
Speaker 1: the money that you lost, I could have done this
Speaker 1: and that you could have bought a Game Stop franchise. Yeah,
Speaker 1: so he invested fifty three dollar is of his money.
Speaker 1: He's not a rich guy at all. He was working.
Speaker 1: He didn't say anything about himself, by the way, and
Speaker 1: he was and I think had he said this, he
Speaker 1: probably would have had less influence. He's a charter financial analyst,
Speaker 1: which was a difficult qualification. One, two, and three have
Speaker 1: each have like a fifty something percent fail rate. So
Speaker 1: he's in the industry. And then he being being smart
Speaker 1: and hard working is always good, but getting a little
Speaker 1: lucky is better. And and not long afterwards, along comes
Speaker 1: Michael Burry of the Big Short fame and basically takes
Speaker 1: a position in Game Stop saying, hey, you know this
Speaker 1: is a classic cigar butt. Uh, there's some value here
Speaker 1: and and there's way too much negativity about it. What
Speaker 1: happens from there, Well, I'll tell you that this is
Speaker 1: interesting too, because I'll I won't say the entire name,
Speaker 1: but it's df V is deep effing value. So value
Speaker 1: is part of his moniker And he was upset. He said,
Speaker 1: you know, thanks a lot Bury for jacking up my
Speaker 1: cost basis because most peopore Well, so now it's going
Speaker 1: to be more expensive to buy more, and he would
Speaker 1: build a position over a couple of years. The technical
Speaker 1: term is pyramiding. You keep adding to an existing position
Speaker 1: as prices gradually rise. But they practically doubled overnight, right,
Speaker 1: And he and most people, I mean people on this
Speaker 1: board would be like I bought these options and like,
Speaker 1: now it doubled my money, you know, because because the
Speaker 1: stock went up because Michael Burry shows up, who was
Speaker 1: played by Christian Bale. That's why most people think of
Speaker 1: Christian picture of Christian Bale instead of the drum set
Speaker 1: in the Big Short. Yeah, totally. And so and people
Speaker 1: are like, what what's wrong with you? Like you should sell?
Speaker 1: Like you know, he this is like a stroke of luck,
Speaker 1: and it's not how he viewed it at all, which
Speaker 1: is a very rare form of thinking. So he I
Speaker 1: think like he was surprisingly long time for someone buying options, totally.
Speaker 1: And I think I would not be surprised if this
Speaker 1: guy shows up one day, five years, ten years, not
Speaker 1: even that long, you know, managing some kind of you know,
Speaker 1: value fund just sort of like a kind of a
Speaker 1: hip Warren Buffett or something. Because he really he has
Speaker 1: that way of thinking. First of all, obviously has analytical
Speaker 1: chops by having had a cf A not maybe not
Speaker 1: Buffett like, but he certainly knows what he's talking about.
Speaker 1: But he he just has that that kind of unusual
Speaker 1: way of of looking at things and inverting things that
Speaker 1: that you need for success. But at the same time,
Speaker 1: as we'll see later, he he's got that. You know,
Speaker 1: he's cool and young and use thirty three thirty four
Speaker 1: during this this this episode and the point at which
Speaker 1: he became really super influential that were the most followed
Speaker 1: people on the planet basically for a couple of weeks. Uh,
Speaker 1: he wasn't posting any kind of analysis, you know, he
Speaker 1: was like he became the hero briefly of this, this
Speaker 1: whole movement. So so following Michael Burry not much longer
Speaker 1: than that, Ryan Cohen, who is the founder of Chewy,
Speaker 1: which essentially um is the most successful online and pet
Speaker 1: food and and good store essentially with pets dot Com
Speaker 1: couldn't do Chewy became and Ryan Cohen then says, hey,
Speaker 1: we think game stop can become an online purveyor of
Speaker 1: video games. Forget the brick and mortar that that's just
Speaker 1: where they were. Let's talk about the future. And now
Speaker 1: the stock takes another leg up from one and two
Speaker 1: and three dollars to five and ten dollars. Tell us
Speaker 1: what happens next. Yeah, so he shows up, and then
Speaker 1: things start to get interesting. Um it starts going up
Speaker 1: to the point that it was at the point that
Speaker 1: that deep effing value would have sold. You know, he said,
Speaker 1: like I think you know this. He had made it
Speaker 1: up money. He was a millionaire, just a million, just
Speaker 1: one million, one million and two million, couple of million,
Speaker 1: not no big deal and life changing before to exactly
Speaker 1: before taxes. But then a light bulb goes off. And
Speaker 1: even before this, a light bulb kind of went all
Speaker 1: from his head, uh, some months before because someone had
Speaker 1: pointed out on this this board, like hey, this this
Speaker 1: could be the greatest short squeeze of your life, the
Speaker 1: mother of all shorts, the mother of all short squeezes,
Speaker 1: you know, the kind of the saddam language. And and
Speaker 1: it briefly doubled uh and and then settled back down.
Speaker 1: But that was a foretaste. And that's the first time
Speaker 1: you mentioned, like, hey, in addition to all the good
Speaker 1: stuff I think about game stop, there's this additional possibility.
Speaker 1: I'm not gonna really count on it that there could
Speaker 1: be a short squeeze, because you know, the thing that
Speaker 1: that game stopping the other they call the meme stocks,
Speaker 1: you know, had in common was that they're all kind
Speaker 1: of losers. They weren't a MC, the big movie chain
Speaker 1: which was dying on the vine during the pandemic hurts,
Speaker 1: which had already declared bankruptcy and was waiting for the
Speaker 1: court to just doll out the assets, which is insane.
Speaker 1: What were some of the other ones in BlackBerry? Remember right?
Speaker 1: Nokia was another one that popped up like we Bath
Speaker 1: and Beyond. We used to call that dumpster diving when
Speaker 1: you're looking through the wreckage on Wall Street to find
Speaker 1: that cigar stuff? What can I still smoke that someone
Speaker 1: else has thrown away in two two twenty was possibly
Speaker 1: the worst year ever for short sellers, or people who
Speaker 1: bet that stocks are going to decline, usually by borrowing
Speaker 1: the stock and and selling it. So basically they they
Speaker 1: opened themselves up to unlimited losses in theory and and
Speaker 1: limited gains. And so two thousand twenty was a terrible year.
Speaker 1: You've had all kinds of dumb stuff going up that
Speaker 1: they were betting against. Nicola and you know, I can
Speaker 1: go on and on and on, so let's put let's
Speaker 1: put some flesh on those bones. And this is data
Speaker 1: from the book it in the We Saw Drop. And
Speaker 1: then beginning on March, markets rallied to finish up more
Speaker 1: than for the year. And during that year, short sellers
Speaker 1: lost collectively two hundred and forty five billion dollars, which
Speaker 1: is pretty astounding. But then when you look at the
Speaker 1: three months leading into January one, when the MEME stocks
Speaker 1: really exploded, UM, a basket of the fifty most shorted
Speaker 1: stocks uh that had a market cap of at least
Speaker 1: a billion dollars, that basket doubled. Those are some insane
Speaker 1: stats if you're a short seller. Yeah, that that is
Speaker 1: just a world of pain if you're a short seller.
Speaker 1: And so think about it if you're I mean, there
Speaker 1: there are people out there, Jim chain Os and what
Speaker 1: have you who are dedicated short sellers. Um, there are
Speaker 1: a lot more people out there who have short selling
Speaker 1: as part of their strategy. That that's the bulk of
Speaker 1: short selling. Some people are are just fine, bad companies
Speaker 1: a bit against them. Others run what's called like a
Speaker 1: one thirty thirty along short portfolio. Where you're a hundred
Speaker 1: and thirty percent long and then thirty percent short, so
Speaker 1: net you're a hundred percent long, but you have a
Speaker 1: hedge if the market goes down on the bet that
Speaker 1: the worst stocks will for more than the best stops totally,
Speaker 1: and and that's that's usually a smart bet because you
Speaker 1: usually don't worry about something terrible happening to you being ruined, right,
Speaker 1: I mean, you don't think, what's the worst thing that's
Speaker 1: gonna happen. You bet against game stop. And then let's
Speaker 1: say somebody shows the best boy shows up in bodies. Okay,
Speaker 1: you had a really bad box, right, you had a
Speaker 1: terrible day, But that's it. Not a terrible day. You
Speaker 1: had a bad day. It's probably some small part of
Speaker 1: your your huge portfolio. And so what these meme stocks
Speaker 1: had in common was that they're all losers like that,
Speaker 1: they're all companies that have not made money in years,
Speaker 1: were headed for possible bankruptcy, were sort of just anachronisms,
Speaker 1: like like BlackBerry, the companies that, like in two thousand
Speaker 1: and one were sort of hot, not in two thousand
Speaker 1: and twenty one, right, And so they were in a
Speaker 1: horrible year for short selling. They felt safe betting against
Speaker 1: these companies. But they felt too safe, And that was
Speaker 1: the kind of the dry kindling that started as fire,
Speaker 1: was that they felt so safe betting against some of
Speaker 1: these companies that their short positions left them no exit
Speaker 1: if things really went wrong. But what's no one. As
Speaker 1: we said at the beginning of the show, it's not
Speaker 1: like you and I would be illegal for us to
Speaker 1: gang up and say, hey, I happen to know that
Speaker 1: x y Z hedge fund is very heavily short this thing,
Speaker 1: and we can ambush him by basically all colluding, putting
Speaker 1: all our money together and pushing it to the you know,
Speaker 1: to the moon. But because then he would be forced
Speaker 1: to buy back then his money, he would pile his
Speaker 1: buying on top of ours to buy back the stock,
Speaker 1: and then there'll be a stampede for this sort of
Speaker 1: it's like shouting fire in a crowded theater. Short squeezes
Speaker 1: happened all the time, but you don't like those ambushes.
Speaker 1: They used to happen before there was an SEC Now
Speaker 1: you can't do that. So so again, more more data points.
Speaker 1: You know, a normal stock, a billion dollar plus stock
Speaker 1: might have a short interest of ten or twent if
Speaker 1: that gets up to thirty forty, and that's called a
Speaker 1: crowded short. Hey, too many people are betting against it.
Speaker 1: Some of these um small cap and microcap stocks had
Speaker 1: shortest interests of game Stop had a short interest of
Speaker 1: a hundred and forty percent. This was a lot of
Speaker 1: dry kindling and people lighting sparks, wasn't it. It totally
Speaker 1: was I mean to the float and people. And of
Speaker 1: course they're they're ongoing sort of you know, complaints and
Speaker 1: conspiracy theories like that's illegal. You can't you know, it
Speaker 1: is not illegal because there's a process called re hypothication
Speaker 1: where if you you know, if you go on the
Speaker 1: market today and you buy a stock, uh, and then
Speaker 1: it's in your account at Schwab or whatever. Schwab might
Speaker 1: lend that stock out. Even if you purchased that stock
Speaker 1: from a short seller. They don't know where it came from,
Speaker 1: so hypothecate that and it could be lent twice or
Speaker 1: three times. It happens. There's no ceiling on the amount
Speaker 1: of short interest other than hey, at two or three,
Speaker 1: you know, it's financial suicide at a there's no room
Speaker 1: for you know, and and and as we clearly saw. So,
Speaker 1: so let's talk a little bit about short selling and
Speaker 1: what's good and bad about it. But I gotta start
Speaker 1: by asking about a story you tell about the history
Speaker 1: of the paperwork crisis on Wall Street and how does
Speaker 1: that relate to what's going on with uh, with Reddit
Speaker 1: and game stop and the meme stocks tell us about
Speaker 1: the paperwork crisis? Sure, well, there's a great book by
Speaker 1: John Brooks called The Go Go Years where I think
Speaker 1: I first heard about that. I've read about it other
Speaker 1: places too, But the paperwork crisis was something that happened
Speaker 1: during a previous speculative mania in the late nineties sixties,
Speaker 1: when you had just an explosion in trading activity. And
Speaker 1: this was before things were computerized. There was so much paperwork,
Speaker 1: in fact, that the stock market had to be for
Speaker 1: a long long time closed on Wednesdays just in order
Speaker 1: to allow people to catch up, you know, settling all
Speaker 1: the trades and making This was the nifty if the era,
Speaker 1: and a lot of stocks, the postwar bull market was
Speaker 1: still running from you know, the late forties right up
Speaker 1: to the mid sixties. Wall Street was hot. Wall Street
Speaker 1: was hot, and that was at a time that it
Speaker 1: was really expensive to trade, which is the That's the
Speaker 1: reason that I one reason that I brought it up
Speaker 1: because it wasn't until five that commissions were deregulated. So
Speaker 1: for years and years and years, this is a complaint
Speaker 1: saying that like brokers could charge fixed commissions and it
Speaker 1: was just really expensive for brokers to help themselves to
Speaker 1: your money basically on Wall streets. So you know, all
Speaker 1: these these people who were involved in this never could
Speaker 1: have been involved because the hurdle financially to get into
Speaker 1: trading was just too high. And then you couldn't be hyperactive.
Speaker 1: And even then people were hyperactive. Then when you you
Speaker 1: brought commissions down and down and down, you know, you
Speaker 1: had the dot com and whatever, and then you know,
Speaker 1: then now you had this which was tradings down to
Speaker 1: now to free down to free. That that kind of
Speaker 1: makes a little bit easy year for there to be
Speaker 1: a specular domania. And so that that was just kind
Speaker 1: of part of the kind of long arc of history
Speaker 1: on Wall Street that I tell. And yeah, and so
Speaker 1: making it free you really crossed a rubicon. But but
Speaker 1: even making it cheaper made made things easier. Of course,
Speaker 1: it may got made cheaper in the middle of the
Speaker 1: worst decade ever really except the nineteen thirties from Wall Street.
Speaker 1: Nineteen seventy five was a terrible time. You know, if
Speaker 1: if you had gone to like, uh, these brokers with
Speaker 1: like you know, sideburns and wide ties and polyesters suits
Speaker 1: and stuff in nineteen seventy five were like having a
Speaker 1: terrible time financially in nineteen seventy five, and you're like, oh,
Speaker 1: this is the first step in you know, this kind
Speaker 1: of revolution that's gonna make you guys really rich. You know,
Speaker 1: you're gonna have this surge of people in the eighties
Speaker 1: coming in four oh one. Ks are going to be
Speaker 1: invented and all the stuff. They would have thought you
Speaker 1: were crazy, like, you know, and then some guys gonna
Speaker 1: you know, go on this thing called the Internet. His
Speaker 1: name is Roaring Kitty, and he's gonna, you know, make
Speaker 1: a video game store, you know, be the most traded
Speaker 1: security on the planet from total obscurity. Like then they
Speaker 1: really think you're crazy. But that's that's you know, that
Speaker 1: was the beginning of it. That was a key step.
Speaker 1: So so that's how we ended up eventually getting to
Speaker 1: the point where um trading became free. The short squeeze
Speaker 1: that that was orchestrated on Reddit has this underlying theme
Speaker 1: that short sellers are evil, that this is all a
Speaker 1: big conspiracy theory. Um. Even Elon Musk has weighed in
Speaker 1: on this. Why the animus towards short sellers. Yeah, if
Speaker 1: you look at the way that short sellers and I
Speaker 1: just think encourage readers to go to Google right now
Speaker 1: and type in short sellers are and tell me what
Speaker 1: you see. And it's not going to be a nice word.
Speaker 1: It's not going to be a nice description. So going
Speaker 1: back to the history of of stock markets, back to
Speaker 1: the sixteen thirties in the Netherlands, short sellers have been
Speaker 1: reviled because whereas most of us buy stock and then
Speaker 1: hope it will go up and keep paying us dividends,
Speaker 1: they're making the opposite bet. Making that opposite bet, though,
Speaker 1: is not predatory at all. As a matter of fact,
Speaker 1: the existence of short selling is very beneficial to to
Speaker 1: every one of the markets, but especially to a retail
Speaker 1: investor that doesn't know a lot. And I'll explain why.
Speaker 1: One reason is that short sellers provide a lot of
Speaker 1: liquidity to the market that wouldn't otherwise shorts. But there
Speaker 1: if there were no short selling, then there are only
Speaker 1: two things you could do. You could say, I'm going
Speaker 1: to buy the stocker. I'm not going to buy the stock.
Speaker 1: You abstain or you vote. Yes you can't vote, and no,
Speaker 1: you can't say, you know what, the stock is too expensive,
Speaker 1: And so there's nobody to really to kind of correct
Speaker 1: the value of a stock. It takes a much much
Speaker 1: longer time for the kind of scales to fall from
Speaker 1: our eyes, not just when there's a fraud like Enron,
Speaker 1: which was explor Jim chanos a lot, and he's Enron
Speaker 1: was but one of many frauds that he and other
Speaker 1: short sellers have identified. And in fact, short sellers seem
Speaker 1: to do a better job than the FTC or the
Speaker 1: SEC or whatever organization is in charge of instigating corporate fraud.
Speaker 1: Then you know they they've done a really good job
Speaker 1: letting investors know this company is lying to you and
Speaker 1: if you put money into this, you're gonna lose it.
Speaker 1: As Jim says, you know, short sellers are financial detectives,
Speaker 1: and regulators are financial archaeologists, you know, after the fact,
Speaker 1: that come in and and do something hopefully good. Yeah,
Speaker 1: so they I mean, I'm not holding short sellers up
Speaker 1: as like a paragon of virtue there out there on
Speaker 1: Wall Street. They're trying to make money. That's that's the
Speaker 1: free market. They're out there, They're playing a very dangerous game.
Speaker 1: They have to be really confident in selling something short because,
Speaker 1: as I said, the losses are theoretically unlimited, the gains
Speaker 1: are keppt. It's the it's the inverse of what you
Speaker 1: face as a normal investor. By the way, I'm not
Speaker 1: encouraging anyone out there to go and sell stock short.
Speaker 1: It's a very dangerous and complicate anything. It's hard, and
Speaker 1: I don't think that people need to do it, but
Speaker 1: I think that that we're all better off if short
Speaker 1: sellers are kind of unmolested. I guess in the market
Speaker 1: that's you know, they're not. There have been times, especially
Speaker 1: bad times in the market, and research you show this
Speaker 1: again and again when you when you restrict short selling,
Speaker 1: then you wind up kind of delaying the normalization of
Speaker 1: the market. Like in two thousand and eight and around
Speaker 1: the time of it was the first ones to step
Speaker 1: in and buy in a crash because they're covering and saying,
Speaker 1: all right, we've made enough money. And literally studies have
Speaker 1: shown they're the first buyers than the value guys come
Speaker 1: in and the technicals. There's like a whole arc of that.
Speaker 1: You reference in the book a two thousand and four
Speaker 1: Harvard study by Professor Orton Lamont that said, when when
Speaker 1: you have companies complaining about short sellers in general, they
Speaker 1: do much worse than the average stock and much more
Speaker 1: frequently go bankrupt. So it's almost a red flag when
Speaker 1: you hear management. Dick fald is a perfect example, got
Speaker 1: handed a copy of that someone in the book, you say,
Speaker 1: when he was complaining about it, someone literally handing him
Speaker 1: handed him a copy of the study, and I guess
Speaker 1: the implication was, Hey, Dick, maybe you should just not
Speaker 1: not go there. Yeah, well he did not take that advice,
Speaker 1: unfortunately went bankrupt. So they fit the study perfectly. So
Speaker 1: so short selling isn't necessarily um inherently evil, And yet
Speaker 1: that seems to be the guestult on on Wall Street bets.
Speaker 1: And that's a really interesting point at which I kind
Speaker 1: of understand where the people who mainly were involved in
Speaker 1: this came from. So it's like young people between the
Speaker 1: ages of eighteen and thirty five primarily who participated in this,
Speaker 1: mostly male. As I said, but gender doesn't doesn't matter
Speaker 1: in this case. But their former to financial experience before
Speaker 1: they ever could invest, was the Global Financial Crisis, and
Speaker 1: so and there's this lingering anger that like, we never
Speaker 1: really got our pound of flesh. My parents lost their home,
Speaker 1: my parents friends lost their house, or I have these
Speaker 1: student loans that are really hard to pay back. I
Speaker 1: can't earn enough and I can't buy a house, and
Speaker 1: these guys are getting rich and and and the decades
Speaker 1: since the GFC, you know, you've you've had a further
Speaker 1: kind of spread. You know, the rich have gotten richer
Speaker 1: and the poor have not gotten much wealthier. And so
Speaker 1: you know, you you really do have polarization in terms
Speaker 1: of wealth and income and access to all kinds of
Speaker 1: things in this country. It see, it's not a you know,
Speaker 1: a very egalitarian society that we live in, much less
Speaker 1: so than the past. And so they focus that animus
Speaker 1: on not on rich people, because they like Elon Musk
Speaker 1: and they like other rich people. They like Silicon Valley
Speaker 1: rich guys. The exactly he's cool, but they they if
Speaker 1: you wear a suit and work on Wall Street, you're
Speaker 1: like a cartoon villain to them. And then specifically if
Speaker 1: you're a hedge phone manager, hedgehohn managers to them are
Speaker 1: are evil personified. And then if your hedgehump manager who
Speaker 1: sell stock short where there's already this bias against betting
Speaker 1: against something, there's this kind of sense that like they
Speaker 1: want to ruin a company, which is not what they
Speaker 1: want to do, because that's not what happens when you
Speaker 1: it's too hard to do that. So so there was
Speaker 1: something you reference in the book off of Off of
Speaker 1: Reddit that cracked me up. A lot of the memes,
Speaker 1: you know, this was really amusing and entertaining. So so
Speaker 1: the intersection of the social side of it, the political
Speaker 1: economic warrior side of it, and the investing side. It's
Speaker 1: a weird group. I love this bankrupting institutional investors for dummies,
Speaker 1: Like they photoshopped the investing for dummies and we're gonna
Speaker 1: go after the hedge funds, who, by the way, had
Speaker 1: nothing whatsoever to do with a great financial crisis, but
Speaker 1: seemed to have garnered a lot of criticism that they
Speaker 1: were somehow involved when they of all the people to blame,
Speaker 1: not them, right, they There's lots of stuff. If you
Speaker 1: want to go someone like that, there's a million people
Speaker 1: to blame. But of of all the folks, hedge funds
Speaker 1: really were not involved in the financial crisis, so it
Speaker 1: seems weird that there's this sort of undirected general smoldering
Speaker 1: rage and it's just looking for an outlet. And then
Speaker 1: they told them on the board, Hey, there's this hedgehow
Speaker 1: manager who like could otherwise a low profile guy. His
Speaker 1: firm is believe it or not, called Melvin Capital. What
Speaker 1: did we and how did the name Melvin Capital come about?
Speaker 1: Gabe Plotkin, who's one of the one of the big,
Speaker 1: one of the few big loues, which is a dweed
Speaker 1: be enough name to begin with. He's like, no, no,
Speaker 1: Gabe Plotkin isn't nebishy enough. Let's call it Melvin. It
Speaker 1: was his grandfather's name. His grandfather was a communist store
Speaker 1: owner who we really admired, and so he named his
Speaker 1: lovely sentiment. Well people people laughed at it like they
Speaker 1: were like some of the commentary when he set up
Speaker 1: the fund, because he came from S. A. C. H.
Speaker 1: Which was Cohen's fund and point seventy two. But he
Speaker 1: he was seated by Steve Cohen and he four years
Speaker 1: had huge tess. He was a very good fun. People
Speaker 1: were laughing. He personally double digit returns totally. He personally
Speaker 1: this this is like the just incredible to me this number.
Speaker 1: I've mentioned that. People said, now you must be you
Speaker 1: must be, must be wrong about that. He you know,
Speaker 1: people not not from Wall Street or like really like
Speaker 1: he earned personally eight forty six million dollars the year
Speaker 1: before this whole episode went down. He was a billionaire
Speaker 1: multiple times, owner over not even counting what he still had,
Speaker 1: like a big chunk of of UH. Melvin was his
Speaker 1: own capital as well. At that point it was so
Speaker 1: and and and seven billion dollars of it went poof
Speaker 1: in a few days because of this. Yes, so, but
Speaker 1: he was and and there are other hedge funds that
Speaker 1: were short um game stop, but he was especially short
Speaker 1: and because he had a fund that that specialized UH
Speaker 1: in retailers and things like that and consumer discuss dead
Speaker 1: center of his target of companies that either were overvalued
Speaker 1: or over prias or should be bankrupt. And he testified
Speaker 1: that in two thousand and fourteen when he set up
Speaker 1: his fund. That was one of the first positions he
Speaker 1: put on. It was a good good bet too. In
Speaker 1: two thousand and fourteen because it went down a lot
Speaker 1: between that. Where was he initially short from gee? I
Speaker 1: think it was probably uhs at that time, So you
Speaker 1: wrote it down to sixty I think, which the question really,
Speaker 1: what are you hanging around for the last buck or two? Well?
Speaker 1: And and it crowded short? You know that? Is it
Speaker 1: just not wanting to pay the taxes? I don't. That
Speaker 1: was one of the things that you don't answer in
Speaker 1: the book, and I don't I have yet to read
Speaker 1: that answer. But you short something at forty it drops
Speaker 1: to a dollar or two? Who cares about that? Last book?
Speaker 1: What are you waiting for? Yeah? And I mean obviously
Speaker 1: you know in reporting a book, there people you speak
Speaker 1: with who are on the record, people are off the record.
Speaker 1: I did try to kind of suss that out and
Speaker 1: never really to my satisfaction. Didn't. I just think it
Speaker 1: was because it was still there was just nothing else
Speaker 1: too short. I guess two dollars us to zero is
Speaker 1: still another hundred so um. Yeah. And then the reason
Speaker 1: that they became aware of him because the way that
Speaker 1: short selling works is you can see how much short
Speaker 1: interest there is in a stock, but you can't see
Speaker 1: who is shorting it. But if you buy derivatives for
Speaker 1: your fund that have the same effect, and he did,
Speaker 1: and that was turned out to be a fatal mistake
Speaker 1: because because these weren't coal options where you're deciding in
Speaker 1: advance how much you're risking, when there are certain derivatives
Speaker 1: where you have full exposure in both directions. There there are,
Speaker 1: although he owned puts which are which do have a
Speaker 1: limited loss, you can only lose the premium. But that
Speaker 1: and that's what showed up. And then he and then
Speaker 1: he was being talked about on this forum. Uh you
Speaker 1: know when when Ryan the same time that Ryan Cohen
Speaker 1: came in and then he opted and even when he
Speaker 1: was being talked about and I mean there, I don't
Speaker 1: want to kind of get into you let me say
Speaker 1: things that you don't want to say, because I get
Speaker 1: away with him where maybe you are uncomfortable saying that.
Speaker 1: Here's a guy who's incredibly successful, he's a Wall Street professional,
Speaker 1: he's a billionaire, and he sees a bunch of wise
Speaker 1: asses and kids on a message board mocking him, and
Speaker 1: he's like, really, let me show you how it's done,
Speaker 1: because this pos is going to zero. Like it's easy
Speaker 1: to see. Yeah, there's a lack of humility there. But
Speaker 1: it's not you know, Foldy and Jubris, it's just show
Speaker 1: the kids how it's done and didn't work out. That's
Speaker 1: that's I think that's a pretty good guess at what happened.
Speaker 1: I think it also it's a it's it's an organization
Speaker 1: of thirty or forty people that may not have gotten
Speaker 1: to his level yet. I think I was just the
Speaker 1: person one or two levels below him just didn't take
Speaker 1: it seriously. They were like, why would you? Why would
Speaker 1: before this all happened, why would anyone take degenerates and
Speaker 1: apes seriously? I mean the whole thing about Reddit, and
Speaker 1: and I love Reddit. I've been playing on Reddit for years.
Speaker 1: They're all these reddit you know, slash ours, all these
Speaker 1: subcategories that their rabbit holes. And yeah, I read it
Speaker 1: has issues with all sorts of of like every social media,
Speaker 1: all sorts of problems. Um, that's a whole another conversation.
Speaker 1: But if you want to do a deep dive into anything,
Speaker 1: um there's a reddit for it, and some of them
Speaker 1: are just mind blowingly astonishing. But if you're a professional
Speaker 1: hedge fund manager, how seriously are you going to take people?
Speaker 1: And it's not even in the main investing channel. It's
Speaker 1: in like a sub sub channel that's a bunch of goofballs. Yeah,
Speaker 1: and and and of what they post is just rude
Speaker 1: jokes and memes and things like that, So there's not
Speaker 1: a lot of the thing is that the memes were
Speaker 1: the message. The memes, you know, they used like hieroglyphs
Speaker 1: or that they used to to communicate. And so which
Speaker 1: is why we call them meme stocks today. And uh,
Speaker 1: I mean, they did not take it seriously. They do today.
Speaker 1: As a matter of fact, there was a study done
Speaker 1: that showed that today of hedge funds either themselves or
Speaker 1: they pay a service to monitor social media for their positions.
Speaker 1: So you know, they take it very seriously today, are
Speaker 1: using AI to make sure that this doesn't happen again.
Speaker 1: And there's a data point from the book that I
Speaker 1: have to share. So Goldman Sachs keeps a basket of
Speaker 1: unprofitable stocks, that's literally what the basket is called. And
Speaker 1: in when the Dow was up about seven, this gained.
Speaker 1: Stop and think about how insane that is the worst
Speaker 1: of the worst are just destroying everything else. Yeah, I mean,
Speaker 1: and that that tells you what why a quarter of
Speaker 1: a trillion dollars almost was was lost by short sellers
Speaker 1: in two thousand and twenty. It's because the dumber it was,
Speaker 1: the better it did. And that's and that that really
Speaker 1: formed the attitude of this. You know, there are people
Speaker 1: who were participated in the seam stock because who had
Speaker 1: three months, six months, nine months, maybe a year of
Speaker 1: of investing experience, all of it in these crazy markets
Speaker 1: everything that's some serious guy like Barry Ritholts, you know,
Speaker 1: goes on TV and talks about and says this, I
Speaker 1: would not touch this. Those are the things that went
Speaker 1: up right. So, I mean I went up a lot
Speaker 1: and went up a lot. So and you know, Warren Buffett,
Speaker 1: the greatest investor of all time, got out of airline stocks,
Speaker 1: which he he wasn't right, but he very well could
Speaker 1: have been right. I mean, things looked pretty hairy. We
Speaker 1: didn't know there's gonna be a vaccine. We didn't know
Speaker 1: how bad the you know, COVID pandemic would be. It
Speaker 1: certainly looked really bad in in March and April, and
Speaker 1: he sold out of his airline stocks at a big loss. Uh.
Speaker 1: Not typically Buffetty behavior, But you make the best decision
Speaker 1: you can with the information you have at the hand
Speaker 1: at the time, time, and as often as not, you're
Speaker 1: right or wrong. And in that case, Buffett was wrong.
Speaker 1: That doesn't seem to be what the redditors were doing.
Speaker 1: These folks were just you know, we weren't democratizing finance.
Speaker 1: We were democratizing risk taking and speculation. So throughout the
Speaker 1: book we hear the phrase democratizing finance. Were we democratizing
Speaker 1: finance or democratizing risk taking and speculation? You know, it's
Speaker 1: it's a phrase that drives me crazy. Democratizing finance, you know,
Speaker 1: to me is basically bringing uh investing to a level
Speaker 1: that anyone can participate, and basically that has been accomplished
Speaker 1: through years of competition and technological progress. You know, I
Speaker 1: give the example, Uh we're talking earlier about the paperwork crisis.
Speaker 1: It was very expensive to trade that if you had
Speaker 1: a little bit of money that they wouldn't bother giving
Speaker 1: the time of Dane Walster, you had to have a
Speaker 1: lot and then and then you really got got fleeced,
Speaker 1: you know, because of big charges. Even just to you know,
Speaker 1: you look, people talk about these long term charts were like, oh,
Speaker 1: if you had invested in there was no index fund then,
Speaker 1: and it costs you money to reinvest your dividends. And
Speaker 1: like if you had a little bit of money, if
Speaker 1: you had invested a dollar where you couldn't invest a
Speaker 1: dollar then, so it's totally there was no partial share purchases.
Speaker 1: Well no, no, And so today you can you can
Speaker 1: do that and rob at robin Hood and others. You
Speaker 1: can buy a fractional share, You can buy an exchange
Speaker 1: traded fund that cost zero points zero three percent a year.
Speaker 1: You can do all these things. So the door is
Speaker 1: open for people with very little money today, and it
Speaker 1: was you know, prior to robin Hood a though the
Speaker 1: robin Hood in fact did kind of accelerate things very
Speaker 1: very cheaply, very easily to get on that ladder, which
Speaker 1: I urge anyone especially in their like their teens or twenties,
Speaker 1: getting started out with lots of decades to compound their wealth,
Speaker 1: to do it is a smart thing to do to
Speaker 1: get on the ladder, but not in an active crazy way,
Speaker 1: in a kind of you know, put your money and
Speaker 1: let it grow and don't check it a lot way,
Speaker 1: and and and save as much as you can weigh
Speaker 1: and that that really has been democratized. But then when
Speaker 1: you talk to Robin Hood and say, hey, you guys
Speaker 1: are just encouraging you're you've gamified this thing and you're
Speaker 1: inducing fomo. You know, you open up your app and
Speaker 1: you're the first thing you show is what everyone else
Speaker 1: is doing and buying. What's up? What that, what's down?
Speaker 1: That's not useful information. That's information that makes you feel
Speaker 1: like you're missing out, makes you feel like you need
Speaker 1: to be active. And they're active customers, the people who
Speaker 1: use the app. We're using it in two thousand and twenty,
Speaker 1: on average over seven times a day, opening it seven
Speaker 1: times a day. They have customers who were trading eleven
Speaker 1: thousand times over a six month period. There's just absolutely
Speaker 1: no reason for anybody to trade eleven thousand times, or
Speaker 1: even a thousand times, or even a hundred times, you know,
Speaker 1: a time span like that. It's it's study after study,
Speaker 1: by the way has shown that that is uh inversely
Speaker 1: correlated with your performance. The more you trade, the worst
Speaker 1: you do. That's it's a very very well understood effect.
Speaker 1: And even just checking your account frequently, it's called myopic
Speaker 1: loss of version. It's well understood that if you look
Speaker 1: at your account. Least you'll do better because you're less
Speaker 1: likely to see a loss which pains you more than
Speaker 1: again pleases you. And so you know that that is
Speaker 1: not the formula for success. They understood that. And you
Speaker 1: note in the book the average Schwab account trades forty
Speaker 1: five times less than the average robin Hood account. Those
Speaker 1: numbers per per dollar in the account. It's just mind
Speaker 1: blod and and options are trading even more. And only
Speaker 1: of robin Hood's customers traded options, but options were the
Speaker 1: most lucrative product for them because and that's you know,
Speaker 1: you've heard a lot about payment for order flow. Paying
Speaker 1: for order flow. I don't think it's it's just a
Speaker 1: mechanical way of paying for trades. I don't have such
Speaker 1: a big problem with it. But it is uh a
Speaker 1: practice where you basically you sell your orders to a
Speaker 1: market maker that's off a stock exchange, that pays you
Speaker 1: to execute it, and then keep a little bit of
Speaker 1: the money. Basically, he was very efficient at matching it
Speaker 1: up payment for order flow. The only problem I have
Speaker 1: with it is that it enables this behavior by making
Speaker 1: trading free. Otherwise, I don't think there's anything really insidious
Speaker 1: about it. Which is a controversial view now, I know.
Speaker 1: But so so let's look at the aftermath of this. So,
Speaker 1: so Keith gil took fifty three thousand dollars buys deep
Speaker 1: out of the money calls, and by the time the
Speaker 1: calls peak a year and change later, it's what forty
Speaker 1: seven million dollars. Yeah, I think intra day he probably
Speaker 1: had sixty or seventy million dollars. But yeah, but I think,
Speaker 1: uh about forty nine or fifty uh like at the
Speaker 1: end of day at he would have had more had
Speaker 1: he not, because he cashed in somebody he had He
Speaker 1: had perfect timing almost he cashed them in during the week.
Speaker 1: That was the real menia. So what did he end
Speaker 1: up netting when everything was said and done, because I
Speaker 1: was kind of surprised that he bought more stock. So
Speaker 1: so from what I recall in the book, he cashes
Speaker 1: out about three million dollars worth of options and then
Speaker 1: later sells a bunch of the options and exercises them
Speaker 1: and ends up with thirty million dollars worth of stock
Speaker 1: something crazy game stop, Yeah, which is a pretty even
Speaker 1: then you know, he's real money. He was because he
Speaker 1: was called to this congressional hearing. That's the only time
Speaker 1: we've ever heard his voice or seeing him. I mean,
Speaker 1: he was interviewed by two YouTube exactly. Sorry yeah, but
Speaker 1: um yeah, but he was like not a total unknown
Speaker 1: then and he stopped doing those videos and uh yeah exactly.
Speaker 1: So people were very curious. It was probably one of
Speaker 1: the more watched regressional hearings, you know, because because of him,
Speaker 1: really and he got asked the fewest questions. Um, we're
Speaker 1: almost the fewest questions, but I mean, you know, it
Speaker 1: was what were they gonna They didn't want to antagonize him,
Speaker 1: and you know, and he was you know, it's strange
Speaker 1: because he was the only retail investor there and it
Speaker 1: was really all about retail investors. They kind of asked
Speaker 1: him some some pretty good juicy questions. Had they been
Speaker 1: curious about it, but I think they were. They were
Speaker 1: outraged that trading was halted and that that's a key
Speaker 1: part of it. So let's talk about that. But we
Speaker 1: will circle back to gil So right in the height
Speaker 1: of this where the short squeeze is having maximum effect,
Speaker 1: um Robin Hood is adding incredible numbers of new accounts,
Speaker 1: offering incredible amount of margin to these new account holders
Speaker 1: and a lot of option trading. Why did they halt
Speaker 1: the most shorted squeeze stocks. They did because they did
Speaker 1: too good of a job. That's basically that's they didn't
Speaker 1: have the capital to meet their custodial agreements. They got
Speaker 1: a call. And now we have more detail. By the ways,
Speaker 1: the recently a report came out from this Congressional committee
Speaker 1: very recently, very recently, good and a good report worth
Speaker 1: reading that has a lot of detail that it was
Speaker 1: actually much worse than than what we knew. They were
Speaker 1: very close to going under. Not only that we knew
Speaker 1: they were very close to going under, we didn't know
Speaker 1: was how close they got to taking other people under.
Speaker 1: Oh really, yes, who were they going to drag with them? Well,
Speaker 1: Apex Clearing, you know, got into Trum, which was the
Speaker 1: clear the clearing broker for lots of brokers and the
Speaker 1: market makers who were processing the trades, and we're not gonna,
Speaker 1: we're gonna stop processing these trades because you're gonna you're
Speaker 1: going to create a problem for us. A Citadel which
Speaker 1: was the biggest processor of their trades, and they got
Speaker 1: they got into a conflict with Citadel Riff Shop in Chicago.
Speaker 1: Now Miami. Yeah, Ken Griffin is a Hetgelow manager who
Speaker 1: all his his holding company plays a role in this
Speaker 1: because it it injected money into Cape Plotkin's fund after
Speaker 1: he lost a bunch of money. But it also plays
Speaker 1: a role in this because he is the major shareholder
Speaker 1: in the securities from also called Citadel. That caused lots
Speaker 1: of confusion and lots of conspiracy thinking that was a
Speaker 1: really big beneficiary of this. But what people don't understand
Speaker 1: is that this was a burden to them too, because
Speaker 1: this this was a dangerous level of speculation in a
Speaker 1: very narrow set of stocks. And you open a new
Speaker 1: account on robin Hood, you put a thousand dollars in,
Speaker 1: you buy two thousand dollars worth of stock, and if
Speaker 1: it drops in half, somebody's gonna come up with that money.
Speaker 1: And if you don't, someone else is on the hook.
Speaker 1: Now they're adding like half a million accounts a week,
Speaker 1: some crazy number. They added almost a million in a
Speaker 1: day during this that's unbelievable. And yet all this is
Speaker 1: algo driven, All this is automated. There is no real
Speaker 1: adults saying we don't have the capital to extend. They
Speaker 1: basically just it wasn't until they got the uh, the
Speaker 1: founder of robin Hood what's name to rev ten of
Speaker 1: its three in the morning, he gets a phone call,
Speaker 1: we need three billion dollars in three hours or you're
Speaker 1: out of business. Right three in the morning, West coast time,
Speaker 1: West coast West Market's gonna open three hours. You need
Speaker 1: three billion dollars or you're done. Yeah, even as hot
Speaker 1: as things were in early one, you don't people don't
Speaker 1: drop three billion dollars on you in three hours when
Speaker 1: they're all asleep. Right, but he managed to actually get
Speaker 1: just this, get this done between lines of credit and
Speaker 1: in cash and then restricting all these meme stocks. Right,
Speaker 1: they had about a seven million dollar line of credit
Speaker 1: they drew down. They had already had seven million on
Speaker 1: deposit at dt c C and then they said, how
Speaker 1: about if we don't allow our customers to buy anymore,
Speaker 1: these will only let them sell. And even then they
Speaker 1: really bent the rules to keep them in business. And
Speaker 1: so what people these if they blew up this Most
Speaker 1: of this stuff wasn't systemic. But at that point, if
Speaker 1: Robin blows up, maybe it's not the Great financial crisis,
Speaker 1: but there are waves that are gonna gonna really have
Speaker 1: negative effect, and their their customers were so angry at
Speaker 1: not being able to buy these stocks. And what they
Speaker 1: don't realize is had they been allowed to buy them,
Speaker 1: not only they would have got not only were they
Speaker 1: got lost a lot of money, because they would have
Speaker 1: their money would have been locked up for weeks, by
Speaker 1: which point it would have lost its value. But you
Speaker 1: everything would have been frozen, you know, for weeks or
Speaker 1: even months in robin hood, right, So they they would
Speaker 1: have been wiped out, their vast majority. So let's bring
Speaker 1: this back to Keith gil who when I are you're
Speaker 1: going through the book and when you when you look
Speaker 1: at the boards, he is described at separate times the
Speaker 1: Reddit boards as he's a genius visionary. He's just a
Speaker 1: guy who got lucky. He's an idiot who left generational
Speaker 1: wealth changing amounts of money um on the table. What
Speaker 1: was he really? So he was a very unusual person
Speaker 1: to be in this group at all, Right, But the
Speaker 1: fact that so people when they started getting excited about
Speaker 1: game stop in the postile his short squeeze. Then he
Speaker 1: was discovered. Then he became he went from being this
Speaker 1: kind of laughing stock to being a celebrity. And his
Speaker 1: post changed then to his posts were they were built
Speaker 1: posts of memes and things like that. He was talking
Speaker 1: about Ryan Cohen on his on his YouTube channel. People
Speaker 1: still didn't know his identity, they didn't know his that
Speaker 1: dead until um to Wall Street. Yeah, I know other
Speaker 1: people could figure it out, I mean, like but until
Speaker 1: two Wall Street. UH. Journal reporters interviewed him and published
Speaker 1: the interview on the twenty nine, which is the day
Speaker 1: after trading was was halted, twenty nine January, and it
Speaker 1: was a great interview with him, iconic picture pictures of
Speaker 1: my book, uh, the headband, the whole thing, and and
Speaker 1: literally in the basement. In the basement, I spoke with
Speaker 1: the photographer who was there taking the shots of him,
Speaker 1: and I spoke with them of course, and there's a
Speaker 1: lot of you know, things that fell to the cutting
Speaker 1: room floor. So really fascinating story, all the kind of
Speaker 1: this is the layer where he operated that you saw
Speaker 1: on the YouTube videos and he became a hero. And
Speaker 1: basically what he did, what was at that point, what
Speaker 1: he was doing every day was just once a day
Speaker 1: after the market closed, he posted a screenshot of his
Speaker 1: v trade account, obviously not with his account number or
Speaker 1: his name. UH and just the value of the options
Speaker 1: he had in game stuff, and just the fact that
Speaker 1: he hadn't sold. And people are like, if he's not selling,
Speaker 1: I'm not selling. If he's in it, if he's and
Speaker 1: I'm still in And when this this went from fifty
Speaker 1: to a hundred back to sixty, people gave him grief.
Speaker 1: And then it went to a million, and then down
Speaker 1: to five hundred, and people gave him and then it
Speaker 1: went to two four million, and suddenly we were off
Speaker 1: to the races. Yeah, and it's called that's a concept
Speaker 1: called social proof. You know, someone is making money doing something,
Speaker 1: and you know, unfortunately they are like a lot of
Speaker 1: people on the internet who have claimed to have or
Speaker 1: actually have made money doing something, uh because they got lucky,
Speaker 1: you know. But the fact that someone you know, it's
Speaker 1: like when you turn on if you ever can't sleep,
Speaker 1: and you turn on an infomercial and you see some
Speaker 1: guy with like two blondes under each other in front
Speaker 1: of an audience, in front of an audience, and a
Speaker 1: bentley and his big house and it's probably not really
Speaker 1: his bentley or his house, but whatever, right or right,
Speaker 1: you know, but but that's you know that that is
Speaker 1: a very well understood concept like somebody and someone just
Speaker 1: like you, by the way, someone he an ordinary guy
Speaker 1: who now doesn't have to work, and gee, we used
Speaker 1: to have to worry about bills, Bob. But tell him
Speaker 1: we bought Joe's system and now you know, flip real
Speaker 1: estate and you got we're making fifty a week, you know,
Speaker 1: and you know. And so that's that's what really hooks people,
Speaker 1: is this sort of if they did it, that I
Speaker 1: can do it too. The logic of that always annoys
Speaker 1: me because I always want to say to the people,
Speaker 1: if this was so lucrative, why aren't you doing it?
Speaker 1: And why are you selling the how to? You know,
Speaker 1: I get those when newsletters, Hey, why don't you just
Speaker 1: raise some capital from friends and family and and manage
Speaker 1: money this way if it's so lucrative. But it turns
Speaker 1: out the value is in selling it to suckers, not
Speaker 1: actually the underlying Although that said, Gil ended up three
Speaker 1: million dollars ain't nothing. It's a reasonable amount of money
Speaker 1: even before taxes. And he still has what's the latest
Speaker 1: filing um in terms of games stop stock? What does
Speaker 1: he own? It's around a hundred plus boxes. We're recording
Speaker 1: this down from four sixty, but still he's got five
Speaker 1: or ten million dollars worth the stock, maybe more than that. No,
Speaker 1: really in the tens, in the tens of millions, I think,
Speaker 1: you know, because it was thirty million as of April
Speaker 1: one when it had fallen quite a bit, so I'd
Speaker 1: have to look it up, but I mean it's it's
Speaker 1: in the tens of millions. So he's he's a rich man.
Speaker 1: I don't know if he sold or not, you know
Speaker 1: he And by the way, just to say, like you know,
Speaker 1: they're there are people who sort of are out there.
Speaker 1: You're using social proof for manipulation. I don't think that
Speaker 1: he ever manipulated anyone. You know, he was actually investigated personally,
Speaker 1: the only people investigated in this whole thing, and totally cleared.
Speaker 1: And and did you know he's not only a c
Speaker 1: f A. He worked for a brokerage firm and insurance
Speaker 1: company in his career, I think so. So he understood compliance,
Speaker 1: he understood what he could and couldn't say. If you
Speaker 1: look at all of his postings, he just showed his hey,
Speaker 1: here's where this is today. There was no let's stick
Speaker 1: it to the man, let's execute a squeeze, let's do.
Speaker 1: It was just basically I love the phrase, I like
Speaker 1: the stock. And you know, if he had wanted so,
Speaker 1: you you had Elon Musk come into this, and and
Speaker 1: other people and a lot of opportunitists come into this.
Speaker 1: If he had said on that Monday or Tuesday or
Speaker 1: Wednesday or any point thereafter, shown up and had a
Speaker 1: screenshot of his trade account and said now I own
Speaker 1: deep out of the money options in x y Z company,
Speaker 1: everyone would have jumped into x y Z company and
Speaker 1: he would have made a hundred times his money. He
Speaker 1: although that would have been investigated. Maybe that would have
Speaker 1: been investigated, but it probably would have been okay because
Speaker 1: he's not saying hey boy, he's just he's just legitimately
Speaker 1: showing said, oh yeah, I actually did own it. All
Speaker 1: I did was tell people that I owned it, and
Speaker 1: and he would have been able, which we see on
Speaker 1: TV every day. People go on Bloomberg and CNBC and
Speaker 1: they say, this is why we own the stock. There's
Speaker 1: nothing illegal about that. Nope. And I don't think it
Speaker 1: would have been illegal in his case either. Maybe he
Speaker 1: would have faced some slap on the wrist, but he
Speaker 1: could have made hundreds of millions dollars he could have made.
Speaker 1: He could have been one of the you know, maybe
Speaker 1: not the wealthiest people in America, but he could have been,
Speaker 1: you know, close to a billionaire. I think just by
Speaker 1: doing it a few times, just think about it, right,
Speaker 1: I mean, just think to pick some option in some
Speaker 1: obscure company and what X of your money? He already
Speaker 1: had fifty million dollars in you know, in value. You know,
Speaker 1: if if you had made multiply that get too hard, right, right,
Speaker 1: even twenty x gets to a billion. The only issue
Speaker 1: would be does the SEC step in and halt the
Speaker 1: stock and prevent this from But it wouldn't. It just
Speaker 1: would have been the truth I own the stock and
Speaker 1: then just just the reaction alone. And you know that's
Speaker 1: the you know, it's the less successfully is that what
Speaker 1: people are doing every day on on TikTok, you know,
Speaker 1: is that I bought the stock. And I think they're
Speaker 1: still doing it on TikTok. I kind of got the
Speaker 1: sense that the finance influencers on TikTok I love the
Speaker 1: couple we only buy stocks that go up. If you know,
Speaker 1: it's the old Will Rogers joke. If they don't go up,
Speaker 1: don't buy them. That's that's how we support a lifestyle.
Speaker 1: I kind of have got given the sense that here
Speaker 1: at the end of the first half of two, with
Speaker 1: the market down twenty plus percent, Uh, those influencers aren't
Speaker 1: quite as influential as they previously were. Yeah, I think
Speaker 1: the shine has come off a little bit, uh from
Speaker 1: the bad financial advice, but you know, it just never
Speaker 1: goes out of style and it comes back again and again.
Speaker 1: But yeah, they definitely have um have become less influential,
Speaker 1: of course, like anytime like I put something even if
Speaker 1: it has nothing to do with crypto, and if you
Speaker 1: have this, like you put something on Twitter and then
Speaker 1: like somebody replies to you. It says, oh, I'm investing
Speaker 1: with it just looks some normal looking person's picture. I'm
Speaker 1: investing with so and so, my crypto coach. Like, you know,
Speaker 1: there's just so much spot spam, right, and I you
Speaker 1: know you should if you don't report and block those
Speaker 1: you're you're doing. I do every time. I constantly do that.
Speaker 1: Before we get to our favorite questions, my last question,
Speaker 1: so the meme stocks, they're down about fifty six since
Speaker 1: the peak, some even worse. Are we done with meme
Speaker 1: stocks or is this just gonna be yet another one
Speaker 1: of those things that sort of cycle in and out
Speaker 1: of favor. So I think the meme stocks have chewed
Speaker 1: up a lot of people's wealth and enthusiasm for the market,
Speaker 1: So I think it's just gonna be you're having kind of,
Speaker 1: you know, echoes of what you had originally. I don't
Speaker 1: think that you could have what you had originally, but
Speaker 1: you've had You've had some really dumb stuff go up,
Speaker 1: Like you had red Box Entertainment that people who have those, right,
Speaker 1: it was being bought for the equivalent of sixty four
Speaker 1: cents and it went up to fifteen dollars just because
Speaker 1: I don't know why, you know, right, I mean, and
Speaker 1: stuff like that, Well they someone else would come along
Speaker 1: and pay more, right, right, It's the greater full theory
Speaker 1: to some extent. But it's also like L O L
Speaker 1: this thing is going up. I'm gonna buy it, and
Speaker 1: this serious person on TV said I shouldn't buy it
Speaker 1: because it's worth a fraction of it, So I'm gonna
Speaker 1: show him. I'm gonna buy more. And and another one
Speaker 1: you mentioned, Revel, and that's a kind of crazy story
Speaker 1: because they were was this before or after they filed
Speaker 1: for back after after like like Hurts. That's oh, so
Speaker 1: all the equity holders are known as zero? How do
Speaker 1: I get me some of that? Right? I mean, it
Speaker 1: just it just boggles the mind. Right, So you know,
Speaker 1: there's no I mean, I think the only way to
Speaker 1: explain it. I mean, obviously are people are not well informed.
Speaker 1: But I think there are people who are just nihilistic
Speaker 1: who are like, ha ha, look what I'm doing. I'm
Speaker 1: burning up my money or I'm doing this thing where
Speaker 1: I should I think so, I think psychologically that's like
Speaker 1: that's also one outgrowth of the pandemic because people are
Speaker 1: just saying, look at me, I'm doing this totally dangerous thing,
Speaker 1: and maybe some of them are getting out. So a
Speaker 1: lot of the people I spoke with who were involved
Speaker 1: in this were more sort of the savvy playing the
Speaker 1: greater fool. I see this thing going up, and I
Speaker 1: think I'm gonna be able to hop and they mainly
Speaker 1: just succeed. So I was looking at this entire reddit
Speaker 1: wool Street bats Saga from from Game Stop to AMC two,
Speaker 1: Hurts and now Revlon as just a massive combination of
Speaker 1: board millennials suck at home with free trading and a
Speaker 1: giant Dunning Krueger overlay. Meaning people are unaware of their
Speaker 1: own lack of skills. And what you're suggesting is there's
Speaker 1: a different dimension to this that burn the whole thing down.
Speaker 1: What the hell this this isn't working, This experiment isn't
Speaker 1: working out here in America. Just let it all burn.
Speaker 1: Is that what you're suggesting that is part of it?
Speaker 1: That definitely is part of it for some of the
Speaker 1: people involved, for sure, and they they don't mind making
Speaker 1: money in the process. It's like the George Costanza like,
Speaker 1: just do the opposite of what right I mean? And
Speaker 1: that's what like, oh, the smart person on TV, the
Speaker 1: Spencer Jacob at the Wall Street Journal said, don't do that.
Speaker 1: I mean, I'll write an article like pointing out for example,
Speaker 1: I wrote an article about crypto and memestock saying like,
Speaker 1: there's some people have a five thousand dollar price target
Speaker 1: for a m C or I don't know how like
Speaker 1: a million dollar price start for a bitcoin, and I
Speaker 1: wrote about it's right there, it's not unthinkable. Well yeah,
Speaker 1: and that's harder from is from twenty but still yeah, um.
Speaker 1: But the thing that you have to realize that Victor
Speaker 1: are going to give credit to uh Victor Hagani of
Speaker 1: ELM Wealth who pointed this out. I mean it's kind
Speaker 1: of common sense, but he actually studied, you know, and
Speaker 1: kind of ran the numbers and and did scenarios, and
Speaker 1: he said, if you are really sure, like you really
Speaker 1: have a high degree of confidence. Uh, Like I just
Speaker 1: went back to the Kelly betting criteria. That's something a
Speaker 1: sports betting right exactly, it's study. I love this part
Speaker 1: of the book. Yeah. And so if you if you
Speaker 1: really really pretty confident in something happening, like you know,
Speaker 1: you might be wrong, but let's say you really are confident,
Speaker 1: you have reason to think you're confident, you don't bet
Speaker 1: all your wealth. These people are going all in. People
Speaker 1: are like I mortgage my house, I'm out on the street,
Speaker 1: but I still am keeping my AMC because it's going
Speaker 1: to five k. Like, if it's going to five hundred k,
Speaker 1: how many what do you need? Two shares? Two shares
Speaker 1: of AMC for twenty six bucks. And then if you're right,
Speaker 1: then you're rich. And if you're wrong and there's not
Speaker 1: a chance that you're right, then you know you didn't
Speaker 1: lose a lot of money, and so it's like it's
Speaker 1: bet uh. People end up going even knowing it's a
Speaker 1: loaded coin, and I don't know if this is the
Speaker 1: same STA. So even though it's a loaded coin, I
Speaker 1: think if I don't lose money, my college math recollection
Speaker 1: is that you should never bet more than like four
Speaker 1: percent of your steak because you could have a run
Speaker 1: of even with weighted coin of like eight ten in
Speaker 1: a row, and then you're busted. Even with a sixty
Speaker 1: forty coin, you would think, how can I lose money?
Speaker 1: The vast majority of people completely go broke with that. Yeah,
Speaker 1: it's which is crazy. Yeah, and there's been a lot
Speaker 1: of studies showing that. But and this specifically, that's why
Speaker 1: I wrote that, you know, which I thought was like
Speaker 1: a kind of a smart thing to point out to
Speaker 1: two readers is a common common sense. Then you get
Speaker 1: the hate I get that, get the hate mail, screw you.
Speaker 1: I'm still holding. I'm all in, like, Okay, I just
Speaker 1: gave you I love. You don't have to. But by
Speaker 1: the way, over the years, I have learned that the
Speaker 1: more vociferous the hate mail, the more correct I am,
Speaker 1: because the reason people are so upset is you're challenging
Speaker 1: a fundamental belief system that they haven't thought through. And
Speaker 1: you're essentially, I don't want to say, challenging their manhood,
Speaker 1: but you're putting a fundamental principle that they adhere to
Speaker 1: um at risk and it's confusing and their own cognitive
Speaker 1: dissonance causes them to lash out. Maybe cognitive dissonance is
Speaker 1: the wrong word, but the anger they get it means
Speaker 1: you're you're getting closer and closer to totally identifying a
Speaker 1: truth that is very uncomfortable to them. And I get
Speaker 1: these like and you're a shill. Well, you know what,
Speaker 1: I gave up a very lucrative job on Wall We
Speaker 1: started out at Credit Swiss. You're an analyst. At one
Speaker 1: point you were ahead of em research, right, So for
Speaker 1: you to do be a reporter at the walls Ree Journal,
Speaker 1: you're taking a pay cut. Yeah, that's try not to
Speaker 1: think about that whenever, Like the kids need braces, and
Speaker 1: it's not just it's not just that your chill. You're
Speaker 1: just a bad chill, right, Exactly what kind of what
Speaker 1: kind of a dummy makes a financial decision like that?
Speaker 1: You're not gonna So let's let's um before we jump
Speaker 1: to our favorite questions. It was one other study you
Speaker 1: mentioned that I have to talk about because I just
Speaker 1: love this. So this sports gambling. When people tweet their
Speaker 1: sports forecasts about what's going to happen, the more specific
Speaker 1: they are, and the more wrong they are, the more
Speaker 1: followers they seem to get. The more specific, even if
Speaker 1: they're wrong, they generate more Twitter followers. But people who
Speaker 1: put out these thoughtful, nuanced forecasts that turn out to
Speaker 1: be right, it doesn't generate that buzz that that the
Speaker 1: certitude generates even if we're wrong. And that's a really
Speaker 1: important thing to understand about finance and life general and
Speaker 1: social media and social media. And then I'll just go
Speaker 1: one step further on that because um, yeah, So basically
Speaker 1: the study shows that people who are less accurate but
Speaker 1: more confident, uh just a lot of certitude, get a
Speaker 1: lot more followers than the people who wound up being right.
Speaker 1: But in this algorithmically charge social media, you're not seeing
Speaker 1: both of those posts anymore. Right, So you go on
Speaker 1: on Reddit, which has a human algorithm, people upboat and
Speaker 1: downboad things. Okay, so let's say Barry that you go
Speaker 1: on on Wall Street bets and you have a very measured, long,
Speaker 1: cerebral post about something with some good information and inside.
Speaker 1: And then I go on there and you say, and
Speaker 1: I put five percent of my portfolio into the stock.
Speaker 1: And I go on there and I say, I put
Speaker 1: a percent of my portfolio into the stock, all into
Speaker 1: out of the money, call options, mortgage, my house, did
Speaker 1: all this crazy stuff to the moon, you know, rocket ships,
Speaker 1: I'm gonna get a lot more at tension. So now
Speaker 1: a third person goes onto there and says, well, I'm
Speaker 1: a young person who just to open up their first
Speaker 1: brokerage kind of hear Wall Street pets is a place
Speaker 1: to go for advice. Not only they It's not like
Speaker 1: they're going to see your advice and my advice. They're
Speaker 1: only going to see my advice. They're not going to
Speaker 1: see your advice because yours is not going to get uploted.
Speaker 1: Yours is boring and mine is exciting, And so mine
Speaker 1: gets upvoted. Mine is funny and gets uploded in Yours
Speaker 1: is invisible. And so this that that is different about
Speaker 1: social media today. That's what you know people compared to yeah,
Speaker 1: who finance message bar was usually did and this is
Speaker 1: different that You're absolutely right, it's it's not just that
Speaker 1: we're manipulated by algorithms. The algorithms are manipulating our own
Speaker 1: biology and psychology, and so we were built for a
Speaker 1: different era, not not this era. So on that cheerful note,
Speaker 1: let's jump to our fine favor read questions that we
Speaker 1: ask all of our guests, starting with tell us, what
Speaker 1: you've been streaming these days? What's keeping you entertained? So
Speaker 1: I have never been a big TV watcher, and then
Speaker 1: during the pandemic, I guess I started more kind of
Speaker 1: became more of like a family. Yeah, family social activity.
Speaker 1: But I'll only except for I'll watch a football game
Speaker 1: by myself. But I don't really watch things about myself.
Speaker 1: So I always trying to, like, if I can get
Speaker 1: three sons, if I can get at least one of
Speaker 1: my sons and my wife to watch something with me,
Speaker 1: then I'll watch it. It's like a matter of negotiations.
Speaker 1: So the thing we just finished watching was Inventing Anna Um,
Speaker 1: which I really liked and I'm I'm always just fascinated
Speaker 1: by She's kind of the high in grifter, the socialite. Yeah,
Speaker 1: she's the Anna delvi As was her name, and she
Speaker 1: is her name. She's still alive, and she basically convinced
Speaker 1: all these wealthy people to sort of finance her luxurious lifestyle,
Speaker 1: and you know, and and she just she was a
Speaker 1: fake heiress, you know. And and she almost got a
Speaker 1: bunch of money from some investment firms to buy a
Speaker 1: building and start foundation and all this crazy stuff. And
Speaker 1: it's just it's just the kind of I'm really always
Speaker 1: been interested in common. I want to watch UM, I
Speaker 1: want to watch Super Pumped. I want to watch We Crashed.
Speaker 1: I'm trying started. It's fascinating and I love the book
Speaker 1: Super Pumped by your colleague, So that's definitely on my
Speaker 1: list to see. And then on the podcast, I'm more
Speaker 1: of a pod go for a walk, listen to podcast.
Speaker 1: I listen to your podcast a lot. You're You're. I'm
Speaker 1: a big fan of of yours. UM. I like Shane Parrish,
Speaker 1: Dmitri Cofinis, Tim Ferris. UM. There's a guy actually I
Speaker 1: heard on maybe just a few months back on Tim
Speaker 1: Ferris who I'm really into listening town Rich Role who's
Speaker 1: into like doing ultra endurance sports. I've just read his
Speaker 1: book after I heard the podcast UM called Finding Ultra
Speaker 1: was just this fascinating story about how he uh you know,
Speaker 1: went from being uh in alcohol we still is an alcoholic,
Speaker 1: but recover in culture marathon or is that who? Yeah,
Speaker 1: like he did he did five iron Man's in seven days,
Speaker 1: you know, yeah, in his forties. So he's one of
Speaker 1: the fittest men in America. And so I listened to
Speaker 1: a bunch of his podcasts. Now, so yeah, that's that's
Speaker 1: the kind of thing that I listened to. And then
Speaker 1: I like hardcore history a lot. Dan Carlin, that's an
Speaker 1: interesting definitely an interesting pot. Let's talk about some of
Speaker 1: your mentors who helped to shape your career. I feel
Speaker 1: like I should mention, uh, somebody at the Financial Times
Speaker 1: of the Wall Street Journal. And I've had a lot
Speaker 1: of great editors. I have a great editor now great boss,
Speaker 1: I should say, who runs the money in investing section.
Speaker 1: But I'm gonna mention somebody who at the when I
Speaker 1: spent a decade in finance and my boss for the
Speaker 1: longest period of that time. Um, there's a guy who
Speaker 1: really influenced me, taught me a lot. I think I've
Speaker 1: worked harder for him. His name is John Conlin then
Speaker 1: anyone I've ever worked for so hard. Yeah, he was
Speaker 1: he became CEO of Robertson Stevens later, and uh yeah,
Speaker 1: and he's just a really good guy. And just because
Speaker 1: now I manage people, I manage a global team of
Speaker 1: of columnists that hurt on the street, and you know,
Speaker 1: I think, I think about the good bosses that I've had,
Speaker 1: and then you know very much about him, about like
Speaker 1: what they were like with me, and how to be
Speaker 1: how to be decent to people, how to get people excited,
Speaker 1: how to get make people really love coming into work.
Speaker 1: I mean I loved working for him, and you know,
Speaker 1: I just always felt like he had my back and
Speaker 1: I learned a lot from him. But I mean, you know,
Speaker 1: they're not that He's not smart. They were smarter people
Speaker 1: I I encountered in my time in finance. But I
Speaker 1: just just loved, you know, kind of being you know,
Speaker 1: under under his wing. I was really sad, you know,
Speaker 1: when he left and then he went to go work
Speaker 1: for you know, Ron Roberts and Stevens, and was tempted
Speaker 1: to go there really just because of him. So uh so,
Speaker 1: he he had a big influence on me, really really interesting.
Speaker 1: Everybody's favorite question, tell us what some of your favorite
Speaker 1: books are and what are you reading right now? So
Speaker 1: I just recently finished Bill Routers book, the second second book,
Speaker 1: Freezing Freezing Order and the Red Notice was his first book. Um.
Speaker 1: And actually because I was I worked in emerging markets,
Speaker 1: I knew Bill a very little bit when he was
Speaker 1: he's a little older than me, but so he got
Speaker 1: started a few years before me. And this wild east
Speaker 1: of eastern Europe. He was this before he founded his
Speaker 1: firm A Mertage. But he his book is very important
Speaker 1: book to read now, very entertaining book, both of those books,
Speaker 1: but especially Freezing Order. You don't have to read the
Speaker 1: first one if you read the second one about the
Speaker 1: torture and murder of his lawyer, uh second Magnitsky, the
Speaker 1: Mcgnitsky laws that he's passed, just sort of sees you'll
Speaker 1: gotten gains from human rights abusers around the world, not
Speaker 1: just in Russia. And this guy is he is such
Speaker 1: a brave man. Um. You know, people have been been
Speaker 1: murdered by Vladimir Putin for lesson. He's an outspoken advocate
Speaker 1: for for justice in in Russia. And basically he just
Speaker 1: shows you what Vladimir Putin's Russia is, which is a
Speaker 1: it's a mafia state at the thugocracy with nuclear weapons
Speaker 1: and poison and acts with impunity around the world. I
Speaker 1: highly recommend that if Red Notice wasn't a nonfiction book,
Speaker 1: it wouldn't get published as just too, if it was
Speaker 1: a novel, would be this is too ridiculous. Yeah, I
Speaker 1: don't think you've had him on She's coming up. We haven't. Okay,
Speaker 1: I'm plowing through the new book, which is you know, horrifying.
Speaker 1: It is. It is horrifying. It's he is. He is
Speaker 1: a brave, brave guy to say, say the least, and
Speaker 1: any other books you want to mention. Um, So I
Speaker 1: read Blood well, bad Blood is great, great book. I
Speaker 1: mean another book that I read a I read a book,
Speaker 1: um recently one of your recent guests about Peter Teal
Speaker 1: The Contrarian by Max Chaff enjoyed that. Also highly recommend
Speaker 1: that book. Um, you know, interesting character, totally uh and
Speaker 1: and such a complicated character. Yeah yeah, um, so yeah,
Speaker 1: I read a lot of the I have a lot
Speaker 1: of you know, friends and colleagues that that that write books,
Speaker 1: and so I wounded up reading you know, I feel
Speaker 1: like I have to read them, and so I read
Speaker 1: a lot of those. But I read a lot of
Speaker 1: history and biography to you know that that sounds really interesting. Um.
Speaker 1: What sort of advice would you give to a recent
Speaker 1: college grad interested in a career in either finance or journalism. Well,
Speaker 1: I'll give you finance. Um. The way that I got
Speaker 1: into finance was totally by accident. I was gonna, um,
Speaker 1: you know, my I got an application to a program
Speaker 1: at Columbia University that was not a finance program. Um,
Speaker 1: and I got it by accident. Mentioned it to my
Speaker 1: undergraduate advisory was still she's she's still she teaches Carol Savits,
Speaker 1: she's still is on faculty at M I T. And
Speaker 1: she told me like, oh, yeah, I went there and
Speaker 1: you should do that. She kind of saw that I
Speaker 1: probably shouldn't be an academic because I was planning on
Speaker 1: being I didn't really have any the kind of temperament
Speaker 1: for it. And uh, first or second day at this
Speaker 1: program at Columbia University, UM, I met a kid who's
Speaker 1: now fifty six year old kid who told me he
Speaker 1: had been an investment banker. And I was like, you know,
Speaker 1: I just didn't. My parents were immigrants here and there
Speaker 1: their twenties. Nobody we knew was on Roall Street, and
Speaker 1: I was like, excuse my ignorance, what's an investment bank? Like,
Speaker 1: you know, I have heard the word, but I just
Speaker 1: can you just explain to me, like a dummy what
Speaker 1: it is? And but I was also very anxious about money.
Speaker 1: You know, if you if your parents come here with nothing,
Speaker 1: you that tends to be the case. And he's the
Speaker 1: first thing he told me is how much he made,
Speaker 1: which was all that got me right away. Yeah, I
Speaker 1: popping in the eighties, you know, if working for bankers trust.
Speaker 1: And I said, how do I do that? And he said, well,
Speaker 1: you know you're I was bilingual and Hungarian and I
Speaker 1: had studied German and Russia. And he said, they're going
Speaker 1: to privatize everything. You Eastern Europe. The Iron curtain has fallen.
Speaker 1: You know, you're you're there, they'll hire you. They're gonna
Speaker 1: privatize everything. So just take as many finance classes as
Speaker 1: you can at Columbia Business School you're allowed to in accounting,
Speaker 1: and then you'll get hired. And he was right. And
Speaker 1: I liked the finance classes. I like finance. I find
Speaker 1: finance interesting. I never thought that I would, and I
Speaker 1: really was. I'm fast. I'm still fascinated by it. I
Speaker 1: think it's the most fascinating thing. It's it's like a
Speaker 1: it's like my sports, you know, like just watching what
Speaker 1: happens all these people sort of day a year struggle
Speaker 1: over money and and people computing power and brains and
Speaker 1: all this stuff. And so I liked it. But the
Speaker 1: entire time that I worked in investment bank and I
Speaker 1: was I think I was the youngest managing director and
Speaker 1: the equity department in my my bank, Eventually, you know,
Speaker 1: I felt like I'm just pinching myself. This can't this
Speaker 1: is the amount of money that they're paying. They're paying
Speaker 1: me like four or five times what my professors, you know,
Speaker 1: who are much smarter than me. We're earning like this.
Speaker 1: And I always like like, okay, I'll be maybe one
Speaker 1: more year and so and then I in the end,
Speaker 1: I I quit to become a writer. And you know
Speaker 1: which is I'm glad that I that I did it
Speaker 1: that way, because I think people, here's the lesson. Okay,
Speaker 1: So that's that's the attitude you should have, is like
Speaker 1: this is just totally unrealistic the amount the money you're
Speaker 1: being paid. If you're a young person in finance, if
Speaker 1: you want to need to make money or want to
Speaker 1: make money, or want to have that cushion treated like
Speaker 1: a cushion, don't go out and you know, bee frugal
Speaker 1: treated like a stupid, stupid thing that you're being paid
Speaker 1: so much, because it is stupid you're being paid so much.
Speaker 1: And and don't get your ego wrapped up in it,
Speaker 1: because I saw so many people I used to work
Speaker 1: with eventually, you know, just have to go to a
Speaker 1: less proceigious, less lucrative job, and it kind of really
Speaker 1: really hurt them their egos. And don't ever think that
Speaker 1: you deserve that amount of of money, you know, and
Speaker 1: little humility goes a long way. And and just and
Speaker 1: that that money gives you freedom, you know, so so
Speaker 1: use it. I use the freedom to do this dumb
Speaker 1: which I've been doing for almost twenty years now. And
Speaker 1: I'm glad I did it worked out. I'm glad it
Speaker 1: was in that order, you know what I mean. And
Speaker 1: our final question, what do you know about the world
Speaker 1: of finance and investing today? You wish you knew thirty
Speaker 1: years or so ago when you were first getting started.
Speaker 1: You know, I wish that I had just agonized over
Speaker 1: things a bit less in term to invest in my
Speaker 1: own money. Um, you have a colleague, but Julie, who
Speaker 1: wrote a great book, Just keep buying, Just keep buying,
Speaker 1: and that that is really the mantra, especially when you're
Speaker 1: in your twenties and thirties and stuff like that. It's
Speaker 1: when you're that age. And by the way, Nick is
Speaker 1: barely thirty. I don't even think he's thirty yet, which
Speaker 1: is astonishing how how much wisdom that book has for
Speaker 1: someone as young as him. I wish that I had
Speaker 1: had that wisdom at you know, because I've done fine.
Speaker 1: But if I had just basically just done like literally
Speaker 1: those three or it's just keep buying, don't worry about it,
Speaker 1: don't keep checking, don't worry. You know, there have been
Speaker 1: what forebear markets since I've been in like old enough
Speaker 1: to have any money to invest. And if if you're counting,
Speaker 1: this is the fourth one. Yeah, absolutely, two thousand oh
Speaker 1: w O nine and yeah, and then the yeah. And
Speaker 1: they had a couple of pullbacks in the nineties, but
Speaker 1: nothing to I mean, I was always like, you know,
Speaker 1: trying to handicap things and worry about things I just
Speaker 1: really shouldn't have, you know, I mean that's take decades totally.
Speaker 1: So that's that's very good advice, h really really good stuff.
Speaker 1: We have been speaking with Spencer Jacob Wall Street Journal
Speaker 1: reporter and editor and author of the book Which I
Speaker 1: Have To Get Signs, The Revolution that Wasn't GameStop, Reddit,
Speaker 1: and the fleecing of small investors. If you enjoy this conversation, well,
Speaker 1: you can check out any of the previous four hundred
Speaker 1: or so we've done over the past eight years. You
Speaker 1: can find those at iTunes, Spotify, or wherever you get
Speaker 1: your favorite podcasts. We love your comments, feedback and suggestions
Speaker 1: right to us at m IB podcast at Bloomberg dot net.
Speaker 1: Sign up from my daily reading list at rid Halts
Speaker 1: dot com. Follow me on Twitter at rid Halts. I
Speaker 1: would be remiss if I did not thank the crack
Speaker 1: staff that helps put these conversations together each week. Sarah
Speaker 1: Livney is my audio engineer, Attica val Bron is my
Speaker 1: project manager. Sean Russo is my head of research. Riswald
Speaker 1: is my producer. I'm Batty Hults. You've been listening to
Speaker 1: a Masters and Business on a Bloomboat Radio