WEBVTT - Carson Block on the Short-Selling Market (Podcast) 0:00:02.040 --> 0:00:07.120 This is mesters in Business with very renaults on Bluebird Radio. 0:00:07.280 --> 0:00:11.479 Here this week on the podcast, Oh, I have an 0:00:11.480 --> 0:00:15.440 extra special guest. His name is Carson Block, and he 0:00:15.600 --> 0:00:23.640 is a choose a adjective, brilliant, revered, notorious short seller. Uh, 0:00:23.720 --> 0:00:25.599 say what you will about him. I find him to 0:00:25.640 --> 0:00:29.160 be an absolutely fascinating guy. I am a big fan 0:00:29.240 --> 0:00:32.480 of short sellers and have interviewed a number of them. 0:00:32.680 --> 0:00:36.640 I find they are the ones who uncover fraud in 0:00:36.760 --> 0:00:42.839 all its guys. Is often when various regulators are missing it. 0:00:42.960 --> 0:00:47.480 So whether we're talking about Jim Chanos or David Einhorn, 0:00:47.760 --> 0:00:50.640 or go down the list of all the various short sellers, 0:00:51.000 --> 0:00:57.120 Carson Block clearly joins that pantheon of greatness. He has 0:00:58.040 --> 0:01:02.200 uncovered a huge number of frauds. Uh. He talks about 0:01:02.200 --> 0:01:06.760 how China has allowed all sorts of fraudulent companies to 0:01:06.880 --> 0:01:10.000 go public, and then the New York Stock Exchange and 0:01:10.080 --> 0:01:16.080 other US regulators allow these companies that are essentially shells 0:01:16.120 --> 0:01:21.400 with nothing um really happening going on to be publicly 0:01:21.440 --> 0:01:25.600 listed in the States where they manage to effectively steal 0:01:25.640 --> 0:01:30.160 money from investors. And he is absolutely um, blunt and 0:01:30.280 --> 0:01:34.920 vociferous in his criticism. He has uncovered a number of 0:01:35.040 --> 0:01:39.959 spectacular frauds that collapsed, often to the point of being 0:01:40.080 --> 0:01:44.360 delisted publicly or in other words, they just went bankrupt. 0:01:44.760 --> 0:01:48.240 So I found this to be really a fascinating conversation, 0:01:48.360 --> 0:01:51.240 and I think you will also, with no further ado, 0:01:51.720 --> 0:01:59.400 my conversation with Muddy Waters Carson Block. This is mesters 0:01:59.400 --> 0:02:06.000 in Business with very renults on Bloomberg Radio. My extra 0:02:06.040 --> 0:02:09.600 special guest this week is Carson Block. He is the 0:02:09.639 --> 0:02:13.240 famed short seller who is the founder of the research 0:02:13.320 --> 0:02:17.520 shop Muddy Waters. They have about two hundred and sixty 0:02:17.560 --> 0:02:21.600 million dollars in assets under management. Some of the firm's 0:02:21.639 --> 0:02:27.000 research reports have revealed extensive frauds at a number of companies, 0:02:27.840 --> 0:02:33.280 leading to stock prices collapsing and some companies getting delisted. 0:02:33.720 --> 0:02:38.600 Carson Block, Welcome to Bloomberg. Yeah, thanks for having me, Barry. 0:02:38.919 --> 0:02:40.960 I've been looking forward to this, hoping to do it 0:02:41.040 --> 0:02:43.040 for quite some time. So I'm glad we got the 0:02:43.120 --> 0:02:45.360 chance to connect. I'm glad we did thanks to her 0:02:45.480 --> 0:02:49.080 putting us together. Let's start with your background, and and 0:02:49.160 --> 0:02:53.080 you have like a really intriguing background. You spent the 0:02:53.160 --> 0:02:58.400 summer of in Japan. Tell us about that, what you 0:02:58.480 --> 0:03:02.399 learn about Asia from that experien aarens. Well, yeah, that's 0:03:02.440 --> 0:03:05.880 that's going back pretty far. Um, I don't think i'd 0:03:05.919 --> 0:03:10.080 be here today if I hadn't gone to Japan um 0:03:10.240 --> 0:03:13.880 that summer. But every time I say that, the flip 0:03:13.919 --> 0:03:18.440 side is maybe I'd be running Goldman Sachs instead. So, um, 0:03:18.720 --> 0:03:22.040 perhaps it wasn't a great thing. Now I I definitely 0:03:22.120 --> 0:03:25.440 kid on that one, but um, yeah, I Uh. That 0:03:25.520 --> 0:03:27.680 was summer after my freshman year of high school and 0:03:27.720 --> 0:03:31.440 I had not yet been to a foreign country. So 0:03:31.520 --> 0:03:34.680 at the beginning of freshman year and just um history 0:03:34.720 --> 0:03:37.440 teacher who said that he would lead a group of 0:03:37.480 --> 0:03:40.680 students um every summer to Japan to do an exchange, 0:03:40.680 --> 0:03:45.480 and that's just so appealed to me. And people ask me, well, 0:03:45.480 --> 0:03:47.440 why don't you want to go to Europe for the 0:03:47.440 --> 0:03:50.360 first time? You go overseason said, and I just make 0:03:50.440 --> 0:03:52.880 the joke that, yeah, Europe is the same as the US, 0:03:52.920 --> 0:03:57.040 except they are more bathtubs on legs, and um, yeah, 0:03:57.080 --> 0:04:00.760 I don't know. Being an Asian culture totally different really 0:04:00.800 --> 0:04:05.760 appealed to me. So UM went to Japan and it 0:04:06.520 --> 0:04:09.960 was you know, it was so different, and especially in 0:04:11.040 --> 0:04:14.120 and the bubble had just burst there. But this was 0:04:14.160 --> 0:04:18.320 a period in the US where, um, you know, all 0:04:18.400 --> 0:04:20.000 these a lot of the movies that were made in 0:04:20.000 --> 0:04:24.680 the late nineteen eighties basically showed Japan's dominating US in 0:04:24.839 --> 0:04:28.040 you know, every company has uh you know, had a 0:04:28.160 --> 0:04:31.760 Japanese element to it now, and you know that that's 0:04:31.800 --> 0:04:34.800 kind of what was um portrayed by the movies, and 0:04:35.480 --> 0:04:38.040 um there was it seemed like Honda and Toyota, we're 0:04:38.080 --> 0:04:41.760 putting Detroit out of business. So yeah, it was it 0:04:41.839 --> 0:04:44.360 was a really interesting time to be there. And I 0:04:44.440 --> 0:04:46.960 didn't couldn't realize at the time that that was kind 0:04:46.960 --> 0:04:52.159 of the apex of Japan's economic might, so to speak. 0:04:52.320 --> 0:04:56.279 But uh, yeah, I really went my appetite for Asia, 0:04:56.720 --> 0:05:01.240 and when I went to uh school or the university 0:05:01.279 --> 0:05:05.760 a few years later, Um, I wanted to study I 0:05:05.800 --> 0:05:09.560 wanted to study Chinese. But my girlfriend, who was a 0:05:09.560 --> 0:05:11.360 couple of years ahead of me in school, she was 0:05:11.400 --> 0:05:14.960 at Rutger's, she was studying Japanese. So because of that, 0:05:15.080 --> 0:05:18.960 and of course studied Japanese for a year but ultimately 0:05:18.960 --> 0:05:22.840 switched to Chinese. Broke up with my girlfriend, and yeah, 0:05:23.000 --> 0:05:25.960 kind of set the course for the rest of my career. Yes, 0:05:26.040 --> 0:05:28.599 so learning a little Mandarin certainly helped to go to 0:05:28.680 --> 0:05:32.040 law school and end up with Jones Day in their 0:05:32.040 --> 0:05:36.720 Shanghai office. Did did the language help at all studying 0:05:36.720 --> 0:05:39.599 the language or is it just so overwhelming for a 0:05:39.640 --> 0:05:43.960 foreigner that if you're not fluent it doesn't matter. Yeah. 0:05:44.000 --> 0:05:49.680 That that's actually an interesting question, because the thing is, 0:05:49.720 --> 0:05:52.960 when I studied Chinese in school, so I took three 0:05:53.000 --> 0:05:58.840 academic years, including a summer in Beijing studying UM and 0:05:59.200 --> 0:06:03.560 just also to fill in some of the gaps UM. 0:06:03.600 --> 0:06:06.599 I didn't go to law school right after undergrad So 0:06:06.720 --> 0:06:12.800 I graduated in and I've been interviewing for investment banking 0:06:13.040 --> 0:06:16.479 first year analyst gigs. But I also had this idea 0:06:16.520 --> 0:06:19.680 to start an a share research firm in China UM 0:06:20.080 --> 0:06:23.440 and I just couldn't shake that idea. So I've had 0:06:23.480 --> 0:06:27.880 an offer from one firm and I was still in 0:06:27.920 --> 0:06:30.520 process with others. But I just said to myself, you know, 0:06:30.560 --> 0:06:35.760 I probably always kicked myself if I never gave this 0:06:36.040 --> 0:06:39.400 idea and China chance, so I'd never know what would 0:06:39.400 --> 0:06:44.640 have been. So graduated, got on a plane, moved to Shanghai. 0:06:45.600 --> 0:06:48.160 I had no idea what I was just really doing there. 0:06:48.720 --> 0:06:51.479 And yeah, within six or seven months, I figured out 0:06:51.720 --> 0:06:54.960 I've met with some companies, I had made contacts in 0:06:55.000 --> 0:06:57.560 the market. I sat down with a p l A 0:06:57.640 --> 0:07:00.800 general who was running business is for the p l 0:07:00.839 --> 0:07:05.039 A and somehow involved in markets, and I just got 0:07:05.080 --> 0:07:08.680 this picture that I was probably ten years too early, 0:07:08.880 --> 0:07:11.640 that there was nothing I could say was investable, but 0:07:11.760 --> 0:07:13.840 there would be nothing I could say was investable for 0:07:14.200 --> 0:07:16.600 probably a decade or so. So I went back to 0:07:16.600 --> 0:07:20.840 the States conventional ie banking, worked with my father then 0:07:20.840 --> 0:07:24.160 in equity research for a few years covering micro caps 0:07:24.440 --> 0:07:29.280 UM had some embittering experiences visa V markets and that's 0:07:29.280 --> 0:07:32.160 when I went to law school. So when I entered 0:07:32.200 --> 0:07:34.320 law school, I didn't think I would practice law. I 0:07:34.400 --> 0:07:38.320 was just there to get a degree, and um, I 0:07:38.480 --> 0:07:40.880 ended up really enjoying law school, so I thought, Okay, 0:07:40.920 --> 0:07:44.280 I'll practice, And coming out of law school I had 0:07:44.320 --> 0:07:47.840 an offer to join Kirkland and Ellis in Chicago, but 0:07:48.000 --> 0:07:50.960 I also finagled an offer from Jones DA Shanghai, which 0:07:51.600 --> 0:07:54.600 the partner in charge of the Jones DA Shanghai office 0:07:54.600 --> 0:07:56.680 whod given me the offer was advising me on a 0:07:56.720 --> 0:07:59.720 personal level. He said, you shouldn't come right out here 0:07:59.720 --> 0:08:03.360 to kinda just go and work for a few years 0:08:03.360 --> 0:08:05.440 in the States and get good training and then come out. 0:08:05.520 --> 0:08:08.680 But anyway, I ignored his advice, took the offer, and 0:08:08.800 --> 0:08:12.000 ended up there. So to your question about language, and 0:08:12.080 --> 0:08:14.760 sorry for being so circuitous in the sand, this is 0:08:14.800 --> 0:08:19.720 a very helpful background. So I met some mostly American 0:08:19.800 --> 0:08:24.840 but you know, non Chinese lawyers in China who had 0:08:24.920 --> 0:08:27.960 always had a real passion for the language, and so 0:08:28.080 --> 0:08:30.440 they were near native and they're speaking and they could 0:08:30.480 --> 0:08:36.560 do documents, draft and read in Chinese. For me, I 0:08:36.600 --> 0:08:39.880 could never get to that level because I never had 0:08:40.160 --> 0:08:43.080 a passion for the language. For me, it was always 0:08:43.120 --> 0:08:45.320 a tool that I wanted to put in my toolbox. 0:08:45.520 --> 0:08:50.640 And the difference was these people had spent Friday and 0:08:50.679 --> 0:08:56.520 Saturday nights instead of going out studying Chinese and you know, 0:08:56.559 --> 0:09:01.719 practicing That was not me. So um it was it 0:09:01.760 --> 0:09:05.760 was like, it's definitely helpful, but I was never uh, 0:09:06.040 --> 0:09:08.120 you know, in in practicing law. It was definitely helpful, 0:09:08.160 --> 0:09:11.520 but I was never somebody who got, you know, who 0:09:11.559 --> 0:09:16.480 would be able to handle the Chinese portions of a transaction, 0:09:16.880 --> 0:09:21.440 So you weren't drafting documents in Mandarin now, and a 0:09:21.480 --> 0:09:24.640 lot of the documents that we dealt with, especially if 0:09:24.640 --> 0:09:30.679 they involved foreign acquirers or foreign joint venture partners, a 0:09:30.679 --> 0:09:32.400 lot of those were in English and they would be 0:09:32.400 --> 0:09:36.480 translated into Mandarin. So that part was that part was fine. 0:09:36.559 --> 0:09:40.160 But to do the you know, ironically, to do the 0:09:40.559 --> 0:09:44.560 due diligence and read through the government filings and all 0:09:44.559 --> 0:09:49.120 these other documents that went to the Chinese UM they 0:09:49.120 --> 0:09:52.400 often called them legal uh consultants because they didn't have 0:09:52.520 --> 0:09:56.000 j d s from the States, so they weren't and 0:09:56.000 --> 0:09:59.080 they weren't, at least at that time, accorded full associate 0:09:59.160 --> 0:10:03.800 status that UH foreign law firms. Quite interesting, So how 0:10:03.840 --> 0:10:06.360 do you go from being a lawyer at Jones Day 0:10:06.600 --> 0:10:11.640 in Shanghai to launching your own love box self storage 0:10:12.400 --> 0:10:15.760 start up in China? How does something like that come about? Well, 0:10:16.640 --> 0:10:20.800 like everything else in this days of my life, and 0:10:21.000 --> 0:10:24.360 in a very circuitous manner. What I actually when I 0:10:24.440 --> 0:10:28.480 left Jones Day after not quite a year and a half, 0:10:29.240 --> 0:10:33.839 I actually intended to set up UM a wealth management firm, 0:10:34.080 --> 0:10:36.640 and it was going to technically or legally be based 0:10:36.640 --> 0:10:41.079 in Singapore, but I was going to look to manage 0:10:41.679 --> 0:10:47.800 offshore so non China assets or wealth of Chinese entrepreneurs 0:10:47.800 --> 0:10:51.520 primarily based in Tier three and Tier four cities. And 0:10:52.520 --> 0:10:56.800 kind of my thinking along these lines was they that 0:10:57.280 --> 0:10:59.400 I think with the offshore wealth, they were looking for 0:10:59.440 --> 0:11:03.440 something that was less volatile, UM safer, and if I 0:11:03.559 --> 0:11:06.360 stuck to Tier three tier four cities, I wouldn't be 0:11:06.400 --> 0:11:10.760 competing with the bankers from UBS and Credit Suite so much. 0:11:11.000 --> 0:11:13.880 And I was going to be working with UBS. I 0:11:13.960 --> 0:11:16.560 was actually going to be the custodian of the assets. 0:11:16.600 --> 0:11:20.000 But anyway, UM, I was in the process of setting 0:11:20.000 --> 0:11:23.800 that up. UM. During that time, I co authored Doing 0:11:23.840 --> 0:11:27.079 Business in China for Dummies, which was really a foreign 0:11:27.160 --> 0:11:30.920 direct investment uh primer. You know, I think the four 0:11:30.960 --> 0:11:35.360 Dummies title really gives a short shrift. But UM, the 0:11:36.360 --> 0:11:37.719 and I was a project that was in the work 0:11:37.800 --> 0:11:40.640 since before I had left to move to China at 0:11:40.640 --> 0:11:43.160 that time. But yeah, I was in the process of 0:11:43.200 --> 0:11:48.400 setting this firm up and two things were happening, you know. One, 0:11:49.040 --> 0:11:52.040 a good friend of mine was getting ready to launch 0:11:52.080 --> 0:11:57.160 a self storage firm in Shanghai, and I introduced him 0:11:57.200 --> 0:11:59.600 to a family member of mine who had owned self 0:11:59.600 --> 0:12:03.080 storage in the US, and when we sat down for 0:12:03.080 --> 0:12:07.360 dinner with that um ex uncle he had divorced out 0:12:07.360 --> 0:12:10.319 of the family, he said, of all the investments I've 0:12:10.360 --> 0:12:12.600 made in my life, self storage is by far the 0:12:12.640 --> 0:12:17.440 best over seventeen years, fifty cash on cash return and 0:12:17.480 --> 0:12:21.839 that doesn't even include the lands appreciation. So now I'm thinking, like, whoa, 0:12:22.120 --> 0:12:24.000 you know, and especially if we could be the first 0:12:24.000 --> 0:12:28.880 in China. Um So, I decided I would be a 0:12:28.920 --> 0:12:31.439 passive investor, but a few weeks later that flipped to 0:12:32.480 --> 0:12:36.840 um majority active investor, and eventually that turned into this 0:12:36.840 --> 0:12:39.560 guy needed me to buy him out. But that was 0:12:39.760 --> 0:12:42.840 While that was happening, I was also having doubts about 0:12:43.720 --> 0:12:47.960 whether I really wanted to spend my time hanging out 0:12:48.000 --> 0:12:52.200 with factory owners in tier three tier four cities, because 0:12:52.960 --> 0:12:57.160 these are undoubtedly some smart people. But you know, I 0:12:57.240 --> 0:12:59.520 just had this vision, you know, and I, especially at 0:12:59.520 --> 0:13:02.480 the time Shanghai, I had a real soft spot for 0:13:02.480 --> 0:13:04.599 for animals, you know, and you just see them mistreated 0:13:04.640 --> 0:13:06.880 on the streets all the time, and I just keep 0:13:06.920 --> 0:13:12.360 telling myself. In addition to the just relentless drinking and 0:13:12.720 --> 0:13:16.080 karaoke or whatever. I mean, that's kind of a euphemism there, 0:13:16.120 --> 0:13:19.960 but that I'd have to endure that I would see 0:13:19.960 --> 0:13:22.720 these guys do some something that you know, would really 0:13:23.120 --> 0:13:25.720 really bother me. Like I'd see I just kind of pictured, 0:13:25.960 --> 0:13:27.680 I'd see a guy about to get into the back 0:13:27.720 --> 0:13:30.480 of his s class and you'd see a straight dog 0:13:30.559 --> 0:13:32.440 line there and you go up and take it and laugh. 0:13:33.160 --> 0:13:37.440 And I just had vision of my mind that there 0:13:37.480 --> 0:13:41.120 I would have to make a choice between sort of 0:13:41.160 --> 0:13:44.680 playing it off or just being like, man, what are 0:13:44.720 --> 0:13:48.320 you doing? Like that is so wrong? And I don't 0:13:48.320 --> 0:13:50.760 know why. That was the image that kept going through 0:13:50.880 --> 0:13:54.480 my mind. But when I when I started thinking, on 0:13:54.520 --> 0:13:58.920 the other hand, about how self storage could actually be, 0:13:58.920 --> 0:14:00.560 because it was going to be know, we were the 0:14:00.559 --> 0:14:04.480 ones starting in China, how could actually it would actually 0:14:04.520 --> 0:14:07.680 be a near luxury service. You know, we were going 0:14:07.720 --> 0:14:11.640 for the Chinese who were buying Cartier jewelry or something, 0:14:11.760 --> 0:14:14.200 you know, and um as opposed to it being the 0:14:14.640 --> 0:14:17.400 Joe six pack kind of service in the US. And 0:14:17.440 --> 0:14:19.960 we we thought that we could actually build a strong 0:14:20.640 --> 0:14:24.640 near luxury consumer brand in self storage there as opposed 0:14:24.640 --> 0:14:28.240 to you in the US, like nobody knows can remember 0:14:28.240 --> 0:14:30.920 the name of their self storage company because it's so fragmented. 0:14:31.440 --> 0:14:35.880 Um So, on one hand, the self storage thing was exciting, 0:14:35.880 --> 0:14:38.880 and on the other hand, I was having genuine second 0:14:39.000 --> 0:14:43.720 or third thoughts about whether I wanted to manage, uh 0:14:44.200 --> 0:14:48.880 massage wealth of tier three, tier four UM factory owners. 0:14:49.360 --> 0:14:52.680 So I decided, Hey, this seems like fun and jumped 0:14:52.720 --> 0:14:55.840 in with both feet to self storage. And that pretty 0:14:55.880 --> 0:14:59.640 quickly became unfun. But that was all part of the journey. 0:15:00.040 --> 0:15:03.720 So that leads to the obvious question. From Japan to 0:15:04.160 --> 0:15:09.280 law school, to Shanghai to sell storage, to writing a 0:15:09.400 --> 0:15:13.080 book doing business in China for dummies, none of this 0:15:13.240 --> 0:15:16.680 has anything to do with short selling. How did this 0:15:16.840 --> 0:15:22.400 early experience color what was to come? Sure? Well, I 0:15:22.480 --> 0:15:26.200 had grown up in the markets. My father was an 0:15:26.200 --> 0:15:31.360 institutional salesperson and equity analyst. He focused on high growth 0:15:31.400 --> 0:15:35.320 micro tap companies. UM I mean earlier in his career. 0:15:35.360 --> 0:15:38.440 He'd been early on McDonald's and I think even H 0:15:38.480 --> 0:15:43.440 and R Block. But um, as market caps increased across 0:15:43.480 --> 0:15:46.640 the board, what he focused on in dollar terms didn't 0:15:46.680 --> 0:15:50.360 so kind of went from you know, not ridiculously small 0:15:50.440 --> 0:15:54.600 too almost ridiculously small in terms of the market taps. 0:15:54.600 --> 0:16:00.680 But um, you know, he's he's an eternal optimistly always 0:16:00.680 --> 0:16:04.200 and I saw this consistently inside and outside the markets. 0:16:04.240 --> 0:16:07.400 He would see the best in people, and by the 0:16:07.440 --> 0:16:10.200 time I was in my early twenties, I was starting 0:16:10.200 --> 0:16:13.240 to feel at times that there were people in my 0:16:13.320 --> 0:16:17.720 father's life who took advantage of that, and that he 0:16:17.920 --> 0:16:25.480 was often, um, you know, beguiled by charisma and what 0:16:25.680 --> 0:16:27.600 ended up happening. I mean, there were there were an 0:16:27.600 --> 0:16:33.640 objective ways of of of measuring this in that in 0:16:33.800 --> 0:16:37.920 the during the period of nine through o two, we 0:16:37.920 --> 0:16:42.000 were being lied to and used by a number of 0:16:42.040 --> 0:16:46.160 managements of companies that my father and then my father 0:16:46.280 --> 0:16:51.360 and I, um you were had had strong vison or 0:16:51.480 --> 0:16:54.200 speculated based or whatever. I mean. We you know, we 0:16:54.320 --> 0:16:59.520 thought that we were close with management, and back then 0:16:59.560 --> 0:17:02.480 I think managements or insiders had forty five days to 0:17:02.480 --> 0:17:06.240 file their forms for and so we noticed some egregious 0:17:06.240 --> 0:17:11.040 behavior where we'd take managements on non deal road shows. 0:17:12.200 --> 0:17:13.800 I mean, some of our clients would come in and 0:17:13.840 --> 0:17:17.200 just buy the thing up inside. Like I remember, you know, 0:17:17.280 --> 0:17:20.760 fidelity was just the way my father described it at 0:17:20.760 --> 0:17:23.480 the time, a bull in a china shop, you know, 0:17:23.520 --> 0:17:26.160 the way they would buy. But then we'd see these 0:17:26.600 --> 0:17:30.240 form four or these forms four that, oh, well, the 0:17:30.240 --> 0:17:33.720 CEO and CEO just sold several million dollars worth of 0:17:33.720 --> 0:17:36.000 stock right after going on the non deal road show 0:17:36.080 --> 0:17:39.159 while our clients were buying. And it was one of 0:17:39.200 --> 0:17:43.800 my father's precepts that he quote put his money where 0:17:43.800 --> 0:17:46.880 his mouth is. So he was long all of these 0:17:46.920 --> 0:17:52.040 things personally in size that he was recommending clients by. 0:17:52.119 --> 0:17:55.960 And so my tiny little nest d egg I I 0:17:56.160 --> 0:18:00.520 too was And these companies started blowing up. And I 0:18:00.600 --> 0:18:04.240 think the most egregious example was a company called rent Way, 0:18:04.359 --> 0:18:07.120 which actually wasn't that small. I think it was about 0:18:07.119 --> 0:18:10.320 a six million market cap at the time. And I 0:18:10.560 --> 0:18:14.879 developed a couple of institutional clients, probably twenty four at 0:18:14.880 --> 0:18:18.640 the time, and so we were taking the CFO Rentway 0:18:18.640 --> 0:18:21.240 on a non deal road show. We're sitting in this 0:18:21.320 --> 0:18:25.600 conscience room at this one client I developed a reasonable 0:18:25.640 --> 0:18:29.600 size money, uh you know, mutual fund manager in l 0:18:29.680 --> 0:18:33.960 A and the CFO at the time at that time, Rentway, 0:18:34.280 --> 0:18:38.280 Jeff Conway, looked my clients in the eyes and said 0:18:38.320 --> 0:18:41.600 to her, pointing at my father in the seventeen quarters 0:18:41.640 --> 0:18:44.720 bill has been following us. We never missed one of 0:18:44.840 --> 0:18:47.840 his estimates. That's how good a handle we have on 0:18:47.880 --> 0:18:51.960 our numbers. But one or two weeks later, when my 0:18:52.000 --> 0:18:54.960 father was supposed to meet Jeff in New York, he 0:18:55.040 --> 0:18:59.040 wasn't there and the stock was halted and it turned 0:18:59.040 --> 0:19:01.200 out that on my god, it was an accounting fraud, 0:19:01.760 --> 0:19:06.200 and all Jeff pleaded guilty. Um, so did the controller 0:19:06.320 --> 0:19:08.920 beneath him, and I think one other person and I 0:19:08.960 --> 0:19:10.919 don't know. I mean, this was just salt in the wounds. 0:19:10.960 --> 0:19:14.840 But I think Jeff got sentenced a fewer years in 0:19:14.920 --> 0:19:18.760 prison and the people beneath him. But it was just 0:19:18.840 --> 0:19:22.760 this really embittering time where, you know, it wasn't only 0:19:22.760 --> 0:19:26.200 happening to us. This was at the same time that 0:19:26.440 --> 0:19:33.200 Enron had happened in World Calm and helped South tycho. Um. 0:19:33.200 --> 0:19:35.679 It just you know, seemed like top to bottom the 0:19:35.760 --> 0:19:41.760 market was filled with liars. And I don't know, you know, 0:19:41.840 --> 0:19:43.760 the other thing that my father had noted at the 0:19:43.840 --> 0:19:48.439 time was I was also quick to sell when my 0:19:48.480 --> 0:19:50.840 socks had gone up. You know, I said, wow, you know, 0:19:50.960 --> 0:19:53.760 like we were hoping for a thirty taker and I've 0:19:53.760 --> 0:19:56.680 gotten fifty nine months, you know, like, hey, I'm out, 0:19:57.160 --> 0:19:59.280 and yeah, I mean, like some of these things, it 0:19:59.400 --> 0:20:02.159 was the wrong thing to do UM in retrospect, but 0:20:02.240 --> 0:20:05.800 I also had that I had that very I'm kind 0:20:05.800 --> 0:20:08.600 of just abused the English language here, but it's very 0:20:08.720 --> 0:20:13.760 risk managy type of mindset. So I think if you 0:20:13.840 --> 0:20:18.359 combine that with the um bitterness that I was starting 0:20:18.400 --> 0:20:23.120 to feel towards the system UM and our play pecking order, 0:20:23.119 --> 0:20:26.800 which I as, you know, a quasi sell side equity research, 0:20:26.880 --> 0:20:32.440 I kind of started to view us at the very bottom. UM. 0:20:32.480 --> 0:20:35.320 I wanted out of the markets. But my father's kind 0:20:35.320 --> 0:20:38.280 of one of his partying comments to me was maybe 0:20:38.359 --> 0:20:40.840 you'd be a good short seller, and I said, well, 0:20:40.880 --> 0:20:43.439 do you know any I was like, well, not really. 0:20:43.480 --> 0:20:46.399 I mean there's this guy up in San Francisco named 0:20:46.880 --> 0:20:49.639 John Gruber who does some but I don't know. You 0:20:49.680 --> 0:20:51.840 can call him. And I said, now I'm going to 0:20:51.920 --> 0:20:56.399 law school. So that was you know, that was really 0:20:56.960 --> 0:21:02.600 the background. And Paul was here, but you know, I 0:21:02.600 --> 0:21:06.200 I was totally done with markets until you know, by 0:21:06.240 --> 0:21:08.840 active in two thousand nine. Let's talk a little bit 0:21:08.880 --> 0:21:11.720 about what you were just saying about, Um, how two 0:21:11.760 --> 0:21:15.840 thousand and nine and two and ten changed your life. 0:21:15.880 --> 0:21:20.720 You took a trip to China. Tell us about that? Uh, 0:21:20.760 --> 0:21:26.760 And I believe Orient Paper was the company involved. Sure. Well, 0:21:26.800 --> 0:21:29.480 at the time, I was still living in Shanghai. Um, 0:21:29.520 --> 0:21:33.479 I had the self storage business, and it had had 0:21:33.520 --> 0:21:36.440 taught me many lessons, but one of them was that 0:21:36.840 --> 0:21:40.639 as an entrepreneur, you really need to define, at least 0:21:40.640 --> 0:21:44.400 as a beginning entrepreneur, you really need to define success 0:21:44.440 --> 0:21:47.720 as not failing. So what that means is I was 0:21:47.760 --> 0:21:50.400 struggling every day and not go out of business. And 0:21:51.000 --> 0:21:54.639 my father had gotten really interested in a number of 0:21:54.640 --> 0:21:57.800 these China based companies that had gone public in the 0:21:57.880 --> 0:22:01.960 US via reverse merger. And he went to one of 0:22:02.000 --> 0:22:05.919 the Rock conferences and came back from that really bowled 0:22:06.000 --> 0:22:09.800 up about it. And um, he was mentioning and we're 0:22:09.840 --> 0:22:15.520 talking my phone and just mentioning several companies, and I know, 0:22:15.640 --> 0:22:18.600 I'm I'm sitting there in China struggling to keep this 0:22:19.000 --> 0:22:22.919 business from folding. You know, my wife and I were 0:22:23.400 --> 0:22:25.960 just kind of you know, we joke about this period 0:22:25.960 --> 0:22:28.280 of time in our life, but it's really not a 0:22:28.320 --> 0:22:31.880 half joke, but it's really not it's not a joke, 0:22:31.960 --> 0:22:34.840 but you know, we're drinking pretty heavily, like every night. 0:22:34.920 --> 0:22:36.919 Was just kind of like, yeah, let's go, let's go 0:22:37.000 --> 0:22:39.600 meet up with some other entrepreneur friends and all numb 0:22:39.680 --> 0:22:42.840 ourselves too, you know how badly we're getting punched in 0:22:42.880 --> 0:22:46.760 the face every day. And um my father wanted me 0:22:46.800 --> 0:22:49.960 to look at or help him diligence um some of 0:22:50.000 --> 0:22:53.800 these companies, and I don't know, again, I just wasn't 0:22:53.880 --> 0:22:58.920 enthusiastic about this, but I my expectation at the time, 0:22:59.359 --> 0:23:03.920 and all pretty much all the dominoes had fallen for 0:23:04.040 --> 0:23:07.600 me UM in the investing business at that point. I 0:23:07.600 --> 0:23:11.720 didn't trust managements. I knew better than to trust bankers. 0:23:12.720 --> 0:23:17.160 I realized. I realized that directors are you know, incompetent 0:23:17.440 --> 0:23:21.600 um and lawyers are basically just there to serve the 0:23:21.760 --> 0:23:25.760 managements and they're kind of weapons to be used against 0:23:26.080 --> 0:23:31.639 curious shareholders. But I thought that auditors, I, like probably 0:23:33.320 --> 0:23:35.879 of the investing public, thought that auditors were there to 0:23:35.920 --> 0:23:40.200 perform in anti fraud function. And I'm not being facetious 0:23:40.200 --> 0:23:42.600 when I say this, but I know now that that 0:23:42.760 --> 0:23:45.719 is not actually the mandate. But I did not know 0:23:45.800 --> 0:23:50.560 that when my father brought up Orient Paper. So UM, 0:23:50.600 --> 0:23:54.240 at this time in China and my life, I was 0:23:54.320 --> 0:23:58.000 quite skeptical of what went on in China. UM. Not 0:23:58.119 --> 0:24:01.720 only had I co author the book of Doing Business 0:24:01.760 --> 0:24:04.480 in China for Dummies, which involved a lot of great research. 0:24:04.520 --> 0:24:07.480 And not only had I seen a number of joint 0:24:07.560 --> 0:24:12.840 ventures and UM and other direct investments go bad for foreigners, 0:24:12.880 --> 0:24:15.679 but I'd also chaired the American Chamber of Commerce in 0:24:15.720 --> 0:24:20.120 Shanghai's Entrepreneurs Committee, and most of my friends were foreign entrepreneurs. 0:24:20.240 --> 0:24:22.560 So one thing about me is I'm pretty good at 0:24:22.920 --> 0:24:29.560 absorbing and internalizing experiences of others. And UM, so I 0:24:29.600 --> 0:24:32.560 guess I was seeing the matrix at this point in China, 0:24:32.640 --> 0:24:36.720 but I didn't quite know it yet. UM, and my 0:24:36.800 --> 0:24:39.800 father wanted me to go look at Orient Paper. So 0:24:40.440 --> 0:24:43.800 I was thinking, Okay, here's gonna be the problem here. 0:24:44.320 --> 0:24:46.479 If there's gonna be a problem, which the problem is 0:24:46.680 --> 0:24:50.840 that Really the question is is the guy stealing an 0:24:50.920 --> 0:24:54.640 unacceptable amount of money out of the company. I assumed 0:24:54.720 --> 0:24:58.080 that the business would be real, that the profits would 0:24:58.119 --> 0:25:01.480 be largely real, but as he, you know, using this 0:25:01.560 --> 0:25:04.000 too much for his own benefit. Wait, wait, let me 0:25:04.080 --> 0:25:08.160 interrupt you right here. Unacceptable is the guy stealing an 0:25:08.280 --> 0:25:12.800 unacceptable amount of money in China? Is there an acceptable 0:25:12.800 --> 0:25:18.520 amount of money management can steal? Um? Yeah, I mean this. 0:25:18.520 --> 0:25:22.480 This is a question that I remember my entrepreneur friends 0:25:22.480 --> 0:25:25.320 and I used to occasionally when we get together to 0:25:25.560 --> 0:25:30.240 numb ourselves. Um, we used to discuss and so the 0:25:30.320 --> 0:25:34.560