A new story from We Study Billionaires - The Investors Podcast


And so i want take it a little bit farther. Because that's what i do anyway. You know when you pick up one of my books. It's not the same as picking up walter edition or someone else is going to be a slightly different experience and hopefully people expect going. Let's take a quick break and hear from today sponsor. Let me ask you a question. How many books are sitting next to your bedside right now. That are only half red. It's just hard to find the time to read so much. But with blankets you can have all the most important ideas and takeaways from the world's top nonfiction bestsellers. All in a fun. Fifteen minute read or listen. Use these blinks to get inspiration. Learn more about books. You'd like to read next. Broaden your knowledge and getting new perspectives blinking takes the top nonfiction books. Like rich dad. 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All in. one place you can do it all but why do it all alone learn. How just works can help with just works. You can on board new employees with ease take the guesswork out of employment and tax regulations access national health insurance plans and save hours on time tracking this things with payroll and don't worry they have twenty four seven expert support so find out how just works can help your business by going to just works dot com. That's just works dot com for more information. All right back to the show. I'm glad you touched on short-selling or short squeeze because this is crucial to understanding this story. So i want to just quickly cover. What short-selling is also what a short squeeze is for those who don't know it's imperative to understand. Yeah so short-selling is a way of betting that a company is going to go down. We all know long it. Accompanies gonna go up. You buy the stock. The stock goes up in value. You can sell you make the way you bet against the company is you do something called short-selling which is you borrow a share. Let's say a stock is trading at ten dollars a share you borrow share and you sell it on the market for that ten dollars and you promise to return that stock to that person at some point in the future so if the stock goes down as you believe it is to five dollars you then rebuy the share for five dollars you give it back to the person you borrowed from and you pocket the difference which would be five dollars but the problem with short-selling is is that you are. Losses are not capped at anything. They're actually unlimited is if you buy it at ten dollars and the stock just starts going up you still have to return that share so if you have to buy it back at twenty dollars you've lost if you have to buy it back at one hundred dollars you lost ninety dollars and they can go on theoretically forever so if you buy a ton of shares yourself on his hair shorts that means you borrowed a ton of shares and at some point you have to richmond those ships and what happens with a short squeeze is. Let's say you short sal meeting borrow a bunch of shares. You sell them on the market and let's say for whatever reason because good news comes out about the company or suddenly for whatever reason everyone read it. Wants to buy the company stock. The stock starts to go up. You're in a tough position because you need to buy shares which also pushes the stock rights and so if there's a bunch of shortsellers suddenly they're squeeze as they try to reach the x. They all dive in at the same time. Trying to revive those shares. The price keeps going up. They keep trying to rebuy and it just gets worse and worse and worse so that's essentially a short sleeves and it's happened a number of times history men. It can be very very dramatic because it happens very quickly if something happens to make a stock start to skyrocket all the shortsellers after dive into the market the same time to get out or else they could lose everything i mean. You don't just lose one hundred dollars. You could lose a billion dollars if the stock goes up chairs and that's essentially what happened here and what's really interesting about this story with game. Stop. is the people on the other side. Were attempting to make short squeezed out. They weren't buying the stock most of them because they believed game should be worth of thousand dollars a share. They were buying stock because they saw that wall street had this huge short visit and they knew if they bought it. They could or a short sweet at one point in time. One hundred forty percent of the shares of this company were short which means that more shares were short than exist which means that what happened with people borrowed it sold it and then borrowed it again and sold multiple times and so that's a very dangerous position for people on the short side and a lot of the hedge funders. I talked to who were not on. The short side. Couldn't believe that people were still shorting stop with that much of a short. Because you know it's crazy. I mean you're going to get killed at some point. It's very easy for something bad to happen. That's what happened. And so there's a lot of reasons behind why hedge funds continued to short a stock. The basic reason was is that game stop. A company looked like it was in a lot of trouble. This is a company that brick and mortar in malls selling video game consoles in a world. That's gone digital right in a world that doesn't go to malls anymore especially during a pandemic so you would look on paper and say okay. Game stops in a lot of trump. This companies probably gonna go the way blockbuster or You know you can name a dozen companies that have gone out of business and this is just the next one going out of business. But the thing that that i think wasn't taking into account beyond the whole read it mob was. They did have some outs one of them. Being the video game market is actually whom and game stop has a community of people that love video games so separate from the fact that it's as brick and mortar store is also has this millions and millions of people who nostalgically love game stop and buy itself video games and so they're pivot to the digital world is actually not that hard for them to do if they could just figure it out. That's where the value proposition comes into this. But the reality is what happened was it turned into a massive short squeeze. It turned into this massive. Let's take down wall street. Let's stay strong and state aids together strong with the thing that would go off on. read it. let's look at this dat. Let's all stay together on this Getting killed and most of this activity this cohort of folks who wanted to quote unquote. They own stick it to the man by running up. The price was happening on reddit on wall street bets. So i'm assuming that you spent a good amount of time on red and wall street bets researching for this book. So i'm kind of curious. What were some of the most surprising things you discovered on the site. Yes oh first of all on its surface when you just look at it and the reason. I called the book. The antisocial network is the dirty free. For all i mean. The language is horrific. There are some people who are just trolls. I mean read it as a is a world full of people who were just having fun and taking the piss out of everyone else and just sort of troll it but as you look deeper into wall street bets specifically what i found was number one. There's a lot of really smart people on like people who know much more about investing than i do. They might be amateur investors but some of these people really understand this stuff and do some really good research and the other thing i noticed was that it was a very diverse group. He wasn't the do have of white troll guys sitting on the internet and there's lots of all sorts of people read it and lost by the end of its wealth and nine nine meatball. And you have to read between the boss and the people who worked for hedge funds and the people who are just out crazy and a lot of college kids and things like that but as you dug deeper you definitely saw a lot of interesting analysis. What i also love is the way people would put up pictures of their accounts. Their wins in their losses and people are almost more excited to put up losses than wins and there were people putting up things where they lost one hundred thousand dollars in two days and everyone makes fun of them but at the same time. It's the camaraderie. It's this like that. I think was very unique to wall street. Bet his people putting up their losses. More than there. When i think when he started out he was being ridiculed because he put so much money into game stop and he lost. He was losing. It was falling apart and people were making on them and then when he starts to make my suddenly puts up this screen shot which shows or seven million dollars in profits. It's this kind of incredible moment where it's almost like let's rally together. This is actually possible. And so yeah. I don't know. I had a lot of fun honored. I spent a lot of time on it months. Twitter a lot already in and i'd always kind of looked at it and stuff like that but this was the first time i really saw the power looks. Community is pretty impressive when people get together. It's incredible what power they think. That's something wall. Street is still trying to deal with the try to figure out how you work around the idea that these loosely affiliated groups and be more powerful than wall street back and you've got nine million people each have a two thousand dollars stimulus check or whatever that's as big as any wall street bank right there and so it's intriguing. It's an intriguing thought. I think there's something there that we could all learn from. Actually there's a book called mindset and sort of touches on this like flipping an issue on its head celebrating your losses and i found this on my own business with trying to raise inter- capital you can get one hundred knows before you get a yes and it can really wear you down or if you're an actor and you go for an audition. You told no all the time and it's this idea of like celebrating. Those knows like flipping this on his head and because really at the end of the day. Persistence is all that matters right. And so this idea of celebrating losses is intriguing to me. I agree entirely like the writer. Obviously your life is until you make it. It's so much rejection own. I was a struggling writer. I got about one hundred ninety rejections before opening first book. And i would take him to the walls so i had just walls covered rejection slips because it was like it powers forward. It's like you live in that misery and it's kind of romantic. It's an interesting point. I'm sure actors. It's even worse because it's to your face you know you go in. And he's living in front of someone and they reject you. That's that's a hard thing to get used to. But i do think the more you revel in it the stronger you. I think that was going on for sure on this sport. Is you know people who are willing to take risks. Because even if they lost they still had something to post. You could post your massive loss. Then get some level of feeling of camaraderie out of that and so people were willing to take risks. That on paper made no sense at all of the whole yolo investing comes out is the whole idea that and explain it in the book for like a college kid who's got a couple thousand dollars. The idea of making five percent of that is pointless. Why take a safe investment that you might make a little bit rather than just dead on something that you could get a ten x. Any college kid agrees with that. Always go for the tax. Never go through the same thing because it doesn't change your life but a yellow beck does change your life and it makes sense to me. Someone who's been involved in gambling my whole life young going to like the idea of just doubling. Your money is not that excited. When i used to go to vegas all the time you would see people sit down at the blackjack table with a thousand dollars and when they hit two thousand dollars you'd say oh you should leave just doubled your money but that's not exciting right. Nobody leaves doubling their money. Nobody in vegas knows this. They count on it and that's how they make their money. No one will leave doubling their money. He believed to make ten times their money before this cable. Because w money just doesn't feel like a win and i think wall street doesn't necessarily understand. That's what's going on here. They think people made twenty percent. Now we short. It's gonna go back down but that's not how the people aren't read it. Twenty percent is meeting listed. They wanna make two thousand percent before they would walk away. And i think that's something that someone has to figure out. Now how do you analyze and people are crazy. People are not thinking straight. they're thinking. I watch annexed. Let's take a quick break and hear from today sponsor you guys know. I'd take my food and beverages seriously. And i'm a big believer in the idea that you are what you eat and it really does matter where your food comes from. That's why my wife and i are craving fish. There's no other place. We go to than the wild alaskan company. The wild alaskan company sources wildcats seafood from alaska and the pacific northwest. You can choose from salmon or whitefish or combination and every month. They have these different specials to explore. But they're always of the highest quality sustainably sourced wild cot and that's the key word wild cot seafood delivered right to your door. 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