I was joined by Spencer Jakab, an award-winning financial journalist and a former top-rated stock analyst at Credit Suisse to talked about what happened to Gamestop Stock in 2021, and the meme stock squeeze!
In 2021, it's all about Covid, and then Gamestop Stock. Everywhere you go (or can't go), people are talking about Gamestop, AMC, Meme Stock, Wall Street bet, and Reddit!
So, what happened? As I mentioned in the podcast, it's not that easy to short a stock, and sure as hell, it's not easy to pull off what Reddit had pulled off on Gamestop!
Spencer Jakab, an award-winning financial journalist and a former top-rated stock analyst at Credit Suisse, came on to talk about his new book, The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors, and to share with us, what was going on behind the scene that made all this possible?
Listen to the full episode, and tweet at me @jaltucher on tweeter to share your thought!
My new book Skip The Line is out! Make sure you get a copy wherever you get your new book!
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I write about all my podcasts! Check out the full post and learn what I learned at jamesaltucher.com/podcast.
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James Altucher 0:01
This isn't your average business podcast. And he's not your average host. This is the James Altucher Show. Today on the James Altucher show, what the hell happened was Gamestop and AMC had it some little tiny Reddit bulletin board, manipulate those stocks from four to almost 400, or whatever they were, I mean, people became millionaires overnight. Well, Spencer, Jacob did a deep dive into how this happened, and wrote a book about it, the revolution that wasn't. So let's hear what happened and kind of this happened again to other stocks like GameStop.
There's objective truth still in poker. And there's not objective truth in stocks, meaning I could make all the right moves. And I should win by some calculation, but I might not whereas poker, you can make all the right moves and still lose, but you're fine over the long term. If you make all the right moves, you'll do fine. And chess, of course, the same thing. But But I my attraction to day trading. And back in 2000, when I started day trading, and then in hedge funds and so on, was was because I loved the game like aspects of it. And there's only a little later I realized how screwed up Wall Street is. It's just basically a bunch of scumbags and illegal activity for the most part.
Spencer Jakab 1:35
Well, to some extent, um, but I mean, yeah, there's a lot of there's a lot of scumbags for sure. I mean, you know, the, the reason that I wrote the book, I mean, I've been, I was a financial analyst for a while that I decided I wanted to write about money. So 29 years combined, that I've been looking at this and you know, back at the beginning of the game stock saga. You know, I was familiar with Wall Street that's like we we talk about it in the newsroom at the Wall Street Journal, some stock would go up out, why did that happen? Aha, was Wall Street bets, you know, they're pumping in it, it was sort of something that was on the edge of our awareness. But I didn't see it as a very important story. And then one day, I've got a son like, he could still be 23 years old, by the time this podcast airs. It's almost 23. Now came to me, he was home because of COVID. data, you can write about GameStop. And this is like, I mean, he's he's not particularly interested in finance, or, or even investing. So why would I write about that? And then I pull up the chart. And it's way, way, way up the last couple of days? And is it because my friend Sean, bought it? And he doubled his money in the last couple of days? I was like, Well, I think Sean, should probably sell it like you just got lucky. And he said, No, he's not going to sell until it gets to x price. Why not? Does he have you think that that he thinks that's what it's worth? Is it? No, no, they're like, all you know, and he kind of explained it to me, and I went on to Wall Street bets and checked it out. And like, now this is, this is incredible. It's an amazing story, that these people basically sort of, you know, tried to they didn't successfully they try to institute a corner and the stock, which is not done these days, to squeeze these funds. And, and that was initially what I wrote a letter to my publisher. You know, this is before the first article had appeared about it, I said, this is really incredible. This is going to be pretty epic, because these funds are being squeezed dry in this way that that really hasn't been done in literally in a century, you know, since securities laws changed. And it's now possible because you have Bolton boards, and you have read it and you have people banded together online. And they're going to do this thing that is legal for them to do because they're there, you know, they're doing it out in the open, but it used to be, it would be illegal for three or four funds to do like you said that like there are a lot of scumbags on Wall Street, what do you you know, you can't get together with three or four funds, as you know, and and squeeze a fund that you know, is short of stock and bleed them dry. But a million people can do it.
James Altucher 4:17
There's an important distinction, though, like you if you're a hedge fund hedge fund a can call hedge fund B, and say, Let's crowd into this stock drive the price up because there won't be any shares outstanding. Well, we'll have all the suppliers. This is a case like you said, with with Wall Street pets on on Reddit. Everybody could see what we're saying. It's not like somebody privately calling somebody and saying let's it. They're not like colluding, secretly. They're kind of colluding out and open.
Spencer Jakab 4:46
And totally, totally, and it's, I mean, it's untested. It's an untested area of securities law, but I don't think that even if you you said that it wasn't kosher, and I think it is kosher. I don't think there's any possible way you could, you know, go after it. 900,000 people or whatever it was legally, who bought GameStop? In, you know, over the course of a couple of weeks in January 2021, there's just no, there's no way that you could, you could enforce
James Altucher 5:12
it. And also, there's, there are so many examples of let's take, let's take the Wall Street Journal, if the Wall Street Journal writes in, or Forbes is more fortune, if a fortune says Oh, GameStop is buy, and everybody bought it right, then when they said it, and then the stock went up, there's nothing illegal there. It's kind of the same, what's happening with Wall Street bets, there's one difference. And I'm curious if you agree, the, if Forbes says, oh, such and such stock is a buy, usually they mean, it's a buy, because earnings are growing, there's a new CEO, he's very smart, they just did a big deal. They have all these real estate that is not being valued correctly. So they make kind of an argument on what the intrinsic value of the stock is. And they say, oh, it's higher than where it is. Whereas what all Wall Street bets was doing was saying, hey, if we all do this, and there's a bunch of these hedge funds, short, and I'll get to, we'll get to what that means in a second. We could force the stock up. So they were making kind of a more an argument based more really on the game like aspects of the stock market, rather than what's considered a an ethical argument. It's usually considered ethical if you're arguing for value. And it's usually considered unethical if you're playing it like a game, even though it really is a game.
Spencer Jakab 6:27
Well, I don't think there's anything unethical about it, it's just different. tactical thing. I mean, here's the thing, though, you know, if you have, I mean, and this this is, in fact, what happened, you know, you have a bunch of people saying, hey, if we do this, the stock price is going to go up, buy don't sell, you know, the fact is that a lot of those people did sell. I mean, the evidence is, is there that, except for the very early days of the run up, you had a lot of, of retail holders, bailing on on GameStop, and AMC and things like that, you know, so, I mean, that the, the thing is that, I mean, like, as a journalist, you know, you're saying, like, you're writing, the first draft of history, and the first draft of history. And, and this is what I thought in the first couple of days as well, was, this is incredible. This is revolutionary, you know, these guys are up ending Wall Street, and they're changing everything. And they're really flexing their muscles in a way that retail investors have never been able to do before. And it's true that they did flex their muscles. And it's an incredible story. And I mean, I tell the story, in my book about, about how they, how they did it, and really, and I go back a year, year and a half, and tell about how all these different things fell into place, precisely for it to happen. But I think that the majority of people who participated didn't make much or any money, and many of them lost money, because anything I mean, you know, you can, it's just the greater fool theory, or any rush of people into a stock, whether or not there are a lot of short sellers, and it will pump something up, as you know, and then you need to be savvy enough to get out. And some people were, and there are a lot of people who, especially people who are very, very late to it's like late converts to a religion, who were sincere and saying, Yeah, diamond hands, screw those guys. I'm never selling, I'm never getting out. And they were the ones who, who bought in very close to the top. And of course, GameStop is today we're speaking is still elevated, although it's about half the level that it was at the peak of the Gamestop mania, they wound up losing money and taking a loss or not not making a fortune as they expected. And a lot of them to be fair, bought in with one or two shares or whatever or or bought call options. Just because they wanted to kind of stick it to the man which is fine. But you know, it's they wound up losing their premium and losing money. And they might still own it, but they they might have bought in about $400 and today we're closer to 200
James Altucher 8:55
What was that? What was the low? Like? Where did Gamestop start? And then and then we'll back up and get to the whole story.
Spencer Jakab 9:01
Well, GameStop was was and still is to some extent, but was a troubled retailer of video games. And I have three sons. I guess at the time that this podcast airs, there'll be between the ages of 15 and 23. So, you know, I rode from PlayStation One to two to three to four to Xbox, everything, you know, we we made many many visits with with them trading and games to Gamestop and and recent years. I mean, I could just tell you this my personal experience, it became less and less of a thing because physical media became less and less of a thing and right that was Gamestop edge. And they made and I have edited many articles about Gamestop and it was kind of really a curiosity. By the time the the Gamestop mania came around, because we only really wrote about Gamestop to get insight into these much larger, more successful companies that made video games and that made consoles Gamestop was everyone knew it was a dying business and Hedge Funds knew it was a dying business. It got down during the early days with a pandemic to $2.57 a share. It had been a $40 stock a few years earlier. So it was it had not made money in four years. It had its fifth CEO, and for years, it was it was going nowhere. And you had a couple of value investors who liked it. Michael Burry, who was made famous by The Big Short, what was in it, it was a believer that there was more value there. He didn't think that it would go to $400, which it did, it went to $483 at the peak of the mania.
James Altucher 10:35
Right, so So let me Let's go ask some questions. I'm sorry to interrupt. I just want to set the stage that okay, it was around $2. And quite reasonably, like, I don't know anything about Gamestop except that I visited there with my daughters back in the day. Yeah. But quite reasonably, it's possible to think, okay, nobody goes and buys games in the store anymore. As far as I know, you buy games for your you download them and can play them that way. And just like game stops, like a blockbuster for games. So it's a normal thing that is going to go bankrupt. And you had huge hedge funds, like Melvin capital that you mentioned, the buget yet these multi billion dollar hedge funds that were short, and very publicly short GameStop. Meanwhile, yeah, guys like Michael Burry, who were long, and then you had Wall Street bets. And this is just to set the stage Wall Street bet sort of world, they were aware of all these mega hedge funds that were short the stock, and one and by pumping the stock up, you could scare the shorts, that this gets technical, but they have to buy the stock in order to get out of their short and so created this rush of buying that ultimately drove it up past 400. That's right. Yeah, that's a good summary. I wanted to ask why was Michael Burry again, Michael Burry was featured in The Big Short, he was famously essentially short, the housing market and housing derivatives during the 2008 financial crisis. And he made you know, a ton of money on that. He's known as a very strange guy. He's, um, I believe, in general, he's short the economy, but like right now, but he was very he was a big believer in GameStop. Why was he a believer in GameStop?
Spencer Jakab 12:10
You know, Michael Burry is a value investor, he bought in around three or $4, in the summer of 2019, because he thought it was worth more, and he thought that the company could do things to like, buy back stock, they had cash. You know, he had his reasons he had his fundament,
James Altucher 12:27
their business model is valid, what did he think about their business model? Um,
Spencer Jakab 12:33
so he specifically, you know, didn't say that, like, Oh, this is going to be huge Heilbron, this company is going to do really well. But I mean, there's a class of value investor out there that says, you know, what, this thing is too beaten down, there is a range of possibilities, there's a range of probabilities. And I think that if this company gets its act together, it could be worth about $4, but $6, or $8, or $10, a share. He didn't think that his thesis wasn't that there are too many people out there who are pessimistic about it, and we're going to squeeze them and make force them to buy back stock. And just I mean, you gave a really good summary there of what happens when people are short of stock. But just in a nutshell, for people who are not familiar, you know, there are certain types of bets that you can make, where you can lose all your money. If you buy a stock, the stock could turn out to be Enron and it goes to zero and you lost all your money, the worst thing that can happen, and you have to be very unlucky is for you to lose all your money in the stock market. But there's a class of investor out there that can lose an infinite amount of money. Because they are in the derivatives market, or they're short of stock. If you are short seller, the most you can make is 100%. Because you shorted a stock, which was mean you sold it without owning it, you borrowed it sold it, it goes bankrupt, it goes to zero, then you you know you buy it back for one cent and then you you made 100% or 90 something percent. But looms is infinite. It's just a theoretical possibility but you you have this theoretical you better be pretty confident you better be pretty right? Or not, at least not too wrong about your bet. And and there was like a lot of hubris out there because these funds they didn't have a lot of targets out there. It was very it's a very difficult time people thought that I think it was like a great the short sellers are really vilified. They might think that 2019 and 2020 were some great time to be a short seller, but as the exact opposite. It was a terrible difficult time to be a short seller. And they they were shorting things like Tesla and you know, getting their asses handed to them. And that they you know, they saw things like Gamestop and AMC and blackberry, these meme stocks and they said you know, these are has been dying businesses. These are pretty safe things to be short. And they weren't necessarily making a naked kind of bet that like these things would would go to zero and that's the entire nature of my bet. So you mentioned Melvin capital now what capital mostly is is long the stock market there They're in the business of buying stocks that they think are going to do well. And gave Plotkin, you know, he made almost all of his money by being long stocks by basically just like you or I would buying a stock that he thinks is going to be worth more in the future. But he, he enhanced, he juiced his bet, by also being short. Other stocks. So he's long and short. He's net long. He wants the stock market to go up. But he said instead of just buying, I don't know, maybe he bought best buys it, that's a good business, you know, this, this business is going to do really well, if electronic sales do well, but like, what if, what if they don't do well? What if the whole business kind of stinks? What if there's a pandemic? Or what if whatever, I mean, he wasn't betting on a pandemic? What if retail sales really do poorly? Well, I'm in addition to buying the stock that I think is going to go up, I'm going to sell the stock that I don't own, that I think is a bad business. And I'm going to make money on both ends. So it's going to smooth out my returns. And that was that the entire nature of his bet. But that those bets became so crowded, because people in the hedge fund world crowded into shorting the same handful of pretty lousy companies and Gamestop included, and the trays just became crazily crowded, and they just didn't see what could go wrong. And, and they certainly didn't think that like you know that they would be forced into a corner because they never imagined that a bunch of retail players would would squeeze them that way. And that's, that's the amazing, strange thing that happened with the Gamestop squeeze.
James Altucher 16:32
Right? And just to unpack a little bit there. So if you short a stock at 100, and it goes to zero, you make $100. If you buy a stock at 100, and it goes to 200, you make $100. But if you short a stock at 100, meaning you're betting against it, and it goes to 300. You bet $100, but you lost 200, the 300 minus the 300, where it currently is minus the 100. You shorted it at
Spencer Jakab 17:02
exactly and there's no there's no upper limit to where a stock can go.
James Altucher 17:05
Right like Aye. Aye, aye. I knew a guy once who shorted like his he was he was a bad ambassador, he shorted like his whole net worth of a stock that was at five that he was sure was going to zero, but they had earnings, and they blew it away in earnings. And the stock went to 20 overnight. And so he lost four times 400% or 300% on his money overnight, and he had to declare bankruptcy, like that's the danger of going short. So it's not it's not it's not really the opposite of going long, because you can lose infinite. And some of these big hedge funds were short, the stock at like two $3. And when it goes to 400, you're in trouble. You lost 200 times your invest. Right. But
Spencer Jakab 17:49
but so But see, that's that's something that they just never expected. Like they they lacked imagination, they didn't think, because let's say like you you shorted Gamestop at $5. And then let's say I don't know, Best Buy shows up and says, you know, we think we're gonna buy Gamestop we're gonna transform it, or we're gonna, you know, weave it into our net, you know, and we're gonna pay $8 a share or something? Well, you know, if you're Melvin capital, like, that would be a painful loss, but it wouldn't be a devastating loss, because it's just one of many bets that you made. But you don't think it'll go to $483? Right? That's something that is just not, you know, that's not in your game plan. You don't, you can't imagine that that's going to happen. And why would it go up there? You know, because they Gamestop cured cancer. I mean, you know, that there's no legitimate reason for that to happen. But it did happen. It happened because these, you know, because it was the tail wagging the dog is these, you know, there were a few pretty sophisticated people on these bulletin boards that a lot of unsophisticated people. And they said, Hey, this is called a gamma squeeze. This is called the short squeeze, this is how it works. To get the most bang for the buck. This is what you need to do. And we'll squeeze these guys and you know, and they spelled the whole thing out. And it was it was all there in black and white, of course, I mean, they're you know, there's 10s of 1000s of posts, you know, daily on some of these these Reddit boards and so it's not like it's an it's not like Melvin Capitol was paying people to go through Wall Street bats and and look for pearls of investing wisdom among these 10s of 1000s of bats, but, but it was there so you can go back and you can see it and and it's you know, I spell out how they kind of hatch their their plot in my book. And it was it was brilliant. But also, most people didn't make money. Most people were sort of accomplices who wound up losing a bit of money rather than making money.
James Altucher 19:40
Right, like so. So it seems like and your book the revolution that wasn't is really the description of what happened with all of these meme stocks and what's going on. I should add also that a lot of times, so so so first of all, a short squeeze means you see that a stock has a lot of investors short this stock. And so, again, you try to get people to buy it. So that it it squeezes the people who are short, they have to buy back their short in order to get out of the position. And that drives us stock up even further, which causes even more people who are short to get squeezed. And Gamestop was over 100% short, like more than 100% of its shares were short.
Spencer Jakab 20:23
Yeah. 140% at one point, yeah. Which is, which is which is crazy. I mean, that's a lot. And they used like kind of weapons, they kind of they, they kind of they juiced the the process by using the options market. And right, the options are typically not something that retail investors dabble in. But in 2020, they options, bets became very, very popular, and call options in particular, and kind of lottery ticket type options in particular, where people, retail investors, it really is kind of akin to gambling, it's most of the time, it's a sucker's bet, you buy an out of the money call option, it's basically you're saying like the stock is at $10. And I'm buying the right to purchase this docket, they say $12 Next week, well, what are the chances that the stock is going to be $12 or more next week pretty low in generally speaking, so your the chances of you losing all your money are quite high, but then you can buy those options for a few pennies, right, there's, it's still worth something, there's a chance it's going to happen. But basically, they turned around and they said, You know what, if we buy enough of these options, these options dealers have to go out, if the stock rises, and they have to buy the stock. Because options dealers aren't aren't taking a risk, you know, they're just playing both sides of the market. And once the stock price starts to rise, they're going to have to start paying big money to buy actually buy the stock to protect themselves, because they don't want to get, you know, get caught with their pants down. And that's what they grasped was that these options, dealers will do the buying for us, we just have to, you know, pay these pennies, and buy lots and lots of options. And as the stock price starts to rise, as these options, dealers start to protect themselves, that's going to force the price higher. And so it's like, you know, like pouring nitroglycerin onto the fire, you know, they, for a relatively small number of dollars out of our accounts, we can cause these people who have a lot more money than us to buy lots of the stock, and it's going to become a self reinforcing kind of thing. And that's what's called a gamma squeeze. And that's what they engineered. And so that that also was something that had not happened previously.
James Altucher 22:28
Right, because I just want to add to that, which is that a lot of times people observe stocks that are 100%, short, meaning a lot of people are short the stock, and they say to themselves, and they say to others, let's squeeze this stock, let's get let's try, let's drive up the stock. And and everybody will get squeezed. But the reality is, it's very hard to do. Because, you know, the it's not like the short sellers are sitting there waiting to be squeezed. They're putting out new stories about why the company is bad. They have billions of dollars to keep selling short to fight any buying that occurs. And like you say it's unusual to go from $2 to $400. They're not really risking, you know, bankruptcy in most cases. So this was a very unusual such like, like overstock for years was over 100% short, and and what's his name? Patrick Byrne, ah, that burn Yeah, yeah, Patrick Barton. He was always trying to get people to squeeze the stock upwards. And he kind of failed that. And he just never was able to do it. And and there's other examples like this. This was a very specific situation. So what, what was kind of the magic formula? You describe this in your book by, you know, just for the listeners, what would you say is the magic formula that got the combination of resources that made this short squeeze happen and cause disaster for hedge funds, Made Millionaires out of just you know, Reddit users who were buying a few shares? And, you know, got Elon Musk involved, got tomorrow, whatever his last name is involved Mark Cuban everybody.
Spencer Jakab 24:06
Yeah, I mean, I think the the interesting thing is like, you have to look back. I think that this was an event where you had four or five or six things fall into place over the course of more than a year. It's a perfect storm. So you had, first of all, you had brokerage firms, retail brokerage firms that were looking at Robin Hood, Robin Hood, is is not the first firm to have $0 commissions, but the first really successful firm and between 2016 and 2021. Even the Robin Hood is a much much smaller firm than Schwab and fidelity. Ameritrade and all these guys. They about half of new retail accounts opened were opened at Robin Hood.
James Altucher 24:52
And what's the appeal to Robin Hood?
Spencer Jakab 24:54
What's the appeal? Yeah,
James Altucher 24:55
why Robin Hood is opposed to each Schwab or whatever
Spencer Jakab 24:58
because it was they built. So the appeal to Robin Hood is that Robin Hood built this app. And it's like an app with a brokerage firm attached to it rather than a brokerage firm with an app. So, you know, even e trade which, you know, came to life during its name, you know, during the.com, boom. So, you know, when the internet existed, unlike Schwab, unlike fidelity, unlike some of these other firms,
you know, their interfaces, you know, they're always playing catch up. They're saying, oh, yeah, we'd be nice to have a good app that that's easy to use. But Robin Hood did is they designed this really slick, and really, in many ways addictive. And I can, I'll get into that later if we have time. But they they created this very, very slick interface that was aimed at a Gen Z and Millennial audience. And it was gamified. It was, you know, it kind of lured you in it kept you engaged. The typical, you know, I mean, how often do you check your 401k statement? Or if you have a 401k, your IRA, probably not up to too often. Or maybe you do, maybe you do, but most people definitely don't check it daily. Robin Hood, traders who were active checked their account, on average more than eight times a day. So it was just something that was in your pocket on your phone. It was this really beautiful app. And you kind of felt like you were missing something if you didn't check it just like you feel like you're missing something, if you don't go on Twitter, go on Facebook, or go on Instagram. And that was the genius of it. And their commissions were zero. And in late 2019. Every other broker threw in the towel and said, Okay, screw it, we're gonna set Commission's to zero because we can't beat these guys otherwise. And they were scared, they thought that this was going to be a really bad thing for them. They said, We make a lot of money from commissions. And we make money other ways too. But we make a lot of money from commissions. But you know, contrary to their expectations, their business exploded, everyone's business exploded, you had this real rush of people opening retail accounts, especially at Robin Hood, but also, you know, all the big old firms, you know, they they had, in some cases a doubling of their business within a few months. But how are they make money with no commissions? Well, because they make money other ways they make money by taking the stock that's in your account and lending it out to short sellers. Ironically, Robin Hood is it makes a lot of money lending stock to short sellers, don't tell anybody that right. I mean, you know, there's that they've kind of portrayed as the enemy, they make a lot of money charging you interest on margin interest, people, when people borrow money using their stock to buy more stock than they have money to buy. They make money through payment for order flow, where they sell your order to a company like Citadel or beer to financial. And that's how they make their money, they sell your order. And those guys execute your trade. And we can get into that too. There's a whole kind of conspiracy theory around payment for order flow. But it's not that really that complicated. And they pay for the the the, you know, basically being sent your order, they execute your order, and then they pay you for it, they pay Robin Hood for it. And Robin Hood can give you back some of that money if they want to. They don't give back very much of it, they keep most of it. That's their main source of revenue, they sell the orders they get. So Robin Hood wants to get as many orders, they don't care what the orders are, they want to get as many orders as possible option orders are better than stock orders. And reckless orders are better than sober orders and market orders that can be executed right away or better than kind of careful limit orders that more experienced traders would execute. That's their business, they want people to go crazy and trade. And the amount of trading that that occurred in early 2020 was already very high. And then the pandemic hit, and the pandemic hit at a time that you had this real surge of interest by young people for the first time in years. In buying stocks and investing. You know, you might say in not investing, you might call it speculating. And that might be a more accurate word for because a lot of them were basically you know, let's buy this cannabis stock, let's sell it, buy it at 10 in the morning, sell it at two in the afternoon or whatever I you know that you can debate whether or not that's investing or not an investment that lasts for hours, I don't know. But there was a surge and stuff like that. And then the pandemic happened. And you had all these enemies, mainly young men in their late teens, early 20s, who had gotten very very active in betting on sports in particular, it's the one type of gambling where it which is inversely correlated with age, you know every other type of gambling slot machines and playing cards and things like that. It's more older people than younger people. But sports gambling sports betting had just been legalized in many, many states was done through these slick apps that look very similar to Robin Hood, by the way. So you know, you hope you open up a Robin Hood account. It looks pretty similar to you know, DraftKings or whatever. And all of a sudden, they were no sports, no sports to bet on every sporting event in the world was shut down except for Korean baseball. Right? And you know, and people were, you know, they were looking for something to do and you survey people, and they said, you know, opening up a brokerage account. People who did open up brokerage accounts. The top response was I was Looking for something to do, I was bored, they had no job to go to, they may have moved back in with mom and dad, they got a $1,200 stimulus check, their savings rate went way up, because there's no place to go out and spend their money, they had some of that a bit of extra cash. And you at the for the first time, you actually with a small amount of money with like $20, if you wanted, you could buy stocks, because you could buy a fraction of a stock through these apps, no commission, you could buy a 10th of a share of Tesla, and then sell a share of a 10th of Tesla and you'd make a little bit of money and you're like, Okay, this that was easy. That was great. And you had a lot of volatility, which made it very exciting, the more the the kind of the bigger the risk, and the bigger the reward, the more exciting it is. And that's what got people into options, because an option is more like a bet on a sporting event, right? You You want to bet on Green Bay Packers next weekend to to cover the spread. You're either right or you're wrong, you know, you either made some money or you lost all your money, right. And and options are the same thing. Options are very, very familiar to these people. Because it's an all or nothing gamble, an option expires on a certain date, it might be a real long shot, you might be betting on I don't know, you know, Lafayette beating Bama, right? In some kind of cupcake game, and that if it happens, you make 100 times your money because there's no way they're gonna beat Bama. And then you're right, and you you made a ton of money or they cut you know, or damage doesn't cover the spread or whatever. And that was the kind of stuff that got really popular Internet explosion. And that was the environment that kind of created very, very fertile ground for the meme stock squeeze in January 2021. So
James Altucher 31:55
what trigger thing, so basically Gamestop was shitty company, shitty stock price was $2 and change. All these very smart hedge funds were short against it, were betting against it. And then you have a couple people on Wall Street bets that start saying, hey, all these big guys are shorted. Let's buy it, let's let's go along what happened and why Wall Street bets just lit on fire.
Spencer Jakab 32:21
So Wall Street bets originally was just one of many. And it wasn't a particularly popular one until the last few years forum for investing. But they're different types of forums or investing or Reddit is I read it's in the title of my book or the subtitle of my book. And I love Reddit. Reddit is a great community is a great way to get information. But it's also a great place to get that information in some cases, because you had a lot of young people who were saying, I'm okay, I open a brokerage account, I want to find a place to you know, to find out about Wall Street pets, I'd say is this a James? Let's say you and I are both on on Wall Street bets, right? And I put a post on there. And I say I just put 5% of my net worth into the stock. I think it's undervalued. Yeah, me, and you're like, I just took out a second mortgage, and bought out of the money call options expiring next week on this stock. I'm betting everything on betting my entire net worth on it. Now your your post is a lot more interesting than my post. So your post is going to be a lot higher up, because it's going to get up voted, which is a kind of a human driven algorithm. And so when you go on some Reddit forums, it's a lot of sober investing advice. There are things you know kind of John Bogle school index funds, stuff like that. But Wall Street best specifically was this place where you had people who were into doing and they sometimes they said they were doing things that they weren't really doing, by the way, but whatever the crazier you were the better memes you had, the higher up you were and so
James Altucher 33:57
and that's legal for them to say stuff they're not really doing right.
Spencer Jakab 34:01
Well, it's some person with a pseudonym. I mean, I guess it it's not illegal. I mean, you know, I mean, some people just they you know, the the money, the value that people get out of the internet on Twitter and Facebook and on Reddit is getting attention. I mean, I think a lot of them were legitimately doing it. And people would post screenshots of their accounts saying that they were doing this stuff and then it was like a lot more believable. And that that was the kind of a specific thing to Wall Street best they post a screenshot of how look how much money I made, or even look how much money I lost, which is a kind of a thing on Wall Street pets. And so your post is going to be a lot more interesting than I post so if I'm a complete newbie, trying to figure out how to invest I don't know anything about investing I'm 21 year old kid with no background in finance or investing. And let's go on Reddit and wow, look at this, you know, this guy made a lot of this guy James made a lot of money and like he's that's that's really cool under that people are more likely to emulate you than me. And so it became this place where reckless behavior was was encouraged. And so that was the kind of the ethos of it, for better or for worse, I'm not criticizing the, the forum, but that's what you were likely to see. And you know, if you piped in and said, Hey, don't you think that's a little risky? Don't you think it's a little whatever, like you, you kind of your objections weren't very visible. And remember, you have 1000s and 10s of 1000s of posts. So you know, there's not that much stuff that's it's very visible, the stuff that tends to be very visible is the stuff that's that's way out there. And so it was a place where big bets as the name suggests, was encouraged that was kind of the forum where people wanted to see that stuff. It wasn't our investing it was our Wall Street bets. And and that forum had let's say the beginning of the meme stock squeeze it had grown from a few years before having a couple 100,000 people to having 2 million people his membership doubled in the year before the the meme stock squeeze.
James Altucher 36:05
How many people do you think post on Wall Street pets per day now?
Spencer Jakab 36:09
That See now it's kind of it's it's a Class A like now Wall Street bats is not the place to be now there's Superstock and our AMC and our GME and, and what have you, but there are 10s of 1000s of posts per day, or they were at the peak and a lot of them were were erased very quickly because they didn't meet certain karma requirements. But the posts that are visible number in the hundreds of certainly the number of posts that you can read, if you go on there are in the hundreds and people will, you know would go on there several times a day and see what's going on and see what people are doing and what they're talking about and what's trending. And now these hedge funds by the way they have, you know, they pay people or they have their own engineers build apps. Tell me what's trending on these forums tell me what's trending on Twitter, tell me what's trending on Wall Street bats and Superstock. And the computer programs that they write, can read that a lot faster than you can. And they have natural language processing, and they try to interpret what's real and what's likely to get traction. And so you know, if your game is to basically invest according to the the greater fool theory, like you know, let's see, let's see what's trending on social media, I buy that and then sell it two hours later, you're very unlikely to outsmart the the algorithms that certain hedge funds have put in place right now. Like it's
James Altucher 37:30
hedge funds right now are monitoring sentiment on like social media, and they'll and they've statistically modeled, like, if there's this many tweets all of a sudden spiking on Twitter, for the next two hours, this might be a bias statistically likely.
Spencer Jakab 37:45
Yeah, yeah, they're, they're looking at it, maybe they're looking at it just to see, hey, do I need to be careful because I shorted the stock or I have an options position. And I want to see, I don't want to get run over like gay Plotkin did and Melvin capital and lose $6 billion in a couple of days. And maybe they're doing it because they're a much smaller hedge fund and they want to make a bit of money they want to ride the wave and and their whole game is, is just basically sort of making a couple of percent here a couple of percent there. I mean, there I you know that there's both of them. And there are people who just sort of just casually watching it, they pay services to watch social media. I've spoken to people who have that they have, you know, they have their smart kids, you know, write these things that machine can read a lot faster than you can, you can read and a machine can trade a lot faster than you can trade. So I just My message for people out there who think that they're smarter or faster or better than hedge funds out there, like, okay, yeah, the mean stock has happened. But don't don't think that you can consistently do this and go out and day trade. I mean, James, you're a day trader to tell me what what was your experience? Did you? Did you make money? Or are you just you but you made it? You did it in an era when it was easier to do? What was your what impression did you get? Is it? Is it easy to beat the game? Or was it hard?
James Altucher 39:03
It is very hard to beat the game. And I will tell you that I was a day trader 20 years ago. So I was able to write software that would do things like what you're describing, there wasn't social media, then but I would look for statistical patterns in the market and bet on those. And back then there weren't as many quantitative hedge funds. So there was room to maneuver, particularly if you played with smaller stocks or stocks, or even if you play with the bigger stocks where there just wasn't as much money in quantitative hedge funds that they can manipulate the market. So it was possible to to find statistical anomalies that that worked. But I will, I'll say it's a very difficult game because, for instance, one time I wrote about one of my statistical strategies, and it had worked maybe 99 times out of the prior 100. The second I wrote about it, it never worked again, right. Right. So so once information gets out there as a strategy. It goes away. So for instance, the other day Someone was telling me a strategy he had, that he thought was a very interesting strategy. And I said, Listen, you have the strategy. It's a known strategy. By the way, there are hundreds or even 1000s of PhDs working for hedge funds that are trying to optimize the strategy using sophisticated, you know, computers and so on. And you're not unless you unless you know why you have an advantage over those PhDs with computers, you're not going to win. And that's the truth now, like quantitative trading is a different game. Like I wouldn't get involved in it now. Because it's it's a, it's, you know, unless it's unless you're unless you understand why you have an advantage. Maybe you're in micro cap stocks, which hedge funds don't play as much, because their hedge funds are too big. Or, or maybe you're using a sophisticated option pricing strategy that again, option volume is not so big. So hedge funds can't really play with options, you know, on even medium sized stocks. So unless you have a sophisticated strategy, it's not going to, it's not going to work, you have to know what you're doing. So it's a different game than it was 20 years ago. Yeah. And
Spencer Jakab 41:04
hence the title of my book. I mean, I hate to be a downer, but it's that's the revolution that wasn't because, you know, there are a lot of young people that who are markets, who think it's, it's easy, and that maybe they some of them haven't even made money, but they think that, you know, they, they've sort of, you know, they have cool memes and they can push around these headlines, and, you know, yeah, it happened. But the, the period around the meme, stock squeeze, if you look at Wall Street writ large, it was a great period. For them. It was like a lot of rich older guys, you know, who you kind of resent? Because there's a lot of economic resentment out there, made a lot of money, a couple lost money, but a lot of people whose names you don't even know, made a ton of money because of that phenomenon. And it's a zero sum game, I mean, that you know, that money is coming out of your pocket, right? It's
James Altucher 41:53
totally a zero sum game. And what were some individual stories you write about him in the book, but what were some individual stories where people who just went from nothing to millions of dollars and some of these meme stocks?
Spencer Jakab 42:04
Well, the most famous individual story I don't think is typical of of these guys at all. Keith Gill, roar and Kitty deep fucking value, Keith Gill was a CFA charterholders. So different than, than these guys, he, you know, he had this gold plated investing credential. He was in financial education for MassMutual. And he started making these really pretty sound cerebral arguments for why he thought Gamestop was undervalued, he thought it was worth, you know, $4, that that was worth $8 $10, maybe more than $10, he thought he was going to, you know, make some money, it was a calculated bet, he didn't assume he would make money, but he was playing the probabilities. You know, clearly a very smart guy. But a young guy to 34 years old at the time of the squeeze and so young enough to kind of be in this meme world. And at first, he didn't get any traction, you know, he would you look at his social media posts, and you look at how many times his videos reviewed, and it just fell flat. No one was interested people, you know, he did it just for fun, you know, arguing his investment case, but it didn't go anywhere. And then when things started to take off, you know, he was he really had diamond hands, quote, unquote, you know, he held on to these options, positions that he had bought for maybe 20 cents. And he made a 10,000% return. And at one point, he had an account worth over $50 million from having started with about $50,000.
James Altucher 43:40
And what what happened to him ultimately,
Spencer Jakab 43:43
what happened to him ultimately, is he Well, you know, we don't know what's happening to him right now, he could have made a lot more money because he was so influential, basically, people were, were following him. And so I tell the story, you know, through the progression of of his his posts and his timeline, because he became he went from being this kind of fringe figure who no one was paying attention to, to all of a sudden being the center of attention through this, this kind of this this idea called social proof, you know, if you have have been very successful, whether you were lucky or smart or whatever, if you've been very successful doing something, it could be, you know, playing the lotto, you know, if you you won the lottery, you could go out and put a social media post out there how I won the Powerball, and some people are gonna pay attention to you because you were successful. You know, he was I'm not saying that his success was completely down to luck. But he lucked into the fact that he was buying the instrument with the most upside he was buying call options. Way out of the money call options, the ones that have the biggest payoff in the stock that just happened to be very heavily shorted. He wasn't even it wasn't even as part of his thesis originally. And then he gradually realized, you know, that's a real possibility. There could be a short squeeze in this thing. People on on Wall Street bats are talking about how headshots are so heavily shorted stock. And he held on and he held on and held on through thick and thin. And he made an absolute fortune. And now he's a very rich guy. He was investigated by the SEC, which is ridiculous for, for writing about it because at no point did he kind of you know, urge people to buy it. There are a lot of other people urging people to hold on and not sell or buy. But he, as a US, registered with FINRA, which is kind of what the legal peril is for him. But you know, he, he quit his job. He never advise clients. And he made an absolute fortune. And he just he was extremely gutsy and had almost perfect timing in terms of when he sold about half of his position. And now he's a big or last we checked a pretty big individual shareholder in GameStop. So it's a very rich guy.
James Altucher 45:47
How did it start and then how did Elon Musk and and Tomas and all these other billionaires get involved and of course, they made money because they have enormous social proof whenever they say the stock goes up, but just talk about the timeline of what happened.
Spencer Jakab 46:05
So Gamestop started to, to rise. The first kind of there was a initial short squeeze. When the stock market started going through the roof in April 2020, when everything bounced back, people were looking for things that were beaten down. And there was an initial post on Wall Street pad saying the greatest short squeeze of your life, how to bankrupt institutional investors by buying the stock. And for a couple of days, there was a big short squeeze. And that's when Keith Gill first made his post saying, well, now there's the possibility of short squeeze, which was never part of my original thesis, but that that also could be a way to make money in the stock. And then it died down at that down for several months, until the fall, or the late summer of 2020. And during the summer of 2020, you had this interesting thing going on, where you had this big player in the options market, people called it the NASDAQ whale. And turned out to be a huge investment fund it was doing this was buying lots and lots doing the same thing that the Wall Street bass players to do later, buying lots and lots of out out of the money puts on certain tech stocks. It started to, you know, kind of become a self fulfilling prophecy and drive the market higher, you're this big rally over the summer, in several large tech stocks. And turns out, it was Masayoshi Son, it was this Japanese multi billionaire, personally through his own accounts, and through his company's accounts, Softbank, buying lots and lots of these stocks. And that planted the seed in a lot of people's ideas, you know, you could do this with retail money, you could you could create this, so called gamma squeeze that I mentioned earlier in the podcast, in stocks that aren't big stocks that not a lot of people own stocks that not a lot of people are watching. But that, that have a lot more short interest. Gamestop was number one on the list. Gamestop is a stock where we should try this. Then you had this guy, Ryan Cohen, who had made a lot of money, he was the founder of chewy and it sold it to PetSmart, he came in and showed up with a stake in the stock and then it started to take off. And then the snowball got rolling. And then he showed up with a bigger stake. And then he wrote a letter to the board and saying I think you should do this, I think should do that. And people got the idea that he would become an activist investor and try to get board representation. And throughout the fall and the winter Gamestop shares surged way past what Keith Gill thought was the fundamental value. Now if he had just said, Okay, when this thing gets to 20, I'm going to get out, then that's all the money he would have made, he would have made a million dollars. Right. So
James Altucher 48:41
so let me just I'm sorry to interrupt. I'm just gonna I want to just kind of add to some of the things. Yeah, because it's interesting. So when when someone becomes an activist investor, they an activist investor has a specific definition legally, yeah, they essentially own a stake of probably more than 5% of the company. And when you own 5% of the company, you actually have to file a filing with the SEC. So if I buy shares of a company, I don't normally have to tell the SEC, I just make this trade. But when you own 5%, you have to file a filing. And you have to you have to state specifically, not only do I own 5%, but I'm I plan on having discussions with the company. And usually this is called a 13 D filing. And usually when you do this, you also usually outline what you're going to talk to the company about why do you think that there's value in here what kind of value you think could be unlocked. And you also have to be kind of a long term holder because you can't just buy and sell 5% of company takes it takes a while. So it actually is a legit strategy and I play invested professionally with the strategy of piggybacking activist investors because you know, they're smart, you know, they've done their due diligence, you know, they're in it for the long term, you know that they can affect change. It's a very success. strategy, for instance, to follow someone like Carl Icahn right into into a stock that's worked for many, many years in many companies. And so it's a legit strategy. That's why people get excited when they see there's a smart activist investor involved.
Spencer Jakab 50:13
Yeah, yeah. And this guy, Ryan Cohen, was, you know, that's what everyone said, GameStop has to have a real ecommerce strategy. Here's this guy. And you know, he, not only did he make a lot of money in, in E commerce, he made money in a cursed category. So he found it chewy, which you know, is a sales, pet food and pet supplies of medicine. You know, that, you know, back in your day when you were a day trader pets.com is like as the poster boy for just a crappy stock, you know, that just people are like how, you know, how to, you know, even get to that value, and like, the whole thing from IPO to bankruptcy was less than a year. It was just a dumb idea way before it's tough. And chewy sold for $3 billion dollars. Yeah, exactly. So he, he succeeded, where there had been this really famous high profile failure. And he's a very smart guy, very savvy operator. And so it's not just that he's a rich guy, you know, coming into this company is a young guy, you understood memes. He was cool. You know, and he, you know, so there was this legitimate hope that he could come in and shake things up, tell the company what to do, of course, not now, fast forward, he's the the chairman of the company with a larger stake. But at that time, him showing up, set this thing on fire kind of lit the rocket that would explode in January. And so he really got the ball rolling. And the short sellers were at that point, I think should have cut and run. Or at least taking some some chips off the table. And they didn't, you know, what they saw were a lot of weekends, they saw a lot of retail investors, they were following the chatter. People I won't say who, but people who are active in the trade told me that around November, they began tracking social media sentiment, and they didn't think much of it, they just sort of, you know, what the posts that they saw were like, Yeah, diamond hands were long. You know, they didn't see anything fundamental. And so they weren't worried. But they what they failed to see was this this upswell of enthusiasm, what they didn't understand was like the crowd psychology, and they didn't understand how many people had opened retail accounts, and the kind of the mag magnification that derivatives would give them, you know, there was an absolute explosion in an options trading. And frankly, a lot of people who have no business trading options, I mean, they were people were getting approved to trade options, who had no idea what they were doing, like they, they demonstrably had no idea what they were doing, they would buy an out of the money option, which means you're buying something, if something happens in the future, if the share price rises, and then they're X, they're, you know, exercising immediately. So they're basically giving themselves 100% chance of losing all their money, because they didn't understand what they had bought. You had a lot of people doing that. It was pretty embarrassing for Robin Hood, and these other retail brokers who allowed them, you know, they had to fill out a form saying yes, I understand what I'm doing. Yes, I'm experience. And of course, they weren't, I mean, there was just just no way that they knew what they were doing. And, you know, but they but listen, you you give a bunch of child soldiers, ak 40, sevens, they could still kill you, right? I mean, you know, there's still still an AK 47, they might get lucky and, you know, hit you in the head. And that's kind of what was going on, in these months leading up to the meme stock squeeze. And these hedge funds were just were did not recognize the danger that they were in. What happened next. So what happened next is it gathered more and more momentum. And then you had and Melvin capital, by the way, which is the real high profile loser in this, they lost approximately $6 billion. And, you know, not just on GameStop, but just basically on in general in the squeeze, including stocks that they were long, because people basically picked them off. They they kind of they saw what they owned, and, you know, they they, you know, if you like if you go on Wall Street, you know, if you want a friend get a dog, right, I mean people, other people in the business where there's a lot of professionals who could want we're gonna jumped on these funds that were losing money and kind of helped to bleed them dry. It wasn't just retail investors, which is the kind of the, the narrative that was was posed there. But you had a guy named Andrew laughs who's a very famous or notorious short seller, who came in, had made a lot of money, shorting frauds, shorting overvalued companies, shorting penny stocks, and things like that he was right more often than he was wrong, and came in and basically publicly called them out, you know, he came in in January 2020 when this thing was on fire, and said, you know, you guys don't know what you're talking about. The stock is going to be back to 20. Soon, it was like $40 at the time. You know, you're the soccers at the poker table. I think I'm quoting him exactly on Twitter. You know, I'm gonna have a
live stream tomorrow. And it was like just waving a red flag in front of a bunch of balls. You know, he basically tormented these guys and he was tempting fate and these guys Now they had a real enemy. They had a specific person, they hacked his accounts, he couldn't do the live stream. And he won't say he's in, you know, in the book, but he won't say how much money he lost, he said is, you know, more than he had hoped, but not a devastating amount. But he lost him. He said he'd lost about 100%. So he lost his entire bet. In a matter of, basically several hours in the stock, and he also, it was like, throwing blood in the water with a bunch of sharks circling like, you know that that was the kind of the final piece of the puzzle that led this thing to explode in in January 2020 on and then it wasn't just Gamestop people looked at, Okay, what else is like GameStop? Oh, there's AMC. The movie chain that's almost bankrupt. This thing is heavily shorted. Oh, there's this cost the maker of Wired stereo headphones, that hasn't been a thing for 10 years. Oh, there's Blackberry. Remember blackberries. You know, blackberries, heavily shorted. You know, blackberries business didn't turn around as a result of this. But you know, people saw, you know, saw something there. They're also ironically, the strangest thing of all, there's a company called blockbuster liquidating, which is the liquidating the bankrupt assets of blockbuster. And that went up a couple of 1,000%. It was just a penny stock. You know, all kinds of Tootsie Roll, Tootsie Roll, you know, that that that went up a bunch, all these stocks, that that happened to be heavily shorted that all they had in common was that they were kind of loser stocks, that these guys were short. And they went through the roof. And, you know, it was this same group of funds that had made bets against them for the same reasons, pretty sound reasons they thought, and they just went through the roof during the same, you know, short period in January. And so it was, you know, it was an absolute disaster. And who would think that AMC the movie theater chain that was dying, because the pandemic, and GameStop, which was dying, because of digitized games, would both go up a couple of 1,000%. At the same time, it's not in your model, your analysts don't don't think that that's going to happen? Because they why would it happen, right?
James Altucher 57:07
So usually, when the stock price goes up, it has nothing to do with the company, like the company doesn't make more money because their stock price goes up. Now, unless they're having an IPO unless they offer, they do what's called a secondary offering, and they sell shares to the public, so that AMC and Gamestop take advantage of the sharp move up and sell some shares and raise some money.
Spencer Jakab 57:28
Well, first of all, lots of insiders did at these companies, anyone who was able to sell stock, whether it was mutual fund managers, or, or, you know, there was a Chinese conglomerate that made a ton of money. There was a Chinese billionaire who made a ton of money, anyone who was kind of stuck holding these things, for whatever reason, dump their stock. And yeah, and AMC, they had something called an aftermarket offering where they could sell stock at the market, they didn't have to go and you know, put out a prospectus and do whatever they could just to say, hey, tomorrow, we're selling a bunch of stock because we all have authorization to do it like holy crap. You know, if you seen our stock price, at sell now, they had they had been lent a bunch of money of debt that was convertible, Silver Lake, which is this private equity firm, and lent them money was standing to lose a bunch of money. And instead they made a bonanza. The company sold a bunch of stock, because there were all these people lined up to buy it, who had no idea what they were doing and just work basically buying the stock at or near the top. And so at the expense of a bunch of inexperienced retail investors, you had a bunch of corporate insiders, a bunch of hedge funds and mutual funds that were stuck owning the stock that all of a sudden cashed out private equity firms that cashed out at or near the top, you know, so you had these people were like, Yeah, let's stick it to the man. No, the man just stuck it to you, he just let you know left you with a bunch of stock. This was like a, like pennies for heaven for them. Gamestop was not I probably on the advice of their lawyers. They didn't sell stock during the squeeze itself. But then later, they sold billions of dollars of stock. And so when a company is a is like, going to go bankrupt soon, and they can raise money that that changes the playbook that changes the narrative, right. And so both of these companies and other companies, too, went out that then during the squeeze or in the months after AMC just kept on going back to the well again and again and again. And Gamestop went to the wall a couple of times, and they sold billions of dollars of stock to the Uzi mastic army of retail investors. I mean, I don't think it's very nice, because you know, okay, yeah, you can stay in business now. But you did it. Because you sold stock that you knew was overvalued, otherwise, you wouldn't have been selling stock,
James Altucher 59:42
but they had to do it. I mean, like Gamestop right now has a billion dollars of net cash. Yeah, probably up from about zero and they burn about $50 million a year. Yeah. So they're, that means they're in business for 20 more years at the current rate. The smart thing
Spencer Jakab 59:58
they could do They could totally change their business. I mean, good, good for that. That's the way it works. I mean, Caveat emptor. But what what, you know, you, it's, it's also manipulative in a way you talk about like Wall Street being full of sleazy people, well, the corporate world is full of sleazy people, too. I mean, they're basically saying, Yeah, we know this stock is overvalued. So we're going to strike while the iron is hot, we're going to sell money to this enthusiastic army of retail investors, and we're going to use it to invest in our business, and therefore our business is going to be worth a lot and we can pay ourselves a salary for a lot more years. I mean, I don't know is that do you think there's something wrong with that? Or you think it's okay?
James Altucher 1:00:39
I think it's okay, because they have a fiduciary responsibility to the shareholders, which means they've got it, if they can choose a legal way to keep the company in business as opposed to declaring bankruptcy, they kind of have to do it or they'll get sued. So it's not it's not even whether it's ethical or unethical. It's like they have to do it, it would be illegal for them not to take advantage of opportunity, if they're mildly intelligent.
Spencer Jakab 1:01:03
Yeah, I mean, I guess it's to me, it's ethically it's a gray area,
James Altucher 1:01:07
it's a gray area.
Spencer Jakab 1:01:09
Sure, when when you have let's say, like an executive with options and restricted stock, as some of these guys have been, like, they try to keep the ball rolling and engage with the the retail buyers of the stock. Oh, just keep it going until September, October until my restricted stock vests, you know, and then, I mean, they made an absolute Bonanza, you know, you're you're the CEO of a company. Okay, it was bad luck that the, you know, the pandemic happened, but you know, that that's, that's the brakes. You know, you're you're already a rich guy. Now, you got much richer, you know, because, you know, because of these these people who sort of you're pandering to I mean, I think it's I don't think is that ethical? Yeah, I mean that
James Altucher 1:01:48
but but but here's what's so unusual about this situation is that this happens all the time. And like you mentioned, all the mutual funds got out because they finally had an exit, they didn't have an exit before all the hedge funds got out that were ended at $2, they got out at like $50, or 100, or whatever. And just think of the enormous amount of buying that retail was doing in order to counteract huge, huge multi $10 billion mutual funds that were selling, like buying like that, hardly ever, you know, defeats the institutions and this and the insiders. And this time it did this is so unusual that it happened this way. So that you could say yes, what they did was certainly unethical, let's say the executives who sold but Let's also not forget, they had, they also have to file when when an insider like an executive or even a mutual fund, sells, they also have to file with the SEC. So it's publicly disclosed, and still there was buying. Usually there's not that much buying to count, like when someone insider sells the stock usually falls because people say oh, if the CEO selling I'm gonna sell, but this didn't happen here. So people were like, more stupid than the insiders were unethical.
Spencer Jakab 1:03:00
Well, I mean, you've had, okay, you know, the biggest people don't talk about it. But the biggest shareholder in Gamestop was fidelity, you know, boring old fidelity mutual funds. There was a value stock manager there called Joel Tillinghast, who owned it in a few of his funds. And he, you know, and Michael berry owned, The Big Short guy owned a little over 5% of the company, as well. And, you know, between them, you know, they they dumped all their stock that month, because they're not stupid, they didn't sell the very top, I don't think there were a couple of funds that sold right near the top, there was a guy who got in it was a company called, called permit capital, that that got in and put a guy on the board when Gamestop was down to the dumpster. So we think this is a promising long term story. It can be turned around, blah, blah, blah, we really believe in this, you know, long term was six months, this this thing went through the roof, and they sold out. And they you know, they quoted the guy and he's like, Yeah, I feel like I just went to Disneyland like, this is great. This is a bonanza, it's just pennies from heaven, who would have thought that this would happen? He's not you know, I mean, he Oh, he also has a fiduciary duty to his shareholders to to sell if the stock price goes way above what he thinks the fair value is. It's not his money. It's you know, he's investing money for you know, a bunch of pensions and mom and pop and he sold out. He made a fantastic return. Fidelity made a fantastic return. There's no way they're gonna stick around. And this was a great opportunity because there's so much buying of you, as you said, usually you can't sell that, that amount of stock without causing a ripple. They sold it. It was like nothing happened. You know, they're just people were just lining up to buy
James Altucher 1:04:40
it. Yeah, so So okay, so how did it how did it ultimately and like you mentioned, most people who bought and in the, in this run up, ended up losing money, like what eventually happened here?
Spencer Jakab 1:04:52
Well, it depends what you bought. And I mean, and again, we're pre taping this so I don't know what the share price is going to be of Gamestop When we speak, could be higher could be lower share price can stay high for a long, long time. The thing is that if today it basically there, you have two kinds of holders of things like AMC and GameStop, you have index funds that have to hold it, it's in an index, I don't care what the price is, I don't care what the value is. It's x percent of the index. So it's x percent of my fund, I own it. So you have like, you look at a list of shareholders, and it's, you know, Vanguard and BlackRock and all these index fund providers. And then you have retail investors. And that's it, it's just to two kinds of investors. And retail investors are big, which is really unusual, by the way to have like, such a big share of stock owned by retail investors, but they're the only ones who own it at, you know, 200 or 2000 times earnings, you know, they because they're kind of true believers, it's not like Tesla people have said Tesla's overvalued for a long, long time. But you have, you know, that's been kind of accepted by the establishment, you have a lot of established hedge on managers or, and mutual fund managers who own Tesla, because they, it's a stock in the Standard Poor's 500 is one of the biggest companies in America, you kind of have to own it. Otherwise, you know, you're really putting yourself in danger of lag, and you kind of justify owning it. But you don't have to own GameStop, you don't have to own AMC. So it's just retail investors who own it. And so what happens, I mean, I guess, if one day they get tired of it, and more people start selling than buying, then there'll be selling pressure on it, and it'll go down, and then the last people out the door will kind of regret having owned it. Or maybe they won't, because there are a lot of people who own it, who owned it as a statement, which is also very unusual that that's one thing that makes this, this whole thing unusual is you have people who kind of own a few shares, as a matter of principle, because they want to stick it to the man and I that's the that's the part that I find is really sad. I mean, people lose money, all the time, the stock market, but if you bought a stock, because you want to stick it to the man, because you feel bad about inequality and your parents house being foreclosed on after the financial crisis, or the student loans you got stuck with or your crappy minimum wage job, and you went out and open the Robin Hood account and bought 10 shares of Gamestop to make a statement, and then you lost money on paper, or you lost money in real life. Because you were trying to make a statement? Well, you didn't stick it to the man. I mean, I mean, it was a really fascinating episode. That's why I spent all these, you know, this time, staying up late every night, talking to people and writing a book about it, because it's a crazy, fascinating, great stories, stories like that don't come along very often. And I wanted to tell how it happened and explain how it happened. But you didn't stick it to the man. I mean, it wasn't like an airtight trap for those hedge funds. And there's this theory that it still is, you know, I mean, how did you find
James Altucher 1:07:52
out like, Did you were you able to get in touch with some of these Reddit users who were anonymous.
Spencer Jakab 1:07:58
I mean, I spoke to people who are not anonymous, I, you know, spent too many hours, you know, going speaking to people who are on the board who are are and are not using pseudonyms, or let's say they use their names, but spoke to me, but I mean, you know, I could have spent all day speaking to people, I think that at the time that we're speaking the kind of people who are who are still active in the community. It it's kind of, I feel bad for them, because it's like people who said no, no, this the story is not over. I think that's a lot of people kind of when I read an article for The Wall Street Journal about it. At this time, the book is not out at the time of art that we're speaking the book is going to come out January 25. People will say, hey, this isn't over. This didn't end yet. Why are you saying this is over? Why are you writing about this in the past tense, this is an ongoing revolution. And it kind of isn't, I mean, markets, you know, the things have changed in markets in terms of the the things that are available to a retail investor, like, you know, used to be that, you know, if you if you had $200 You weren't you couldn't even open a brokerage account, it wasn't even worth your while, like you'd you'd be stupid to open up a brokerage account. $200 Because you'd whittle it away. Just getting started and buying a couple of stocks, certainly, you couldn't be active because it just wouldn't pay and today, you have all these people who who can be players, because you have like a million people or $200 is a lot of buying power, especially if you're buying options. And so they're waiting for something to happen and there are these theories out there that there's you know, there's going to be this kind of like second coming event this mother of all short squeezes and they're going to bankrupt the hedge funds and really show them and that's never gonna happen. Never ever Yeah,
James Altucher 1:09:47
it's sort of like whenever you get to the point where everybody says we're gonna give it to the man we're gonna we're gonna show them that's when you have to get out.
Spencer Jakab 1:09:56
Right and I feel badly for them and I you know, I spoke to like really intelligent, young people who don't know a lot about finance or they maybe they they've convinced themselves they did. So no, we did our DD we did our due diligence. So where were you getting this thing? Like, oh, we're, you know, they're, you know, that's the problem with like, you know, people who say like, I'm not going to get an AI apologist, anyone who, for religious or whatever reasons, you know, is out there listening to this who isn't vaccinated against COVID Because they did their research online. But, you know, the research you did online is research you did on on Facebook or some internet forum, it's not research you did, going to a leading epidemiological authority, telling you not to get vaccinated. And it's the same thing with with finance. But I will say this, one thing that I find really encouraging in this is that young people are skeptical about Wall Street advice, because they should be Wall Street advices bad advice. Okay, so I mean, it's not like, your doctor's advice, you know, if you go to your doctor, and your doctor tells you, you know, you really should stop smoking, you really should lose weight, you really should get polio vaccine, and a measles vaccine, you know, listen to them, they went to medical school, and they, you know, they're looking out for your best interest and they took the Hippocratic Oath, people on Wall Street, who are not fiduciaries who are out there saying, You should do this, and you should not do that. There's as much chance of them being wrong as right, they might even be convinced that they're right. But there are, there are a lot of charlatans, and they're a lot of people don't know what they're talking about. And even people who do think they know what they're talking about. They're going to give you bad advice on Wall Street, Wall Street advice is, is kind of useless. Unless it's it's like, lastly, advice is invest with the long run, be proven by index funds, don't pay too much money. There are people out there who have fiduciary, so give you basically sound advice, but it's really boring advice. It's like eat your vegetables and go to the gym advice. You know, it's kind of generally good advice. It's not specific advice. And the fact that young people are skeptical about this specific advice, they don't want to go to some dude in a suit, who gave their parents financial advice. And take their advice. Like I, I totally sympathize with that. I mean, there are just a lot of of just cranks out there on Wall Street, who are not going to help you get rich and retire comfortably.
James Altucher 1:12:24
You know, be skimming, definitely be skeptical. I've seen so many different ways. There's not only skin, like when people think scams on Wall Street, they think of illegal stuff. The problem with Wall Street is that there's so many gray areas, that people totally get away with what I would call illegal activity, but it's just gray area. So it's never prosecuted. That's the problem with Wall Street is that let's say it's 2% ethical 2% totally illegal scams and 96% Gray Area scams that will never get prosecuted. And that's the problem is that, for instance, if you go to your your your stock market advisor, and he says oh put your money in these mutual funds, he's forgetting to tell you that the exact same mutual funds exist without the marketing fees, like mutual funds have two forms. Yeah, marketing fee version and the non marketing fee version. There's never any reason to put money in the marketing fee version. Yeah, but that's the version that all the banks recommend. Sure. So that to me is a gray area scam. And I have story after story, just
Spencer Jakab 1:13:28
somebody my wife and I bought, like this guy nice guy wants to sell his term insurance and like I you know, I so we, I said, you know, I should have life insurance out of work. I mean, what I have three kids and whatever, you know, and you know, so I, I compared rates to see the rate this guy's giving is actually like a good rate. Why not, you know, go with him it. But of course, the whole thing was just like a Come on. And he said, you know, we signed all the papers, they sat in our living room giving me this whole spiel about the stuff that I write. I was an Investment Analyst for, you know, for for 10 years. I've been a financial journalist for almost 20 years. You know, I know about this stuff. I read about all this, this sleazy stuff, and he's like, trying to sell us these products like that, or I know or just you know, that new ities and, and private REITs and all kinds of sleazy stuff and I just sat there like listening to him. I just My wife was like, Why did you What was he sitting there like talking to you about all that time and it's I just wanted to hear how this thing is pitched. I want to hear how he sells it. He was very slick. Like he didn't lie. He he right at no point did he did he lie? But uh, nope. He didn't volunteer information about how much money he's gonna make off of this, which is egregious, crazy amount of money for a product that I shouldn't buy and buy it of course, but I just wanted to, to hear the whole spiel and I I'll go and I'll sign up for stuff. Right? No, I'm going to get stuff in the mail. I've got a whole folder of stuff that I get mailed at home, all kinds of sleazy comments because I just collected I love hearing bad investment advice because I'm like a connoisseur of it because I want to take it but, and and so I feel badly for these young people for sort of thinking they're sticking to the man, but I guess it's hopeful A, it's hopeful that they're investing at all, because I think, you know, in order to, you know, pay for your retirement, you need to Wall Street needs to, you know, you need to tame Wall Street, Wall Street doesn't need to, to, you know, to stick it to you, you need to stick to to get something out of Wall Street, which is that, you know, the long term compounding that you can get investing in sound long term investments is, you know, the power of compound interest is the eighth wonder of the world. Yeah, you should be invested, I tell my, my sons and my son's friends, and just buy something and don't look at it, and just trust it. And, and don't worry, and don't watch the financial headlines. And if more people did that, then more people would be, you know, comfortably retired and is a retirement crisis in our country and the savings crisis in our country. So it's nice that they at least have an account that they they're interested in there, you know, and, and it's also nice that they're skeptical about, you know, some dude in a suit, giving them expensive, wrong financial advice, you know, so that's, that's all good. But then, I don't know, I hope that enough of these people, some, it's probably going to be a minority of this new generation that got into investing with this whole meme stock craze, that then turns around and says, Well, that that didn't work out very well. But let me think about what I did wrong. And let's, let's pick up a good book, like A Random Walk Down Wall Street and learn about, you know, how this thing actually works and what I should do I, I'm convinced that some minority of them will, will turn around and do the prudent thing, but they aren't yet. As of this speaking,
James Altucher 1:16:48
look, Spencer Jacob, author of the revolution that wasn't Gamestop Reddit and the fleecing of small investors. This is like a reading a thriller. I mean, I almost couldn't believe this when it was happening. Jay, who's the audio engineer who was on this podcast as well? Jay, did you invest in any of these meme stocks when the whole thing was happening?
Jay Yow 1:17:09
I did. Actually I did bought I didn't buy Gamestop because by the time I look at GameStop it's already a couple $100 But I did buy in some AMC stock when it was like $15 What's AMC right now? It's at 43 Wow, good job, Jay. I just sold a couple when you went 50. Good for you. Yep, I didn't I didn't buy much. i My principle is I only invest on the orange moon so I only put in less than $100 or less than $200. So like I didn't blow off we had fun with I have. Yes, I have fun with it. And then it's also I like to have fun and I like meme all the time. So yeah, yeah. Doesn't mean for me. Yeah. Well,
James Altucher 1:17:47
Spencer, thank you so much for coming on the podcast and let us know if you got any other Hi tipster.
Spencer Jakab 1:17:55
Stories. You'll be the first to hear about it. Thanks so much, James. I love your podcast. Thank you and it's a thrill to be on it Thanks for having me.
James Altucher 1:18:04
Well, well come on anytime there's something you want to talk about. Give us a holler we'll have you on this is this is great stuff I always love talking about this okay, I might just do that and and great book Spencer as well. I highly recommend people get it to see all the different players in this and how this evolved and and who knows might give people some ideas bad or good. So good, Jacob. Yeah. The revolution that wasn't thanks so much, Spencer. Thanks. Thanks for having me.