Bogleheads® on Investing Podcast Episode 042: Robinhood, Reddit, and Meme Stocks with Spencer Jakab

00:00:00.000 | [MUSIC PLAYING]

00:00:10.200 | Welcome to Bogleheads on Investing, podcast number 42.

00:00:13.880 | Today our special guest is Spencer Jacob.

00:00:17.160 | Spencer is the editor of the Wall Street Journal Heard

00:00:20.520 | on the Street column and the author of a new book,

00:00:23.800 | The Revolution That Wasn't--

00:00:25.680 | GameStop, Reddit, and the Fleecing of Small Investors.

00:00:29.320 | [MUSIC PLAYING]

00:00:38.000 | Hi, everyone.

00:00:38.640 | My name is Rick Ferry, and I'm the host

00:00:40.320 | of Bogleheads on Investing.

00:00:42.320 | This episode, as with all episodes,

00:00:44.680 | is brought to you by the John C. Bogle Center

00:00:46.600 | for Financial Literacy, a 501(c)(3) nonprofit organization

00:00:51.680 | that you can find at boglecenter.net.

00:00:55.240 | Your tax-deductible contributions

00:00:57.040 | are greatly appreciated.

00:00:59.280 | The Bogleheads were formed in 1998

00:01:02.320 | on the Morningstar message board before moving

00:01:04.640 | to its current site at bogleheads.org.

00:01:07.640 | The founder of the Bogleheads is Taylor Larimore.

00:01:11.560 | Taylor is a highly decorated World War II paratrooper

00:01:14.800 | from the 101st Airborne Division,

00:01:17.120 | where he fought in the Battle of the Bulge.

00:01:19.440 | He is 98 years old this month.

00:01:21.680 | And on behalf of all the Bogleheads,

00:01:23.440 | we wish you a happy birthday and many more.

00:01:27.480 | One year ago this month, something phenomenal

00:01:29.880 | happened in the stock market that was called

00:01:32.720 | by some the Reddit revolution.

00:01:35.720 | Millions of individual investors, mostly young men,

00:01:39.080 | banded together on a Reddit message board called Wall

00:01:42.400 | Street Bets to take down a couple of large hedge funds

00:01:47.320 | who had gone short companies that they

00:01:50.320 | thought were down and out.

00:01:52.380 | The phenomenal story of what happened next

00:01:55.680 | and the ultimate demise of many of these small investors

00:01:59.240 | is a fascinating tale.

00:02:01.200 | Here to tell us about it today is Spencer Jacob.

00:02:05.080 | Welcome to the podcast, Spencer.

00:02:07.000 | Thanks for having me, Rick.

00:02:08.600 | It's a real pleasure to have you on this podcast.

00:02:11.760 | I've been following a lot of your work,

00:02:13.400 | including your previous book.

00:02:14.840 | And this book is really interesting.

00:02:18.360 | I put it up there with Roger Lowenstein's

00:02:21.120 | When Genius Fails, which talks about long-term capital

00:02:23.840 | management.

00:02:24.960 | Here we are 25 years later and something new on Wall Street.

00:02:29.600 | But before we get to your newest book, The Revolution That

00:02:32.200 | Wasn't, talk about your background and your past.

00:02:35.480 | How did you get into The Wall Street Journal

00:02:38.840 | and writing books?

00:02:39.760 | And tell us a little bit about yourself.

00:02:41.400 | Well, first of all, thank you very much.

00:02:43.060 | I'm blushing to be compared to the author of When Genius

00:02:46.960 | Failed.

00:02:47.460 | It's one of my favorite financial books,

00:02:49.400 | a great account of the whole LTCM debacle.

00:02:52.640 | Lowenstein takes this really complicated thing

00:02:54.840 | and puts a human face on it and simplifies it.

00:02:57.720 | And that's what I always try to do when I write.

00:02:59.880 | And so if I accomplished anything on that scale,

00:03:02.880 | that's great.

00:03:03.560 | Back when LTCM happened, when that story happened,

00:03:06.520 | I was a director and later would become a managing director

00:03:09.720 | in equity research at an investment bank.

00:03:11.640 | I was working in emerging markets.

00:03:13.200 | A year or two in emerging markets is like a dog year.

00:03:17.200 | You see a lot of stuff.

00:03:18.520 | So what you might see once or twice or three times

00:03:22.080 | in a career on normal Wall Street,

00:03:24.280 | you'll see 10 times in emerging markets.

00:03:27.100 | You saw panic and euphoria and all kinds of crazy stuff

00:03:31.520 | and crime and whatever.

00:03:33.720 | And that's what I spent the first 10 years of my career

00:03:36.460 | doing.

00:03:37.200 | I ran a team of emerging market analysts at Credit Suisse.

00:03:41.200 | And I just got bored with it.

00:03:43.120 | I found all this stuff really interesting.

00:03:45.100 | And more and more, I just found myself

00:03:46.680 | managing people and talking to clients.

00:03:49.320 | And I had saved money.

00:03:51.720 | I was pretty frugal.

00:03:52.960 | So what I'd really like to do is write about it.

00:03:55.640 | And I wonder how I could do that.

00:03:57.840 | And I met a woman on a plane who was a longtime Wall Street

00:04:01.400 | Journal reporter.

00:04:02.840 | Two days later, I was in the office speaking with her.

00:04:06.000 | Three days later, I was writing my first column

00:04:07.960 | for Dow Jones Newswires.

00:04:09.480 | I wrote several pieces for Barron's magazine.

00:04:12.320 | I worked for the Financial Times.

00:04:13.760 | And the last 10 years, I've been a columnist at the Wall Street

00:04:16.540 | Journal, where I run the Herd on the Street column, which

00:04:19.440 | is our financial analysis and opinion column.

00:04:21.880 | It's 14 people around the world.

00:04:23.760 | I love my job.

00:04:24.880 | It's much more interesting than being an analyst.

00:04:27.160 | Unfortunately, it does not pay as well.

00:04:28.740 | But I get to write books on the side, which is also nice.

00:04:32.080 | And this is my second book and the latest one.

00:04:35.560 | One of the things that interests me about you

00:04:37.520 | is you were heavily involved in the dartboard contest.

00:04:40.700 | Basically, Burton Malkiel saying monkeys

00:04:43.640 | throwing darts at a dartboard would outperform

00:04:45.920 | most of the active managers.

00:04:47.720 | Can you tell me about that whole contest

00:04:49.360 | at the Wall Street Journal?

00:04:51.220 | Well, Burton was very kind to write a really nice blurb

00:04:53.960 | for this book.

00:04:54.680 | And the dartboard contest is something

00:04:56.560 | that ran for many, many years.

00:04:57.960 | When I was in graduate school at Columbia University,

00:05:01.040 | I was introduced to it.

00:05:02.080 | And that was towards the tail end

00:05:03.480 | of the original dartboard contest.

00:05:05.160 | So he said in a random walk down Wall Street

00:05:08.160 | that monkeys throwing darts at a dartboard

00:05:10.280 | would do as well as mutual fund managers.

00:05:11.960 | And he basically is correct.

00:05:14.000 | They actually do better because monkeys are free

00:05:16.600 | or don't cost very much.

00:05:18.160 | So we decided to revive that.

00:05:20.280 | And you might be aware that every year there's

00:05:22.940 | a big hedge fund conference in New York City called the Soane

00:05:26.140 | Investment Conference, where people pay $5,000 to be there.

00:05:29.660 | And they'll invite journalists for free.

00:05:31.420 | But $5,000 to be there sitting in the room when Bill Ackman

00:05:34.960 | and all these other people, and a couple

00:05:36.580 | of characters who show up in this book, by the way,

00:05:39.020 | go and give their best ideas.

00:05:40.620 | And they'll say, I like this stock,

00:05:42.180 | or I don't like this stock.

00:05:43.020 | And the stock will move immediately.

00:05:44.540 | And I said, I wonder how those do in the long run.

00:05:47.060 | Or I wonder how we would do throwing darts

00:05:50.180 | at the stock listings.

00:05:51.940 | And those don't exist in very many papers anymore.

00:05:54.500 | Barron's Magazine, our sister publication, still does it.

00:05:56.860 | So I got my whole team and bought darts at Modell's

00:06:01.060 | on 42nd Street for $9.99.

00:06:03.860 | They had no monkeys, so we had to do it.

00:06:06.700 | And yeah, we did it two years in a row.

00:06:09.100 | Both years, we beat the pros by an embarrassingly large margin.

00:06:13.660 | I remember the first year, it was 22 percentage points.

00:06:16.540 | And not only did the pros not beat us,

00:06:19.300 | but they didn't beat the market in either of those years.

00:06:21.680 | And they generally do not.

00:06:22.740 | And it just illustrates a deep truth

00:06:25.300 | about investing, which is that there is such a thing

00:06:27.900 | as expertise, but it's very, very hard to find.

00:06:30.180 | And you're better off usually not really chasing it.

00:06:34.020 | And also, why would they invest your money if they're

00:06:36.980 | really that good, right?

00:06:38.180 | Yeah, and for that matter, why would some stranger

00:06:40.580 | with a pseudonym on a Reddit message board, which

00:06:43.300 | is the whole phenomenon that I'm writing about in this book,

00:06:46.780 | have any good advice?

00:06:47.900 | And might it even be self-serving advice?

00:06:49.940 | You don't know who that person is.

00:06:51.620 | Well, before we get into the book,

00:06:53.280 | and we're going to go through the book,

00:06:54.940 | because it is a great story, we need to define some terminology

00:06:59.180 | and define who the players were, who the companies were,

00:07:03.260 | who the characters were in this story,

00:07:04.900 | because listeners may not be familiar.

00:07:07.300 | Yeah.

00:07:07.820 | The first thing that comes up is a mem stock, M-E-M-E.

00:07:11.700 | What is a mem stock?

00:07:12.680 | Did I say that by the way?

00:07:13.720 | Is it a meme stock or is it a mem stock?

00:07:15.460 | Pronunciations vary.

00:07:16.500 | I think meme might be the more common one.

00:07:18.460 | I think mem is technically correct,

00:07:20.140 | and meme is the more common one.

00:07:21.900 | What is a meme, first of all?

00:07:23.140 | Meme is something where it's a picture

00:07:25.460 | from a movie or some cartoon or just some humorous illustration

00:07:30.380 | that, instead of words, you use that picture, perhaps

00:07:33.620 | with some text attached, to convey something.

00:07:35.620 | So like, you'll take a movie poster

00:07:37.460 | and you'll change it to make your point or to make a joke.

00:07:40.260 | And so memes or mems are something

00:07:41.780 | that young people love to send around.

00:07:44.100 | I've got three sons, and my youngest recently informed me

00:07:47.100 | that I can't make a meme because, by definition, I'm

00:07:49.980 | just too old.

00:07:50.700 | I showed him some funny thing on my phone.

00:07:52.460 | He said, that can't be a meme because you showed it to me.

00:07:55.860 | It's therefore not a meme.

00:07:56.940 | But people on these message boards love to exchange memes.

00:08:00.020 | They love to convey messages in them.

00:08:01.900 | And so the mem stocks were a bunch of down and out stocks,

00:08:05.060 | companies on the ropes, some going bankrupt,

00:08:08.700 | that star in this episode.

00:08:11.780 | OK, now Elon Musk sort of made a famous quote in this book.

00:08:15.740 | And I recall him calling one of those stocks--

00:08:19.340 | the stock was GameStop, but he called it GameStonk, S-T-O-N-K.

00:08:24.900 | What is a stonk?

00:08:26.540 | Let's say you're a young person and you

00:08:28.420 | don't think that the stock market is very cool,

00:08:30.860 | but you think it's kind of fun to dabble in it.

00:08:34.100 | Then you call it a stonk.

00:08:35.640 | And a stonk is something that you kind of buy as a joke,

00:08:38.380 | that you don't take too seriously.

00:08:40.340 | And there is a meme about people buying stonks.

00:08:44.600 | It's like a really crude drawing.

00:08:46.420 | You might see if you just Google it, do stonks, you'll see it.

00:08:49.220 | It's like a computer graphics circa 1993 of a--

00:08:53.260 | or whatever, of a guy standing there

00:08:54.900 | with an arrow going up and a chart behind him.

00:08:58.340 | And that's where the stonk thing comes from.

00:09:00.660 | And that tweet of his, which is I remember what it was,

00:09:04.540 | it was 4:08 PM on January 26, 2021,

00:09:07.980 | set the financial world on fire.

00:09:09.820 | This episode was going on.

00:09:11.740 | It was already a crazy, crazy story.

00:09:14.940 | And because he's so widely followed, especially

00:09:17.780 | among this cohort, it was like there was this forest fire,

00:09:21.700 | and then he just dumped a ton of nitroglycerin on top of it.

00:09:24.820 | That's kind of what his tweet did.

00:09:27.260 | OK, the next couple are a bit around a long time.

00:09:30.460 | There's a lot in the book, and a lot of the story

00:09:33.100 | is about the shorts, the people who are shorting the stock

00:09:36.380 | or did short the stock.

00:09:38.020 | And so just for our listeners' clarity,

00:09:40.660 | what's a shorting a stock?

00:09:42.340 | What does that mean?

00:09:43.340 | Well, shorting a stock, I'll tell you what it is,

00:09:45.420 | and I'll tell you why it's especially important here.

00:09:47.620 | Shorting a stock is the opposite of what most people do,

00:09:50.420 | you and I do, with funds or with stocks.

00:09:53.180 | We buy them, and we hope that they'll go up in value

00:09:55.340 | and pay a nice dividend.

00:09:56.580 | They do the opposite.

00:09:57.900 | And they're not evil, because they do that.

00:10:00.220 | But they're basically making a bet

00:10:01.900 | that a stock will go down in value.

00:10:04.140 | And the way to do that generally is to not own the stock,

00:10:08.060 | but to borrow it from somebody.

00:10:09.580 | Usually, you borrow it without them even knowing it.

00:10:11.740 | You just go to their broker.

00:10:13.740 | It's not illegal or nefarious.

00:10:16.440 | And you then sell it to somebody else.

00:10:18.660 | So you benefit from the price going down.

00:10:21.020 | But if I go out and buy a share of IBM,

00:10:24.380 | the worst thing that can happen is tomorrow, IBM

00:10:26.740 | is mired in an accounting scandal,

00:10:28.660 | and their share price goes to zero, and I lost all my money.

00:10:31.300 | The best thing that can happen is

00:10:32.680 | it's worth a trillion dollars tomorrow,

00:10:35.380 | and I make a lot of money.

00:10:37.380 | But they face the opposite situation,

00:10:40.900 | where if a stock starts to go up, they start to lose money.

00:10:43.620 | And since they tend to move in packs,

00:10:47.260 | if a stock goes up unexpectedly for no reason

00:10:50.180 | or for some reason, there's something

00:10:52.620 | called a short squeeze, which happened here.

00:10:54.980 | And that's probably an understatement here.

00:10:56.860 | It's like a bunch of people being in a theater,

00:10:59.080 | and there's one door where they can get out,

00:11:00.900 | except this theater was on fire.

00:11:04.420 | And some people lit the fire on purpose.

00:11:06.820 | It wasn't something that just was in the news.

00:11:08.900 | They doused the whole place in kerosene.

00:11:12.120 | They agreed to do this on the internet,

00:11:13.940 | and these guys all had to go out,

00:11:15.420 | and there was only one exit door,

00:11:16.780 | and they all trampled each other.

00:11:18.380 | And some funds lost billions of dollars,

00:11:21.280 | like some of the most respected funds on Wall Street

00:11:23.820 | lost massive amounts of money,

00:11:25.740 | and it was all part of the plan.

00:11:27.700 | And they had to buy the stock no matter what.

00:11:30.420 | - Right, you either buy it back or go to prison, correct?

00:11:32.980 | - That's the old saying, yeah.

00:11:34.460 | He who sells who isn't his must buy it back or go to prison.

00:11:37.620 | - Okay, now one more thing.

00:11:39.180 | I mean, so we talked about shorting stock,

00:11:40.700 | and thank you for that explanation.

00:11:42.940 | And let's talk about call options.

00:11:45.500 | What are call options,

00:11:46.500 | and how do they affect the price of a stock?

00:11:49.340 | - So call options play a big role in this story, too.

00:11:52.420 | And call options basically are something,

00:11:54.420 | call options are basically a contract

00:11:56.140 | between you and somebody else.

00:11:57.800 | A call option is saying, let's say the stock

00:12:00.100 | is at $100 that you are interested in.

00:12:03.380 | You say, I'm going to give myself the option

00:12:06.460 | of buying it at $110 in a month.

00:12:10.340 | I'm gonna write a contract with you,

00:12:11.620 | and it probably won't get to $110 in a month,

00:12:14.420 | and you sell me a contract.

00:12:15.940 | You say, okay, that's a deal.

00:12:17.700 | I'll sell it to you at $110 a month.

00:12:20.020 | Let's say that this company cures cancer,

00:12:21.860 | and it goes to $500.

00:12:23.920 | Well, I still get to buy it for $110

00:12:26.620 | because I signed that contract with you.

00:12:29.060 | So I make the difference.

00:12:31.500 | I probably put down a tiny amount of money

00:12:33.880 | for that contract, and I get all the difference in price.

00:12:38.480 | So it's almost like a lottery ticket at times

00:12:41.940 | that you can buy.

00:12:43.020 | Now, that's not the main way that they're used,

00:12:45.220 | but it is the main way that they are used

00:12:48.160 | by this newest class of investors

00:12:50.300 | as a purely speculative instrument.

00:12:51.860 | There are also put options, which do the opposite.

00:12:54.500 | It gives you the option to sell.

00:12:56.660 | But the person who sells you the option

00:12:58.020 | is taking a pretty big risk, right?

00:12:59.440 | That company cures cancer.

00:13:01.500 | They have a big problem.

00:13:02.380 | So they have ways of protecting themselves.

00:13:04.700 | They're not in the business of taking that risk.

00:13:06.300 | So they do things, and the things that they do

00:13:09.620 | play a role in this story as well.

00:13:13.040 | - And the seller of the option gets a small premium,

00:13:16.620 | and most of the time,

00:13:17.460 | these options just expire worthless, correct?

00:13:19.920 | - Yeah, options are seen as the ultimate retail investor,

00:13:23.860 | soccer's bat, and during the time

00:13:26.640 | that this story takes place,

00:13:28.260 | tens of billions, record-shattering amounts

00:13:31.580 | of call options were purchased

00:13:34.180 | by people who were mostly not very sophisticated at all.

00:13:38.580 | - Okay, so we did mem stocks.

00:13:40.380 | We did what a stonk is, shorting stock, call options.

00:13:43.780 | Now we can get into companies involved in this story,

00:13:47.020 | and the first company we have to look at is Robinhood.

00:13:50.340 | Who is Robinhood?

00:13:51.380 | - So Robinhood steals from the rich to give to the poor.

00:13:53.900 | Great name if you want to be a financial services company

00:13:57.360 | for young people.

00:13:58.200 | It's a great name for a company.

00:14:00.140 | It's a great idea for a company.

00:14:02.600 | They have a great app.

00:14:03.720 | The year that it came out, in 2015, it won app of the year.

00:14:07.320 | It's slick, it's intuitive.

00:14:09.860 | It's a brokerage house, but it's really,

00:14:12.120 | it's an app with a broker attached to it.

00:14:14.360 | That's how I see it, as opposed to whatever broker

00:14:17.400 | most people on this might use,

00:14:19.320 | where they have a brokerage,

00:14:20.440 | and then there's also an app

00:14:21.520 | that they can use for convenience.

00:14:22.960 | The story is backwards.

00:14:24.100 | They designed this app, they showed it to people,

00:14:26.800 | and they had a huge waiting list

00:14:28.400 | before they even had it going,

00:14:30.120 | mainly of college students and people on that age group.

00:14:33.000 | - Somebody mentioned it

00:14:33.840 | as the gamification of stock trading.

00:14:36.520 | - It is, that's the criticism

00:14:37.720 | that this company has come under.

00:14:39.280 | They said, "We want to make investing fun,"

00:14:40.840 | but I don't think that it's any accident

00:14:43.280 | how fun they made it.

00:14:44.680 | For example, when you use Robinhood,

00:14:46.900 | you'll occasionally get confetti on your screen,

00:14:49.800 | and they've disabled this since because of criticism.

00:14:53.640 | When you open a Robinhood account, and they still do this,

00:14:56.440 | you get a free share of stock.

00:14:58.120 | What stock?

00:14:58.960 | Well, could be a $5 stock,

00:15:01.760 | could be a $200 stock, who knows?

00:15:04.320 | It's like a lottery ticket.

00:15:05.640 | And some people go in and open accounts

00:15:08.920 | with 20 bucks or 50 bucks.

00:15:11.000 | So you put 20 bucks into an account,

00:15:13.200 | and you got a $200 stock, that's a pretty nice gift,

00:15:15.840 | especially if you really only have 20 bucks to your name.

00:15:18.640 | You just made 10 times your money.

00:15:20.160 | So usually you don't,

00:15:21.360 | but it's like a free little lottery ticket,

00:15:22.960 | like a scratch-off card.

00:15:24.240 | And there's a psychological lure to that.

00:15:26.500 | And you open up Robinhood and see what's trending.

00:15:29.880 | Like, hey, these are the 10 things

00:15:31.760 | that people are talking about.

00:15:32.760 | These are the stocks that are up a lot or down a lot.

00:15:36.140 | Now, why is that important?

00:15:38.160 | Because, especially if you're a young person,

00:15:40.440 | something that everybody else is doing and into,

00:15:42.480 | just like when you go on YouTube

00:15:43.640 | and you see what's trending, right?

00:15:45.920 | You kind of fear missing out.

00:15:47.200 | You're gonna see what the whole excitement is about, right?

00:15:49.640 | Things go viral, and things go viral in the stock market too.

00:15:53.480 | And that virality is a big, big part of what's going on.

00:15:58.480 | Now, Robinhood, from what I understand,

00:16:01.360 | they don't charge commissions on these trades.

00:16:03.520 | So how do they make money?

00:16:04.720 | So these two young men,

00:16:06.080 | and their names are Vlad Tenef and Bejubat,

00:16:08.200 | who got together to start this company.

00:16:11.040 | They had a little business helping hedge funds trade.

00:16:13.800 | And they said, you know what?

00:16:14.760 | It's incredible that trading costs almost nothing.

00:16:18.380 | It basically has become free.

00:16:19.840 | You know, you just hook up to a computer.

00:16:21.560 | We could do that for people.

00:16:22.800 | And they weren't the first company

00:16:24.280 | to realize that you could do this.

00:16:25.640 | There were a couple of companies that came before them

00:16:28.360 | that said, "Hey, we'll have zero commissions."

00:16:30.600 | But they were the first to really make a success of it.

00:16:33.520 | That sounds crazy, right?

00:16:34.920 | 'Cause there's the old story

00:16:35.920 | about how much did you pay for that watch?

00:16:38.080 | Well, I got it for below wholesale.

00:16:40.300 | How does a guy make money?

00:16:41.520 | He sells a lot of watches.

00:16:43.480 | That is kind of what their business sounds like

00:16:45.280 | 'cause they're giving away trades for free

00:16:47.040 | and trading still costs something.

00:16:48.640 | It costs a lot less than it used to,

00:16:49.960 | but it still costs something.

00:16:50.920 | So how on earth do they make money?

00:16:53.780 | And the way that they make money is part of the problem here.

00:16:57.880 | The way they make money is that

00:16:59.640 | they get money for those trades.

00:17:01.720 | Instead of sending it to a stock exchange,

00:17:03.200 | they send it to a wholesaler or a market maker

00:17:06.720 | that takes the trade and executes it,

00:17:10.080 | doesn't rip off the customer by any means.

00:17:13.420 | They do it legitimately.

00:17:15.240 | And then they will pay the broker who sends them the money

00:17:18.520 | because the market maker can shave some fractions of a penny

00:17:22.760 | off for themselves.

00:17:24.080 | And then they'll pay something to the broker

00:17:26.480 | that sent them the order.

00:17:27.600 | And the vast majority of Robinhood's money

00:17:30.840 | has been made that way by getting paid by the broker.

00:17:34.320 | And what does that mean?

00:17:35.140 | That means that they're not making money

00:17:37.200 | doing other things, providing other services to you.

00:17:39.480 | They're making money mainly in two ways.

00:17:42.600 | They're lending you money on margin.

00:17:44.840 | So lending you money so you can borrow

00:17:46.200 | against your stock portfolio and speculate more.

00:17:48.480 | And they're selling your orders.

00:17:49.840 | So they want you to trade a lot.

00:17:52.840 | And they like it when you trade a lot.

00:17:54.720 | And so the whole app is,

00:17:56.720 | according to lawsuits filed against Robinhood,

00:17:59.860 | is just designed to get you to trade a lot.

00:18:02.200 | And we know from many, many, many studies

00:18:05.680 | that the more you trade, the worse you do.

00:18:07.240 | The more you check, the worse you do.

00:18:09.140 | People on Robinhood check their account

00:18:10.920 | eight times a day on average, on average.

00:18:14.240 | And some people are constantly on the app.

00:18:15.960 | They can't put it down.

00:18:17.400 | - And I also read in your book

00:18:18.680 | that they trade 40 times as much volume of shares

00:18:23.240 | based on the amount of shares they have in their account

00:18:25.560 | as somebody at, let's say, Schwab or Fidelity would.

00:18:28.240 | - Yes, that's right, yep.

00:18:29.820 | - Well, okay, let's go to the next one,

00:18:31.120 | which is this middleman who they sell trades to.

00:18:34.400 | - And here's where some confusion comes into the story.

00:18:37.080 | And this is, many conspiracies have been hatched from this.

00:18:39.480 | There's a company called Citadel LLC.

00:18:42.480 | So Citadel is a hedge fund founded by Ken Griffin,

00:18:46.160 | who's one of the richest men in America.

00:18:47.960 | He started trading from his dorm room

00:18:50.200 | in Harvard University, so he was precocious.

00:18:52.320 | And he actually made money in the 1987 stock market crash,

00:18:56.160 | believe it or not, from his dorm room.

00:18:58.280 | Very, very savvy guy.

00:19:00.020 | And he had this business that was pretty small

00:19:03.480 | some years ago that, after the financial crisis,

00:19:06.400 | started to get bigger and bigger,

00:19:07.760 | which is called Citadel Securities,

00:19:09.320 | a separate business from his hedge fund,

00:19:11.160 | but also called Citadel.

00:19:12.640 | And it is now the biggest middleman like this.

00:19:15.960 | Not a stock exchange, but executing orders,

00:19:18.960 | mainly for retail investors, not just at Robinhood,

00:19:22.440 | but at other brokers too.

00:19:23.780 | There are other companies in the business,

00:19:25.080 | Veer2, Susquehanna, but they're number one.

00:19:28.240 | And Ken Griffin is kind of, especially by the people

00:19:31.560 | who felt a bit bitter about this whole story that I tell,

00:19:35.760 | is kind of the Darth Vader of the episode.

00:19:38.280 | He's some kind of dark lord who has his hand

00:19:40.660 | in everything, supposedly, and made this whole thing happen,

00:19:43.800 | which is not true.

00:19:45.120 | But it's easy to see how that story was concocted,

00:19:48.960 | because he did make a lot of money.

00:19:50.800 | This business, Citadel Securities, is private.

00:19:53.240 | It recently got an investment valuing it at $22 billion,

00:19:56.680 | and he is by far the largest shareholder of this company.

00:19:59.220 | So it has been a very, very profitable venture for him.

00:20:02.720 | - Last is Reddit.

00:20:05.200 | What's Reddit, and what is WallStreetBets?

00:20:08.520 | - So Reddit is a social media company.

00:20:10.520 | It got started by two young men in a college dorm room,

00:20:14.920 | as so many tech companies do, at the University of Virginia.

00:20:17.760 | It's Steve Huffman and Alexis Ohanian.

00:20:21.000 | They call themselves the front page of the internet.

00:20:22.960 | It's different than other social networks in a lot of ways.

00:20:26.760 | To just be clear, I like Reddit as a user,

00:20:30.100 | because there are about 100,000 communities on there,

00:20:32.840 | about anything you might be interested in.

00:20:34.540 | Reddit is one of the few things in social media

00:20:37.640 | that I really think can be good

00:20:40.480 | and a good sense of community,

00:20:41.880 | but it also was the perfect breeding ground

00:20:43.960 | for this crazy story.

00:20:46.520 | It has a bunch of sub-Reddits,

00:20:48.480 | where people with very narrow interests

00:20:51.360 | and very similar mindsets can gather

00:20:54.160 | and exchange advice, exchange stories, using pseudonyms,

00:20:58.400 | so you don't know who anybody is.

00:20:59.520 | It's not like Facebook or Twitter,

00:21:01.480 | where you use your own name,

00:21:03.040 | or usually use your own name,

00:21:05.160 | and then people follow you,

00:21:06.580 | or LinkedIn or something like that.

00:21:08.000 | You have this pseudonym,

00:21:09.480 | and the comments that you see

00:21:12.060 | are the ones that are upvoted,

00:21:14.120 | where humans say, "Yeah, I like that,"

00:21:16.480 | or, "No, I don't like that."

00:21:17.840 | They downvote it.

00:21:18.960 | So something that gains the approval of these groups moves up,

00:21:23.960 | and in this particular case,

00:21:28.200 | there is one sub-Reddit called WallStreetBets

00:21:30.840 | that found itself at the center of this.

00:21:33.320 | It found itself at the center of the investing universe,

00:21:35.260 | as a matter of fact.

00:21:36.480 | Stocks that it was talking about,

00:21:38.240 | GameStop in particular,

00:21:39.600 | became the most traded stocks in the world,

00:21:43.080 | and these are not big companies,

00:21:44.460 | and they became the most traded stocks in the world.

00:21:46.680 | So we have the terms,

00:21:48.200 | we have the companies involved,

00:21:49.880 | we have some of the people.

00:21:51.440 | The timing of all of this is important, too,

00:21:54.160 | with COVID and stimulus checks and so forth,

00:21:57.000 | but go ahead and now start the story.

00:21:58.740 | Ready to go.

00:21:59.920 | So as you know,

00:22:00.840 | I'm an editor at The Wall Street Journal.

00:22:02.160 | When something happens in the stock market,

00:22:03.680 | I tend to see it,

00:22:05.360 | at least out of the corner of my eye.

00:22:06.840 | Starting about a year before the story took place,

00:22:09.480 | I became aware of WallStreetBets,

00:22:11.560 | and you would see some stock go up 100% in a day,

00:22:16.320 | and well, let's see what news happened.

00:22:19.880 | Well, there's no news.

00:22:21.000 | The news was that they were talking about it

00:22:23.160 | on a WallStreetBets,

00:22:24.000 | and particularly if it was a smaller, less traded stock,

00:22:28.320 | that surge of interest,

00:22:29.480 | where everybody kind of jumped on the bandwagon

00:22:31.200 | at the same time,

00:22:32.040 | for a few hours could send a stock up.

00:22:34.160 | It was just all seen as a joke at the time,

00:22:36.720 | at least around where I work,

00:22:39.480 | it was seen as a joke.

00:22:40.320 | I think it was seen as a joke on WallStreet, too.

00:22:41.880 | Of course, there were probably some people

00:22:43.080 | who were trying to ride the coattails

00:22:45.180 | who were in the business of managing money,

00:22:47.640 | but you had to be pretty quick to get ahead of these guys.

00:22:51.160 | Then the pandemic happened,

00:22:52.920 | and stimulus checks and the lack of sports

00:22:56.040 | and the lack of sports gambling

00:22:57.800 | all happened at the same time

00:22:59.600 | that supercharged the number of accounts

00:23:03.340 | and the activity level of people

00:23:05.680 | who were new to investing primarily.

00:23:07.840 | And those people were getting their advice

00:23:10.040 | on WallStreetBets.

00:23:10.880 | So let's fast forward, though.

00:23:12.960 | Let's go past all the things that,

00:23:15.480 | the ingredients that made this possible.

00:23:17.080 | It's the morning of January 25th, 2021.

00:23:20.200 | I have three boys.

00:23:21.420 | My oldest was a senior in college at the time.

00:23:23.560 | His return to college was delayed by COVID.

00:23:26.120 | I was at home editing an article

00:23:27.920 | for the next day's WallStreet Journal at home.

00:23:30.320 | Because of COVID, we're all at home.

00:23:32.320 | And he comes over and he says,

00:23:33.720 | "Dad, are you gonna write something about GameStop?"

00:23:36.120 | It's like, well, why would I write something about GameStop?

00:23:38.200 | I think I'd driven him to GameStop

00:23:40.500 | about a billion times in his life.

00:23:42.560 | I mean, why would I write something about it?

00:23:44.200 | So I take a look at it.

00:23:45.200 | GME is the ticker.

00:23:46.160 | I put it in.

00:23:47.000 | Oh, it's up.

00:23:48.560 | It doubled in the last two days.

00:23:50.680 | I said, "Well, what made you ask about it?"

00:23:52.360 | He said, "Well, my friend, Sean, bought it.

00:23:55.120 | "It looks like WallStreetBets is talking about it,

00:23:57.200 | "and that's why it's up."

00:23:59.280 | I said, "Well, that's great.

00:24:01.100 | "Well, this usually kind of lasts a day or two.

00:24:04.360 | "I think it should sell."

00:24:05.880 | He said, "No, no, no, he's not going to sell."

00:24:07.960 | I said, "Well, what do you mean he's not gonna sell?"

00:24:09.680 | "He's not going to sell

00:24:11.000 | "because these people online are all agreeing not to sell."

00:24:15.800 | And it took me about 10 minutes of research

00:24:19.520 | to see that something extraordinary was going on.

00:24:22.480 | We mentioned earlier in the show what short-selling is.

00:24:25.640 | Well, people on this bulletin board on WallStreetBets

00:24:28.720 | had figured out that this was one

00:24:30.920 | of the most shorted stocks out there,

00:24:32.760 | with good reason, based on how its business was going.

00:24:36.040 | But there was so much short interest

00:24:38.120 | that it was more than the number of shares

00:24:41.720 | available to trade, to purchase, which is possible.

00:24:45.960 | And for that reason, they had devised a scheme,

00:24:49.700 | and it wasn't even a simple scheme,

00:24:51.600 | to basically buy the stock, not sell it,

00:24:53.920 | no matter what, keep on buying.

00:24:56.120 | And hundreds of thousands of people

00:24:58.960 | were joining this forum every day and seeing this message,

00:25:02.600 | and they were seeing what was happening to GameStop.

00:25:04.520 | And there was this avalanche of buying

00:25:07.480 | by young investors on Robinhood and other brokers,

00:25:09.920 | but Robinhood was the biggest one that played a role.

00:25:13.740 | And Rick, if you and I both had investment funds,

00:25:18.320 | and we were to try to do this,

00:25:19.900 | we talked on the phone or whatever,

00:25:22.440 | and agreed to do this to a third fund,

00:25:25.440 | the SEC would show up at our door.

00:25:26.720 | You can't do that.

00:25:27.960 | Creating a squeeze through collusion is not legal anymore.

00:25:31.720 | It was in the old days, Vanderbilt and whatever,

00:25:34.840 | before there was an SEC.

00:25:37.380 | It's not legal now.

00:25:38.940 | But what these people were doing was a huge loophole to that

00:25:43.160 | because they were doing it way out in the open.

00:25:44.840 | They had been talking about it,

00:25:45.880 | just nobody put a suit on every day,

00:25:48.640 | was reading about this plan.

00:25:50.060 | You could go back and look at the messages

00:25:52.000 | and see that they were very specifically talking about it

00:25:54.360 | and really understood what they were doing

00:25:56.780 | 'cause a few sophisticated people on this board

00:25:59.100 | explained to them how to cause this thing to happen.

00:26:02.460 | And it just built on itself

00:26:03.740 | and became huger than they even could imagine.

00:26:07.340 | They called it bankrupting

00:26:08.580 | institutional investors for dummies.

00:26:10.500 | And it is the craziest thing that I've ever seen.

00:26:13.140 | And I do tell the story bit by bit in the book.

00:26:16.300 | I mean, it's not just a crazy story,

00:26:18.140 | it's also a lesson in finance and a lesson in economics

00:26:22.240 | and it's a lesson in generational attitudes.

00:26:24.600 | - One of the main characters in the story,

00:26:26.440 | one of these people on that message board

00:26:28.040 | was a fellow by the name of Keith Gill,

00:26:30.480 | who goes by the name of Roaring Kitty, plus another name,

00:26:34.120 | but I won't use any derogatory names on this show.

00:26:36.560 | - That's right.

00:26:37.480 | - But how does he get involved in all this?

00:26:41.240 | - He is the most interesting person here

00:26:43.720 | and in a book full of interesting people.

00:26:46.160 | Keith Gill, 34 years old at the time

00:26:48.560 | that the events take place, is of that generation,

00:26:52.400 | but very, very different from it in many ways.

00:26:54.240 | He's a charter financial analyst,

00:26:55.600 | which is a difficult financial certification to get.

00:26:58.320 | It takes about a thousand hours of study for most people.

00:27:01.040 | He worked for a financial firm, MassMutual.

00:27:04.280 | You can track his online presence and his video presence

00:27:07.760 | on Reddit and on YouTube,

00:27:10.240 | way back to the beginning of this story.

00:27:12.640 | At the beginning, he was kind of ignored and ridiculed even,

00:27:17.640 | so he decided that GameStop was worth a lot more

00:27:21.760 | than it was, and he made some pretty good arguments.

00:27:24.760 | He is financially sophisticated,

00:27:26.920 | and there's a value investor that makes an argument

00:27:31.880 | that says, "I think this stock is gonna go up."

00:27:33.360 | They're never sure, right?

00:27:34.680 | And he wasn't sure, but he had a pretty good feeling

00:27:37.080 | that the stock that he was buying for four or five dollars

00:27:40.440 | was worth more like 10,

00:27:42.480 | and he was making an argument to anybody who would listen.

00:27:45.200 | And Michael Burry, the famous value investor,

00:27:47.880 | saw it at almost the same time as him and jumped in.

00:27:51.320 | Michael Burry, he became famous

00:27:54.000 | through Michael Lewis's "The Big Short,"

00:27:56.520 | another fantastic book,

00:27:57.840 | which tells the story of a handful of people

00:28:00.320 | who made a bundle by betting

00:28:03.840 | that the housing bust would happen

00:28:06.560 | and that mortgages would implode.

00:28:07.920 | And so, yeah, he's a very, very smart guy.

00:28:10.280 | And so the first message that we see,

00:28:13.000 | the first public mention,

00:28:14.360 | the first public appearance of Keith Gill

00:28:17.560 | is being upset that Michael Burry had bought into it

00:28:20.840 | because he was buying these call options in the stock,

00:28:23.560 | very long-dated call options

00:28:25.160 | that would pay off a couple of years in the future.

00:28:28.000 | And Michael Burry had shown up

00:28:29.800 | and publicly said he was buying the stock

00:28:31.400 | and that it made the stock go way up.

00:28:33.640 | It doubled the value of the account of this guy, Keith Gill.

00:28:36.880 | Well, if you're a guy on Wall Street Bets

00:28:39.280 | and you just doubled your money in a couple of months,

00:28:41.400 | what do you do?

00:28:42.240 | You're like, "Hey, I doubled my money.

00:28:43.840 | "I'm gonna sell this and move on to the next thing."

00:28:45.960 | And Keith Gill did the opposite.

00:28:47.960 | And people were making fun of him.

00:28:49.840 | Like, "What's wrong with you?

00:28:51.720 | "Remind me when you lose all your money."

00:28:53.720 | You know, and he had bought call options

00:28:55.080 | that could lose all their value.

00:28:57.240 | So he could have wound up with zero.

00:28:59.920 | - And he called this, by the way, YOLO, an acronym.

00:29:03.000 | - Yeah, and YOLO stands for You Only Live Once.

00:29:05.400 | It's really a rallying cry

00:29:07.560 | of this new generation of investors.

00:29:09.200 | Like, "Let's take a huge, huge risk."

00:29:11.000 | And he was taking a huge risk 'cause he's not a rich guy.

00:29:13.760 | And he'd gone from having 50-something thousand dollars

00:29:16.360 | to 100-something thousand dollars.

00:29:18.080 | So he had more than doubled his money.

00:29:19.920 | And people were like, "You idiot.

00:29:20.920 | "Why aren't you selling?"

00:29:21.880 | And he said, "No, no, no, that's not how you do it."

00:29:24.640 | And he was writing like some behavioral finance professor.

00:29:28.400 | And these guys just did not,

00:29:30.760 | he was just pilloried for the most part

00:29:33.800 | on this bulletin board.

00:29:35.520 | And he would make videos later

00:29:37.440 | and then maybe 12 people would watch the video.

00:29:40.240 | And he'd talk about Benjamin Graham and stuff like that.

00:29:42.760 | Like it was, his references

00:29:44.520 | were going over everybody's head.

00:29:46.120 | He was just a guy who was pushing the stock

00:29:48.480 | for a long, long time

00:29:49.840 | until other people discovered him,

00:29:54.840 | discovered that the stock was prone to a short squeeze.

00:29:58.360 | And they did it during a very particular moment in history

00:30:01.440 | when all the ingredients came together in a perfect storm.

00:30:05.080 | And he went from being this sort of this,

00:30:08.000 | seen as this fuddy-duddy to being a hero.

00:30:10.880 | And nobody knew his name.

00:30:11.720 | Nobody knew who was Keith Gill or who he was.

00:30:13.280 | They just knew him by this obscene name

00:30:15.920 | that he used on the bulletin board

00:30:18.200 | and by the roaring kiddie name that he used on YouTube.

00:30:20.680 | And there's no connection to his expertise

00:30:23.640 | or who he actually was.

00:30:25.200 | He was just a guy.

00:30:26.560 | And he changed his message too,

00:30:29.760 | from being cerebral to posting memes,

00:30:33.360 | posting all kinds of changed movie posters.

00:30:36.000 | He was really kind of hip and cool.

00:30:38.240 | And after a while,

00:30:39.520 | all he did was just post a screenshot of his E-Trade account

00:30:43.400 | which every time he posted it,

00:30:45.280 | he still hadn't sold.

00:30:46.720 | And he went from having 50 grand to 100 grand

00:30:50.600 | to a million to 2 million to 3 million,

00:30:53.200 | back to a million.

00:30:54.360 | So he'd lose a couple of million dollars

00:30:56.400 | and he just stood pat.

00:30:58.320 | And people couldn't believe it.

00:30:59.480 | They couldn't believe how gutsy he was.

00:31:02.520 | And by the time our story ends,

00:31:05.840 | at one point he had in excess of 50 million dollars

00:31:09.440 | in this account.

00:31:10.640 | Life-changing money.

00:31:12.480 | A thousand times what he started with.

00:31:14.840 | And he was just a hero just for holding on.

00:31:18.520 | And those posts, by the way,

00:31:20.560 | had an important psychological effect too

00:31:23.120 | because it's called social proof.

00:31:24.760 | You want to follow somebody who's made a lot of money.

00:31:26.640 | They must know what they're doing.

00:31:28.440 | And so also during this period of time,

00:31:29.960 | as you mentioned, sports betting went down the tubes.

00:31:32.400 | The March Madness was canceled in March.

00:31:35.160 | Same time, stimulus checks started coming out.

00:31:37.320 | I think there were three rounds of stimulus checks.

00:31:39.200 | One of them came out for $1,200 in April of 2000.

00:31:43.160 | And then there was another 600 in December of 2000.

00:31:46.520 | And then in March, when March Madness was canceled,

00:31:49.480 | there was a distribution of another 1,400.

00:31:52.240 | And that caused some people to,

00:31:54.600 | some young people to do some kind of wild and crazy things.

00:31:58.440 | Talk about John Modder.

00:32:00.400 | Who is John Modder?

00:32:01.960 | So John Modder is somebody who I introduced in my book.

00:32:03.920 | He was interviewed during the peak of this squeeze

00:32:06.520 | because some reporters from the Los Angeles Times went out

00:32:09.360 | and they were looking for real people,

00:32:10.880 | not just people with a screen name, who were doing this.

00:32:14.200 | And this guy, John Modder, is pretty interesting

00:32:16.560 | 'cause just the way that he talks about it,

00:32:18.480 | he represents a certain not very small subset of this group.

00:32:23.480 | He said that he bought the stock,

00:32:26.120 | he didn't have a lot of money,

00:32:27.400 | and he didn't care if he lost at all.

00:32:29.560 | So he said he would buy magic beans for a man on the street

00:32:33.200 | if they could be used to bankrupt some hedge fund billionaire.

00:32:36.600 | That was the goal.

00:32:37.960 | So this is a group where,

00:32:41.160 | and especially the people who were late to this,

00:32:43.480 | not early to this, but late to this.

00:32:44.920 | So he bought in that week, not weeks or months earlier,

00:32:49.080 | who wanted to use GameStop and the other stocks as a weapon,

00:32:54.080 | to weaponize it, to harm Wall Street,

00:32:57.200 | to hurt these hedge funds.

00:32:58.720 | And it sounds strange, but you have to understand,

00:33:02.760 | I do have kids in this age group, what's their experience?

00:33:06.760 | I did not lose my house when the financial crisis happened

00:33:10.600 | or my job, but a lot of people did.

00:33:12.600 | And my kids don't have burdensome student loans,

00:33:16.260 | but a lot of young people do,

00:33:17.920 | and they struggle to pay them back,

00:33:19.520 | and they see Wall Street as a bad place full of bad people.

00:33:22.760 | And so, hey, here's a chance to hurt

00:33:24.760 | some rich guys on Wall Street.

00:33:26.000 | You know, what's a hedge fund or whatever,

00:33:27.880 | like, what they fail to understand

00:33:29.800 | is Wall Street's a very big place,

00:33:31.320 | and Wall Street will gladly accept their business,

00:33:35.040 | including John Mater's business,

00:33:36.320 | for however many shares he bought of GameStop,

00:33:38.600 | and say thank you very much.

00:33:41.240 | So he exemplifies this group that,

00:33:44.040 | it's like any movement, religion or political movement,

00:33:47.000 | the people who join it on the late side

00:33:50.280 | are the most enthusiastic.

00:33:52.440 | They're real believers in the mission.

00:33:53.920 | And so this went from a way to make money

00:33:56.600 | to a way to hurt Wall Street.

00:33:57.920 | And for a lot of people, that's what it was.

00:34:00.360 | And that's when it moved into the political realm.

00:34:03.680 | As we move along here, the stock is going up.

00:34:06.760 | More people are jumping on.

00:34:08.040 | More people like John Mater are opening up

00:34:12.480 | millions of Robinhood accounts

00:34:15.160 | with a little bit of money, 1,000 bucks,

00:34:17.400 | and then they're able to borrow money

00:34:19.840 | and buy a little bit more stock.

00:34:21.360 | So you've got this huge influx of new investors,

00:34:24.640 | very unsophisticated investors

00:34:26.120 | who are just buying just to buy

00:34:28.720 | because everybody else is buying

00:34:29.840 | and maybe it's their opportunity to either make money

00:34:32.760 | or to punish those who they think should be punished,

00:34:34.960 | whatever the reason is.

00:34:36.400 | At the same time, the shorts are getting squeezed.

00:34:38.840 | And so they have to buy.

00:34:40.880 | And at the same time, you've got people like Keith Gill,

00:34:45.080 | Roaring Kitty, who is out there buying options.

00:34:48.120 | And when you buy options, as you described earlier,

00:34:51.360 | the option seller, the people who are selling you

00:34:53.560 | the right to buy it from them at a higher price

00:34:55.360 | have to hedge themselves.

00:34:56.240 | So they're buying stock.

00:34:57.160 | So everybody's buying stock,

00:34:59.280 | but there's only so much stock outstanding.

00:35:00.960 | That's right.

00:35:01.800 | That's right.

00:35:02.640 | There's only so much stock.

00:35:03.480 | And so when you have a short squeeze,

00:35:05.520 | which also turned into a, it's called a gamma squeeze

00:35:08.760 | when you affect it through the options market,

00:35:11.640 | then their buying goes crazy.

00:35:14.080 | Now, Keith Gill, just for the record,

00:35:15.640 | he had bought his options long before.

00:35:18.400 | He was not buying more during this time.

00:35:20.640 | It would hardly have mattered

00:35:22.000 | because there was just so much buying going on.

00:35:24.920 | But he was the hero, he was the exemplar,

00:35:27.320 | and he had bought options.

00:35:28.520 | And so a lot of people bought options.

00:35:30.240 | And options are like,

00:35:31.880 | Warren Buffett called them weapons of mass destruction,

00:35:34.200 | just tongue in cheek,

00:35:35.360 | but they really kind of were weapons of mass destruction

00:35:38.280 | in this case, because it's like a suitcase bomb.

00:35:40.840 | You could take something very, very small,

00:35:43.080 | a small amount of money in this case,

00:35:45.400 | and you could have a really outsized, huge impact

00:35:49.160 | if you wanted to just use it as a weapon.

00:35:51.360 | If you bought an option on a stock

00:35:53.680 | that was way out of the money,

00:35:55.040 | so basically had a very small chance of paying off,

00:35:57.440 | and also that the date that that option would expire

00:36:01.880 | was very, very close,

00:36:03.640 | then it's like you're buying a lottery ticket.

00:36:06.120 | But once the stock starts going up,

00:36:07.920 | the person who sold you that lottery ticket

00:36:09.440 | all of a sudden turns around and says,

00:36:10.480 | oh my God, I need to, my computer says,

00:36:13.280 | I need to go buy this many shares of the stock.

00:36:16.080 | And the higher it goes, the more and more shares,

00:36:18.520 | every dollar of increase is a greater increase

00:36:21.320 | in the number of shares they have to buy

00:36:22.720 | to cover themselves.

00:36:24.440 | And some smart people on the bulletin board knew this,

00:36:29.360 | and that gave these young people

00:36:32.520 | way more bang for the buck.

00:36:34.800 | - This stock starts kind of creeping up.

00:36:36.640 | You know, it has its ups and downs,

00:36:37.760 | but it's going up generally,

00:36:38.920 | so there's a short squeeze, more people are piling on.

00:36:41.320 | - It had been going up, and in the fall,

00:36:44.000 | another person showed up, another young, cool person

00:36:47.600 | whose name is Ryan Cohen.

00:36:48.640 | Ryan Cohen was the founder of Chewy.com,

00:36:51.640 | where I am a happy customer of Chewy.com's,

00:36:54.960 | buy things for my dog.

00:36:57.280 | It's a pet goods retailer.

00:36:58.560 | He was no longer associated with it at the time,

00:37:00.240 | but he had a big pile of money from selling it.

00:37:02.400 | And he showed up and said, I bought 5% of GameStop,

00:37:07.400 | then it was 10%, then it was 12%.

00:37:10.240 | I want the board to change this.

00:37:12.120 | And his appearance really set things off further,

00:37:16.200 | where they saw this guy who had deep pockets,

00:37:18.200 | who knew a thing or two about e-commerce

00:37:21.280 | and about retailing.

00:37:22.720 | Maybe he actually could come in and turn the company around.

00:37:25.440 | And first the company was kind of humored him,

00:37:28.640 | and then they gave in to him.

00:37:30.000 | And then he, in January, 2021,

00:37:33.360 | he put himself and two of his former colleagues

00:37:36.920 | on the board of GameStop,

00:37:38.240 | and caused a bunch of other people to step down.

00:37:41.560 | That kind of really, really lit the fuse for this.

00:37:44.360 | That's when the stock really started going up.

00:37:47.280 | And then you had this very high level of short interest,

00:37:49.640 | and the short sellers started to really notice and to panic.

00:37:53.760 | And there was a real deer in the headlights moment.

00:37:56.560 | And then one short seller in particular showed up

00:38:00.920 | and did not help his cause at all.

00:38:03.800 | There are some short sellers

00:38:06.080 | who are dedicated to the business, but fewer and fewer.

00:38:08.280 | It's like a sort of last of the Mohicans kind of thing.

00:38:10.680 | He is one of the last of the Mohicans.

00:38:12.320 | He is an activist short seller.

00:38:14.280 | He specializes in finding companies

00:38:16.000 | that he thinks are overvalued or perhaps even fraudulent,

00:38:18.920 | and sells the stock short, and then writes a report,

00:38:22.680 | and tells the whole world about it and why he did it.

00:38:25.040 | And he's done quite well for himself doing this.

00:38:28.120 | And he miscalculated in this case.

00:38:30.560 | He went out and he sold GameStop stock short

00:38:33.680 | when he saw how much it had gone up,

00:38:35.240 | and then went on Twitter and told the people

00:38:38.760 | on Wall Street Bets that he understands short interest,

00:38:41.360 | and they don't, and they're, quote unquote,

00:38:43.120 | the suckers at this poker table.

00:38:45.760 | Well, what do we know about poker?

00:38:48.000 | Let's say you're a really good poker player,

00:38:49.720 | and some five drunk tourists

00:38:52.200 | with way more money than you show up,

00:38:54.440 | and start playing poker, and throwing money around,

00:38:56.960 | and doing unexpected things,

00:38:59.240 | like playing hands the way that they shouldn't be played.

00:39:02.320 | You know, you might lose all your money

00:39:03.720 | if you really put all your chips into the pot,

00:39:07.040 | even though you technically know more than them.

00:39:10.240 | And that's what happened.

00:39:11.400 | Basically five million people showed up to this poker game,

00:39:14.360 | not five, and he got run over.

00:39:17.680 | But it was like waving a red flag at a bull, what he did.

00:39:21.320 | He really set them off by saying this.

00:39:25.400 | And he became public enemy number one.

00:39:27.680 | First, the public enemy had been

00:39:29.640 | a guy named Gabriel Plotkin, who was a hedge fund manager,

00:39:32.440 | who was the one person who they knew for sure,

00:39:35.280 | through some securities filings,

00:39:36.960 | had heavily sold the stock short.

00:39:39.560 | And he was like a normal hedge fund manager.

00:39:41.480 | He also owned stocks mainly.

00:39:43.960 | But a really successful guy,

00:39:45.600 | one of the highest paid people in the financial world, period.

00:39:49.680 | He'd made over $800 million personally in 2020.

00:39:53.520 | So he was a real star.

00:39:56.080 | But then the attention turned to this other guy

00:39:58.680 | who was more hateable, I guess.

00:40:00.640 | And they had already had a couple of run-ins with him

00:40:03.760 | on the message board.

00:40:06.320 | So he became the public enemy,

00:40:08.520 | and that's when it went beyond the point of no return,

00:40:11.560 | where it absolutely went crazy.

00:40:14.040 | Just for a point of reference, on December 31st, 2020,

00:40:17.480 | the stock closes at $1,884

00:40:20.920 | and realize it was like trading at $3

00:40:23.280 | at the beginning of 2020.

00:40:25.000 | So it went from like $3 something up to $1,884.

00:40:28.840 | And now we're starting the year 2021 at $1,884.

00:40:32.280 | And by a few days, the stock goes up to $65.

00:40:39.440 | So it basically doubles again within a couple of weeks,

00:40:44.440 | but then it really starts to take off from there.

00:40:48.840 | - Yeah, yeah.

00:40:50.280 | And mind you, nothing had changed for the company.

00:40:52.360 | The company actually was having a terrible time.

00:40:55.160 | - They were announcing this too.

00:40:56.080 | I mean, they were putting their earnings out there

00:40:57.400 | and they were not good.

00:40:58.240 | If revenue was going down,

00:40:59.520 | earnings were not good.

00:41:01.440 | Fundamental standpoint, this company was in trouble.

00:41:03.960 | - Yeah, but Rick, who cares, right?

00:41:05.160 | I mean, it's a meme stock.

00:41:06.520 | So, yeah, and it went to 40 and 50 and 60.

00:41:11.520 | And that's when the fuse was lit.

00:41:15.120 | First of all, you had a tremendous upsurge of interest

00:41:18.200 | on this message board

00:41:19.880 | and a lot of people joining it every day.

00:41:21.800 | That's when my son's friend got into this, for example.

00:41:24.880 | He wasn't, you know, he was lurking there.

00:41:27.160 | My son, a couple of my sons were lurking there too.

00:41:29.840 | Thank God they weren't buying this stuff.

00:41:32.320 | And yeah, then it took off.

00:41:34.800 | Then it went up and up and up almost every single day.

00:41:39.040 | And from there, the SEC wrote a report on this.

00:41:43.800 | It's hard to disentangle who's buying made what difference.

00:41:48.080 | There was a lot of buying.

00:41:49.160 | - But in the end, the peak price ended up being $483.

00:41:54.160 | So this stock went from, what did I say?

00:42:00.400 | - You said three.

00:42:01.240 | It was actually, it got down to $2.17 at one point,

00:42:04.400 | a year, less than a year before, to $483.

00:42:07.440 | Same company, not doing any better,

00:42:11.240 | doing worse as a matter of fact.

00:42:12.800 | - But on December 31st,

00:42:14.560 | the stock was trading at a little less than $19.

00:42:17.880 | - Yep.

00:42:18.720 | - And within 27 days, no, 28 days, excuse me,

00:42:23.600 | it goes from $19 to $483.

00:42:28.400 | And the fundamentals were getting worse for the company.

00:42:31.320 | - That's right, that's right.

00:42:32.680 | What happened to the efficient market here, by the way?

00:42:35.240 | - Well, the market, it's efficient in the long run,

00:42:37.840 | isn't it?

00:42:38.680 | I mean, what did Benjamin Graham,

00:42:40.360 | and I think it's kind of,

00:42:42.320 | Benjamin Graham is quoted, by the way,

00:42:43.680 | by Roar and Kitty, or paraphrased.

00:42:45.640 | But it's, you know, the market in the short run

00:42:48.480 | is a voting machine.

00:42:49.320 | In the long run, it's a weighing machine.

00:42:50.680 | But it was a voting machine during this period, for sure.

00:42:53.640 | - So all of the short squeeze

00:42:56.400 | and these people buying call options

00:42:59.320 | and the option writers having to go out

00:43:00.880 | and hedge their position and buy stocks

00:43:02.720 | and all of these speculators coming in millions at a time

00:43:07.720 | with small accounts, just jumping on the bandwagon,

00:43:10.880 | the stock gets all the way up to $483.

00:43:14.480 | And by the way, on that day, 128,

00:43:16.880 | who is it that does a feature story on who Keith Gill is?

00:43:20.560 | It's the Wall Street Journal.

00:43:22.280 | - Yes, that's right, yep.

00:43:24.040 | Yep, we were the ones who found him, not me.

00:43:26.080 | A couple of my colleagues,

00:43:27.800 | they had done the detective work

00:43:29.640 | and figured out who he was.

00:43:31.360 | And they found Keith Gill's mom,

00:43:34.040 | who's a Wall Street Journal reader, thank goodness.

00:43:35.920 | And she likes the Wall Street Journal

00:43:37.760 | and put them in touch.

00:43:39.360 | And they interviewed him that day.

00:43:41.320 | And yeah, it's an incredible story.

00:43:44.320 | To me, he's a really sympathetic character.

00:43:46.360 | And so the next morning,

00:43:48.000 | he was unmasked as Keith Gill from a suburb of Boston.

00:43:52.760 | - And the stock skyrockets even more,

00:43:55.120 | but there's a problem that develops with Robin Hood.

00:43:58.880 | - Yes, that day, there's a problem.

00:44:00.600 | - All this trading and the stock going up

00:44:02.440 | and a lot of people doing it on margin

00:44:04.360 | and doing it using options and everything else,

00:44:07.480 | it develops and at that point

00:44:10.200 | was an unknown problem for Robin Hood.

00:44:12.520 | And at three o'clock in the morning,

00:44:13.880 | somebody gets a phone call, I understand.

00:44:15.880 | - That's right.

00:44:16.720 | So when you buy or sell a stock,

00:44:18.320 | you say, "I sold $100 worth of the stock

00:44:21.160 | "and the $100 is in your account."

00:44:22.680 | Well, it's not really in your account

00:44:24.960 | because the brokers have a broker too.

00:44:27.360 | So there's a bunch of plumbing behind the system

00:44:29.320 | that has to work.

00:44:30.480 | And if it doesn't work, then the system fails.

00:44:32.720 | So it's very important that everybody be liquid

00:44:36.280 | in that system.

00:44:37.520 | And if one broker fails,

00:44:40.280 | then every other broker basically has to chip in

00:44:42.920 | and cover their shortfall.

00:44:44.560 | It does happen from time to time,

00:44:46.080 | but very rarely these days.

00:44:47.760 | Your accounts are insured, by the way,

00:44:49.400 | up to a certain value,

00:44:50.880 | but those other brokers still might have to chip in.

00:44:54.080 | And so basically, the agency that does this

00:44:57.080 | and looks at the risk said,

00:44:59.880 | "You have all these clients

00:45:01.680 | "buying the same handful of stocks,

00:45:03.720 | "buying, not selling.

00:45:05.200 | "They all have positions in them.

00:45:06.440 | "A lot of them have borrowed money.

00:45:07.880 | "Some of them just opened accounts

00:45:09.480 | "and you allowed them to buy the stock

00:45:11.640 | "before their checks even cleared.

00:45:13.880 | "And they bought options and they bought all this stuff.

00:45:15.800 | "Now, if this stock goes down sharply,"

00:45:18.120 | which it did,

00:45:19.800 | "if it goes down sharply, you could be out of business.

00:45:22.040 | "You could basically not have the money to pay us."

00:45:26.440 | And that would have caused a domino effect on Wall Street,

00:45:30.120 | just like when long-term capital management failed.

00:45:33.200 | It was the same thing, only this was with Robinhood.

00:45:35.800 | That's right.

00:45:36.640 | And this could be a totally different book

00:45:37.480 | if that had happened.

00:45:38.560 | This would be about like an LTCM or a Lehman-type moment.

00:45:42.040 | Maybe not as big, but pretty big.

00:45:43.920 | But can you imagine if this company

00:45:45.920 | had never raised a billion dollars in its entire history

00:45:48.960 | and they get a call in the middle of the night,

00:45:51.200 | 3.30 in the morning California time,

00:45:52.640 | so 6.30 in the morning,

00:45:54.800 | three hours before markets open East Coast time,

00:45:57.560 | and they said,

00:45:58.960 | "Hey, can you please send us $3 billion?"

00:46:01.800 | There's no way they could send them $3 billion.

00:46:03.920 | So they panicked.

00:46:05.000 | They called in all their bank credit lines

00:46:07.280 | and they called their investors and asked for more money,

00:46:09.840 | but that was gonna take at least a few hours.

00:46:12.160 | And they went back to the DTCC, the agency that does this,

00:46:15.840 | and they said, "Look, what if we don't allow any more buying

00:46:19.880 | "of these stocks, this list of stocks

00:46:22.040 | "that everyone has been buying?

00:46:23.680 | "We're options in those stocks."

00:46:25.720 | And DTCC said, "Okay, we'll crunch the numbers again.

00:46:28.240 | "Okay, it'll be about $700 million

00:46:31.520 | "that you need to pony up,"

00:46:33.000 | which they could just about do.

00:46:34.960 | So it was a scary day for them.

00:46:37.080 | And that's what they did.

00:46:38.120 | Now, I don't know what I would have done differently.

00:46:40.840 | Vlad Tenev is the CEO,

00:46:42.840 | and he sent out some, not dishonest,

00:46:47.000 | but not totally forthright messages to his customers

00:46:51.560 | about why they couldn't buy the stocks.

00:46:53.760 | And what wasn't completely clear

00:46:56.320 | is that they would be out of business

00:46:58.280 | if they didn't do this.

00:46:59.560 | Later, he spelled it out in great detail.

00:47:02.280 | He wasn't buying, but he just wasn't being totally open.

00:47:04.600 | And I guess when there's a kind of a run on the bank,

00:47:06.480 | in a sense, you don't wanna panic people.

00:47:09.480 | And so that's what he did.

00:47:10.440 | But he instantly went from being this Robin Hood hero,

00:47:14.080 | robbing the rich to serve his poor customers,

00:47:17.400 | to having done a terrible thing.

00:47:20.200 | Basically, to this day,

00:47:22.600 | there are conspiracies that hedge funds called him up

00:47:25.160 | and told him he had to stop the buying

00:47:27.640 | because they were all about to be bankrupted.

00:47:29.920 | Well, Andrew Lefton and Gabe Plotkin,

00:47:32.840 | just for two people who were known in this story,

00:47:35.760 | they had been out of the trade for days.

00:47:38.360 | They took their lumps, they lost a ton of money,

00:47:42.440 | and they had skedaddled.

00:47:44.200 | They were no longer there.

00:47:45.320 | And it just happened.

00:47:46.840 | The system couldn't buckle.

00:47:48.360 | It couldn't deal with all the buying.

00:47:50.800 | Robin Hood did too good of a job

00:47:52.600 | encouraging all this buying.

00:47:53.760 | And Robin Hood and social media

00:47:55.560 | made for a pretty potent combination

00:47:57.200 | that the system couldn't handle.

00:47:59.360 | - Did anybody actually go short the stock on the 20th?

00:48:01.400 | Because by the 29th,

00:48:03.040 | this lost more than three quarters of its value, correct?

00:48:05.880 | - Yeah, within a week, it had lost 90% of its value.

00:48:08.720 | And there were other people shorting the stock.

00:48:11.240 | We just don't know who they are.

00:48:12.280 | You don't have to say who you are when you short a stock,

00:48:15.120 | just like you don't have to say if you buy a bit of a stock,

00:48:16.920 | you don't have to say who you are either.

00:48:18.000 | And so there were a lot of people out there

00:48:20.360 | shorting the stock.

00:48:21.200 | And I know people who were involved in this

00:48:25.920 | on the investor side, the individual investor side.

00:48:28.560 | And I know people who work on Wall Street.

00:48:30.840 | I'd send them a note saying,

00:48:32.560 | "Hey, I have this book coming out."

00:48:34.160 | And a surprising number of them were like,

00:48:36.280 | "Oh yeah, I saw that.

00:48:37.400 | "I bought put options that day,

00:48:40.440 | "and I made whatever,

00:48:41.880 | "hundreds of thousands of dollars personally."

00:48:44.160 | So people who were financially sophisticated

00:48:47.160 | were aghast and some of them leapt

00:48:50.480 | at this kind of once in a lifetime opportunity

00:48:52.880 | to make money on the back of these people.

00:48:54.800 | So rich, already rich people who I know got a lot richer.

00:48:58.520 | Bill Gross, who's the Bond King, made $10 million.

00:49:02.120 | He's retired now.

00:49:03.160 | He's a multi-billionaire.

00:49:05.640 | And he sent out a memo, a public memo

00:49:09.320 | that any of these people could have read

00:49:10.400 | explaining why they weren't going to succeed.

00:49:14.120 | But then for good measure, he just couldn't resist.

00:49:16.000 | So he sold call options to these retail investors

00:49:19.960 | on the open market, and he made $10 million.

00:49:22.720 | And there are a lot of people like that.

00:49:24.520 | And that's the story of this whole thing,

00:49:27.200 | is that Wall Street did great.

00:49:28.360 | Wall Street did great in many, many, many ways.

00:49:30.600 | Citadel did great.

00:49:31.960 | Robinhood had, after almost going bankrupt,

00:49:35.120 | had a pretty good month, right?

00:49:36.760 | And so did other brokers.

00:49:38.360 | So did Goldman Sachs.

00:49:39.360 | So did Morgan Stanley.

00:49:40.240 | So did everybody on Wall Street, basically,

00:49:42.960 | except for a few guys who were big losers.

00:49:47.040 | And they did it on the backs of these millions

00:49:49.040 | of small investors who had a few thousand dollars who were just

00:49:51.840 | chasing what they read in the revolution that wasn't,

00:49:56.720 | basically, the Reddit Wall Street Bets board.

00:50:00.960 | In the end, the aftermath, House Financial Services Committee

00:50:03.800 | comes in, investigates.

00:50:05.440 | Did anything come of that?

00:50:08.440 | Well, no.

00:50:10.280 | But the rules that might come out of it

00:50:12.840 | might be kind of unhelpful rules.

00:50:14.280 | So for example, payment for order flow,

00:50:15.920 | which is how that makes all this possible.

00:50:19.120 | You've got to pay for trading somehow.

00:50:20.800 | There's nothing evil about it.

00:50:22.160 | It's just how Robinhood exists.

00:50:25.400 | That came under a lot of scrutiny.

00:50:27.640 | The SEC might crack down or change some rules about that.

00:50:31.040 | And the other thing is short selling.

00:50:32.800 | And the short sellers, they're just the victims here.

00:50:36.160 | And so they're also likely to face some more stringent rules.

00:50:41.000 | So as usual, nothing helpful will

00:50:43.000 | come out of these congressional hearings

00:50:45.120 | and possibly some counterproductive stuff too.

00:50:48.200 | Let me pivot here to a different topic.

00:50:51.200 | And that is, what's the moral of the story

00:50:56.880 | here for investors?

00:50:57.880 | Because you do get into that in the last couple of chapters.

00:51:01.400 | Yeah, so I think there is a positive takeaway here.

00:51:04.400 | First of all, I'm not going to get into anyone's politics

00:51:08.360 | in terms of whether they don't like Wall Street or want

00:51:11.200 | to stick to Wall Street or don't trust Wall Street.

00:51:14.280 | Fine, none of my business.

00:51:16.120 | But let's say that that's your attitude.

00:51:18.880 | And you have this dual goal of making money and sticking it

00:51:22.360 | to the man.

00:51:23.280 | Well, the moral of the story is that all

00:51:27.040 | of the financial and technological innovations that

00:51:31.240 | made this story possible, being able to trade for zero

00:51:34.000 | commission, being able to buy funds that cost 0.03% a year

00:51:41.360 | in terms of their expense ratio, all those things that

00:51:44.320 | have made investing so easy, so cheap, so transparent,

00:51:49.080 | all can work to your advantage too.

00:51:50.600 | All the things that the technologies that

00:51:53.080 | armed this group to do what they wanted to do actually

00:51:56.800 | armed this group to really do what they want to do.

00:51:59.000 | Because to make a lot of money and to stick it to Wall Street,

00:52:02.440 | if you don't like Wall Street taking big, fat fees out

00:52:05.720 | of your account, if you don't like them making a lot of money

00:52:08.600 | off of you, period, there's a perfect way

00:52:11.240 | to do that, which is just to basically buy

00:52:14.120 | a handful of index funds, check them infrequently,

00:52:17.520 | trade them infrequently, and just kind of be a free rider

00:52:20.680 | on this whole system.

00:52:22.240 | You can be a free rider in so many things in life.

00:52:25.160 | And you can on Wall Street too.

00:52:27.080 | That's, I think, the moral of the story

00:52:29.200 | is that if you really feel strongly

00:52:31.840 | about accomplishing what these young people want to accomplish,

00:52:34.440 | this is the way, not the way they did it.

00:52:37.160 | Index funds-- I'm an index fund investor myself,

00:52:40.880 | and a lot of people listening to the show are index fund

00:52:43.000 | investors.

00:52:44.840 | They actually benefited from this.

00:52:46.680 | And how?

00:52:47.760 | Well, there's an awful lot of money

00:52:49.200 | that maybe that wouldn't have come into the stock market

00:52:53.080 | from before.

00:52:54.240 | Now that all these young millions of young people,

00:52:58.480 | for the first time, came into the stock market,

00:53:00.800 | all that money is coming into the stock market.

00:53:03.560 | And if you own a total stock market index fund,

00:53:06.480 | you owned GameStop back when it was $3 a share.

00:53:11.160 | I mean, no more stock was issued.

00:53:14.040 | So it went up in value in the index fund.

00:53:18.160 | All these stocks went up in value.

00:53:19.720 | All these meme stocks went up in value.

00:53:21.920 | And you actually benefited from that with this money coming in.

00:53:25.040 | That's really fascinating that all these young people

00:53:28.280 | lost money.

00:53:28.880 | But actually, I made money on it too,

00:53:31.440 | just being an index fund investor on this,

00:53:33.680 | because all this now new money is in the market.

00:53:35.760 | But I also want to make one comment on all of this.

00:53:38.860 | I've seen this before, by the way.

00:53:40.280 | This is like a replay, if you will, of eToys, and Enron,

00:53:45.520 | and things that happened during the late 1990s, early 2000s,

00:53:50.040 | during the dot-com boom, where people were just crazy quitting

00:53:54.400 | their jobs, buying stocks, didn't even

00:53:56.760 | know what the company did, or where it was located,

00:53:59.040 | or who the competitor-- it didn't matter.

00:54:00.720 | The stock is going up.

00:54:01.600 | That's all they cared about.

00:54:02.760 | This is like a replay of that.

00:54:05.080 | But where are those people now?

00:54:07.640 | And I'll tell you, because I talk with them all the time.

00:54:10.040 | They're buying index funds.

00:54:11.320 | They learned their lesson from this.

00:54:14.120 | And hopefully, if there's a silver lining in this storm

00:54:18.280 | that occurred, it's that these people, these young people who

00:54:21.360 | are now-- who got burnt, who lost money.

00:54:23.880 | And yes, Wall Street made a bunch of money

00:54:26.320 | because of what they're trading and what they did,

00:54:28.720 | whether it was ultra-realistic, or whether they were just

00:54:31.200 | trying to make money, however it was.

00:54:32.920 | The bottom line is, these young people, I think,

00:54:36.720 | hopefully, if they've learned something,

00:54:39.560 | they'll become index fund investors

00:54:44.120 | and long-term investors in investing the way

00:54:48.000 | they should be investing.

00:54:49.120 | So it's a cheap lesson, a very painful lesson,

00:54:52.160 | but it's spread across millions of young people.

00:54:54.360 | So my message here is, I'm not so upset that this happened.

00:54:59.240 | I think it's actually a good learning thing

00:55:02.640 | for a lot of people.

00:55:03.480 | Now, I realize that a lot of people

00:55:04.600 | did get burnt pretty badly.

00:55:06.080 | But how do you feel about that message?

00:55:08.480 | Yeah, no, I basically agree with it.

00:55:10.240 | I give a little bit more of a nuanced answer to it.

00:55:14.480 | I think that there are people who

00:55:16.760 | are going to have a very positive outcome from this,

00:55:20.240 | because maybe they weren't interested in investing

00:55:23.040 | in finance at all, as many young people aren't,

00:55:25.360 | and they don't save enough.

00:55:26.480 | And that's the root of the retirement crisis,

00:55:29.240 | starts young, right?

00:55:30.480 | When you're young and you don't start putting money away.

00:55:33.400 | So some of them will have learned kind of a painful,

00:55:36.760 | but in the scheme of all the money

00:55:38.880 | they'll make and save in their lives,

00:55:40.720 | not such an expensive lesson.

00:55:42.560 | And they'll see the light, and they'll

00:55:45.200 | invest more conservatively.

00:55:46.960 | And in 40 years or whatever, they'll be fat and happy.

00:55:51.560 | I think that there are a couple other groups that,

00:55:54.800 | unfortunately, might be larger.

00:55:56.560 | The hard core of this group have attempted

00:55:59.000 | to make lightning strike a second and third and fourth

00:56:01.440 | and fifth time by doing all the things they

00:56:03.680 | did the first time around, except now everybody

00:56:05.760 | sees them coming.

00:56:06.840 | These hedge funds, they've written computer programs

00:56:09.960 | to monitor these message boards.

00:56:11.800 | And so they're not going to get caught with their pants down.

00:56:14.320 | And then there are people who are just

00:56:16.640 | going to sort of be bitter and throw on the towel.

00:56:18.760 | Don't forget, when something traumatic happens to you,

00:56:20.600 | you might react the wrong way.

00:56:21.960 | I mean, you think about people during the Great Depression,

00:56:25.880 | for example, that whole generation

00:56:27.920 | didn't touch stocks again, ever.

00:56:29.680 | It took a new generation.

00:56:31.320 | So if it's traumatic enough, then you're like,

00:56:34.320 | the market's crooked, I'm out of it.

00:56:36.760 | And just say you'd come back and been

00:56:38.680 | able to have had a job during the Great Depression

00:56:41.280 | and been able to save a bit of money, what a great time

00:56:43.600 | that was to invest, right?

00:56:44.720 | I mean, if you started investing in 1932,

00:56:46.720 | 1933, you would have had really, really nice return.

00:56:50.640 | And you did the wrong thing by just walking away

00:56:55.840 | from the market overall.

00:56:56.880 | And so I'm afraid that that will happen.

00:56:59.200 | I hope it doesn't.

00:57:00.040 | It's important to be in the market.

00:57:01.500 | It's a way to compound wealth.

00:57:03.520 | The stock market's the obvious vehicle to do that.

00:57:08.000 | Well, it's been great having you on, BogleHeadsOnInvesting.

00:57:11.920 | The name of the book is "The Revolution That Wasn't--

00:57:14.040 | GameStop, Reddit, and the Fleecing of Small Investors"

00:57:16.720 | by Spencer Jacob.

00:57:17.760 | I wish you a lot of success with the book.

00:57:19.680 | I highly recommend it.

00:57:20.600 | It was very entertaining, great book.

00:57:22.600 | So thanks for being on the show today.

00:57:24.580 | Thanks so much.

00:57:25.160 | I love your podcast.

00:57:26.100 | It was a pleasure to be on with you.

00:57:28.240 | This concludes BogleHeadsOnInvesting,

00:57:30.280 | episode number 42.

00:57:32.240 | Join us each month as we have a new guest

00:57:34.720 | and talk about a new topic.

00:57:36.400 | In the meantime, visit BogleHeads.org

00:57:39.200 | and the BogleHead Wiki.

00:57:40.880 | Check out the BogleHeads' new YouTube channel,

00:57:43.960 | BogleHeads' Twitter, BogleHeads' Facebook,

00:57:46.840 | and find out about your local BogleHeads chapter.

00:57:50.400 | And tell others about it.

00:57:51.840 | Thanks for listening.

00:57:53.680 | [MUSIC PLAYING]

00:57:57.040 | [MUSIC ENDS]

00:58:00.400 | (upbeat music)

Bogleheads® on Investing Podcast Episode 042: Robinhood, Reddit, and Meme Stocks with Spencer Jakab

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