So after Scott came on the pod and was like, I have my distressed guy in Europe.
I'm like, Ben, find me the distressed guy in Europe.
I feel like I can rule the world.
I know I could be what I want to.
I put my all in it like no days off.
All right.
So Scott Galloway's on our podcast and we ask him, we say you know, we heard the story that you were buying distressed FTX claims.
After FTX went into bankruptcy and everybody hated it, it was like, it was a disgrace.
It was the symbol of a bad business, a bad investment.
I heard that you were buying up claims on the cheap and that those claims are now being paid out, you know, in full, or even more than full, because sam bankman freed whatever he was doing his thing.
He had owned enough assets that would make all the creditors whole.
And so he tells the story about how he's got this guy, who's brought him into a couple deals.
And he was talking about distressed investing.
And when he told the story he like he like kind of dismissed it.
He was like i bought 10 million dollars of ftx shares or something like that, or two million, two million, i think it was something sorry, whatever it was, it was like a seven figure bet.
And he sort of just said like yeah, i just did this one thing and sean and i were like rewind, what?
And that's when he told the story.
Also, it was a moment where it's like, hold up, put some respect on the podcaster's name.
I mean, I think a lot of people make fun of Scott.
There's like the inverse Scott Galloway index and stuff like that, basically about his bad calls he's made in his life.
And I think in general, people don't really realize, and Sam, you do a good job of this.
You're like, actually, you were an entrepreneur who sold a company for $100 million.
He never really talks about it that much.
And then he's done some interesting investing stuff.
And I just feel like, because almost he's so good at the gift of gab, I think people sort of bucketed him as all talk, no walk.
And so it was interesting to hear one of his interesting walk stories.
So then I got in touch with Tommy and I say, tell me about this.
I'm interested.
What are you doing?
What's going on?
And he had some interesting stories.
So I wanted to invite him on the podcast to do two things.
Teach us about this category of distressed.
Both me and Sam are pretty much novices in this.
We're missionary guys.
We like vanilla.
We do very basic stuff when it comes to business and investing.
This is more exotic, and it's got me interested.
I want you to start with a little crispy description of like what's the big idea with distressed investing?
What are you trying to do?
How do we wrap our minds around this?
And then I want to play a game called First Best Worst Weirdest, which is where we go through maybe the first play you did, the best play that ever worked out for you, the worst deal that went sideways, and then just something where shit got weird while you were doing it.
But I want first just, can you just make us a little smarter?
Teach us like...
Distressed investing 101.
What are we talking about?
Oh, man.
Okay.
So, I am the bottom of the food chain of distressed investing.
So, there is a whole industrial complex of large distressed investing firms out there.
You have Oak Tree and Silver Point and Fairlawn and you guys Apollo everyone's heard these names or maybe if you follow business and investing, I guess.
So for myself I kind of came up a different way, which is my parents were bankruptcy lawyers and I sort of learned I knew a lot about bankruptcy.
And generally what you're trying to do is you're almost like value investing and the toolkit is you know a lot about the legal process.
The trick that I've from studying a lot of distressed investing is And there's this famous Michael Price saying, which you guys have probably heard, but if you haven't, it's sort of he says when you're investing, you always want the stake and the sizzle.
I think where the okay investors in distressed do right is they find stake.
You find something and maybe it's a double.
But where the guys that really knock the cover off the ball and have outstanding returns generally are looking for that sizzle as well.
The stake is the known value that's there.
It's the substance.
It's the thing that will give you a margin of safety when you buy.
The sizzle is the upside of how good this could be if things go right.
But you still have the stake, even if things don't go great.
Exactly, and that's even what the whole pitch on FTX with Scott was, which is you're buying a stake, you're buying 20 cents, you know you're going to get 30 cents in cash back.
Plus you have all this crypto sizzle.
And unless you're you know, I don't want to say a Luddite, but unless you're just really really aggressively against crypto.
There was a lot of optionality built into that.
And if you look at the history of distress, some of the best ones have been financial service bankruptcies.
Ponzi scheme cases, as well as like the dot-com cases, were actually pretty good.
You think of things like Comdisco, which was a famous large bankruptcy.
And a lot of those actually, they kind of petered out because there wasn't as much debt.
It was just equity values went to zero.
So if you look at the history, they can be pretty good.
And that was kind of the playbook was, as my friend would say, who's a pretty smart investor.
He says you avail yourself to the optionality you know.
So because you sort of set yourself up to either buy that for free you get it for free or buy it extremely cheaply.
So that's what we're doing in FTX.
Is your company just you?
Are you just a guy, or do you have a team?
I'm just a guy.
I mean, I have a small team.
I think Scott calls me a lifestyle business guy, but I would describe it as what's nice about what I do is I get to choose when I work, how hard I'm working.
If there's no deals, I don't have to work on stuff.
And also, because I'm in a low-cost jurisdiction... you know, that passed through to my clients.
So, you know, is Scott paying the usual fees that you would pay if you went to a big distress firm?
Probably not.
I mean maybe because they want Scott as a client, but for the most part the fee structure would have to be higher.
Your cost structure is higher.
So can I dumb this down in a way?
I'm kind of a caveman, and you can tell me if I'm right.
But basically you find distressed deals, you convince rich people to buy them and you take a small cut.
Is that right?
Yes.
Or I invest my own capital.
Or you invest your own money, and you're so good that people come back over and over again.
Well, if you lose money for people, they generally don't return your phone calls.
They might call you, but they don't pick up when you call.
So let's walk through an example together.
And I think we should use FTX because it's a pretty well-known company.
It's kind of what we were already talking about.
So walk me through the origin story of the FTX deal so that we can kind of see like we can get like a blueprint of the type of thing that you're going to try to do.
What is the type of thing that you do?
So where does the story start with your FTX interest?
Yeah, so I had already been involved in a number of crypto distressed situations.
And I should back up to just say as a backdrop, like having studied so many different investors throughout my life and kind of, that's what I was really always interested in is principally just being an investor.
One of the things you'll realize is the guys with really good returns also invented a category.
So I was very interested in crypto distress as a category.
And I thought, hey, crypto is the future.
No one's willing to touch crypto.
So back in 2014, 15, I was already looking at Mt.
Gox, you know, myself and at the time my partner, we were the largest buyer of claims in Mt.
Gox.
But before you tell the Mt.
Gox story.
I just want to double click on.
You said some of the best investors they ended up like.
Actually now, when you look back, they kind of had invented a category.
Can you give a couple of examples of people, of guys who did that?
So like Howard Marx is the prototypical example, right?
Like he kind of invented the whole idea of like institutional.
Not just him, there were other people, of course, but he was in you know a very early and basically him and a group of people invented the idea of institutional asset class to distrust investing.
So what that does is it compresses, it lowers cost of capital and really brings a whole pool of capital that we've never invested in this.
So the long-term returns might go down, but it's because the actual cost of capital is coming down.
And so your tailwind returns are just enormous. what does that mean does that mean that like institutional investors uh they they were like normally afraid of this and howard was like no this actually makes a ton of sense and it's actually kind of safe and here's why and so he convinced large institutions to buy into that yeah what you're saying to allocate and the same thing with like early venture guys i mean i guess before you have like the 70s and 80s i mean alan patrickoff and people like that these were guys that really invented the category and of course They have huge firms now and, you know, the valuations for startups.
But it's like it's this wall of liquidity that creates these kind of tailwind returns, which are fantastic.
You want it.
I mean, you kind of like, that's the most amazing thing is catching Marlowe's weight.
Like YC is a good example of this, where YC basically created the category of the, you know, the accelerator right.
It created the category of this pre-seed pre-everything pre-product pre-revenue pre-traction, investing.
And so that really wasn't a popular category.
Now it's a whole industry.
There's angels and there's super angels and there's seed funds and pre-seed funds.
There's a whole industry now that specializes in that category, but it really started even Paul has said this as an experiment.
He was curious, like how early on could you fund somebody?
Could you fund a student?
Could you fund a grad student?
And you know he sort of thought it might be too early but he wanted to go see what happens when you do that.
Yeah.
And even you know, for me, when I was starting my hedge fund my first, when I was really a kid some of my early investors were Goldman partners that were partners when it went public.
And they were all sort of early LBO guys like levered buyout guys, before private equity became a institutional asset class.
And their returns were just insane, like insane returns.
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All right, let me get back to the episode.
Okay, so let's go back to your story.
So you're saying you got excited about potentially being the first in a category of crypto distressed.
Distressed already was a thing, but nobody, most people were afraid of crypto in general.
So especially the institutional guys weren't going to go in there.
So you're like, okay, maybe I can carve out a niche of distressed crypto.
We're all looking for a thing.
This could be my thing.
And you're saying the FTX story actually started before that.
Before FTX, it was Mt.
Gox.
Sam, are you familiar with Mt.
Gox?
Do you know the rough story here?
Yeah, it was sort of Coinbase before Coinbase, but it had some nefarious characters involved.
Yeah, so there was a huge kind of like sort of hack problem with Mt.
Gox.
So, Tom, what happened with Mt.
Gox?
What did you actually do there?
Let's start with that one.
And it was the largest exchange.
I mean other than going peer to peer and going to a Starbucks and buying Bitcoin, like that was where you traded Bitcoin.
And they had a pretty aggressive hack.
They tried to cover up the hack, which was the real crime was to cover up.
Eventually, they filed for insolvency in Japan and what's called a Chapter 15 in the States.
That's kind of irrelevant.
That just recognizes the foreign proceeding as the main proceeding.
And, you know, you could buy claims.
For a while, you could buy them for about a fifth of the market price of Bitcoin.
This is when Bitcoin is like $300.
And then in 2018, the estate actually sold some Bitcoin to have enough to pay people their cash value, their claim at the petition date.
When I say cash, I mean fiat.
I'll try to use fiat.
And so you could buy below the cash.
You get the Bitcoin for free.
Sorry.
So just to slow this down for a second.
When you say buy the claims, what you're saying is I was a customer, let's say, of Mt.
Gox.
And boom, I lost my money.
It's insolvent.
I don't know what's going to happen with this.
It's going to go through a bankruptcy process.
I'm hoping maybe in a few years, I'll be able to get something out of this.
And guys like you knock on the door and you say I'm so sorry for your loss.
You know what?
I'll offer you something today for the rights to that claim you have as a customer, as a creditor, in this bankruptcy thing.
It's going to take a long time.
It's a little uncertain, you know.
So I'll give you, and in that case, like for every kind of dollar worth of claim, what were you buying the claims for at Mt?
Gox?
Yeah.
So the original trade Bitcoin was at about 300 and we were buying the claims for about 80 per Bitcoin.
Wow.
Were you a Bitcoin person or were you just a distressed person?
I would say, yeah, I studied economics.
I remember reading about Bitcoin when it was like $10 and I was like, wow, that's cool if it works.
But other than that, I had no, I was like, this is pretty crazy.
All right, so dumb question.
They get hacked so they don't have the Bitcoin.
So what is underneath?
I get in the FTX case because he had invested in all these underlying companies and they still had some assets.
What did Mt.
Gox have that made you think that the claims would be worth anything?
So, just if you want to do it in Bitcoin terms, there's about 800000 Bitcoin.
That was supposed to be there.
Within a first month or two, they basically found 200 Bitcoin.
Found 200 or 200,000?
200,000.
Okay.
So they found 200,000 of the 800 that's supposed to be there.
Yeah.
Yeah right, so now you know, you know this is this.
Is you know distress, actually the math.
Even though i study math, math and distress is always super simple.
Like 200 over 800.
Okay, you got 25 cents, so guys are going to get back 25 cents.
We're basically offering them five cents.
This is on the bitcoin dollar.
You bought the assets after you learned that he magically discovered.
So you're like minimal downside, potentially high upside.
So the stake there was they got 200,000 Bitcoin sitting there today and it's $300 a Bitcoin.
I can buy it for 25% of that value.
So that's your stake.
And your sizzle was maybe they'll find more.
Maybe Bitcoin price will go up.
Is that right?
Is that the right way to think about that?
Basically, yep.
Maybe they'll find more. and you get a 5X return on Bitcoin.
That was the original pitch.
And I remember the first hedge fund.
I pitched it to the guy literally laughed me out of his conference room.
And whenever I saw him around town, he would just be like, Bitcoin.
I mean, it was like 2015, to be fair.
He's like, hey, look, it's the Bitcoin loser.
I'm imagining like the big short here because I don't know anything about this world.
So my only reference point is movies.
So I'm imagining you're Michael Burry.
You're sitting in your room by yourself.
You're pouring through the papers and you're like, you're like pen and you're like, you know, doing the math.
You're like.
The equations are popping out of your head.
And then you go to the hedge fund and then they sort of laugh you out of the room.
And they're like, listen, do you want to just get lunch?
Because we're not doing this.
Do you want to make something out of this hour?
Were you just getting laughed out of the room in that way?
Well, I remember the name of the fund.
I won't mention them.
They're out of business now.
Name names?
Name names.
Yeah, they're dance on the graves.
The guy I won't remember, but the firm was Southpaw.
I don't know what happened to the guys at Southpaw.
It was like a $2 billion hedge fund.
Anyway, it doesn't really matter.
It was forever ago.
And to be fair to the guy, I said, oh, there's a crypto exchange.
You can buy claims for a fifth of the market value.
He's like... crypto?
You mean like Bitcoin?
And I said, yeah, yeah, yeah, Bitcoin.
He was like, you want me to buy Bitcoin?
And I was like, well, you know, the claims get five times your money.
And he just like, he started slapping his knee.
He was like, Tom, that is the funniest shit I've heard all week.
He was like...
He was like, what else are you working on?
And I was like, wait, what's the real idea?
Were you an employee somewhere?
Were you on your own?
How much did you buy?
Okay.
So I had a small hedge fund.
So I bought about $200,000 worth, like literally nothing.
But for my small hedge fund, that was like, I was like, well, this is like 10% of my money.
I got to like, you know, it was only, I only had so much.
I mean, it was a really small hedge fund I was running.
I said, okay, I can't.
This is like, you know, I could get in trouble.
I can't like make this too big.
So I'll like call some of these guys I know.
And when you're, when you have a small hedge fund, the nice thing you can do is you kind of have a symbiotic relationship.
Like you can do a million.
Like if you buy a 10 million deal you can get I don't know, I'm just making up a name Oak Tree.
You call Oak Tree.
I mean, they won't do $10 million deals, but you say, hey, you want nine of this?
I want one million of it.
You don't even have to pay me anything.
I just need you because I need the money.
So you make friends and you kind of figure out ways to get symbiotic relationships with some of these cats.
But I mean, that's how I spent my whole career is like coopetitioning with, like all the big distress firms.
So they call me with tiny stuff that they can't do.
And I call them with big stuff that I can't do.
And I asked for either allocation or a fee or something.
But generally, I'm asking for allocation because I'm not like a registered dealer broker.
What did you end up making on the Mt.
Gox trade?
How much did you end up getting in?
And what was the what was the in?
What was the out?
Yeah, they were across a number of different SPVs.
And we had a later like, I'm going to get to the answer.
We had a later hedge fund that like was buying all the way up.
So they probably made like two, three times their money because they were literally buying all the way up through the distribution.
Like they'll still buy claims to this day.
But our original investor made about 38 times his money.
Actually, it's more than that now.
It's over 40 times his money.
Over what period of time?
Oh yeah, like seven years.
And is that because Bitcoin price appreciated basically?
Yeah, so some of it is about 5x of it is the discount and then the rest is their appreciation.
Right.
But he put it on in 2000.
The big the guy I'm describing was our real first outside LP, outside of the fund which liquidated and we sold the claim.
And I think that claim we bought, the original claim we bought from a Googler.
Actually it was pretty funny.
And I always joke, because I was a kid and I had my standard documents, but I didn't have documents for like, a Japanese court.
And he was like, so how do we do this, Tom?
And I was like, you know, I don't know.
And he said, well, why don't I ask?
So I always joke that Google wrote my original purchase documents for for the purchase of um you know, like i don't know the name of the firm step shoe and something or some some firm that worked for google, because this guy was like a big up at at uh, at google um, but yeah, about 40, 40 plus times, but a lot of it is appreciation.
But the really interesting thing about that guy that originally did the deal with us, this family office guy, is we were buying the bitcoin for free because he we put, he put that trade on in 2018.
That was the the big short moment because you were getting it for free.
Explain that.
Why did you get it for free?
Okay, because the rough math at the time, in 2018, Bitcoin was like 10 grand, 12 grand-ish.
And the trustee sold a fifth of the Bitcoin.
So he sold about 40,000 Bitcoin and brought in about $600 million of cash.
And so there was 600 million of cash and there was about 3 billion of crypto, or 25 billion of crypto.
We were buying the claims for below the cash value, the cash look-through value on the claims.
So we were buying for about a $400 million valuation.
There was $600 million of cash and there was about $2 billion of crypto.
So that was the time when I was like really banging the table.
Because before that, there was all Bitcoin and it was cheap, but it was quite directional.
Why do they sell it for below the cash value at that point?
Is it because there's still a time delay?
Is there an uncertainty?
Yes.
Yeah.
And there was uncertainty around whether who got the uplift in value.
So in 2018, there was this big argument, who gets the uplift in value?
Does it go back to Marco Telles, like the guy that kind of didn't do us right?
Or does the uplift in value go to the customer account claimants?
The same thing happened in FTX.
The same thing happens in all the crypto bankruptcies.
Who gets appreciation and value post-petition?
Petition meaning the date the company files for insolvency.
As you know, I'm an absolute outsider.
I'm learning about all about all about this right now.
But like Mt.
Gox and particularly FTX, those were pretty big news headlines.
And, as an outsider, when I see this, I just think oh, I'm sure like there is no opportunity because everything is being taken care of like this.
They're going to catch the bad guy.
But then also all the big dogs are already after this.
There's no way to make it money.
There's no opportunity.
Not me.
Someone else is probably on top of this.
But the way that you're describing yourself maybe this is like you're underselling yourself, but you're kind of describing yourself as just a smart guy who just kind of gets in the mix and figures it out.
Take out the smart part.
Well, you're doing it again.
You just did it again.
But you like, how many, like literally how many human beings like, how many human beings are actually getting after this.
Like, for the Mt.
Gox?
And, like, who do you phone?
Yeah, a lot of questions in there.
Okay, so... you're right in some sense.
All the big firms have a corner on the, like the bond.
If you want to try to play the bonds and stuff like that.
You can't open up a Fidelity account and trade distressed bonds.
You call them and you say, oh, can I get a quote on this bond?
And they're like, well, that's in default.
You're like, I know it's in default.
I'm asking what the quote is.
And they're like, oh, we don't trade in defaulted bonds.
They're way too risky for you to be looking at.
So you'd have to have like real prime brokers and you have to have serious money to play that game.
Also, you have to worry about getting run over by big distressed firms.
It was $20 million of their own money they were playing with.
They were like laughed out of Chase or something like that.
Yeah.
Yeah.
The same thing with Doritos markets.
I mean, you have to have serious setups and serious, well, I call them lines.
You have to have lines with your PVs to be able to do this stuff.
And so I knew...
The other side of the market are kind of the.
That's why I said on the lowest rung of the totem pole, which is the claims market.
So there are probably like 10 firms out there that really do trade claims.
And, you know, I say this lovingly because I'm one, most people in space are not super smart.
It's kind of like the, I don't know, a 19, maybe it's where like the...
Oh gosh, I'm going to offend somebody like the network administrator.
I don't know, like the kind of like the lowest level of ITU person.
This is like the lowest level of distressed person.
Yeah, like the rejects a little bit.
Yeah.
And so, but I kind of like hanging out with the rejects.
What can I say?
Right.
Anyway.
So you're kind of like a what's that.
You know they have a shark and they have a thing that like lives on the shark.
The food chain.
Yeah.
You're like that little thing that eats the stuff that falls off the shark.
And the shark kind of likes you because you keep the barnacles off it or something.
And that's you as a trade claim buyer if you befriend some of these larger stress firms.
Right.
The cases we're largely talking about when you have cryptocurrency exchanges going under and things like that.
You're talking about customer account claims.
And customer account, what's nice about that, like both in FTX and if you go back to Mt.
Gox, is the docket was largely customer account claims.
And so it's all trade claims.
There's not a lot of structured debt.
And so certain setups are just not appropriate for a small person or home gamer to be trying.
But, you know, you can literally buy claims.
There's nothing that stops you.
But do you put out a press release and you say, hey, all 100,000 FTX or Mt.
Gox claim holders, please email me and let's talk.
If you've been wronged by this curly-haired man, call me.
I'm here for you.
Okay, so, yeah.
So, in, okay, Mt.
Gox is a good example.
Fortress was my competitor on that docket, and they were buying up claims, too.
Pete Brigger's a big Bitcoiner, and he's one of the founders of Fortress.
And they were buying up claims, and they were my competitor on that case.
They were the only two people really buying claims.
We almost worked together, but we're still friends and everything.
And, yeah, we're still friends.
And...
They actually did do like press releases and tried to get people that way.
For myself.
This is going to sound ridiculous, but the entire 14000 creditors or customers was a leaked list.
So one of the things about Distress yeah, so you were able to use the leak list to actually find people.
My favorite is when you find somebody and his name's like some random name like Spin Erickson, I don't know make up some and he's in tech and he on LinkedIn.
He's like you know, he's part of the Bitcoin group.
And then you ping him and you're like, hey, do you have a Mt.
Gox claim?
If you do, like, we could buy it from you.
And he's like, how did you find me?
And you're like, well, let me see.
You're under 35.
You're into tech and you're part of the Bitcoin group.
And there are only three people with the same name.
So you're hustling.
This is work.
Yeah, you're hustling.
There's a lot of work.
The work here is you find the person, you contact them, you get them interested, you verify their ownership and that they haven't already sold the claim to somebody else.
There's a whole bunch of work that you do so that guys like me could just invest in and buy, just buy the claim, and we feel like, all right, you've done the diligence on this, you've done the cleanup work on this.
That's what we would have to trust you and that's why you get paid a carry or a fee.
That's why people from investors yeah, and you know what's interesting is so it is a lot of grunt work.
That's why i think sometimes it gets like the more like you know guys holding footballs who you know played, played hockey or something in college.
You know, there's not it's not like the the brainiest side of the stress, but actually the.
There's a lot of intricate, like I'll call them corner cases, like claim corner cases, where you really do need to know a lot about the legal side.
I mean, with ChatGPT, it helps a lot.
But still, it helps to have a wonderful experience.
And, you know, prompting chat is just as important as anything.
So the more you know, the more powerful it is.
But it seems like a good life for you.
Yeah.
You're hanging out in Italy.
It seems like you work project to project.
And what's the upside here for you?
Like, can you make tens of millions of dollars in one year?
Yes.
I mean, I don't know.
I mean, seven figures, definitely.
Eight figures is pretty hard.
What happens is you get people that push back on your fees.
They say, like, oh, you're not in New York.
You're not a real firm.
Like, it's just a few guys.
Like, you're just a broker.
But, you know, you build a reputation over time, and then people will pay you more and more.
But you can definitely make seven, eight figures, especially in a good year, especially if you have something to work out and you ever promote on it.
So let's walk through that game I talked about.
First, last, best, worst, weirdest, whatever.
So what was the first lifestyle?
Maybe you were a kid.
Maybe you were in middle school or something like, you know, Sally didn't want her bike anymore.
And you're like, oh, your trash is my treasure.
You know, so what was your first foray into buying distressed assets?
Yeah.
Okay, so my parents really were bankruptcy lawyers or lawyers.
My mom specifically was a consumer bankruptcy lawyer.
So I used to hang out like at the courthouse as a kid and like hang out with the clerk's office and with like US trustees and stuff.
So I kind of grew up like really.
Did you like it or she just like didn't have daycare and you had to go?
Yeah, basically.
I had daycare.
A single mom, basically like no daycare.
Tom's got the clip-on tie and he's in court with me.
So a lot of clip-on ties.
Yeah, this is my associate.
Yeah, so, and this is like paper files everywhere.
So no, so I grew up kind of hanging around it.
We'd always hear about stuff from, I remember when I was a kid, first hearing about like HUD houses.
I was like, what's a HUD house?
What's that?
Oh, you can buy these houses and you know they're really beaten up, but you can get really good deals.
So I remember my brother and I flipped a HUD house.
My mom put up the capital.
I have no idea what the numbers were.
We probably bought it for 20 or 30 grand that you know my mom put up and we probably sold it for 60.
We did the demo demolition ourselves, which is a, you know, I have to say, God love my parents.
I'm glad I wasn't injured severely.
You know, doing demolition when you're 14 is probably a bad idea.
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All right, back to the pod.
What was the story of the baseball card shop?
Ben told me there was a baseball card shop story.
So these are the kind of things I was talking about when I was a kid.
These deals would come up.
There was a whole thing where the baseball card industry went through this.
They were printing cards.
They said they weren't printing.
I don't know if you remember this, Sean.
And there was a bit of fallout in the collection market for baseball cards.
And I'm sure a few of them went under.
Probably like the microbrewery thing where people overmade microbreweries.
And then I've seen a bunch of microbrewery bankruptcies.
I remember seeing the entire shop was 3000, which is a lot of money when I was a kid.
My mom was like, do you want me to put up the money and you'd buy the whole thing?
I was like, we can do that.
So I would hear about these things as a kid and I guess it probably colored my, my imagination for what was possible.
And then I kind of like between that and, you know, I was really obsessed.
So I started, I guess I bought my first stock when I was 11 or 12.
I can't remember, but I was sort of obsessed with Warren Buffett as a kid.
Um, but I and then and then what happened, guys is over time.
Is I sort of melded the two things together?
It's like what would Buffett do if he had the specific knowledge you know the Naval term like specific knowledge of bankruptcy plus um what he knows well, which is, like you know, valuation and sort of like deep value investing or value investing.
So I kind of melded those two things together.
Yeah, I actually think there's three.
You have knowledge of the law and not as fearful.
It's like I speak the native tongue of bankruptcy court, right?
So it's like, okay, I feel I can get more certainty than the people who hold the claims, right?
I have a better idea of how this will play out and how long it'll take to play out and where the puck will land.
So it's like knowledge of the legal code, deep knowledge about deep knowledge, and interest in deep value investing, which i like, admiring buffett and and and howard marx and a bunch of these guys and and really learning from their playbook.
And then the third is just the entrepreneurial hustle to go cold call, knock on doors, raise the capital, get the claims, do the verifications go, travel to you know wherever and and make it happen right.
So you kind of needed that venn diagram to be able to do what you do.
That's what i'm hearing and i think for me, like i got kind of obsessed with the adventure of investing, like for me, My very first real distressed investment was this thing called Ethnex Energy, where people had all these restricted physical shares.
And so I literally drove around the Northeast and bought shares off of people and would go into the local bank and get things medallion signature guaranteed.
And I was like oh, I'm just like Buffett in Snowball, where he's going around and buying shares of the hunting lodge.
He's knocking on the door of Geico, like, can you give me a tour of the office?
And trying to figure it out, yeah.
If somebody hasn't read Snowball, can you tell us a sort of a Buffett hustle story or a Buffett devalue distress story?
Gosh, I mean, I must have read it at least 10 years ago.
So, yeah, I mean, he was famous for there was some security.
I can't think it was a hunting club that he joined just so he could buy stock in this.
I mean, maybe you guys heard the story, but there was like a hunting club that also had oil on its land.
And so it's probably a apocryphal story where he, like you know, gets all the hunting gear and like, joins the hunting club.
Buffett doesn't give a shit about hunting.
Hello, fellow hunters.
Hello there.
And he's got his rifle on his... You don't suppose you want to sell some of your shares, do you?
So I can't remember exactly what the story was, but it was something along those lines.
And I think it was like, you know, you could... You know, now...
You know, one of the things I took away from Buffett is you're always using your unique competitive advantages, just like in any business, right?
And all the lessons from business kind of apply to just pure investing.
And, you know, using those unique competitive advantages.
At the time, there was all this informational arbitrage.
That's probably less and less now.
There's still scuttlebutt, meaning like making phone calls and channel checking and like getting out in the field and hustling.
And hustling goes a really long way.
But, you know, now you have other advantages, like you can invest in Japanese insolvencies.
Buffett couldn't invest in Japanese insolvencies because you didn't have Google Translate.
So, you know, you just have to keep pushing the boat out.
To me, that's the real lesson of Joel Greenblatt or Warren Buffett.
Joel Greenblatt was like a famous specialist and investor, which is you know, you play the field and you use everything.
We just talked to Howard Marks and both Sean and I have read a bunch of Buffett stuff.
You're doing something.
I don't know how great of an investor you are.
Other than this one topic is really fascinating to us, and you seem wonderful.
But you're doing something that they do, which is you use really great language.
Yeah. for me, I think it's all about valuation.
Just how you manufacture the valuation is like the sauce and like how you you know you're making your sauce.
Like you guys are doing venture deals.
Like so much of it is probably access and connections and reputation and being able to get allocation, but also being able to vet founders or vet VC firms.
And, like you know and also knowing what the docs look like like, all that kind of like Not a Venn diagram, but that whole like soup that makes it work.
We have the same thing in what we're doing.
I mean, Howard Marks is an absolute legend.
And, you know, he has a very famous... I mean, I'm sure he talked about Bruce Karsh, who did... you know, a lot of the investing.
And Howard Marks is like the great communicator.
I mean the guy.
I mean that's one of the things I think people don't appreciate is you can still work on investments, make really good returns, but those guys are like monster communicators.
Like they are great at fundraising and they're great at what they do.
So it's just they have like, multiple skill sets or you know, or they have partners to back them up.
You sent us a list of your core philosophies and you told us the first one, the stake and sizzle philosophy that you live by.
Tell us about some of these other ones.
So one is shop Madison, not canal.
What does that mean?
Okay, I stole that one.
I like it because what deep value and distress the mistakes they make is.
They sometimes buy value traps.
They buy real crap.
The idea is you want to buy real stuff that is cheap.
That could be good.
So like the phrase is you know you don't buy, you know handbags on Canal Street because those are all fake.
You buy them, you try to get a good price on the Madison Avenue when they're discounted.
Not, you know, because, you know, Fool's Goal is a real problem in distress.
You say, oh, this guy put $200 million in it.
It's only 10.
It's like, yeah, but it's worth zero.
So you got to be careful of this kind of bias that runs into like, oh, it's such a good deal.
You're like, is it?
So I mean you know assets become liabilities and liabilities can become assets when you get in a restructuring situation.
All right, let's do the next one.
He said, start young.
The first decade is tuition.
I love this.
This could apply to any field, by the way.
I think that's a great phrase just in general.
Well, you guys, come on.
Y'all know a lot of this stuff.
But for me, I started when I was 12.
I was terrible.
I think the first... I can tell you the first stocks I bought.
I bought Home Depot because Bob Nardelli, who was passed over for whoever, I think, maybe Jack Walsh, or maybe Emmett, whoever became the CEO of GE came over to Home Depot and he was going to GE.
Home Depot.
Well, that didn't work at all.
And, you know, so I wasn't investing at all in valuation.
I was based on a story in HBR.
There was this huge article in a Harvard Business Review.
And I was like 12 years old, like reading this being like, oh, yeah, ethos.
I don't even know what this word means.
He's going to change the ethos.
So that was like the first step.
I was like, ethos?
I never heard of this word.
Sounds smart.
That was the first stock.
The other one I bought was Inco, which was a large nickel producer in Canada.
That actually did work out.
It was based on the rising price of nickel I read about in Foreign Affairs.
The third one was from a Forbes article.
It was EMC, which is a chip manufacturer.
I can't remember what happened to that one.
The thing is, you do this thing about stocks especially when you're young and you've never done anything.
You buy them and you're like, okay, I bought them.
All right.
And then day two, you're like, now what do we do?
My kids are, I have a one-year-old, a four-year-old, and a five-year-old.
And for my four and five-year-old, I just, like they were trying to earn something.
They wanted like ice cream or a treat or a toy or whatever.
They're like, if we do this, can we have that?
And I was like, here's what I'm going to give you.
I'm going to give you $100.
They're like, $100?
I was like, I'm going to give you $100 each.
But because I was teaching about like we were like waiting in the parking lot and I was explaining what a grocery store is.
I was like yeah, so somebody owns this business and then they buy the stuff and then they sell it to us.
I was trying to explain what a business is and I was like failing miserably.
I was like, oh my God, why is this so hard to explain what a business is?
But I basically told them, I gave them 100 each and I, this weekend, I'm going to present to them five stocks of products that they use and buy.
So like we bought a Nintendo Switch.
So it's like, here's Nintendo stock.
And I'm going to let them pick and let them invest it in an account where they're going to start to see whether it's going up or down.
And I'm going to have them explain, whatever their logic is, of why they picked either Nintendo or whatever Yamaha, or whatever stock that they pick.
And then they're going to get to ride the ups and downs of this.
So I'm with you on stardom young, even younger than you would guess.
Well, yeah, I just think that, you know, I don't know.
You know, my own experience, like, you know, you'll meet guys.
This is a common thing.
I'll meet guys.
I don't know when I'm here or on holiday or wherever.
And they'll have an exit.
Like, I met a guy who was like a very early employee at Airbnb and he had probably 80 million dollars or 100 million dollars but he's never actually invested money.
So now he's 45, probably 50.
And now he's like, you know, I'm so good at this.
Like I'm going to buy some Duolingo and I'm going to, you know, do this and do that.
And I'm like, well, you just need to respect the fact that you've actually never invested money.
I mean, you are amazing operator and you got a rocket ship.
That's awesome.
We say that all the time on here, which is there's a huge difference between investing and earning, like via a company.
Not just a difference.
It's almost like the opposite.
Yeah.
It's like a power lifter that then goes and tries to, you know, do ballet or something.
It's like, oh yeah, operator.
It's all about action.
You know, it's all action, action, action.
You got to do stuff, right?
You're trying to do as many things as you can be super productive as an investor.
It's like, sit on your hands.
Inaction is your friend.
All the money's made in the holding, the waiting, the observing.
And as an entrepreneur who was rewarded for taking action, you get punished as an investor for taking too much action.
Yeah.
And, you know, it just takes a ton of experience to be good and, well, even to be okay.
A question that Sean has asked me before that I love, which is like basically, how do you invest your own money?
And I want to ask you the same.
Do you, since you are a professional investor?
Do you have 100 of your portfolio in a variety of deals like this?
Or are you doing any passive stuff?
Or is it all active stuff?
It's all pretty active.
Yeah, I don't I don't you know, like you for me, it's like tax advisors.
Great.
People that like, you know, estate planning advisors.
Great guys.
I want to manage my money.
No, thank you.
Partially because I enjoy it.
But also I don't think that I've reached the capacity where I have more money than I know what to do with.
You know, I think that I can still find a lot of deals.
I mean you know your opportunity set when you have, you know, a million or 10 million or whatever, is just a lot better than if you're.
You know, if you're at 100 or for you know the optimal strategy is uh, changes based upon your capital base.
So when you say active, do you mean it's all distressed, it's like your specialty, that's where you're putting most of your, your net worth, the majority.
Yeah, i put most of my money into our own deals.
Right when you uh, you were saying, like you know, early on with your hedge fund, you were putting five percent into that deal, you weren't allowed to because you have, as investors, to get, like you know, as crazy as maybe it match your own conviction in the deal.
Uh, now that that's not the case anymore.
Like, how concentrated have you gotten?
Like, do you have you gotten any?
Have you ever been at a point where you're just like insanely concentrated?
I kind of like it when it hurts a little bit because it's so, i'm so concentrated.
But maybe that's me, i don't know.
I mean, i feel like it's a little bit like an entrepreneurial bent, like you kind of.
If you're not pushing yourself, then then then I wouldn't feel comfortable with it.
I mean, I understand if you have a big exit.
For me, I'm constantly investing in other deals, friends' deals.
I feel like I have pretty good deal flow in the distressed area.
And then the claims work.
I wouldn't say it's free money, but you can almost reliably compound your money on a small base like a few million bucks or something.
You can reliably compound that at pretty aggressive rates.
What do you mean by pretty progressive rates?
What is that?
Is that 15%?
Is that 25%?
Is that 30%?
What are you talking about?
Just, I don't know, probably 30 to 50, depending on the year.
You can, you can probably easily get higher than that.
There's these guys Sean, like in I used to live in Texas and there are guys who, like I, didn't know what their job was.
I'm like, I don't know what you do, but you're really wealthy.
And I just started calling them capital men.
They're just capital guys where they just like, do they like it when you call them capital men?
Yeah.
It's a good phrase, Tom.
You're a capital guy.
Maybe.
I don't know.
I guess for me I feel like I've spent my entire life studying like the history of sort of like modern investing like guys that bought banks out of bankruptcy before you know when you could do that.
You know guys that have minted enormous fortunes with you know like there's a guy that bought a tobacco company around the time they were doing the settlements with tobacco companies who made a fortune.
So I've studied a lot of these things and I've always wanted to be, to do.
Just one deal like that.
So I guess I've always aspired to do that.
But I mean, if you there's that phrase, you know what is it a position well bought is already half sold.
And I do think when you're doing sort of very special sit sort of deep value distressed stuff.
If you're selective.
The problem with a fund and the big institutional money management firms is they always have to constantly be finding deals.
The nice thing about being a little bit of a home gamer is you can be very selective.
You can literally do nothing in a six-month period or a year if you just can't find anything.
And they still do claim work and bring in income, but you don't necessarily have to swing.
I mean, we've seen deals Over my lifetime.
I've seen deals where guys have you know turned you know 20 million into 3 billion and you know 6 million into 80 million in one year.
I mean, you see some incredible deals in the space and you know you're getting high optionality, low risk because of the price you're paying.
But it's a ton of work and a lot of brain damage for sure and a lot of hustle.
And that's not necessarily the claims.
All right, let's take a quick break because I got to tell you a story.
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I was using a traditional bank and you know the type.
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They flagged the transaction.
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And that was the day I started looking for a new banking solution.
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We've kind of hyped up, you know, what you do.
We've glamorized it a little bit in this episode.
We've glamorized you and what you do.
Give us a little bit of the ugly.
So first on the asset class in general.
So for example, startup investing, I could tell you is amazing.
You meet these entrepreneurs.
They're telling you about the future.
These are the smartest of the smart, young, ambitious, creative people.
And when it works, dude, you create the next Facebook, next Airbnb.
You can get 10,000 X.
And then you go and start doing it and you're like oh, and also you know you're going to be wrong most of the time.
You think you're going to learn so much from these people.
It's like you hand them the check and then you kind of don't hear from them that much after that.
You're not actually going to learn that much.
Nor do you have any control or say in at all what's going on in your investment.
And by the way, even when it works, it's going to take 10 years for it to get liquid.
You might be rich otherwise.
You know, this is not the way you're going to get rich.
It's a hobby for people who are already rich.
And that's like...
If I was going to say, what's the real talk of angel investing?
That's how I would describe it.
What would you say is like the ugly side or the bad side of what you do?
What's the downsides of this asset class?
Well, distress in general, as a small player, you can get totally hosed.
So don't like.
Every now and then I'll hear someone, even smart friends, will say oh well, you know, KKR is going to make sure everyone's taken care of, because they don't want the bad press.
I'm like, what are you talking about?
It's not Lake Wobegon.
They are going to walk all over you in bankruptcy court.
So I never understand this logic.
And it's only from many years of... being like, oh, they're going to play nice.
No, they're not going to play nice, and don't ever assume that.
And sometimes you do get a gift.
They'll do things that'll be a little more gift-like to wherever you are, if you're in a preferred or if you're in equity.
God forbid you're in equity, but if you're even claiming things like that.
So that's one of the ugly sides.
I think also one of the ugly sides is you know, it's very transactional and financial.
So it doesn't exactly, you don't get people who are like giving you the starry eyes of the future.
A lot of times you're sitting across people arguing over a pie that ain't growing.
In fact, maybe the pie is bad apple pie that's already gone off.
So it's like, they're really arguing over something that could be either dying or shrinking.
So I think it has an emotional toll on you being in distressed investing.
Also, you are actually hearing people's life stories.
I will not mention names, but companies will go bankrupt and this will be someone's entire life's work.
And they're Picasso.
And they're spending two hours telling you about their Picasso.
And you just can't.
You just got to let him.
You're almost like a guidance counselor, walking them through.
You know, maybe doing a dealer transaction, and try and be as respectful as possible.
The fact that this person might've just lost their life's work or their family's fourth generation business, et cetera, et cetera.
So you, um, you have people in, they emotionally are in distress.
So it is a tax on you, but also you need to be as respectful as possible.
And, um, I don't think we'll say what else.
I mean, I think as a small player, it's very hard.
I think for me, I always say that investing isn't I would I wouldn't say I'm good.
I'd say I'm OK investor.
I'd also say that it's a bit of a disease.
So I kind of like feel compelled to do it, even though sometimes maybe it's not the best thing for me.
So I always joke that, you know, it's it's kind of a disease.
Like I'm looking at this stuff on nights and weekends on Sunday morning.
You know I'm.
You know, just like you might be having another call to startup that you think is interesting, or trying to get on an allocation for something like I'm doing the same thing with my deals.
Like I'm trying to learn a little bit more and see if I can find something.
So, yeah, I don't know if I answered your question.
No, you did.
The second part of the question is we've been glamorizing you a little bit, but you called me, you know, before the pod, and or you called Ben and you were like hey, like just you know, like to Google me, you're going to see some stuff.
I want to be able to, you know, do you guys want to ask me questions?
Do you want me to talk about that on air?
Like, do you want me to clear the air about this?
So like hey, here's an opportunity, because if somebody Googles you yeah, there's like a settlement case.
I don't know what's going on with this.
Like, what do you want to say about this?
Yeah.
So, and that's why I said, I said Ben, you haven't said anything about this and I'm wondering why you haven't.
And I just want to put it out there which is yeah, I was involved in this receivership in Delaware and I got some pretty nasty headlines and I have to say, you know, as I've gone through my life, I've had a lot of ups and downs, like anybody, or any entrepreneur for sure, and this was a down one and I'm glad to have it behind me.
It was a receivership that I was in charge of.
We made a lot of money for the shareholders.
So the court didn't like some of the way I went about my activities and sort of aggressively slapped me on the wrist or maybe in the face.
And I'm glad that everyone in the it's called fundcom is getting a good recovery and I'm glad to have it behind me.
But yeah, it's like something I wanted to bring up because I didn't want to act like it was something that didn't happen.
Okay, but what'd you do?
You're like, ah, this is not my best, but what'd you do?
So the biggest thing is, so I was running this receivership.
And, of course, because of that, I was in charge of doing everything, whether it's like administrative work or like running the bank accounts and doing the taxes.
And, you know, while I think I'm a good- Sorry, dumb question.
What does doing the receivership mean?
You're taking it through bankruptcy?
Is that what that is?
So it's kind of like a bankruptcy, but it's a state and state court.
So this was in Delaware Chancery Court because the company was a Delaware court.
And so my job was to sort of marshal all the assets.
There were no assets when I showed up.
So this was basically a pump and dump penny stock.
I bought up 20 of the company and then I went to Delaware because the guy who was running it actually got arrested for a different fraud that he was doing.
This guy named Jason Galanis.
And so because of that, I was like oh, because I knew all along that this company likely owned the domain name fundcom.
Plus, they own this ownership of an ETF company called AdvisorShares.
So I went and got myself a point of receiver.
There was no assets in the company.
And my goal, or my remit from the court was as a receiver, almost like a bankruptcy trustee was to marshal all the assets and then try to pay out as much to shareholders as possible.
I think I did that.
The court and I did do it, but I had a shareholder who was very unhappy with the way I was going about it.
He complained to the court.
The court looked into my activities.
They didn't take kindly to some of the things I did, whether it's the tax position or how I was moving money around and the fact that I was investing the money in deals that i was doing, and so you know, they pretty aggressively slapped me, and that's where the headlines come from um.
I, of course, have the whole time feel like i did my best to cooperate with the whole thing and well, i'm glad to see that we have a good settlement with the, with the new receiver, um of the receivership and um.
Again, the outcome for the, all the shareholders who were involved, is pretty darn good, which i'm glad about because at the end of the day, I didn't want to all just go to lawyers fighting over this.
And, you know, that's kind of what happened.
So not my brightest moment, I would say, because I feel responsible as a person in charge to do everything and do it properly.
And I don't think I'll be being a receiver of anything anytime soon.
Don't think I'll be doing that again.
Okay, well, you know, sorry to make it awkward.
I just had to ask, try to understand.
No, no, I'm glad you do.
I just...
And I've you know my thing is for me, reputationally as someone who does what I do, it's important that I try my best.
But I think in the end, over time, I'll be able to talk about it more and more.
Sam, you look highly amused by this question and answer.
What are you thinking?
The headlines aren't good.
Yeah, I saw the headlines.
I understand why you'd want it addressed.
It's not a good headline.
Yeah, I'm reading it as you spoke.
So did you admit guilt?
Is that what is that?
No.
What's implied with the settlement?
So the settlement is just.
Well, the settlement.
In addition to the fine from the court, the court fined me 2 million.
So I paid $2 million of what they considered were constructive trust profits in.
Plus I paid for the special master.
That was another $750 or $800.
So it's basically 3 million.
Then the settlement was 36 million plus 800000 that was in escrow plus about 10 million in claims.
So I gave them claims that they say were commingled within my personal investments.
Do you think you did something wrong?
And there was no admission of liability.
Yeah, so I don't know how to even ask this question.
I can't ask this question.
There's no admission of liability.
Well, you can ask because you should.
My only thing is I don't, I've never.
I'm glad that it's a good outcome for shareholders and I wouldn't want anyone to be inflamed by the stuff I say.
Like any shareholder would be like oh, he's not like admitting.
You know, in my estimation it's a lot more gray than the court tries to make it out to be.
But at the same time, like I respect the court, you know, like I was grazed by lawyers and If a court says, you know, I don't care what you're arguing, I disagree with you.
We've had a bunch of people who've come on this podcast before that I think have had stuff.
I mean, I think it's fairly common in the world of business.
You do business for 30, 40 years that at some point something can you know.
It's extremely common for something to go down where you get sued or you sue somebody or whatever happens.
That part's not uncommon.
What is interesting, like, Sam, I don't know if you remember when...
We had Martin Shkreli on.
And he sort of got this character which is like, he's the bad guy.
And he leaned into it and inflamed it and did a bunch of stuff which was really crazy.
And he got in trouble for it.
And then he had the issue where you got in trouble and he was like, hey, everybody made money.
And then they're like, yeah, but you went to jail.
So something happened.
And I remember you were telling him, you were like, And this was now, like years later, he had like, literally like, done his time.
And again, he's quite a character.
Like Shkreli is like an actual, he's an actual character.
I think he plays up that character and I think he likes it.
He likes mixing it up in that way.
But I remember just thinking like, it's so interesting how to handle something like this.
It's such a tricky spot to be in because there's many versions of things like this.
Like there's, I did something wrong, not knowingly or unintentionally.
I did something wrong intentionally.
Then there's like the Shkreli case, which is kind of like I did something wrong intentionally but everybody like made money.
And so who's, you know, so it all worked out, right?
And even, for example, like Elon right now, I think, is getting sued and, like you know, 15 different courts by 15 different people publicly feuding with the president and Sam Altman and others.
There's a lot of people just constantly mixing it up.
And I don't know.
I definitely think it has to have.
You know, maybe not as aggressive as mine was, but I definitely think people think over time you're going to have scrapes with certain stuff.
And the whole bad guy thing, and I know Scarelli did kind of lean into that, I guess.
Even now, I feel like, well, I don't know if he does now, but... Kind of.
I don't know.
It's a different way to do it.
For me, I kind of like... don't view it as a good thing for me.
I kind of view it as like something that if someone's going to be a business partner to me, I need to be able to explain.
And, you know frankly, probably more candid than on air, but at the same time like, try to respect the outcome of the whole thing.
How long did this last?
Gosh, 2022?
Oh, wow.
Three years.
Yeah.
And that has to feel horrible.
I've gotten in trouble before when I was in college and just like waiting to hear the verdict.
I remember like that feeling and mine was not.
I think your consequences are significantly worse than my consequences.
And I can't imagine three years of what's going to happen.
You know, for me, I tried to resign myself to whatever happened.
Like, I have to accept responsibility for that.
That was a big one for me.
So, I like really was, you know, bracing for the worst, but trying to do the best.
Also, like even with the settlement, but like way before the settlement, with different things that went on in the case, I was really trying my best to be constructive and cooperative with what the court wanted me to do.
But at the same time, like, you know, not everybody's going to love your decision making.
I guess it's like you know.
In a weird way it's like you know it's you know.
I grew up in the South, where people are way too like.
I don't know, maybe my upbringing was a bit too people-pleasing, but this was more like.
You have to do the right thing, whether someone likes it or not.
You have to do what you think is the right thing.
So that's what I really, a lot of what I got out of this, and I tried my best.
And people might not like what you've done or what you've made a decision like oh you're doing this, you're trying to hide this, or you're trying to do this and you're not cooperating here, but you're still trying to find some middle ground.
But it was a big one over me.
Yeah, i wanted to ask you uh, we can end with this.
I want to ask you uh, for a bit of a reading list, like if i was gonna try to get you know smarter about this stuff.
What are, like i don't know, the most influential books or blogs or people that are are worth checking out.
Like, give me your kind of top three uh, in no particular order, but what's your short list on stuff i would go read, just if i wanted to get smarter about the stuff.
So I think on the list because I shared like a book list, of course you have people like Seth Klarman and Margin of Safety.
It's a hard book to find, but if you Google around, you might be able to find a copy that you can read.
Isn't it like a $2,000 book now?
Yeah, it's like a thousand plus.
It's good.
He talks about different stuff.
I just think that he's kind of a goat in the kind of deep value.
You know, Baupost and Seth Klarman are pretty influential.
But you know, an easy guy to find.
You know anything by Marty not Marty Lipman, but now I'm trying to think of his name from Third Avenue Value.
He's written a few books on distressed investing.
And he was the one that kind of stole the idea from him, where it's like an asset is a liability and a liability can become an asset in a bankruptcy.
And it's so true.
And you think about it with a lease.
If you have 50 leases and they're all below market well, a debtor can assign, assume or reject leases.
So if you're all below market rents, you can assign them and they can become an asset, even though, leading up to the bankruptcy, you know they can be a huge liability to make those payments.
You like Kirk Ikorian?
Sean, have you ever read about Kirk Ikorian?
You've told me about him, but I haven't read anything about him.
Oh, my gosh.
That's one of the best biographies of all time.
Oh, you like that one?
That's a really good one.
Oh, my God.
Yes, the gambler.
That's one of the best biographies.
Basically, he's an Armenian, I think Armenian, immigrant.
Yes.
Raised in Central Valley, California.
Went to the Army.
When he got back, his first little business was a small airline, which basically just means he somehow convinced someone to lease him a small Cessna and would fly people back and forth from, like I don't even know, all around California.
It sounds more glamorous than it was.
But he grew that over something like 15 years and sold the business to TWA, which was the large airline company at the time.
And he made a little bit of money, but he parlayed that into buying what would now become the Las Vegas Strip.
And then he parlayed that to buying this other thing, this other thing, this other thing.
And he worked his way all the way up from being a nobody, poor... no running water immigrant to owning uh what was the car chrysler and i think he also owned uh like warner did he own warner but he for sure owned chrysler uh mgm i believe sorry mgm and uh the biography is basically his thinking he's very calm he's very methodic he's very like kind of traditional immigrant like where he was like straightforward it is what it is i don't stress about it But he was a total kind of degenerate gambler, and he died with a net worth of something like $15 or $10 billion.
Sounds about right.
Well, you know what I actually love?
Because you were asking about books, Sean.
It's like I actually think the entrepreneur like biographies either autobiographies or biographies can be amazing.
There's one called Zeckendorf, which is by a guy who's like a big real estate guy in New York who like, made a billion, lost a billion.
There's like one, it's like How to Lose $100 Million and Other Valuable Advice by Arthur Little.
Like there's all these kind of like entrepreneur books that are like some are out of print, some are still out there.
And of course there's, like you know, special sit investing Joel Greenblatt, you can be a stock market genius.
These are great books for when you're talking about securities markets.
But I actually think the best investors are people you've like never heard of.
Because, you know, they make a hundred million bucks and then they're like, I'm out, peace.
Like, you know, you might, and their stories aren't recorded.
I think I put E.P.
Taylor in there.
So you want to hear the E.P.
Taylor story real quick?
That's a really great one.
So E.B.
Taylor, during the prohibition, he would go up and buy up breweries.
And his whole thesis was like, one day, this is gonna be done.
Like, we're not gonna, we're all gonna start drinking again.
So he would go around and buy up.
Like you know, manufacturing distribution bottling that was a play on that.
And he would roll them up because the capacity was so low he could buy them for peanuts.
And that was it.
That was his one trade.
Like, you know, of course it took him 20 years to work the trade out.
But, you know, he minted himself, you know, some serious dough.
And then he wrote a book about it.
So I think these guys, you know, you can do... Is the book The Biography of Edward Plunkett Taylor?
Is that him?
Yeah, that's him, Edward Plunkett.
And he founded the Lifer Key Club.
I don't know if you guys have ever been down there, but it's like a famous club in the Bahamas.
Like Primlotsa.
And well, Sam Bankman-Fried was across the thing at a place called Albany down in the Bahamas.
Did you ever bump into Sam Bankman-Fried?
Any good SPF stories?
Do you know what's funny is like?
So I was in crypto and then Sam became like this like Rockefeller of crypto, like John D Rockefeller of crypto.
And I was like, who the hell is this guy?
Like I never even really, I never really ran across him in passing.
And a lot of people that worked for him were like, you know, whatever, EA or EI.
Effective altruism, yeah, EA people.
So you had a lot of EA people around.
I just didn't know any of those folks.
They weren't like hardcore crypto people.
Yeah.
It was kind of a weird thing.
When I saw them coming up, I was like, man, how did I miss this?
Where'd this guy come from?
We had Robert Greene from 48 Laws of Power on the pod like two weeks ago or something like that.
Have you ever read 48 Laws of Power?
The book is what it sounds like.
I own the book.
I think I breezed through it.
I haven't read all of it.
48 Laws on Acquiring Power or whatever.
It's very sociopathic, but that's kind of the point, which is like it's sociopathic, but it's real.
And one of the laws is to reinvent yourself.
And we had talked to him.
We were like when you have social media, you can talk to your people, talk to your audience while you're on the toilet.
Any hour, you can tweet anything.
How do you deal with that?
And he was like, basically, you want to have...
You want to have planned silence.
So the best way to be loud and in everyone's face sometimes is to just shut up and not say a word.
Disappear for a while.
And disappear for a while.
And he was talking all about powerful people who kind of come out of nowhere.
John Rockefeller is one of these guys who he was one of the richest men in the world before everyone, like no one had seen a photo of him.
And it was all part of a plan, I think. and it sounds like uh sam bankman freed we didn't give him enough credit because when at least when i saw him coming up i was like oh he's just an autist and he's just this typical silicon valley type of like he just doesn't know he doesn't have any manners this is all but it turns out it was probably all planned where he was like i want to appear as though i slept on this bean bag i want to appear as though i'm playing video games while i'm talking to sequoia over a 200 million dollar deal And it was straight out of Robert Greene's 40 Laws of Power, which is pretty funny.
I mean, I met a ton of people that work there, of course, and a ton of people that were like in the orbit.
And it's kind of crazy to see the different, I guess, like, Munger does it best, right?
The Lollapalooza effect of, like, the whole thing.
Like, everybody's getting drunk off the money.
Were they straight?
Like, straight-laced?
Yeah.
Yeah, like almost all the people, all these employees, they didn't know anything that goes on.
They weren't like in the five-minute circle.
They're just normal nerds.
They're just normal workers, just normal.
They weren't part, you don't think they...
No, I mean like I met the lady.
She was the head of payments and she was like an expert to getting like payment licenses.
So basically like banking licenses around the world.
And she had worked for somewhere and then she got.
Then CZ pulled her over to Binance and then she got poached by Sam.
She was just the best.
Of course he had to pay her like she was the best.
She was making millions of dollars a year.
Um, but like some of their contracts were insane.
I mean Sam was giving out 10 year contracts to people, guaranteed 10 year pay contracts.
You know like million dollar contracts to like salary employees a little bit like the.
You know like AI, you know meta thing.
I mean, it's a little bit like that because he had so much money coming in from VCs.
And of course he had an unlimited.
Uh, you know well not unlimited, but he had a big customer base to dip into.
So between that, I mean, he was making unbelievable, like whatever you want to call it unconscionable contracts too.
Dude, just to put this in perspective.
I think Zuck, I think the news about this stuff kind of came out, you know, let's just call it even three, four months ago.
Okay, so let's just say this has been going on for three, four months, the researcher stuff.
If you go look, so four months ago, The stock was at about 500.
Let's go April 1st, so 586.
Today, the stock's at 784.
So he's spending this money or he's making these offers, which has multiple effects, right?
First, it raises the price for all of his competitors.
So he's like cool, even if they don't take my offer now they have to pay 100x what they were paying for talent before.
Like way to screw up their business.
In his own business, the stock since then, it's now at 784.
So it's up 33%.
So what's 33% of it?
It's almost a $2 trillion stock.
$600 billion or $500 billion.
And he's basically offered the equivalent of $20 billion for this talent, right?
Maybe $40 billion max.
And so he's basically said, cool, I'll put out offers and try to spend $20, $30, $40 billion.
Already made back 600 billion in the market just in that time, by strengthening my story of us being all in on AI.
It's not like the Facebook business changed that much in four months, where it's up 600 billion because of the actual user base growing or even revenue or earnings.
Yeah, they beat by a small, maybe 8% beat or something like that.
But the reason it's up is because everybody believes AI is the future.
And who do you think is going to win in AI?
And you get punished if people think you're not going to win.
Apple stock is going down right now because people are like, Apple has no AI strategy.
They're going to lose.
And then somebody like Meta at least the story is Zuck is all in going to win poaching great talent.
So there's a believability to it.
So it's crazy that you can spend so much and somehow net out way ahead like he did.
It's crazy.
It's crazy.
Magic of the markets.
Hey, Tommy, we appreciate you doing this, brother.
Oh, guys, thanks for having me on.
It's good to meet you guys and chat.
All right, that's it.
And we appreciate you.
That's the pod.
All right, let's take a quick break because, as you know, we are on the HubSpot Podcast Network, but we're not the only ones.
There's other podcasts on this network too, and maybe you liked them.
Maybe you should check them out.
One of them that I want to draw your attention to is called Nudge by Phil Agnew.
And whether you're a marketer or a salesperson and you're looking for the small changes you could make, the new habits you could do, the small decisions you could make, that will make a big difference.
That's what that podcast is all about.
Check it out.
It's called Nudge, and you can get it wherever you get your podcasts.
