- I say trading is a battlefield,
the world is a battlefield!
Too many people are unprepared due to a lack of education.
My parents gave me control of my Bar Mitzvah money.
They thought I would lose it all.
They thought that it would be a good lesson like,
give the kid the 12 grand,
he'll blow it in the stock market.
I just got addicted to tinkering to see what worked.
Senior year of high school, 12000 became 100000.
Freshman year in college, I made nearly a million.
When I first made my million dollars,
I ignored my friends and I was studying the stock market
at night, and I was obsessed.
That pays dividends exponentially later on.
What can you do today, this week, this month, this year,
to put yourself in the best position five years,
10 years, 20 years from now?
You know, I grew up never thinking about charity,
never thinking about teaching or anything, but you evolve.
So for me, it's not about the cars or the fancy stuff.
Now, I want to see what can we do to bridge
the third world with the first world,
using this new technology and information?
I am so fascinated by the potential
for education on the internet.
That is the challenge for me.
That's what's fun.
This is the chart pattern that has made
me a multi-millionaire.
The world is changing faster
and we're unprepared with education.
But the cool thing is, we have this tool
where we can get mass education all at once.
You know, it's kind of like a race.
Are we gonna destroy ourselves,
or are we gonna get educated?
Education is the key.
- Tim Sykes is a man who is full of energy.
And if you've ever watched his Instagram feed,
he's travelling the world on yachts,
driving exotic cars, and just doing whatever he wants,
and that's because he's known
as America's number one trader.
And when he was just a kid, he took $12000
of his Bar Mitzvah money and turned it into millions.
And the thing about Tim is, is that every single one
of his stock trades is transparent.
He puts it out there for the public to look at,
so you can really see how he's made his millions.
And today, he teaches over 6000 people from around the world
exactly how to trade stocks and make money.
And as a former Wall Street banker,
I was fascinated by the strategy that I honestly
had never heard of, so I convinced him to sit down with me
for a second conversation, where we went into detail,
exactly how he trades stocks,
how he minimises the losses, and maximises the gains.
And what he said to me is,
"Brian, $2000 a day keeps the day job away."
And that's exactly what we talked about.
So if you want to watch that second video with me and Tim
for free, click on the link below,
or go to londonreal.tv/tim,
I'm telling you, these trading strategies
will change your life and maybe change
your financial future.
I was super impressed, I had never seen anything
like this before.
So, click on the link below if you want to watch that.
Tim is an amazing guy, he does great things for the world,
also contributes to a tonne of charities.
I know this is gonna be the first of many conversations
with Tim, and I hope I see you for our special
conversation later about trading stocks.
Here's the interview.
This is London Real, I'm Brian Rose,
my guest today is Tim Sykes,
the American investor, author and educator,
who became a self-made millionaire by the age of 21.
As a teenager, you turned $12000 of Bar Mitzvah money
into $1.6 million and later created the number one ranked
short seller's investment fund for three consecutive years.
You then started the hit documentary series,
Wall Street Warriors, and now spend your time teaching
trading strategies to over 6000 students
from around the world.
Tim, welcome to London Real. - Hey, thank you
for having me.
- Great having you here,
how is London treating you first of all?
- Love it.
Amazing food, amazing sushi, actually pretty warm.
- [Brian] (laughs) It is, right?
- I dread like coming to cold places.
I always try to stay tropical, but I came here for you,
and it's not that bad.
- I appreciate it, do you like big cities normally?
Or do you like to stay on the coast?
- I do everything, you know.
Big cities, out there, I'm travelling non-stop.
I've been in 12 countries in the last two months now.
- Okay, very nice, well look.
I walked down memory lane when I was researching for you,
and I would love for the people watching
to kind of understand the basics of trading,
why someone would want to trade,
and then maybe we can get some specifics
of how you trade, and the mental game of trading.
I think a lot of people would be really interested,
because everyone's seen the movie, probably Trading Places
was probably one of the first movies where they saw people
trading futures, and then Wall Street, Boiler Room,
and I think everyone has an idea what it is,
but no-one knows what it really is.
- Yeah, I mean there's, obviously you can trade a whole
bunch of stuff, you can trade commodities, I trade stocks.
I think that it's actually better to be a trader
than an investor, like I talk a lot to people,
like oh, you're in the stock market,
I've invested in Apple and Facebook and Google,
and that's fine if you wanna like grow your money
over the long run, but traders have different time periods.
So I made like $2000 this morning here
and I held the stock for like 20 minutes,
and I actually sold too soon, but if you can compound
2000 type dollar profits, like every few days,
or every day, I like to say you know,
$2000 a day keeps the real job away.
I don't win every time, I lose actually roughly
30% of the time, but I cut my losses very quickly.
So if you win $2000, win $1000, win $500 and lose $50,
lose $20, it adds up.
So how do you actually win, what am I trading?
Well, I'm trading basically inefficiencies
in the stock market, right?
So I trade low price stocks, which the whole world hates,
because most of them are scams,
they're very speculative companies,
they might have one or two products.
They're probably gonna go out of business
in the next few years.
But I'm not investing in them
when they're going out of business,
I don't care what happens to them in two or three years.
I care what happens in the next two or three hours,
or two or three days.
That's my time horizon. - The trader by definition
has kind of a short time frame.
They're looking at how things move in relation
to other things and they're making quick decisions.
- Yeah. - Whereas an investor
is kind of a buy and hold for a medium or long-term
and is expecting some type of annualised return,
that's not gonna really get anyone excited
or buy Ferraris and Lamborghinis.
- If you have a small account long-term investing,
I mean you might get rich by the time
you're Warren Buffet's age,
and then you can buy like a titanium hip,
like with all your millions after a few you know,
That's how compounding works.
But for me, I'm holding very short-term
and I want my small gains to add up.
And I'm trading these low price stocks.
Why would I do this?
Like, no-one has to like become like a penny stock trader,
or low price stock trader, but there are inefficiencies.
Like I said, most of these companies go out of business
in the long run, but because very few people pay attention
to them, sometimes there's news and it doesn't get priced
into the stock for one day, two days, five days.
If you look at Google and they announce some big news,
within five or 10 seconds,
traders around the world know it,
it's on CNBC, the algorithm traders are all involved
and there's no inefficiency, so for me,
I see good news and I'm like, I just hear crickets.
No-one even notices, and then you can buy the stock,
and then when people stat to notice it,
like there starts to be you know, journals writing about it,
hedge funds buying it like later, two days later,
three days later, and you have time before the world
recognises it, if you're meticulous.
So, I trade these stocks, I teach my students to spot these
stocks, and we just look for news.
You don't have to try and predict news.
I like to wait for the news to happen
and then recognise which news has leverage.
I'll give you an example.
VLTC was a stock that I bought years ago,
and the stock was up from one to two,
on news that Carl Icahn, famous billionaire investor,
was investing in it.
- Right, he used to be the buy-out guy, right?
- Yeah, yeah, so he was buying this low price stock
and it was like this big news, so the stock doubled.
- One to two dollars. - One to two dollars
per share, that's it.
But that's a big move.
The value of the company double overnight,
'cause Icahn's involved.
But I said, no, when a billionaire invests in a low price
stock, like he's basically done the research,
like he can invest his money anywhere.
So he's giving credibility to this little stock,
so I bought the stock.
My whole chat room, I have like 1000 traders,
and they're always like looking for video lessons
and I teach them, not just about picks,
but like the process.
And they're like, why would you buy a company
that just doubled?
Don't you think it's up too much?
And I'm like, no, this news has legs.
A few days later, I sold it at roughly $3 a share,
so I made like 50% on my money, $2 to $3,
and then two weeks later, it was at $20.
So I underestimated that, that's an extreme example.
But as more and more people realised Carl Icahn
invested in this small company,
it could go up more and more.
So, I'm looking for these inefficiencies.
Let me tell you about my experience with trading
and I would love if we can get into some of these nuances,
of different instruments. - Yeah tell me.
- I was at MIT, studying mechanical engineering,
and I had a summer job at Ford Motor Company,
and I looked around the place and I was,
I had a Ford Mustang when I was a kid,
and I was like, wow, this is everything I ever wanted.
And I looked around and I said,
I don't wanna be these guys at 55 years old,
making 50 grand a year, it looks so boring, you know.
So I went back to school, and I must have seen the movie
Wall Street and I started getting the Wall Street Journal,
and I was allowed to take business school classes
at the Sloan School of Business.
So I started taking classes on options and futures,
with the MBA students, and I started getting really fast
with this stuff and I still remember the first night.
It was like one in the morning and I was in classroom
with one of my buddies, and we finally figured out like
how a call option and a put option worked,
and it was just like wow, you know?
It was exciting. - Yeah.
- And so I diverted my engineering career
and I got recruited to go straight to Wall Street
and work for a company called Banker's Trust.
And they were really big in fixed income derivatives.
Probably as far away as we can get from penny stocks,
but still, I wanna talk about like what I learned about
trading and maybe you can tell me
if it's similar. - Yep.
- So I got there, I was 21, 22 years old.
I get to the 33rd floor, it was 1 Liberty Plaza,
right next to the World Trade Centre
when it was still up there.
There was like the Statue of Liberty on one side,
and there was a football-sized trading floor
of fixed income traders, a lot of testosterone,
not very politically correct back in '93.
And I sat down at the desk and I remember,
there was a board with like, 60 different lights on there,
and they were direct lines to all my inter-dealer brokers,
one to the Chicago Board of Trade, trade bond futures,
one to the Chicago Mercantile Exchange,
to trade LIBOR futures, and then I had a box that would
go to the government bond desk, and I could trade hundreds
of millions of bonds to my government bond traders,
that's if they didn't scout me, I had to watch 'em.
And then it was like, and they game me two phones
and they said trade.
- Yeah. - It was just this crazy
experience I had of dumped into this derivatives book
and we were taking long and short positions in fixed income.
But I realised this really quick.
And I wanna get your thoughts on this.
Is that nothing I learned at MIT
taught me how to trade, because trading,
I realised quickly, is about knowing yourself,
knowing your own emotions. - Yeah.
- And I remember seeing guys that had literally things
stuck on their desk, trading rules.
The trend is your friend. - Yes!
- Don't get emotional about stock, right,
Gordon Gekko, what is it? - Stay disciplined.
- Buy into bad news,
sell into good news, right? - Correct.
Buy the rumours, sell the news.
- Yeah, these were grown men, right?
Buy the rumour, sell the fact.
All these stuff and they would just sit there
and constantly run their brain
and I remember when I later worked in Chicago,
some of the locals in the bond pits,
they would say, if I had a fight with my wife
the night before, I wouldn't even come
in to the floor. - Yeah.
- Because I was gonna lose money,
'cause I was in an emotional
state. - For sure.
- And so I started learning about trading,
and I started punting bond futures and trade and stuff,
but I also had a derivatives book
I could fall back on for PnL.
And I'll be honest, I don't think I ever became
a great trader, because I was more of a derivatives guy
and a market maker and stuff, but I started to understand
a bit about trading.
Tell me, did I get an eye in to what it was about,
and has it changed since then?
- 100% still definitely not politically correct.
I mean, you'll hear more swears and more creative
terms than ever, if you're ever on any trading floor.
- I mean I saw a grown man tell another grown man
he was gonna rape him, in front of the whole audience.
- I mean, that's mild. - He was gonna piss
in their skull. - That's a Wednesday.
- Yeah, I know, and on top of all of this,
we were all waiting for subjective bonuses,
that were paid by the MD. - Of course.
- So you didn't even get to keep your money,
you had to prove you were the biggest
swinging dick to get there.
- It's very competitive, you know.
You're competing against other traders,
other people in the market,
and you're competing against yourself.
Like, it's very much about pattern recognition.
Like, what is trading?
You're trying to take small gains very quickly,
whether you're going long or you're going short.
I bet against a lot of these scams too,
so I could recognise a scam,
and then okay, can I stick with it?
Can I stick to my thesis, am I disciplined enough?
And sometimes I might be betting against a scam,
but scams can last longer than you think,
so it keeps going up.
So when I'm shorting it, and I'm losing money,
am I strong enough to remember rule number one,
which is cut losses quickly?
I lose roughly a third of the time,
but my losses are 1%, 2%, 3%.
My gains are 5%, 10%, 20%.
So if you stick with that, you can win.
But sometimes, you get so wrapped up,
you do all this research on a position,
you're like, I know I'm right.
The market is wrong, and you fight it,
and a lot of newbies fight the market.
They think that they're right and their ego gets you know,
very strong and the market
humbles them. - Right.
The trend is your friend is trying to remind you of that.
- Yeah. - You can't fight the market.
- 100%, so you need to go in with a plan,
you need to stick with the plan,
and execute the plan, but too many people,
especially like newbie traders who don't know
what a plan is, they think that they're just investing
in good companies or bad companies,
they're very simplistic.
So I'm basically like, teaching people how to trade
for like battle.
I call this like a battlefield, right?
Like I'm like a war veteran, I'm like a drill sergeant.
I'm not even friends with a lot of my students,
'cause I come down on them, 'cause I want them to survive
on this battlefield, you know?
- Most people don't even understand
what you're talking about
as far as a battlefield. - They're like, what are you
talking about, battlefield?
Like, you're investing in stocks,
but it's, I've seen what happens when you ignore your rules,
when you say, no this is a good company
and the stock keeps going down,
and you blow up your account and you lose everything.
Most traders lose.
If you look at 90% of traders lose.
So you look on TV, there's a little dancing baby
on E-Trade, look how easy this is.
If it was realistic, the baby would be on a battlefield,
he would have like scars all over it,
like it would be blurred out,
'cause it would be too bloody for TV, right?
That's like what trading really is,
and any market, whether it's derivatives
or stocks, most traders are guessing.
Most people are gamblers, and they're losing,
because they want the quick cash.
So for me, I wanted the quick cash,
you know, that's why I started.
I started with $12000, my account wasn't going anywhere
when I was investing in blue chips,
but I learned inefficiencies, like that Carl Icahn play
that I talked about, that's a best case example.
But when you see news that has already come out,
like I'm not trading on inside information,
the news is public, but people don't recognise it,
and they don't price it in,
and if you look at it again,
again, I'll give you one more example,
you're gonna laugh at this.
My first big strategy back in '99,
this is when the internet was booming, 1999,
20 years ago, I would buy companies that were adding dot com
to their corporate name, right?
I bought Sportsman's Guide,
it was a camping equipment company, it still exists.
They changed their name from Sportsman's Guide Inc.,
to Sportsman's Guide.com Inc.
And the stock tripled, or quadrupled over four days.
And I did this every single time a company
added dot com to their name,
and everyone thought they were gonna
be the next internet giant.
The same exact pattern, and it worked very well.
I won like 80/90% of the time, sometimes it didn't work,
'cause they priced it in.
But the same exact pattern just happened last year
with bitcoin and cryptocurrency,
when companies said, oh, we're getting into crypto
when it was so hot.
The exact same pattern, and I was just like,
nothing has changed in 20 years.
Because it's human psychology,
so can you recognise the patterns?
This is why finance, like, it doesn't teach you anything.
One of my students, Jacky, tweeted me yesterday,
he made $11000 and he skipped school.
And he said, you know, my teachers teach me nothing about
this, my Dad is probably gonna be angry that I skipped
school, but I made $11000 because I recognise patterns.
Like, I would rather people be experts at Tetris,
or some, like pattern recognition game,
than knowing about all the deep dark financials
and stuff like that. - Yeah, but that doesn't
help you. - It doesn't matter
for an individual trading account.
Maybe if you're managing a billion dollar hedge fund
and you have all these
different positions. - Or you're in corporate
finance, or whatever.
- But individuals who have a few thousand dollars,
they need to think very differently.
You can be meticulous, you can be like a sniper.
I say like, trade like a sniper,
where you have a small account.
Most people who have just a small account,
they look at it like it's a bad thing.
Like, ah, I can't wait 'till I have you know,
a million dollars, a billion dollars,
and I can allocate to different things
and I have seven longs and three shorts.
And for me, I like trading with a small account,
because I can make a few hundred dollars
or a few thousand dollars a day,
and then I step away.
I literally am done for the day right now.
So you're helping me stay away,
'cause I'm a degenerate gambler too.
I just have learned the rules.
And I know this isn't necessarily like the basics
of trading, like you wanted, but that's what this is.
- I love how you say you're a degenerate gambler,
and a lot of your students are.
Let's be honest, a lot of humans are, right?
We love to take a punt.
- A lot?
We all are!
Everybody wants that.
You know, we're alive, like life is exciting.
If you're not excited about it,
then like, it's just boring.
So for me, I do like the excitement of making money.
But again, 20 years of trading now,
has taught me rules, like, I might make money on some trades
but it's too risky, like what if I can't control my risk?
Every time you put your money into the market,
anything can happen.
You can lose a lot, so if you're not disciplined
with rule number one, cutting losses quickly,
it can go away, like most traders.
- Yeah, so it's like mental discipline, you know.
You said that though, about going to war.
I had Jocko Willink here, US Navy SEAL,
and if you asked him about his time in Ramadi,
in Iraq with his troop, I bet it's all about mental
discipline, 'cause he said, look, sometimes, you're taking
fire from everywhere, you might be the big bad Navy SEALs
from America, but you fall back.
You know, it's constant about discipline,
or your guys get killed.
- It's all risk reward, right?
Like, you might see the end goal where you're like,
oh my God, this is this big shiny gold at the end,
but then it's just not worth the risk,
because to get there you might lose everything,
or you might blow yourself up.
So, for me, I like taking, I make baseball analogies,
I say I like taking singles instead of going for home runs.
Like, there's ways where I can make more money,
but I might risk losing everything
and I can't risk that, like.
For me, I wanna build my account gradually,
block by block, and sometimes I have to take one step
backwards, like with a small loss.
But I never wanna go all in,
I never wanna use leverage.
You know, people say, oh, I'm so sure of this,
and they go all in, and it's.
What is that bad Kevin Bacon movie from the 1980s,
where he loses everything in the stock market?
He's an options trader, and then he becomes like
a bike messenger, then there's bike messenger wars.
- [Brian] Sounds familiar, I don't know.
- This is what happens, if he goes all in.
Never go all in, learn from Kevin Bacon.
- To a baseball analogy, there's that movie Moneyball.
- Yeah. - Which is interesting,
and if people haven't seen it, it's a great movie,
I think Brad Pitt's in there, and the other dude,
the big, the fat dude,
whatever his name is. - Jonah Hill.
- Yeah, Jonah Hill. - And it's a true story.
- And that's all about the singles,
that's all about playing the numbers so you can win
consistently and get to the World Series,
as opposed to trying for the flashy moves,
the big grand slams, right? - And it's also analysing
everything a little differently.
Like, people before that would just look at hits,
like okay, what's his batting average?
But this is like, what if the fielder
made a really good play, but it should have been a hit?
Right, so what does that count as?
Like, you can't control what the fielder does,
but you can see a little more to the stats,
and that's basically what trading is.
You're looking at the stats a little more than just
what is a company's revenue?
What is the growth rate?
What is the PE ratio?
Very basic stuff, which long term investors love,
but trading, you have to look a little more
behind the play, and it's actually good.
Like, value investors, you know,
there's nothing wrong with value investing.
It works over decades, but they don't understand how like
a company like Instagram got bought
out by Facebook for $1 billion.
Value investors cried, they said, no!
Instagram has no business whatsoever!
They had like 12 employees, that's a terrible play.
Now Instagram's worth $50, $60, $70 billion,
depending on who you ask.
It was one of the best acquisitions of all time.
But they bought it when there was no business,
but they had a lot of users and they had a popular app,
and Facebook could envision you know,
building revenue on top of that.
So the world has changed a little bit
and you have to think, what can be valued in the future
as opposed to just right now?
A lot of companies report good earnings right now,
and you're like, oh yes, this company just reported
record earnings, and then the stock drops.
And you're like, but they reported record earnings.
But maybe on the conference call they said,
we're doing well now, but we have two new competitors,
or we're doing well now, but you know,
we have to ramp up research and development costs.
So the world, and the stock market and finance
is very forward thinking, and you have to be too.
- Yeah, let's talk about cutting losses,
'cause you, you kind of went over it briefly.
That's such an important concept.
And this is that you know, Tim was just talking,
on the wins, you kind of lock in,
and the losses you make small.
And first of all, for anybody watching,
it's actually not human to cut losses.
- It's counterintuitive. - Right, most humans
buy high and sell low.
And so they invest and when it starts going down,
they think, oh. - Double up, triple up.
- I'll double up, I'll triple up,
because I don't wanna take a loss.
When it starts going up, they think, I'll wait, I'll wait,
I'll wait for it to get more.
So it's fear and greed. - Yeah.
- And the actual, the natural human tendency
is to go big on your losses and cut your gains.
And so you actually have to be
counterintuitive. - 100% counterintuitive.
So this is why learning lessons and you know,
practising like, when people say,
oh, I want to get into trading,
I say whoa, slow your roll first of all,
study first, and then let's say you wanna start
with like $10000, let's start with $2000 instead.
Because you're probably gonna lose in the beginning,
'cause you have to learn these weird rules.
Like, all the best traders I know are the weirdest people
that you will ever meet.
They can barely talk, they're like robots.
Some of my top students, I think they might be clones
sent back from me in the future.
I've thrown this theory out there.
What do you think about this?
In the future, if theoretically I'm a successful teacher
and I'm richer and I have more students,
and time travel is possible, and cloning is possible.
Would it not be a good idea to send a clone
and send somebody back in time to now,
to become a good student, to follow the rules,
to prove to people what happens when you follow the rules?
My top student has turned $1500 into $8 million.
I think he's a robot.
I don't think he's a person,
because he follows these counterintuitive rules so well,
I can't even do it.
He's made more than me.
- Wow, he's that disciplined?
- He's so dis-- - Is that a lack of emotion
No. - It's, I mean he's had
big losses, he learned, okay.
So he wasn't perfect in the beginning,
he had like $200000 losses, $100000 losses,
but every time you have a big loss,
you learn what not to do, you don't want that feeling.
I've had a $500000 loss.
I turned to drinking, it was splashed all over
the headlines, it was terrible.
I never want that again, and that forced me
to become more disciplined.
Now I have all these students and social media,
I don't want to look like a jackass
and break my own rules that I'm teaching.
So I think social media and transparency can help,
because the more people who follow you,
like, you wanna be the best version of you on social media.
So it forces you to be good.
If I share everything, which I do,
I share every single trade publicly,
you know, people can judge me.
So I'm like, oh, gotta look good.
Like, that keeps me on my best behaviour.
- Your peer group is holding you accountable
to be your best self, and also, that's amazing.
- And I think it's fantastic,
and I think more people should do that.
They're scared to like share everything online,
I get it, like, sometimes I overshare.
But I think that in terms of trading,
or any endeavour where you need discipline,
like the more people watching you,
it forces you to be better.
- Let's talk a bit about your story.
And then let's talk a bit more about the penny stocks
as well, because we mentioned commodities,
there's bonds, there's interest rates, there's crypto,
I think a lot-- - You need to trade
baseball cards, I traded baseball cards when I grew up.
- There you go, like people don't understand,
you can trade anything you can buy or sell.
Some people trade homes.
Maybe first, we talk about this concept of liquidity
really quick, and then I wanna hear about your story.
So liquidity's a word that gets thrown around a lot
in trading circles, and let me try to define it,
and then maybe you can define it.
- Please do. - But, you know, for me,
I traded two of the like most liquid instruments
when I was on Wall Street.
One was the bond future on the Chicago Board of Trade,
it was a massive fixed income future
that was just easy to get it at in and out, in size.
It constantly had a lot of volume trading.
That probably Deutsche Mark dollar at the time
was another big one, and maybe like SNP500.
And then there was always a price, there was always size
where you could get in and get out.
You could put on big positions, it didn't gap, et cetera.
Am I right with that definition?
- Yeah, and I'm on the opposite side of the spectrum,
you're dead on.
I'm trading the most illiquid stuff,
this is why Wall Street and everyone says,
stay away from penny stocks, there's no liquidity.
Liquidity is basically like how easy can you get in and out?
This is my $500000 loss, I didn't understand liquidity
early on in my career.
I was batting 1000, I was winning every time,
I was like, let's go bigger, let's go bigger.
And I eventually got into this illiquid penny stock
that no matter what I could do, I couldn't get out of it,
'cause there wasn't enough trading volume.
So you're trading the most liquid stuff,
every single trader in the world can trade it.
You can get in and out, all your money times like a million
if you're trading like the SNP futures
or some of this stuff.
With penny stocks, some days, I don't even trade
because there's no hot play in play right now.
Like sometimes, I need a hot stock,
I need a few million shares traded,
so I can take like 5000 shares, 10000 share positions.
I never wanna be more than 1% of the daily volume.
That's what liquidity is.
Like, how much is being traded?
Like, housing is very illiquid, right?
Like it's good when housing is good,
but when housing crashes, you can't just dump a $500000
house very easily, there's no liquidity.
- Yeah, say you had a five bedroom house in Las Vegas
in '07, '08, and you're like,
oh, it's worth a quarter of a million dollars,
and it's like, okay, go try to sell it right now.
- There's no liquidity. - Nobody wants to buy it.
Well, somebody will buy it for $50000 or $100000,
but maybe nobody would.
- Correct. - So guess what?
Right now, maybe it's worth nothing,
'cause you can't sell it. - Correct.
- That's hard for people to understand.
- I mean, that's, it's supply and demand.
So everything is based on an auction, right?
So like, if there's like, let's say there's a painting.
Forget about stocks, or housing.
Let's say there's a painting.
And you don't know if the painting is good or bad,
you just know that this painting for whatever reason,
let's say it's controversial, it's been written up like
everyone's judging this painting.
Because of all the press, now theoretically it's worth more.
If you look at Banksy's,
you know Banksy? - Yeah, yeah.
- Have you see his stunt where like the painting
got shredded and someone had just bought it,
and right when the guy bought it, shredded.
And now, if you look at the articles,
like that painting that has been shredded,
even in like the shredded state,
is worth a lot, because of all the press.
You're like, oh, that's the shredded painting.
- And the YouTube video as well,
yeah. - So it became an instant
classic, it became performance art.
So if you actually look at,
there's a great book called "Hit Makers",
which everybody should read,
and it's the history of what creates a hit.
Like, if you look at a lot of the top painter, right,
like Monet, like all these impressionists
that are in the museums, are they better painters
than other painters at the time?
No, they were actually embroiled in a whole,
it was a whole press debacle, like where,
it was messed up that this one rich guy died,
it's a long story.
This one rich guy died and he left
his entire collection to the museum.
The museum didn't want the collection,
'cause it was all these unknown artists.
And it became a big court battle,
written about by the press for several years.
When they finally accepted these painters
into the museum, the painters had gotten very famous.
So now, the paintings are better.
And if you actually look at like the technical skills
of many of the most famous painters,
they're not better than some of the worthless painters.
- It was the going viral
of the the time. - Exactly!
So if something goes viral, it's all perception is reality.
Literally right as we're doing this,
Uber just IPO'd and this has been one of the hottest
companies, one of the best private startups in the world.
And then it just became a stock,
and I'm gonna check it real sec,
because I'm just, I'm obsessed with it.
But like literally, it's not doing well
now that it's a stock.
And people are like, what's going on?
Is there something, is there something
that we didn't see before?
It doesn't matter!
It's whatever the market will set for it.
- Right, you're obsessed with numbers.
All right, we'll come back to the stock,
we'll come back to the stock. - I'm looking it over,
I'm looking it over.
I can't stop.
I can't stop!
I'm not trading it, I'm looking at it.
- I know, but look at you
right now. - Come on, load!
Load, damn it!
Where's the service in here?!
- I think you're on aeroplane mode.
- I turned it off!
- Is this a destructive habit,
of constantly having to check that?
Do you have to kind of check yourself?
- I mean, this is a curiosity.
I'm not trading Uber, for me, this is just--
- Okay, I need you back here, Tim.
I need you back here. (laughs)
- It's just IPO'd, it's not loading.
- Okay, so, let's just talk-- - I am, I recognise
that I'm a degenerate gambler.
I'm like an alcoholic bartender serving my clients drinks.
But I recognise the rules that I've put in place
to keep me in my box.
Like, I'm not gonna trade Uber.
- [Brian] You're not gonna trade on it,
but you're gonna watch it. - I'm not tempted
to trade it at all.
For me, this is like gossip, right?
- You made your two grand for the day,
it keeps the corporate job away.
- Correct. - And now you're fine.
That's discipline. - Yes.
- And one of the, earlier, you told me how you could have
made more money on these couple trades,
and yet, you're over it emotionally.
- Correct. - That would take
most people years. - It did take me years.
I've been doing this 20 years.
Early on, like, you know-- - You kick yourself,
and that would go through your head for days
and weeks. - Correct.
Like, Sportsman Guide, I made like 20 or 30%,
and the thing tripled, and I was like,
why can't I hold longer?
So I actually gravitated towards buying on Fridays
and selling on Mondays.
This is how crazy I am, because the stock market is closed,
so I can't do anything about it.
And one of my biggest trades when I was a freshman
in college, I made $100000 holding a stock from Friday
to Monday, and I still sold too soon.
It would have been $200000 if I had held 'till Tuesday.
But I look for these kinds of instances,
like on that Friday trade, I bought it, the stock said,
look, they put out a press release.
We're gonna be on TV on Sunday, right.
And they said they had back then,
cellphones were very fuzzy,
there wasn't very good technology.
They said that they had the technology
that would clear up all the fuzziness with cellphones.
Back then, there were no exposées, this was 1999,
the stock market was going crazy, '99, 2000.
On TV they, of course they're probably
gonna hype up the technology.
Journalists aren't really like forensic journalists,
especially back then.
They were just going with the times, right.
So they put out a press release,
look, we did this interview last week,
it's finally gonna air on Sunday.
So I was like, oh my God, this is amazing,
like, the news is already out,
but a lot of idiots are gonna watch TV,
they don't check the press releases.
So I bought the stock at 17,
I put, at that time I was putting three quarters
of my account into one play.
Bad, bad, bad, way too aggressive.
But I didn't know any better.
Monday, the TV show aired, fantastic on Sunday.
Monday, the stock gapped up and I made 100 grand,
and I took my whole dorm out to dinner.
That was a crazy, that was a crazy day.
- That's where you came up with this weekend strategy,
of the Friday to the Monday. - That was where I came
up with the weekend strategy.
That one trade and then I stated looking for these
inefficiencies, because a lot of people hear about stocks
on Saturday or Sunday, the stock market is closed, right.
So they have to put in their buy orders on Monday.
That creates a gap up on Monday morning,
it's because it's massive demand.
You talk about, what is liquidity?
What is volatility?
They go hand in hand.
Liquidity is how much can a stock trade, right.
Like millions of shares, maybe billions of shares
if you're trading certain markets right.
If you're looking at volatility,
does the stock actually move?
Like that stock that was on TV over the weekend,
the stock literally doubled over the weekend,
because everyone saw it on TV and said, I wanna buy it.
Even though the technology flamed out
and it didn't work eventually.
- But that's massively volatile, and it goes in the hand
with it being illiquid. - Correct.
- And so you say, I'm gonna go trade this penny stock
illiquid instrument because with all of its drawbacks
of not having liquidity, there's also a bunch of upsides,
because if I understand how it works,
and understand that it doesn't have these things,
and it can gap, you can take advantage.
- And it's not a massive liquidity, but they are liquid.
I don't trade illiquid penny stocks.
Like I said, I lost 500 grand on the illiquid stock
I couldn't get out of.
So, again, I don't want to be more
than 1% of the volume on the day.
So if I have, like let's say 10000 shares,
and it trades a million shares on the day,
that's plenty liquid.
I don't want to trade 500000 shares and the volume be like
600000 shares, then I'm the whole market.
So you have to just kind of like stay in your lane.
And you need to know that.
- All right, let's go back to the Bar Mitzvah,
you get the cash from the parents
and the relatives and stuff.
Why would you then go and start investing?
Because I tried that when I was a kid,
but there was like no information out there when I did it.
- So the markets were, I mean, my money was just sitting
in Series EE bonds for like six years.
Like, you have your Bar Mitzvah
when you're 13, right? - Government bonds?
- Yeah, yeah, like government bonds, doing nothing.
I was a tennis player, I was playing tennis
every single day. - Savings bonds?
- Correct. - The coupon is just--
- There's nothing. - It's garbage.
- There's nothing.
But that's what I put it in for six years,
I was a tennis player, I got injured,
I had Tommy John surgery.
I don't know if you know Tommy John surgery.
So they take something out of your other arm
and they put it in this arm.
Shouldn't have given me coffee,
I feel like I'm talking faster than normal.
- You're doing great. - But, so I'm walking around
school like RoboCop after my surgery,
and I can't do anything
and I'm already into college early admission.
And so my parents gave me control of Bar Mitzvah money.
They thought I would lose it all.
They thought that it would be a good lesson,
like, give the kid the 12 grand,
he'll blow it in the stock market.
- They knew you were gonna trade?
- Well, I mean, again, I wasn't a trader at first,
I invested in Viacom, Super Cuts, BusinessObjects,
these were like my first three stocks.
And my account one month would go like $12100,
then like $11900 and I was like, this is so boring.
And I'm sitting there with two casts,
but I could still type.
And this was '99, the stock market's going crazy.
I gravitated towards tech stocks,
but I couldn't afford the big tech stocks at the time,
which was Netscape and Yahoo, so I was like, you know--
- The prices were too high. - Correct, so I was like
what else is there?
So there were upcoming little internet companies,
and I was like, well, if Yahoo and Netscape,
I mean back then they weren't really anything.
They just had hype, like they were being used by a lot,
but they didn't have any revenue.
So I was like, well if these websites are valued highly,
what about the smaller websites that are growing?
And so I invested in like this company called Net Taxi,
which was like an early Facebook.
And the stock, you know, went up seven times.
Again, I sold too soon, I took my 20/30%.
Then I had the dot com strategy.
So I gravitated towards how can I grow my $12000 account?
Senior year of high school, $12000 became $100000.
Freshman year of college I made nearly a million,
so I just got addicted to finding
and tinkering to see what works.
That's what people need to do.
If they know nothing about trading or the markets, tinker.
Test around, like put aside $1000 that you can lose,
and play with it, and test and see different strategies.
Try you know, trading art, trade baseball cards,
trade stocks, whatever you can do,
but start to look, because every single industry
that I've found has these little inefficiencies
that most people glaze over, 'cause they don't care.
Like, with penny stocks, most people don't care,
'cause they think the money's too small.
Like oh, you made 500 on the day, you made 2000.
Like my whole career, I've made a few million dollars.
That's nothing in the game that you were playing.
You could make a few million dollars in one day.
So it's just recognising that.
The good news is, you ever make a few million dollars,
you're set, like I live a pretty good life.
- Yeah, and I was trading the bank's money,
so yeah, I mean, I think our PnL that year was like
$100 million. - Correct.
- But it was the bank's money.
- So you're trading other people's money, or your money.
That's the thing. - Yeah, and it was a bunch
of people on the desk and you gotta pay the sales force
and by the time you get into the meeting
at the end of the year, you're walking away with, you know,
a lot less. - So, but that's good,
because without them, you wouldn't have money to trade.
And most people don't have money to trade.
They're like oh, I would like to make $2000 in a day,
but I don't have that money.
So it's nice that I've made $2000 today,
but how do people get started?
Like, if you have a small account,
you're not gonna make $2000 in a day.
So I try to teach my students how to make $100 in a day.
And then you can size up later, once you have experience,
once you have a bigger account.
Like today, I bought 3000 shares of this stock.
You know, if I wanted to go bigger, I could have.
I donate all my trading profits to charity,
'cause I just want to show the process these days.
But you know, you could get bigger with a bigger account,
once you have experience.
You have to learn the process.
That's the key that I really wanna get people to understand.
- It's like a martial art.
It's almost like a martial art.
You have to get a black belt, or a purple belt
before you can really go out there and compete,
and have a chance of survival.
- And everyone is different, and it's a moving target.
So just to make people understand that this isn't as easy
as they think it is, like, the market is always changing.
Sometimes, I have a perfect pattern and if the market's
different, if the market's bad, that pattern is irrelevant.
Like Uber was a very hot company.
But for whatever reason,
the IPO market isn't good right now.
Lyft's IPO didn't do well.
So now Uber is dead in the water,
which is a shock to everybody.
It's not an exact science,
and people have problems with that.
They want it to be an exact science.
Like, you learn mathematics,
like who's the best at solving this formula?
Even you know, martial arts, like you learn specific moves
and specific stuff that always works.
With the stock market, you have to be willing to throw
out your entire thesis.
Which is tough.
- It's exciting, all right, tell me what a penny stock is.
This is like a company with kind of a small market cap,
they can't get Goldman Sachs to do their IPO,
they can't get the New York Stock Exchange to list them,
so they have to go to these kind of smaller exchanges,
and like, what is the deal with these things?
Sometimes they're scams, how does this work?
And sometimes, you're shorting the stock.
I'd love for people to understand what that is.
- So they're very small companies,
that's basically what you have to do.
You have to understand that they're kind of like long shots.
Like if you ever go to the horse races, right,
they're like 50 to one long shots.
Like, no-one expects them really to win the race,
but every now and then, they do.
They have one or two products, they might have some revenue,
very little in the way of cash.
But they're stocks, because they're trying to raise money.
The higher the stock price,
then theoretically they can do with financing.
Like Uber just raised billions of dollars,
they did a massive IPO,
which is an Initial Public Offering.
They had all these banks, everyone's clamouring for them,
because they're a gigantic company,
even though they're still losing billions of dollars,
but that's another story, right.
These small companies don't have revenues,
they have no cash, they just have pipe dreams.
They have hopes, like oh, we have this gold mine
in Ecuador, we found this great oil
potential discovery down in Colombia.
And many of them are scams, but many of them also
have some potential.
Like, they're diamonds in the rough.
Like, I like buying companies that you know,
announce big news.
I'm in this company,
you're gonna laugh. - Are you talking
your book here?
And maybe you can tell me by talking your book.
- No, so I'll tell you this.
So this is actually a funny story.
Right now, as we're filming this, I have zero positions.
I like to get in and out.
I trade like a sniper.
But I'll tell you a story about spider silk.
Have you heard of spider silk?
- I haven't.
- So picture like all these spiders
spinning little silk, right.
The ticker is KBLB, I've already sold it,
I actually underestimated it.
I bought it at eight cents,
it was already up from six cents on the day,
so it was up like 30% on the day.
They announced a deal with Polar Tech.
Polar Tech is this big multi-billion dollar company
for you know, nice sportswear.
They're kinda like, you know, what's a good company?
They're kinda like Patagonia.
You know Patagonia?
- Like North Face,
or something like that. - Yeah, like North Face,
right. - Okay.
- So Polar Tech's CEO in the press release,
this was just a few weeks ago, and they said,
this spider silk has the potential
to be like the next big thing.
And I'm like are you kidding me?
Like this spider silk has been around for years,
the company has never made it.
You know, they've always been a pipe dream,
again, they have no cash, no revenues,
but they have this potential spider silk.
But then Polar Tech's CEO goes on public record,
So the stock is up, I buy it, I'm all excited,
I'm like, this is amazing!
I buy the stock, the next day it does nothing,
I sell, I make three grand 'cause I was right a little bit,
but I was disappointed.
I was like, I had to throw out my thesis,
'cause even though I was excited about the product,
I was excited about the press release,
the market didn't agree.
And it just didn't do much.
Eight days later, the thing starts spiking.
I don't know if some hedge fund wrote about it,
or if someone saw it, whatever.
And now the thing right now as we're talking is at 35 cents
and I sold it at freakin' like nine,
eight or nine cents a share.
So it did triple, but not in the time frame
that I wanted, right.
And that's the inexact science behind this.
So that's a good example.
The good news also, is that it's probably
gonna crash eventually.
They're probably gonna screw up in some way.
I expect the worst out of all these companies.
- What's the average market cap of these companies,
and what does market cap mean for people that don't know?
- Yeah, so this company is worth about $250 million,
all on a pipe dream for their spider silk.
- So if you take all the shares outstanding,
times the share price, you've kind of got the market cap,
which is roughly what the company's worth,
if, you know, if someone's willing to buy it.
- If someone's willing to buy it,
but they never really are.
Like you have to remember, most of these penny stocks
go out of business.
It's kind of like knowing the end of the movie
and you can work your way back.
Like, you know pretty much that this company's gonna fail.
Every now and then, one company survives or thrives,
it's so rare.
So I just expect the worst out of all of them.
Either management will screw it up,
the product will screw up, like I know it's a cynical
way of looking at it, but I've seen tens of thousands
of companies come and go.
The good news is, that they're volatile.
They don't just all fold, they don't just all give up.
They try to spike, when the stocks do spike,
the companies do financings, they try to raise money.
- There's news like that. - They have news like that
every now and then. - So that you can trade.
So a trader just wants a volatile stock.
- Correct. - Right, that has some
liquidity, that's what you need.
- I mean this thing trades 50/100 million shares a day.
So this is a very liquid example.
- Okay, you know, one of my buddies is a distressed
debt trader in New York City at a hedge fund there,
and he's kinda like you.
He's just always bearish, he's like,
these companies are gonna fail, they're gonna fail.
- I mean, again, the $500000 loss that I had
that I keep thinking about, it was an illiquid stock
and I believed in the technology.
This is the problem why most people hate penny stocks,
'cause they believe.
They believe in the company, then the company crashes.
And they feel gypped, and if you see like the movie,
The Wolf Of Wall Street, like they're usually promoted.
- Jordan Belfort was sitting there two days ago.
- There you go, fantastic!
So, you know, if you want to learn to be a career criminal,
learn how to be it from Jordan.
- What did we learn from watching The Wolf Of Wall Street?
What do you see?
He would argue he didn't trade penny stocks
in the later days.
- Oh, he marketed, I mean he's a fantastic marketer.
Penny stocks are marketed as something amazing
to the financially naive,
'cause they're very low price,
so people can put in a few thousand dollars.
And then they usually get taken advantage of.
They don't tell them the odds are like,
a million to one that it's gonna succeed.
So for me, I'm thankful for Jordan Belfort,
because not only did he create penny stock pump and dumps,
but he also created this entire industry with idiots
who believe in these companies.
He's a fantastic marketer, and because of his marketing,
because of how much bitterness there is with these penny
stocks, like they spike and they crash.
So he created this entire pump and dump cycle.
- What is pump and dump, for people that don't know?
- So this is when a company announces good news,
they pump their stock price up,
like we just found gold, and it's amazing!
And the stock goes up from 10 cents to let's say a dollar.
Then they put out another press release,
the gold is even more than we thought, it's double!
And the stock goes from one to five dollars,
then the company does a financing.
They say, well, we found all this gold,
but now we need to raise money to actually
take it out of the ground.
So we're raising $20 million and the stock is at,
let's say $5 'cause they pumped it up with
these press releases.
And then they do a financing at let's say $2 a share.
So it's a toxic financing, nice little 50/60% discount
for whoever's buying it, then the stock crashes back to $2.
Then it usually crashes even more as the insiders
start to sell, and they say, well, maybe there wasn't
that much gold, maybe our tests were a little ambitious,
then it crashes back down to 10 cents.
So they pump themselves up with the press,
they try to get as much money as they can
with their financing, either to try to like dig the gold,
or just pay the management and pretend to dig the gold.
- And sometimes the brokers and people are taking positions
along the way, buying on the way up and then selling
it at the highest to the suckers, to their clients.
So then they're making money on the pump and dump.
- Everybody goes in with a story.
They cheerlead it, 'cause it's exciting.
It's fun to be an investor in something,
like yeah, we're creating something!
So like this spider silk, I laugh,
I don't think this spider silk thing is gonna work,
but the fact that Polar Tech, this multi-billion dollar
company is giving it credibility,
it's not the average pump and dump.
That doesn't usually happen.
Usually, it's just the company announcing it,
they put out a press release, they get an analyst.
You'll laugh at this, 'cause you brought up Goldman Sachs.
There's a penny stock analyst group called Goldman Research.
They're not Goldman Sachs, they're just called
Goldman Research and they pump up these penny stocks
and they put these ridiculous like four to five times
price targets and then all the message boards start
saying, Goldman put out a price target.
And I'm like, it's not the same Goldman!
And then deep down in the disclaimers, Goldman says,
we've been compensated $300000 or you know,
we have six million shares in this stock,
so they're conflicted.
They're not a normal analyst.
That's what a lot of pump and dumps do.
The brokers, the analysts, the newsletters,
the companies, they're all in it to get the stock up,
and they market themselves to the financially naive.
So for me, I expose this and then you can also short sell,
so you can actually bet against companies when they're up,
and you take a negative position, which freaks people out,
'cause you're like, wait, what?
- Explain the short sell for people,
'cause most people still have a hard time understanding
that you can sell something
when you don't own it. - Correct.
So you're basically taking out a loan from your broker.
So instead of buying 1000 shares,
you're basically buying negative 1000 shares.
And then negative times a negative is a positive.
So let's say you buy negative 1000 shares,
at $5 a share, right.
Negative 1000 times $5 is still a $5000 investment,
but then you buy it at five,
but then you sell it at two, right.
So it's a reverse trade.
So you're taking a negative position,
or you can say you sell
high and buy low. - You sell it at five,
yes, and buy low, okay, right.
- But I like to say buy negative positions,
just 'cause it gets people, like when you say you sell
a negative position, people are like,
selling is like the exiting.
Right, so you're buying a negative position,
and then you're exiting later on.
So let's say you, whatever, you enter the position,
whether you buy or sell, whatever you wanna call it.
You enter the position at five
and you exit the position at two.
But because you have a negative position,
negative three times negative 1000
is still positive $3000.
- Right, so right now, if you thought that the Uber
was an entire scam, you would short the stock at 45,
it's IPO price, and you don't have to have
the stock at all, you go and you borrow it.
Basically you borrow it from your broker,
he sells it in the market,
and then if it goes up, you lose, and you can take it out
on whatever margin you have if it goes,
really you have unlimited downside technically.
- Correct, 'cause what if a stock goes to like 600?
So this is the thing with short selling.
Like if you buy a stock at $3 a share, and it goes to zero,
okay, you lost your $3 a share.
But what if you're shorting a stock at $3
and it goes up to $10?
Now you're down $7.
So you're down more than double what you put in,
and you can actually owe your broker, you know.
And then collection agencies come after you,
like it's, you can lose more than you have in your account.
So it's kind of scary.
Although, follow rule number one, cut losses quickly,
it doesn't happen.
- Yeah, now you talked about all these scams
and all this stuff.
Where's the SEC?
Are they protecting us from this?
I mean they got Jordan, but it took them five or six years.
Shouldn't they be looking after this Goldman Research
and all this stuff?
- I mean, they're just, it's just small time money,
so like the SEC follows big scams, big money,
or they try to.
The SEC is also very underfunded.
So it takes them a while to find it.
Like they only find out about these scams
when enough people complain.
And when enough people complain,
like, that's when they get involved.
So the scam needs to already happen.
And again, it's not illegal to put out you know,
some positive analyst report,
as long as you put the legal disclaimer on the bottom,
saying we've been compensated.
It's on the person, the investor, to read the disclaimer.
But sadly, most people don't.
They just read the big headline and they don't read
the small print at the bottom.
One of my basic lessons, if you ignore everything I say,
whatever press release you get, whatever mailer you get
in the mail, always look at the disclaimer.
'Cause the disclaimer is legally required.
And all of these promoters, or quasi-promoters,
you know, there might not be the wolf of wall street anymore
but there's lots of little wannabe wolf of wall streets.
You know, they're like little baby wolfs.
And you gotta feed them, right.
But they put little disclaimers on them.
They're just taking advantage of the financially naive,
that's the problem.
- [Brian] To continue watching the rest of the episode
for free, visit our website londonreal.tv,
or click the link in the description below.