Turning $35k into $8M. Social trading with Founder & CEO of Alpha AI, Kevin Xu.

0:06I'm credited with being the very first whale in GameStop.

0:10Kevin Xu:You turned$35 ,000 into around$8 million. Welcome to Curious Customer, the consumer podcast. This show is for anyone curious about the world of consumer. From insights, trends, companies, brands and design, we'll uncover the hidden stories from the people at the Forbes, The show has a wide range of guests from marketing leaders to startup founders. So whether you're in the world of brand building or the startup ecosystem or simply curious about the world around us, then this podcast is for you. My name is Matt. I hope you enjoy the show. Kevin, thank you so much for joining this show. You are founder and CEO of After Hour, which is a social trading platform.

0:56Kevin Xu:I use the app. listeners that haven't used it kind of way i describe it i go in there i'm looking or considering buying a retail stock i go in you click on that you can dive quite deep there are community discussion forums you can actually click on individual pseudonyms as well to really understand whether someone has actually put their money where their mouth is when they're opining on a stock so it adds this whole new layer of trust and transparency which is which is awesome and before the business we're going to get into the founding story a little bit later on but you were an engineer at Google and Stripe.

1:28Kevin Xu:And also just for the rest of this conversation, your pseudonym on After Hour is Sir Jack. You're obviously Kevin in front of you right now. Yes, a face revealed and everything. Okay. Maybe let's just start with retail investing. It's been through an interesting journey over the last 10 years or so. We've had zero commission trading, we've had mobile trading, then we've had community forums, we've had Reddit explode with these, and now obviously social trading with AfterHour being a main player within that space. Can you just give us a little bit of a primer as to what's been happening within retail trading and why social trading is becoming so big and important?

2:02Kevin Xu:Sure. I mean, if you really kind of look back at the last like 30, 40, 50 years, it's gotten easier and easier to invest, to be an investor, right? Like back in the 90s, you still had to like watch the TV, reading newspaper and call your broker to like make a trade. And now with the internet and with mobile apps, like it's just got so much more easier, like the tooling, right, has gotten easier. And yet the education, and I would even argue the ability to know what to do is still lacking. Financial education in a nutshell. You download Robinhood and you're like, now what? Right, like what's a stock?

2:38I hear people talk about buy and sell, but I don't know what else to do. Is this a good trade or is this a bad trade? Both people don't have anyone they could turn to, so they end up turning to social networks. And I think the major thing that changed in 2020 was what I call the memification of stocks, of the stock market, the memification of Wall Street. Like Wall Street has always been like this very serious industry, right? Like people wear suits to work. You watch CNBCs, all these talking heads. It always felt like a holier than thou kind of feeling. Like, oh, yeah, the plebs, you know, you guys don't know this.

3:09We have our fancy Bloomberg terminals. Leave it up to us, the professionals. You know, you guys can, you know, mutual funds are kind of disrupting them in a way. But to me, it always felt like this was a game that you were not supposed to play. Like, how can you ever compete with the hedge funds and the quants out there, right? For me, my big kind of radicalization, I guess, my epiphany was really discovering a thread on Wall Street Bets where somebody made$500 ,000 overnight on options calls, right? Obviously that's headline-y, it grabs your attention, all that kind of stuff. But when I was reading the comments, people were openly talking about what happened, why this was happening, how they could find the next trade.

3:48And so I've never taken a class. I've never read a book. I've never paid for a webinar or anything like that. I learned everything I know about investing from Wall Street Bets, from Reddit, from hanging out on Twitter and X, because people were openly talking about their trades and strategies. But the biggest problem I had was I didn't know who was real versus fake. Like I had to use a lot of my spidey senses and read a lot of comments and look through like the punctuation and look through their history to tell like, is this guy bluffing and just like bragging? Or is there actually some truth to it, right?

4:23I would like DM people. Like my big thing was around GameStop. I was noticing all these folks, this was, you know, months before the squeeze. And I noticed some folks were talking about GameStop showing their like$100 ,000,$200 ,000 position. And I ended up DMing them. Be like, yo, is that for real? Are you for real? And they would show me other screenshots and we get into like a little back and forth. And I'm like, oh, this was actually a real person with some real, you know, skin in the game. And so I'm credited with being the very first whale in GameStop. I put in one point, I think$1.3 million at a time into GameStop when it was only like$10.33 or something, you know, around October, November, before the January squeeze.

5:00Kevin Xu:Just talk about that quickly. That's a lot of money to put into a stock. Investing on the thesis that this sort of frustration, right? Wall Street have locked us out and we have a chance to lift a big middle finger to them. Was that the underlying thesis that retail investors would follow you? And it's sort of relatively emotionally driven, or were you also looking at the fundamentals of the business and its performance and whether it was undervalued? I'm just trying to really understand what this meme stock investing is actually underpinned by. Yeah, yeah. So as background, my trading style is extremely simple.

5:31They would call me a swing trader, but essentially I would just go all in one single stock at a time. Like no options, no margin, nothing fancy, literally just going all in one single stock at a time. Because my view is like, you know, you want to study a stock as much as possible. You want to know everything about them. And if you have strong conviction, why not just go all in, watch it like a hawk, try to sell, you know, for some profit, make sure you don't take too much of a loss, and then stay in cash to the next one. And so that was extremely profitable, especially during the 2020 to 21 era.

6:01I would argue, you know, still now it's effective. You look at how much some companies like Robinhood and Palantir, NVIDIA, and Opendoor recently had a bit of a squeeze. Those are all actually pretty obvious in hindsight. I made those calls on After Hour, if you remember. Yeah, I do actually follow you there. Yeah, so to your question around the meme stock, I mean, GameStop had a very interesting and unique thesis. It was 140 % short interest ratio, right? So like, that's just, what does that even mean? That means it was shorted more than shares existed. And to me, that was two things. One was like Wall Street just like unfairly punishing this stock, this company that doesn't seem like it's going to go bankrupt.

6:39At the time, the Xbox One, Series S and PS4 was coming out or 5. And it was a good time for it to become a resurgence. And then, yes, it was kind of compounded by this thesis that like, oh, if it breaks through a couple of psychological barriers, then these shorts would have to cover, which means buying the shares on open market. And if there's not that much liquidity, then it might drive up some crazy short squeeze, right?

7:02Kevin Xu:Are we in a position now where you can actually track the performance of social trades versus non-social trades? Take After Hour for an example. All of the trades placed through After Hour as a result of social belief and running through a community have yielded more impressive results than the alternative. I'm not entirely sure what the alternative might be in today's world. But I'm just interested whether you can actually map the performance of the community versus other forms. You know, we are the only platform that combines both quantitative and qualitative analysis of the stock market. All the other traditional fintech, they see the volumes, they see the overflow, but they don't capture the sentiment.

7:44They don't capture when were people bullish, why were they bullish? You can go to platforms like Reddit and X, where people are talking about stocks using cash tag and stuff, but you don't know how much money they actually have it in. There was one guy recently I roasted. He was talking a big game about Snapchat, about how he thinks Snapchat is undervalued. And I replied, what's your position? Right? Like, what's the point of writing this tweet if you're not, you know, what do you have, like 20 bucks in it or something? Show some real skin in the game, right? Like I do when I post my million dollar positions in some stock or not.

8:14So that is incredibly valuable. I think it is hard to track the exact story arcs of social trading just because it's a catch 22 where the story is not interesting until it is. It's like I called open door at 50 cents. No one was talking about it back then. Now at$10, everyone's talking about it or$2, everyone's talking about it. So it's just, it's hard. To me, for my particular style of trading, I like to find good opportunities, what I call two standard deviations before the rest of the world catches on. Because I don't like to chase. I don't like to, you know, if a stock is already doubled, sure, it could double again and many stocks have, but there's a risk it doesn't and it falls and you lose money.

8:52and so i like to catch stocks before they have the run-up and so i call it something like two standard deviations before the rest of the world catches on so you're a very active trader right

9:01Kevin Xu:you're doing your own analysis so actually the way i should think about this is a bit different where i was thinking here i don't invest a lot of time into thinking through public stocks if i were to go on after hour and start trading materially then i'd be exporting a lot of my decision making through towards people where they've actually put money where their mouth is now clearly they may be writing$100 ,000 checks, which is way more than I'd be investing. Therefore, I would think, well, actually, they're kind of materially putting their money where their mouth is. But for them, that might be kind of a relatively little amount of money.

9:31Kevin Xu:So my question is, actually, it's almost the inverse of following the community and more should be trying to find more use. People who are really spending a lot more time and in a sense, a traditional, like a traditional fund manager, right? You would export or import somebody else's knowledge. how do people find more use? How do After Hour actually enable people to find people that are very good, not just looking at your position, but are actually good at it? Yeah, yeah. I think the number one thing that, the biggest insight I had back in After Hour back in the day was that you need a community, you need a density of high quality traders in order to make a community actually active, right?

10:08Because it can't just revolve around one creator. Like one creator is just not making enough content or trades every day to really keep an audience satisfied. Right now, consumer apps, we're all competing against the swiping, dopamines, cat videos, dancing videos on TikTok. And no matter what, to me, it's about the more time you spend on an app like AfterHour, the more educated you become, the more up to date on all the trends you become. And the golden nuggets soon do reveal themselves as long as you think for yourself. I think this is actually the tricky part with After Hours today because it's so big now, it's actually started to become less beginner friendly.

10:47A lot of times new people will download the app and ask me like, Kevin, where do I get started? Who are all these people? Where are all these tickers? What's the story here? It feels like entering season five of a TV show. And most people who are, you know, people are busy. People have other things going on. They don't have time to go through and comb back through all the posts and do searches and read through all the comments for like why this guy posted about an open door five months ago. Most people just don't have the time for that. And so as we've been exploring how to make after a better, more beginner accessible, more beginner friendly, we realized actually AI is a perfect solution for this.

11:25There is nothing simpler than texting a friend. And everybody wants to chat with me. Obviously, I'm the founder of the ad. Everyone knows who I am. I do all the marketing. But over the last few months, just everybody wants to chat with me, ask me what's on my mind, what I'm holding, whatever like that. And I will just be spending all day answering questions. So that's definitely not scalable. I also don't know everything. People would ask me, like, oh, what do you think of Alibaba stock? I'm like, I never looked at it. So I don't know. But AI hooked up to AfterHour, powered by AfterHour, it can read through everything that's going on, both quantitatively and qualitatively.

11:57and actually give you proper alerts, answer all your questions, tell you new ideas, look at your portfolio, tell you what's good and what's bad that's going on in a super accessible way. It's a chatbot. It's like texting a friend. And so this is actually, you see my name here, like we're actually launching Alpha AI in the next month, basically our AI investing companion or your AI friend for everyone.

12:20Kevin Xu:Let's go through that now then. So can you just start with the The after-hour products as it exists today and the extension with Alpha AI. Yeah. After-hour is a social network for traders. Our main unique element is that people connect their brokerages. So we have over$500 million of brokerages connected and publicly shared. And so people are sharing their live positions, trades. You could go to anyone's profile and see exactly what they're holding. So it's a super lively community and we have group chats as well. And like I said, as we grew, it became less beginner friendly, right? People would open the app.

12:51People are like, what's going on here? and there's tweaks you could make to onboarding, there's tweaks you could make to the feed, algo and other kind of new user experience type things. But all of that felt like a local maxima. That still felt like trying to put a small band in. It felt like there must be a better way to make it much more accessible, right? And the insight here came from actually me doing a lot of marketing on Instagram. So I started posting a lot on Instagram, going viral a few times and talking about my investments, talking about the app. And I would get flooded with comments and DMs.

13:21be like, hey, I've always wanted to learn. How do I get started? Hey, can you teach me? Hey, I just bought my first dog. What's this mean? Like a lot of like tons of beginner questions. And I could say like Google it. I could say like use ChatGPT, right? I could like say go post on after hour. Maybe somebody will reply to you. But everybody just wanted to text me. People just wanted to chat with me. And so the insight here came from fundamentally, this is the reason why ChatGPT and all these chatbots work. There is nothing simpler than chatting with a friend. We've all been trained to use iMessage and WhatsApp and all these apps now, right?

13:50And it's really good at this. So especially if it's plugged into the real-time market feeds, if it knows your portfolio and remembers your interests, and fundamentally, especially if it talks like a friend. Like a lot of these chatbots today, they talk like overly verbose 30-page essays with em dashes, etc. And most people can't take that. Like if you try asking Chappie GBT, why is open door up? It's going to give you like a long essay and only one sentence inside that matters. Versus if you ask me, why is open door up? Right. I'll tell you a simple one to two sentence, Right. Same thing with everything.

14:20You know, then you're like, oh, why does that matter? And I'll, you know, I'll reply back to you like a friend saying, oh, that's because this new CEO wants to reshape, blah, blah, blah. Right. Because I spend time scanning the Internet, reading these news and report back to you in a simple one to two sentences. And no other financial investment copilot or anything like this works like that today. And so that's why we decided to embark on building Alpha AI. It's going to be inside AfterHour. So you can actually trigger it by at mentioning at Alpha or at Alpha in chat. or a comment similar to Grok.

14:49And it'll also be available as its own standalone app because I think people also want that immediate accessibility to talk to Alpha in that kind of private one-to-one environment.

14:57Kevin Xu:And it'll be trained on or provide the aggregate summary of the community discussion within the AfterHour app or is this an extension of, this is Kevin V2? It has context. It has financial context. It has access to all the financial, all the fundamental data that's out there. It has access to real-time sentiment across AfterHour, but also including Reddit and X. And it has context of your portfolio and the trades that you're making. So it has a lot of context that all these other general purpose slams and chatbots don't have. Second, it's got a friend design. So it's not like this logo or amorphous blog you kind of talk to.

15:36We purposely created this character called an alpha. It's actually a species. You could personalize it, give it its own name. And it's got like a very friendly chat bubble UI, very similar to iMessage. And most importantly, it remembers you, right? remembers your portfolio, remembers your interest, remembers your experience level, remembers your risk tolerance. The memory has actually been a big unlock in just like chatbots over the last year. And we think this is a really strong, applicable use case for especially beginners because not everybody wants the advanced stuff. Maybe there's some people on AfterHour that want all the advanced options and levels and all that kind of stuff.

16:08But for beginners, they don't even know what an option is. They just want to know like, you know, there's earnings today. Why does earnings even matter? Right? What is an EPS? They have all these basic questions. And if you're stuck in a community where most of the louder people are more power users, these beginners start feeling like, oh, my question, my voice is not getting answered. And so, again, AI is perfect for that. And then finally, it's proactive. It actually is scanning the entire internet and web of financial data and trying to stay on top of it for you.

16:37Kevin Xu:It's really interesting because so one of your insights is around education, really, and confidence building, which also places you in a position where there are people who are quite susceptible, almost vulnerable to the type of device that they are receiving. Are you regulating me? How does that work? And also on a company sort of macro level, you're dealing with significant sums of retail capital now that market manipulation is probably not quite there yet. But there's a world in which your AI could start to drive meaningful swings in smaller stocks, perhaps. How do you think about that puzzle?

17:09Yeah, I mean, there is a clear group of easily manipulable stocks, right? That's just easy to measure. Penny stocks, anything with low liquidity, low volume, option contracts, it runs the gamut. I've been in these, you know, scammy pump and dump groups. It's despicable the kind of scams they run. Just pure lying, saying I'm still holding what they already bought into, you know, everything. You just provide some guardrails. Like, again, most people are coming to After Hour and coming to Alpha really to get educated, really to learn about what is going on in the market. Someone interpret this for me.

17:40Even for me, like when Trump tweets something, I don't always know whether that's like a good thing or a bad thing. I rely also on the wisdom of the crowds, looking into the comments and the chatter. Fundamentally, I mean, what even is the market? The market is a sentiment weighing machine, right? It is roughly saying like, okay, 51 % of whatever voices, either numerically or weighted by money, believe that this is a positive nudge on this company. This piece of news is positive that way. And so it's all sentiment and people's opinions at the end of the day. Like we don't actually know how it affects the revenue numbers until next quarter.

18:14So everything in between quarters is just people's feelings. And so, well, again, what does it mean to empower? or what does it mean to empower a beginner? It's patiently answering questions. It's talking in a very simple and easy-understand manner. And it is interpreting the market for you, right? Whether you come in with a question or the market did something and that might be interesting to you, right? Like that's the thing, that's the problem I have with a lot of these other AI finance bots. Like the examples are always these very rare questions I ever have. Like do an earnings analysis of Apple quarter over quarter, right?

18:55Like I never do that. Or like plan a retirement plan for me until the next 30 years. Like that's like a one-off thing, right? And that's not enough in the consumer world to create a DAU. And I think DAU is incredibly important, not just for a consumer app, but also to create investing habits, to create financial education and financial empowerment for people. That's what made Wall Street Bets fun, right? Because you were coming back to Reddit and watch your bets every day because of the memes, because of people sharing things that you just never saw before. You never saw this level of transparency and kind of soft-mortic humor combined.

19:28And thus, as a side effect of daily exposure to this, you learn so much. And so, again, how do we make alpha a daily habit for people? We not only wait for you to come and ask alpha questions like, oh, what's earnings today? What's up? What's up? What's trending? Right. We're also hoping to push to you proactively, like what's new? What just happened? Trump just said this. What's going to happen? Looks like you like tech stocks. You know, Google has earnings tomorrow. Like stuff like that, right? Just so that you are, again, you become a DAU of the financial world.

20:01Kevin Xu:I think that the Trump stock tracker that you have in After Hours is a great example of the consumer approach that you have. But I wanted to take us down a different track. So you use pseudonyms, as we've discussed at the beginning of this chat, right? So, you know, you're Sir Jack on After Hour. And let me just get this right. On Wall Street Bets, you were Magnum Dong Opus during the 2020 to 2022. Oh, no, the pseudonym was Sir Jackalot on Wall Street Bets. The Magnum Dong Opus was a series of annual end of the year stories I wrote. Okay. So look, I mean, this is the 2020 to 2022 period before we launched the business where, as I've understood it, you turned$35 ,000 into around 8 million from making these high conviction bets that you've mentioned under these pseudonyms.

20:46Kevin Xu:Help me understand why people are adopting pseudonyms in this environment where your MO is really about creating trust and creating transparency. Why do people need to have these ulterior names? Yeah, yeah. I think there's, finance is still kind of this weird taboo. You don't really talk about the details with your friends and family. And so I think that's really what has limited our ability to learn over the last generations, really. Right, like if you think about it, we are humans. We are chameleons. We are creatures of mimic. We mimic our peers and our friends and our family. And now social media, right?