#313: Wall Street's Craziest Stories

0:00So good, so good, so good. Everything you want for summer is at Nordstrom Rack Stores now and up to 60 % off. Stock up and save on the brands you love like Vince, Sam Edelman, Frame and Free People. Join the Nordic Club to unlock exclusive discounts, shop new arrivals first and more. Plus, buy online and pick up at your favorite rack store for free. Great brands, great prices. That's why you rack. so monday volkswagen shares opened at 348 euros so that's up 66 from friday's close they closed the day at 517 dollars tuesday it got up to an intraday high of 999 euro which briefly made it the most most valuable company in the world ahead of exxon mobile and microsoft before closing at 940 so for those who sold short on the friday if they had borrowed 100 million dollars of stock to sell short it would have cost them 450 million to buy it back welcome to stock club the podcast where we find and discuss stocks that anyone can

1:10Emmet:buy many of which we believe will go on to grow your wealth mike how you doing this week i'm good good i'm good i'm looking forward to this episode you uh you messaged me all excited with a bunch of gobbledygook but uh yeah it does make sense we're going full quirk today because mike stock markets have existed for hundreds of years um amsterdam 1602 to be precise and consequently in such a system there has been the inevitable collection of zany events that are either too much to believe or ludicrous and in some cases downright funny so this week i suggested to you that we dive into the trivia of life and pitch each a few stories from the annals of the stock market stock markets from around the world and i guess as usual what we'll do at the very end is we'll just pick our favorite we're not going to split 10 grand it's impossible 10 grand on a flash crash from someone's bedroom and the more you dive into this subject you're like that is wild and then you find another story and it's even wilder so as i understand you're going to pitch two stories i was supposed to do three but then i got so into one um right and it's one of my favorite uh one of my favorite articles online um so i got really deep into that uh so i didn't have time to do three so i've gone very deep on one i maybe forgot a small bit about the second So what about we go, me, you, me, you, me.

2:40Emmet:Perfect. Okay. All right. Okay. Well, I'm going to keep my pitches fairly short because, as you said, you're going to go deeper on one of them. And the first story, crazy story from the world of the stock market is the one where a chimp beat Wall Street, as opposed to my Wall Street. and in 1999 at the height of the dot-com bubble there was a chimpanzee this is very bubble activity already like yeah oh it really is yeah i remember this her the chimpanzee chimpanzee's name was raven and she made stockpits uh through the traditional way by throwing darts at a list of 133 internet internet companies that were pinned to the board, right?

3:28Emmet:So they'd give Raven darts. She'd lash them at the board and the resulting portfolio that she picked, it basically with ballistics, it returned 213 % in the year. And Raven finished as the 22nd most successful. The 22nd most successful investor. money manager the 22nd most successful money manager in the united states that's here that year and she later appeared as the most successful chimpanzee investor in wall street history which is hardly surprising well yeah i i think the 22nd is more impressive i want to see that full list like you know is she ahead of the legends is she had a warren buffett is she had a paul tudor jones yeah at torp are they are they all below the chimp and this make me feel a little bit better about my own job well what i do know is that the ones she had performed like everyone who outperformed her uh had bloomberg terminals and and teams and mbas from the top universities and that's true yeah they have to reduce the uh the expenses from the returns as well do you know what i mean what's the price of a map and a couple of darts there was a really funny photograph floating around the internet in the late 90s of of her and and they kind of i thought wasn't very culturally appropriate they had her dressed as what would be historically described as a man with braces and the whole kind of you know city of london get up yes and the cigar and all that so it was all very confused but um it's actually hilarious because she did manage to outdo so many professional money managers it albeit in very unusual conditions and and the question of what institutional investors are actually adding uh at that time became really pointed because this dartboard it turns out didn't charge a 2 and 20 management fee either the traditional funds under management where you pay two percent per annum and 20 of the upside so good old raven she was quite the meme at the time i don't even know if the word meme existed but my first quirky story is of raven the chimp that beat wall street i suppose you can dedicate this entire episode to the dot-com bubble like uh stanley stanley duck and miller is arguably there is an argument to be made that he's one of the greatest investors of all time um he'll always tell the story of how he stayed away from the dot-com bubble for so long uh years and years basically from 97 to 2000 he finally capitulated he bought in i don't know whatever billions in internet stocks maybe a month before the bubble popped lost lost half of his money and and went off licking his wounds and he's there at the time this is probably before he actually dove in and he's looking at his returns getting beaten by a chimp so you know maybe maybe the chimp raving the chimp was the the straw that both uh trucking miller's back in terms of okay i have to get involved there's too much free money going do you know there's a there's a deeper lesson in it that you know you can intellectualize a pursuit that has a chaotic outcome like and i'm talking about chaos and from a mathematical perspective which is the further you go out the less predictable it becomes and the stock market is like a weather system except it's the inverse the further you go out the more predictable it becomes you can say with a moderate degree of certainty that the s &p 500 will return something like 10 per year if you invest for 20 years but you can't really say what it's going to do at four o 'clock today no more than you can say what it's going to do tomorrow whereas a weather system the further you go out from you can tell what the weather is going to be in 60 seconds because you can look out your window and go that's what the weather is going to be in 60 seconds or if an hour did you go or or rain but uh but with weather systems the further you go out obviously the far far far less predictable it gets and i presume there comes a critical point beyond which you statistically you just cannot tell what the weather is going to be like at a given point place in three months from now other than historical data but my point is that we are stock pickers and the deeper you you can go as intellectual as you like and get it wrong and you can be as carefree as raven the chimp and get it right so the point is you got to take the macro lessons and roll them in which is diversify and go along and some of them will be right and some of them will be wrong study and play come together on a windows 11 pc And for a limited time, college students get the best of both worlds.

8:24Get the Unreal College deal. Everything you need to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 Premium and a year of Xbox Game Pass Ultimate with a custom color Xbox wireless controller. Learn more at windows.com slash student offer. While supplies last, ends June 30th. Terms at aka.ms slash college PC. Yeah, you can rely on a couple of key tenants, But also you have to kind of surrender to the fact that what you said, it is a bit chaotic. There is true chaos there. There's luck there. There's so many factors, especially in the short term, that can cloud everything, cloud your judgment, cloud your performance, or do the exact opposite.

9:03Like you look like the greatest investor in the world, the smartest person that's ever lived, or you're getting beaten by a chimp with a couple of darts, whichever way you look at it. Consternation. So tell me, what's your story? i'm staying so this is my short story i'm staying when with the dot-com bubble uh so jonathan lebed he's kind of like a 14 year old jordan belfort uh i was looking up i was trying to come up with a nickname so i call him the wolf of sesame street and not not old enough to drive however he made nearly a million quid uh effectively just like mass stock market manipulation uh from his bedroom uh so basically this is a time to dial up internet and i just like literally straight out of the movie with wall street but say a more modern take instead of phones it was chat chat rooms um so it's a pure pump and up scheme he would buy up positions in like these penny stocks like you're seeing from off of wall street um and then basically create a bunch of fake accounts on chat rooms with loads of posts under different names under different usernames and obviously because their penny stocks hugely volatile you get a small bit of momentum and the stocks go up and so very simply he would just sell his stake at the highs and make an absolute fortune and this is incredibly illegal uh but the fella is 14 so what do you do um so it's just a grand pump and dump scheme from this little genius he lived out in new jersey or something yeah yeah jersey from is like parents basement or something he's yeah of course he's running this like we don't know

10:45Emmet:what he's doing down there but i don't know he gets an awful lot of pizzas delivered six six we never gave him the money six figure mass uh stock market manipulation scheme which is mad uh like over a couple of months uh right around the dot-com bubble as well so obviously that feeds into things too because there is such a like influx of silly cash and FOMO cash being stuffed into the market. And you can imagine that on top of the FOMO, on top of the fake posts, probably quite easy to do. And in fairness, he did figure it out. It's estimated he made about 800 grand across 16 stocks, which he did this scheme for.

11:25And like what I can't get over as well is the amount of money he's starting with. So his individual positions were between 11 and 74 grand for what, 14 going on 15. which is nuts. So obviously, this is illegal. The SEC got into him. It wasn't a criminal case. It was a civil investigation. So Lebed returned 285 grand in profits, which is only about a third of what he made. So I don't know who his lawyer was. Probably had loads of money to pay him, I suppose. The charges were settled without admission of wrongdoing. His parents didn't receive any scrutiny. His dad was like, oh yeah, he earned that money.

12:06He deserves it. um so of course he did yeah dad had just been promised a free holiday to disney well even better he got a new mercedes out of it um so it's mad like is it i just this 14 year old walks away with half a million quid pure illegal market manipulation pump and dump schemes and pretty much gets away with it like didn't have to admit guilt only gave away a third of his profits

12:31Emmet:15 years of age madness but you know at the time that the the chat room of choice for anyone in stock investing if you were from outside of the us because they suspect if you're in america with some aol chat room but the chat room of choice uh was yahoo finance so whatever the company was you went in typed in nke you went to the nike area and there was a chat room there and which was just a long stream of comments that varied in quality as you can only imagine because um free chat rooms don't always attract the best behavior um um but at the time the founding ceo of whole foods was someone i was interacting with his name is john mackie and not to do the man a disservice because i'm 99.999999 % certain what i'm about to say is correct but i'm acknowledging it mightn't be but i'm gonna say it's one in one million chance i'm wrong but he was going on to the yahoo finance whole foods chat board and totally pumping the stock under a different uh a different moniker like he had a handle or an avatar or whatever and certainly wasn't john mackie founders of of founding ceo of whole foods it was like my name's jeff and i'm in my mom's basement and here's a great stock but it was actually he was i remember the messages that john was sending about whole foods but i remember the time thinking how does he have time to do that when it was when he was caught and you know really what happened after he was caught he stopped anyway um uh but i i remember thinking i would have thought the founding ceo of what is possibly the most successful uh what is almost definitely the most successful whole food supermarket chain grocery store chain in the world acquired by Amazon how did he have time to go in and he was at it a lot like the guy was there you'd go into Whole Foods and there would be this guy his name was not Jeff I don't know what the handle was but that was made up by me folks but the other bit was I'm sure as true as the nose in my face you don't have to look far for CEOs with too much time in their hands spouting useless stuff on chat boards now do you what are you saying elon musk obviously he spends his tweets about a hundred times a day like all right okay i thought you're talking about my beloved co-founder john trill he's not knocking you know he's the quiet guy he's got all the burners that's right yeah his this is gaa chat rooms okay good on enjoyed that um i'll go with one that is somewhat But when you mentioned Mercedes there, and I'm pretty certain I know which one you're going to go deeper on.

15:20Emmet:So this could be a good bridge one. But this particular crazy story from the internet, from the world of stock exchanges, is quite recent. And it's when Hertz went bankrupt and its stock went up. Do you remember this? I do, yeah. I think we even tackled this on Stock Club because we really couldn't understand it. It was post-COVID madness, which had a tinge of the dot-com bubble as well in terms of just money flying into the market. It was nuts. So much of it comes in the wake of the GameStop short squeeze as well, which neither of us really wanted to touch because that's such a big, expansive episode that I don't even feel we could do it justice in this kind of format.

16:03Emmet:And we've talked about it in various forms over the years, and movies have been made. I think a lot of people know about the GameStop short squeeze, But this particular story, I guess, kicks off in May 2020 when Hertz, the global car rental company, filed for bankruptcy. And this is ordinarily the point at which a company's equity becomes completely worthless. The boss comes out and they say, hey, guess what? We're done. We're bankrupt. And the stock just falls to the ground. And bankruptcy proceedings typically wipe out the shareholder entirely before creditors are made whole. but nobody told retail investors that that's what happens when a company says they're bankrupt you don't buy shares within weeks of the filing where hertz lodged all their paperwork um as is due process the stock the stock climbed from 40 cents to three books 70 so what's that about a ninefold ninefold or something yeah nine x and the explanation i mean if you if you can call it an explanation was that this kind of gamestop era of retail enthusiasm combined with a new generation of investors who had learned that apparent uh certainty in markets is usually uncertain uh kicked off and robin hood was flooded with new hertz buyers so the zero commission broker that had empowered a new wave of meme stock investors suddenly a lot of buys and the thesis was that sometimes bankrupt companies recover right that was the overarching yeah that's not the thesis the thesis is that there is a bunch of fellas on reddit and wall street bets being like let's all jump in on hertz and see if we can recreate what we do with gamestop in a sense and okay there was i suppose you're right but even what i said is a little bit more thoughtful you know well maybe yeah you're giving you're giving it too much credit is what i'm saying is that there was a point there where the stock market for certain names was a complete casino and true there was an attempt to recreate the magic of gamestop with any number of names and there was just so much momentum behind it it's the same thing if there's that influx of retail money going after things especially a stock like hertz which is bank which is going bankrupt and no one is going to be buying you can shift an awful lot of momentum into that business and make some short-term gains.

18:33And I'm sure there's loads of people who made money off of it.

18:35Emmet:But what happened after that, whatever the absolute cause, you're right, I think what you've just described is more likely than a bunch of people going, maybe it's not bankrupt. It was even less thought-provoking or thoughtful than that. But what happened next crossed from absurd into pure unprecedented because Hertz management watched its meme inflated stock price with genuine bewilderment. You know, like these were grownups, women and men who'd seen and been through the trenches of corporate war and knew that once you say you're bankrupt, it's game over. And so they approached the SEC, Security and Exchange Commission, with a proposal to raise$500 million in fresh equity by selling new shares to retail investors.

19:30Emmet:And the SEC raised objections about disclosures, I presume, specifically whether investors understood that they were buying stock in a bankrupt company that might and probably is worth nothing. And the plan was, in fact, eventually abandoned. So the SEC did their job. Rightfully so. Oh, yeah. Yeah, for sure. That's them doing their job. It's a good example of a government body doing what it is they should do. You can see Hertz management from the sideline being like, if they're stupid enough to buy the stock, why wouldn't we be able to make money from it? Yeah, totally. The SEC, whatever about letting that happen, like it's still a free market, but letting Hertz go and actually sell literally pieces of toilet paper to people for that amount of money.

20:27It has to step in somewhere, basically.

20:29Emmet:But this jolt of adrenaline in the arm of all the management team clearly cut through. They were quite giddy, I presume, because a year later, the scenario was supposed to be, or the scenario that should have been impossible happened. And Hertz managed to reach a deal with a private equity investor or investors to exit bankruptcy with a restructuring that actually returned value to shareholders,$8 per share. And investors who bought at$6.25 during the peak of the frenzy still came out ahead. And the people who had been mocked for buying a bankrupt stock had, against all reasonable probability, been vindicated, which is a dangerous thing.

21:15Emmet:because if somebody does something that's highly improbable and everyone who's grown up in the room says that is not going to end well but it does end well it reinforces the chancer's self-belief do you know what i mean it's like a dangerous precedent like yeah you know it's like somebody saying if i drank five liters of coca-cola a day it will cure cancer every doctor will go no wrong that's not correct there is and somehow they go into remission they go told you it was the coke so there is this kind of no we don't want that message to get out there so the point i guess of this cray cray story is that yes it worked once um but the lesson very much is contested i don't believe we can say there's a lesson other than occasionally crazy stuff works out yeah yeah but that was just that was a crazy time in the market that was more i would suggest that was significantly more frothy and more nuts than the ai hype we've seen oh yeah yeah very well the the the coronavirus crash was the sharpest hardest crash and fastest recovery in history so not only was it it fell a proper crash but it was the short i think it was a 16 day recovery so the entire thing created was was an unprecedented unprecedented event and this is just one of the sub stories of that very much so okay give me a crazy story mike did you know investicon is back i know most people out there won't have an idea what i'm talking about but let me explain Last year, we ran an in-person event for 100 people in Dublin at the end of the summer.

23:11Emmet:We got everyone together on the floor of the historic Irish Stock Exchange in connection with the Erlingas College Classic football game, which was going on in Ireland's Crow Park at the time. It was like a pilot. It was a mini conference with a handful of fantastic speakers talking about stock investing. We also had a couple of experts in other areas and we ran it for the afternoon, as you well know, Mike, on the historic floor. Well, it was incredible. The buzz was electric, the sense of community, the great ideas about investing, and most importantly, the ticker symbols that our speakers shared, some of which have gone on for extraordinary returns.

23:53Emmet:I can think of one speaker in particular and I'm thinking of the names right now. Oh, for sure. So, Mike, obviously you were there and you and I interviewed some of the great investing minds. Who stands out for you? Well, now I give myself away there, but I'm just remembering the conversation. I was up on stage with Eric Bleeker. We were talking all things AI. He's kind of become a bit of an expert in AI investing. And he mentioned certain industries. Cooling was one I particularly remember. companies like Vertiv, companies like Comfort Systems USA have just been, they were already on the march when he was talking, you know, it's the classic, oh well it's already up too much what goes up must go upper, but the performance since has just been absolutely nuts, so yeah.

24:41Emmet:Yeah, and actually he's returning this year, I'm excited to see what he has to say. Oh me too feedback from everyone who attended last year was kind of can we do this again so sure enough we are doing it again it's on a thursday in late august in dublin in a venue that also has historic trading links but it's way cooler because it also serves pints of guinness and other drinks too and this time we're doing it for the full day at the market bar in dublin and we will be served a lovely tapas lunch halfway through the day and i am forgetting the most important thing which well i'm going to say mike you'll never believe who our main speaker is because you actually know who it is i'm talking about the co-founder of the motley fool fool.com david gardner and he is coming over to talk stock picking rule breaking and all things to do with his career and the best investments for 2027 and beyond and that's an exclusive event right here in dublin ireland all right we need to get on with the episode everybody check out investicon.ie so irish domains and then ie so it's investicon.ie for details we have early bird pricing available now and it won't last right on with the show this is a great so i'm glad you suggested this because i had this one in the back um it's actually it's probably one of my favorite like financial articles like long form pieces i've ever read it's a retrospective piece in the financial times which looks back on this incident so it's called the day volkswagen briefly conquered the world i'd highly recommend reading it i'm not going to be able to give all the information from it in this podcast but it's where i'm stealing the info from so um so yeah look it's we're talking about short squeezes we're talking about game stop this preceded game stop I actually believe maybe it's more interesting than GameStop just because of the companies at play and how fast it happened and everything else.

26:48But essentially, the story comes from the depths of the financial crisis in 2008, in which Volkswagen briefly became the world's most valuable company. You know, GameStop didn't become larger than Apple in 2021, I'll tell you that much. So where does this story begin, Emmett, do you think? Ready to soundtrack your summer? With Red Bull Summer All Day Play, you choose a playlist that fits your summer vibe the best. Are you a festival fanatic, a deep end DJ, a road dog, or a trail mixer? Just add a song to your chosen playlist and put your summer on track. Red Bull Summer All Day Play. Red Bull gives you wings.

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27:35Emmet:i think if i recall correctly it's something about volkswagen were uh put in a bid to buy porsche um that's that's where it ends up but it begins in pre-war nazi germany emma sorry oh i should have guessed i should have guessed yeah okay sorry i thought we're talking let's say for putting a circle around the event oh no no no we're going all the way back to when ferdinand porsche designed the volkswagen beetle for out of hitler yeah that's where we're going with this no that's quite interesting even in itself i didn't i knew that the beetle was designed for hitler but i didn't realize that ferdinand porsche was the designer yeah and then from there he set up their own his own company but there's a huge uh incestuous kind of stuff going on between porsche and uh volkswagen so much so that uh ferdinand porsche's grandson became vodafone ceo in 1993 uh ferdinand peak peach uh who's very involved the ceo of what company of volkswagen oh sorry i thought you said vodafone no no no um uh so he's incredibly involved in this whole thing uh He still and obviously owns a bunch of shares in Porsche as well as being CEO of Volkswagen.

28:52But in the early 2000s, Porsche decided to want to take over Volkswagen and they were building up their positions. In about 2005, they announced a 20 % voting stake in the car company and then it built it up to about 30 % by 2007. And at that point, you have to make a mandatory offer to take over the company. but this was never going to work because there was an old law called the volkswagen act in germany which required a party to own 80 percent of volkswagen's voting shares voting shares remember that for later before it could formally control the company and then the state of lower saxony has always owned 20.1 percent of volkswagen basically protecting it from being uh fully controlled by an outside party or a bad actor or a foreign a foreign intermediary essentially um so when porsche were trying to overtake germany overtake germany overtake volkswagen they came up against this law the european commission overturned it and then that kind of opened the gates really for porsche to really fire ahead with building up an even larger position because it's already got 30 35 percent now meanwhile across the pond in wall street there was a really popular arbitrage trade happening with a lot of German companies.

30:11So at this time, a lot of German companies had this dual share structure. It became very popular where there was these preference shares, which carry no voting rights, but they had a fixed dividend. So it was, again, to protect German companies from hostile takeovers and foreign influence. So you had voting ordinary shares, and then you had preference shares. Preference shares are for the outsiders, voting shares for the Germans, if that makes sense. the outside investors they get their dividends and then the local owners kept control of the company through their voting rights and the ordinary shares now obviously wall street loves an arbitrage trade they're incredibly popular so they would spot say discrepancies between the price of preferred shares and ordinary shares go long one short the other and essentially it's a risk-free trade once they converge you make money on both sides that was the deal anyways what was unique about Volkswagen is that there was a huge difference growing between the preference shares and the ordinary shares because Porsche's takeover would only target the voting shares.

31:13See where this is going? So there was a huge demand for ordinary shares, no demand for these preference kind of foreigner shares. So it got to the point where preferred shares were trading at like 20 % of the price of ordinary shares. And like for many, like this arbitrage trade was viewed as like risk-free. So loads of Wall Street firms got in, like how could they resist that? It's huge money to be made. So we have a bunch of Wall Street firms essentially going short Volkswagen by the billions because, you know, you're going short the ordinary shares, you're going long the preference shares. But what that means is you are essentially short Volkswagen.

31:52so this built up and built up volkswagen normal shares kept going up because porsche were buying them and their preferred shares kept going down so by the end of october 2008 12 of all volkswagen shares were sold short which is about 10 billion dollars worth and then the lid completely pops off what i love about this as well as porsche realized obviously what was happening they released this statement on a sunday when no one was working and the markets are closed and the same statement says i'm going to read it out um due to the dramatic distortions on the financial markets porsche has decided over the weekend to disclose its holdings and shares and hedging positions related to the takeover of volkswagen at the end of last week porsche held 42.6 percent of the volkswagen order ordinary shares and in addition 31.5 percent in so-called cash settle options so essentially it had like this hedge on volkswagen shares that it cashed in um so it already owned 43 of the company and then another 32 which it was cashing in through its hedging options um and then upon settlement of these options porsche was receiving cash the difference between the then actual volkswagen share price and the underlying strike price strike price in cash the volkswagen shares will be bought in each case at market price what this meant essentially is that Porsche would now own 74 % of Volkswagen.

33:21Now, remember, Lower Saxony already owns 20%. So you've got 12 % of the company sold short. Porsche now owns 74%. Lower Saxony owns 20%. There's only 6 % of the shares left available, while 12 % is short. And the only way to close your short position is to go buy the stock. So what are these people going to do? So Monday, Volkswagen shares opened at 348 euros. So that's up 66 % from Friday's close. They closed the day at$517. Tuesday, it got up to an intraday high of 999 euro, which briefly made it the most valuable company in the world, ahead of ExxonMobil and Microsoft, before closing at 940.

34:02So for those who sold short on the Friday, if they had borrowed$100 million of stock to sell short, it would have cost them$450 million to buy it back. Some of the quotes are unreal. And I remind you as well, this is all happening in the midst of the great financial crisis. This is like, you know, our worst kind of three-year period we can imagine on the stock market. And traders, this is one quote from a trader, it was one of the most painful days of my career. the pain among investors was unparalleled versus any other market scenario i have ever encountered another one said it remains the single biggest money losing situation i can remember for funds caught short and a lot of them were eventually porsche released more shares to kind of make everything settle down essentially um but yeah it's hilarious because it's like over the course of three days basically porsche just set wall street on fire and there was so much activity involved as well like if you think about a stock going to and i'm trying to think now it would be like if toyota went from whatever it is 100 150 billion to to 5 trillion and became bigger than nvidia in the space from sunday to wednesday is absolutely nuts and there's a bit of irony in the end as well because Porsche actually was short of cash required to take the shares in the end so they committed to buying the options but they didn't have enough money to actually buy them after it all so they didn't get past the they didn't get past the mark to like have controlling stake in Vodafone so the actual takeover failed they took on a load of debt to do it which is not a good time to take on debt no 2008 people weren't exactly buying expensive cars um 10 billion of that debt was coming in march 2009 and just like you know car sales were falling off cliff especially luxury cars uh so banks weren't going to lend you any more money banks didn't have any more money porsche actually ended up facing bankruptcy because it and they were bailed out by volkswagen in the

36:07Emmet:end that is wild that is properly wild and for a start porsche is a company that is very storyful like even the fact i it completely slipped my mind i'm sure i heard in the past that ferdinand porsche designed the beetle for hitler i just had completely forgotten that right through to today um where seemingly it's a business under real pressure because strategically they went all in on electric but for i think two models and now the premium premium thing and electric is still not there yet because of the rate of evolution of batteries but that is i would imagine their maddest story it's it is unreal and it's i remember the time watching it but it was quite complex i think you've done a good job at explaining it there because it's not an elevator story you've got to kind of spell out to people what a preference share versus an ordinary share or voting share um is and then the actual leverage that's used you've even to understand what is the concept of shorting what is that thing so much going on and like yeah this is the thing even the year before so porsche were really a fan of this kind of complex financial engineering so something like 50 of the profits the year before uh was derived from options bets on hedging volkswagen's share price because they were building up the position as it went so this is this was ongoing for ages and there was loads of i imagine very smart people in the room making this work and it's so funny because it backfired on all of them in the end because they didn't have the money to buy the shares through their option scheme which like almost capitulated the whole company volkswagen turned around and bailed them out and imagine that's to do with the uh the kind of incestuous stuff going on as well where it's porsche's grandson uh running volkswagen and he'll turn around and be like we'll help you out like there's still a very weird ownership structure between the two companies now where they are under one umbrella but volkswagen is the owner but porsche has voting rights in volkswagen it's it's it's a huge mess still very complex and at the time sorry what i mean is a couple of years ago i was looking at full swagon shares and it was this hot mess that i really couldn't disentangle to understand what actually are you buying if you just buy an ordinary share on the stock exchange in germany of full swagon what what what am i buying even that alone is a little convoluted yeah yeah it's messy well that was a great story okay i'm going to hit you with my third and final wacky story so um i've hit you with the story of the chimpanzee raven and i went and i hit you with the next one which was when the day hurts went bankrupt and it was tantamount to them winning the corporate lottery but this one is kind of i'm going to call this one the ramen eating hermit who made 20 million dollars in 10 minutes do you know this story i don't right well in december 2005 a junior trader at Mizu Securities in Tokyo was executing what should have been a routine order, right?

39:31Emmet:And the order was sell one share in JCOM, which at the time was a recently listed recruitment company, sell one share for 610 ,000 yen, okay? Instead, he entered it the wrong way around and he put in the order to sell 610 000 shares at one yen right which happens i mean we've all opened our brokerage and it's like there's the field for the price and there's the field for the number of units and number of shares and you know very often very few of us would have enough liquidity if we get it the wrong way around but this kiddo was sitting in a brokerage firm and our securities firm and so he rather than sell one share at 610 ,000 yen in he sticks into the computer 610 ,000 shares at one yen and the order was approximately 42 42 times the total number of shares in existence which you again would think that grown-up circuitry and grown-up systems and software would go no you can't do that sorry but the Tokyo Stock Exchange's systems actually failed to flag this obvious impossibility of the instruction and it accepted the order right so he locked and loaded a bazooka and panic quickly spread among professional traders who recognized what had happened and most scrambled to assess their exposure um but one guy saw differently so a guy called tashigi katawiga who was a reclusive bedroom trader i suppose in his late 20s um and who had amassed a small fortune through very careful trading uh noticed this and he was by most accounts i've read a man of uh very limited material ambition like he ate a cup of ramen for every meal and had no interest in the stuff you use money for i mean aka the trappings of wealth but he just wasn't into it he enjoyed his cup of ramen and sitting there watching the screen um but he was also a fast mover and within 10 minutes of the erroneous order this guy katawiga had bought aggressively at the collapsed price and accumulated a position roughly worth 2 billion yen or about 20 million dollars and he identified the error calculated the inevitable correction and executed this trade before most institutional desks had finished even reading the bloomberg alert so this this guy was razor sharp razor fast good at mathematics good with a mouse um and mizuzo's total loss that's the mizuzo's total loss from the blunder was an estimated 347 million dollars the president of the tokyo stock exchange resigned which is very typically japanese you might say and then and Kataweka went home made ramen and kept going and he eventually built a fortune of about 153 million dollars through similar methods of patient disciplined kind of hidden trades that just was I don't even think the word arbitrage was fair but this is the story of the hermit who made 20 mil in 10 minutes When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs.

43:07It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. it's unreal isn't it unreal like you hear these stories of just pure opportunism and i suppose it's going on like what's the what's the phrase like uh i can't believe you you ran into this success overnight and it was like oh yeah the 10 years of work help before that like isn't that's right place at the right time helps but he also knew what was going on and he's clearly an established trader because he went on to build even bigger fortune from that despite getting gifted like you know a gift horse right there but it is it is mad and you hear these trading stories and it just it kind of makes you a little bit tempted to yeah to really dive in is it gary

44:13Emmet:player or was it ernie else or game players yeah the more i practice the luckier i get yeah exactly yeah exactly so that was a guy who was practicing a lot but also got lucky and actually was luck in fairness because that pearl lad who put in us all oh my god imagine you you've done some stupid things at work you've said the wrong thing at a christmas party you haven't lost 347 million quid we all we've all had that feeling where you feel the blood drain from your face because you've done something preposterously wrong and you realize it was a big boo-boo uh like arriving exactly uh one hour and seven days early for a sports competition as i did once overseas um are like you're like oh no oh no no no we've all but can you can you imagine an order being accepted for 610 000 you see you see it happening in front of you watching the and you realize no no no and there's no button on your dashboard to undo it it's grabbing the screen trying to get it back oh the poor kid anyway um i'm sure he didn't get his bonus that year um i don't think i don't think anyone got their bonus if they're losing that kind of money for sure all right okay mike so it's hard to pick a favorite because they're all very i know my favorite straight away raven the chimp 100 oh me too 10 grand on raven because it's so endearing and it's also like it shows the chaotic nature of this pursuit and you can put a chimp in a room with a bunch of darts and you know sometimes they'll outdo the best of them that is my favorite too i always love the story of rave and then she'll google her folks like she's as cute as a button but anyway she's also fairly astute give her your wallet she'll invest it for you uh that was great something something different as well i'm glad we changed it up okay right mike i want to listen remind our listeners go to investicon.ie you better get tickets they're selling it fast meet david gardner and eric bleeker and of course michael mahony and emmett savage and a range of other high profile investing legends uh i don't count us amongst that uh moniker by the way mike it sounded like it did maybe we can book raven if she's still alive oh wouldn't it be great and her signing books down at the back so investicon will be a laugh it's going to be in the market bar in dublin end of august and it i promise you will be a great day and you'll have first refusal on all future events where we have already some incredible investing legends um very interested in coming over and uh but david gardner is the one i'm just so excited about founder of the matley fool the original rule breaker guy who told me and a whole bunch of other people to buy amazon when it was a six billion dollar business and sure look now it's nearly a six trillion dollar business so hats off to him brilliant on that note emmett thank you for joining me and thank you everyone for listening we'll talk to you next week