He Went From $20K to $70M Using a Strategy Anyone Can Learn

The Power of a Single Great Trade [0:00]

• The speaker posits that only one excellent trade is needed to become a top 1% investor.
• The most crucial aspect of investing is the presence of new information, not traditional metrics like valuation or P/E ratios.
• The investor claims to derive significant "alpha" by reading TikTok comments, contrasting this with the traditional methods of investors like Warren Buffett or Charlie Munger who read financial manuals.
• This approach led to approximately $30 million in gains in a single year.

"The most inherently ground truth thing of investing. The most important thing, the thing that matters more than anything else is I don't look at valuation. I don't look at PE. All I look about is there is new information."

The Maverick Investor's Approach [0:34]

• The investor deviates from conventional investing wisdom, eschewing buy-and-hold strategies and embracing market-beating attempts with leverage.
• Despite this contrarian approach, their success, as reported online, has been significant.
• The investor details starting with $20,000 in 2007 to test a new methodology they call "social ARB investing" or "observational investing."

"You will try to beat the market. You'll trade with leverage. You're moving in and out of positions. You're not a buy and hold forever kind of guy."

Observational Investing Methodology [1:47]

• Observational investing involves identifying any change in the world—consumer behavior, culture, technology, weather, politics—that could significantly impact publicly traded companies.
• The core idea is to surface this change early and connect it to a company that will benefit or be harmed by it.
• This methodology incorporates minimal fundamental or technical analysis, ideally requiring blindness to stock prices during entry and exit.
• Entry point is at the point of information asymmetry, and exit is at information parity.

"You're looking for any change that's happening in the world, whether it's, you know, change in consumer behavior, uh change in culture, change in technology, change in the weather, politics, anything that has the potential to be meaningfully impactful to one or more publicly traded companies in either a positive or negative way."

The Genesis of a Financial Prodigy [6:51]

• The investor describes a childhood fascination with making money, an entrepreneurial itch that manifested in arbitrage and garage sale flipping.
• This involved meticulous analysis of estate sales to find mispriced merchandise, often in categories overlooked by older sellers.
• A pivotal moment occurred when noticing reduced shelf space for Snapple at a 7-Eleven due to new competition, leading to a profitable short trade on Snapple via put options with his brother's brokerage account.

"I would take, you know, buses around the city on Thursday and Friday mornings and Saturday mornings before I could drive. Sometimes I'd take three or four buses before school to the one estate sale that I had seen in the paper the night before that based on my analyses I thought was most likely to have mispriced merchandise."

Contrasting Investment Philosophies [12:34]

• The video outlines major investing schools: passive indexing, technical analysis (likened to horoscopes), and fundamental analysis (Buffett-style).
• The speaker's approach is presented as a "door number three," focusing on significant behavioral or any form of change.
• This involves identifying shifts in consumer or business behavior, such as changes in clothing preferences or responses to events like COVID-19.

"So, you know, here comes door number three. And door number three, you kind of described it a second ago, but I would my short summary of that is you're looking for significant behavioral change."

Identifying Market Opportunities: Hail Storms and Roofing [15:50]

• A favorite example is tracking Google Trends for "roof damage" or "roof repair" searches to predict demand for roofing companies like Beacon Roofing following hail storms.
• This method provides real-time data, predating delayed insurance reports, allowing for early investment decisions.
• A particularly severe hail season, indicated by triple the usual search volume, led to a large, leveraged call position on Beacon Roofing.

"What's fascinating about that is that the Wall Street generally would utilize insurance sector reports that would report on the damage from the hail season as a data point to analyze Beacon Roofing, you know, prior to earnings. But those reports take a very long time. They're really delayed."

The Blind Spots of Wall Street [19:12]

• The investor applied the garage sale principle to finance, identifying Wall Street's blind spots, often related to demographics or cultural trends overlooked by a predominantly older, white male demographic in finance.
• This led to significant wins by capitalizing on shifts in consumer behavior, particularly those that were female or youth-oriented.
• An example is the surge in E.L.F. Cosmetics, driven by a single influential YouTube video by Jeffree Star, which Wall Street analysts were unaware of.

"And then you started saying, well, instead of I'll use the garage sale principle again. If they know a lot about certain types of things, where are their blind spots?"

Conversational Data vs. Transactional Data [24:40]

• Institutional Wall Street relies heavily on correlated, transactional data (e.g., credit card receipts), which is often synthesized after the fact.
• The investor's edge comes from using conversational data found in social media comments, which reflects intent and interest before transactions occur.
• This "speech pattern" data is seen as a superior way to discover alpha, despite requiring interpretation due to its nuanced and evolving nature.

"So the data that I am trading is conversational data because Wall Street primarily uses transactional data. So they'll use credit card receipts that they spend millions of dollars for and then they synthesize all of this transaction data."

The Slime Trade and Ticker Tags [29:31]

• A significant trade involved Elmer's glue (New Brands) due to the surge in DIY slime trends, particularly among children.
• The investor and a partner developed "Ticker Tags," a platform that analyzed Twitter data for over 1.5 million word combinations related to public companies, flagging anomalies in speech patterns.
• This institutionalized their observational investing methodology, which was later sold to hedge funds and sell-side banks.

"So like if I'm Nike, what do I care about? So okay, so you just mentioned slime. So which is one of my big trades. New Brands makes Elmer's glue, right? So Elmer's glue would be a tag for New Brands."

Wall Street's Hesitation with New Data [32:43]

• Despite years of training top sell-side banks and hedge funds on interpreting conversational data, there was significant disinterest.
• Institutions struggled to integrate this data into their existing structures, which were dominated by mathematicians and traditional fundamental analysts.
• The difficulty in documenting historical correlations between speech patterns and stock prices made Wall Street hesitant to embrace this methodology.

"And they just had very little interest. They had interest in the results, but they couldn't figure out how to build teams around it because hedge funds generally have individuals that are like mathematicians, right?"

The Sphere Trade and Leverage [35:36]

• A major win involved The Sphere in Las Vegas and its "Wizard of Oz" show.
• By reading comments in the first 48 hours, the investor identified significant public excitement and then made a highly leveraged options trade.
• The thesis was validated by observing seat sales data and subsequent company announcements of added shows due to high demand.

"And I read 180 comments of people flying in from Europe next month to see it. And I think this just might be the like the one thing that Sphere has done, right? And it's going to be a game-changing moment for the company, finding product market fit."

The Worst Trade and the Pandemic Opportunity [53:10]

• The investor recounts losing a third of their portfolio on a trade involving QSR (Burger King, Popeye's, Tim Hortons) just before the pandemic.
• The failure was due to unforeseen negative performance at Tim Hortons, despite strong indicators for Burger King and Popeye's, highlighting the need for comprehensive research.
• This loss was followed by a massively profitable trade betting on the pandemic's impact, which generated approximately $30 million in gains in one year, with an annualized return of around 370%.

"And I was so convicted that the company would have the best earnings quarter in its entire history because two of the three companies they owned both had anomalies on the positive side."

The "Big Money" Account and Risk Capital [01:07:56]

• The investor advocates for "bucketing" money, specifically establishing a "big money account" for risk capital, regardless of wealth level.
• This account is for taking significant swings on high-conviction ideas, funded by money not taken from essential life expenses.
• The concept of making small tradeoffs (e.g., making coffee at home) becomes amplified when viewed as saving a potential $100 for every $1 saved, due to aggressive investing and leverage.

"Everyone should have a big money account. And the big money account is the account that that yes, you get wealthy quickly with. And you do that by taking big swings on things that you really believe in."

The Age of Abundance and Private Jets [01:15:07]

• The investor is launching a new business in the private jet industry, believing it will be a major beneficiary of an upcoming "age of abundance."
• This era, characterized by more free time and flexibility due to AI and automation, will see increased focus on hobbies, interests, and travel.
• While personally uncomfortable with private jet travel, the investor is highly bullish on the sector as a reflection of future economic trends.

"So if you want an example of what the age of abundance is going to look like in terms of the winners and the losers, just look back to that one period of time. What did we do when we had more time and more money?"