LIVE Q&A: Grant Williams In Conversation With Marc Cohodes | Real Vision™


For me, the best part of my Real Vision journey
has been the chance to refine my own investment framework through a series
of conversations with brilliant investors in every
corner of the globe. In this series, I want to try and continue
my education by digging deeper into the lives and careers of my guests to
try and learn how they think. I want to understand the experiences that
have shaped them, the failures they’ve bounced back
from, and the lessons that those failures have taught them. And I want to break down their
success to find out what sets them apart. I’m not looking for trade ideas or guesses
about an unknowable future, but rather knowledge accumulated
over the course of careers to try and make me a better investor. And I want to share those conversations with
you. In my mind, short selling is an art. To many others, it’s a dark art shrouded in
mystery, and a strategy used by shady figures trying to cause
the downfall of sound companies for their own
ends. But the truth, in my experience at least,
is vastly different. Short sellers are a vital check and balance
in the financial system, and those who take the
short side of the market open themselves up to unlimited losses should they be proven
wrong. It’s a lonely place to be and it takes a very
special disposition to oppose the crowd. Today I’m headed to a chicken farm in Sonoma
County, about an hour north of San Francisco, to meet one of the most famous short sellers
of my lifetime and a man who has absolutely no
fear when it comes to picking a fight with those he believes worthy of his attention. He’s been on the winning side of many high
profile battles and he’s had to lick his wounds from others which didn’t go the way he quite
expected them to. But the one thing he doesn’t
do is back down in the face of a fight. Currently he has several such battles on his
hands with companies he believes to be fraudulent, and we’ll talk about those today. But away from that, I want to get a sense
of what makes a successful short seller tick? How do they identify a potential short? How do they manage that
position once they’ve established it? And perhaps above all, how do they deal with
the emotions involved? I’m Grant Williams, please join me for a conversation
with Marc Cohodes. I want to start at the very beginning and
talk about how you got into the business and how
you took your first steps, and then the journey that made you go, you know what? This is what
I want to do. I want to become a short seller. Maybe it wasn’t even a conscious decision. It really all started, I think, in high school. I was never a good student. I always
carry around my second grade report card or a picture of it where I think the teacher
thought I was going to end up in jail or working at
a car wash or something like that. I probably read
it about once a month. So I was taking a tenth grade economics class
in high school and the teacher, a guy named Dennis Sullivan, I don’t know where he is
right now, he created something called the Econ
Corp where we invested in stocks. And I sort of got the bug then. And I don’t know. It’s just
been with me since. I used to work a little bit on the Midwest
Options Exchange in the ’70s in Chicago. I used to
ditch school and do this part time. People watching this won’t understand how
that would even be possible because it was such
a different time back then. How do you have a part time job on an options
exchange? For the
people watching this, how does that world exist? It probably doesn’t exist anymore. I mean, it’s when you used to play hooky from
school and parents wouldn’t care and wouldn’t now. And I used to trade stocks from myself and
it was crazy. I mean, it was nuts. I mean, I used to be a counselor at a boys
camp in Wisconsin and I used to trade from a pay phone in the counselors
cabinet making $600 a summer being a sailing instructor. I mean, shit was different back then. But I had a blast and I knew back then I had
the bug. It
wasn’t as much the short stuff till I ended up getting a job at the Northern Trust and
I met a guy named Paul Landini. And he followed Warner Communications and
he followed Bally Manufacturing, which was a Chicago company
which made pinball machines. And he said that Warner was going to kill
Bally. People were going to start playing video
games. So I was 21 or 22 at the time, not married,
and we used to go out at night to arcades and talk to the managers and we used to ask
him how the coin drops were for various machines. And coin drops were going like this on the
machines. And he said we should short this Bally because
the video companies would kill them. And we
shorted Bally. I think the stock was like 25 at the time. And I think a year and change later it
was three. And I said, fuck. This is a lot of fun. Because I remember talking to Kyle Bass and
he said his first short trade went to zero. He said
it was the worst thing that could possibly ever have happened to him because he put everything
on his next trade. Well, I realized at that time that this isn’t
for everyone and that that I’m genetically mutated to
have the short selling gene, which is kind of a curse. I mean, I’ve had plenty of longs and I’ve
done well with longs, but the short stuff has really turned into my passion. I mean, I met a young Jim Chanos. I was working at the Northern Trust in ’83
and a very, very, very young Jim Chanos walked in there. And I’ll never forget it. The bank was long a ton
of this thing called Baldwin United. And Chanos worked for Guilford and he was
saying this Baldwin United is a massive fraud. And the director of research was pals with
this Morley Thompson who ran Baldwin and he said Chanos is full of shit. Chanos is full of shit. And the stock was rated, you know, strongest
buy. And I looked through all my accounts after
hearing Chanos and whatever account owned the stock, I sold it. But what was it that made– because you’re
a young guy in a new industry surrounded by people who you bestow respect on until you
learn otherwise at that age. Yeah. What was it that Chanos said that made you
go, you know, well, I believe this guy. Well, I didn’t Chanos from shit at the time,
right? He was nothing. Yeah. You know, he was he was just starting out
much like myself. But the one rule of thumb that
always– and I hold it to this day– is Chanos made so much sense when he was unwinding
this Baldwin United business that it was a fraud. It made so much sense. And then I overlay it
to the long story, which was so convoluted and made so little sense. And you hear the long story, your eyes start
spinning. But the numbers were there, right? So
people justified owning the stock. But Chanos’ story was simple, it was right,
it was lethal. And
I said to myself, if this guy Chanos is right, the stock’s going to go to zero, right? And, you know, I was managing personal trust
accounts. I was the youngest guy in the history
of the Northern Trust to ever manage money. And I just said, although I don’t know these
people who I manage money for, it’s a great responsibility to manage other’s money. I’m not
going to sit around with this stock and I don’t give a fuck what the bank says. So I sold the stock. I sold the stock and it was high. And then as this thing started to unwind
and revelations came out, the company went out of business and the bank downgraded
Baldwin United at three. At three. And I think I sold this thing in the 30s. And I’ll never forget
it. I’ll never forget it. Forget Chanos’ Enron call. Forget that, right? Others saw it. Others had it. His Baldwin United
call was probably one of the best calls I’ve ever seen. I’ll never forget it. It left a mark for me
in ’83, ’83. Here we are 35 years later and you’re still–
Exactly. I mean, to me, it’s always Baldwin United. I mean, then we worked on Calico with the
atom and all these various things back then. And life back then shorting stocks, even though
the market’s probably up about 10 times since, the market back then to short stocks was a
whole lot easier than it is now. Sure. Was it a relief that you dodged that bullet,
or was it excitement? The wow, this is–
It was relief I dodged the bullet. I didn’t mind taking shit from the powers
that be at the bank. I mean, I was making $17,000 a year. $17,500. I was spending $20 a week and living. I
mean, things were very simple back then. Very simple. But it was the relief that I got people out. That I was doing my job. But it was
excitement that I analyzed this thing properly. That although the herd said to be in, I said
I’m not going to be in because the story makes
such little sense. But that to me, that’s such a big call for
a young man in this business to make because it’s so
easy to kind of– you look and everyone runs over there and you’re standing here on your
own. You kind of thing, man, this is a ballsy move. Well, part of investment is a confidence game. Yeah. If you don’t have confidence, you shouldn’t
do it. You shouldn’t do it for yourself or anybody. If you don’t have sense and can stand up for
yourself, you shouldn’t do it. If you don’t have
courage of your convictions, you shouldn’t do it. I had a friend who died this year, Tom Henwood,
and he was really great and he taught me a lot. He taught me a lot, and I miss him. But one of the things he said always was,
a lot of people have courage, but it’s dumb courage
because they have no sense and they don’t think
behind what they do. They don’t think what can go on. But when you adequately research something
and get something surrounded and get it figured out, you need the courage to stick with it
to lean against the wind when all else are pissing on
you to fight it through. But, you know, what you said about Jim Chanos
then really struck me. Because this idea of a
really simple story that explains all these things that you’re trying to put together. And someone
says, well, look, there’s a really simple way to explain all that and it’s crooked. That really
resonates with me because I find every one of these that I’ve seen is exactly that. It’s really,
really straightforward. Exactly right. I always say on whatever side of the ball
you’re on, long or short, if you can’t explain it in a paragraph to a tenth grader,
you probably shouldn’t be in it one way or the
other. So what was your first personal Baldwin that
you found one of these things that you said I’ve
got something here. You know, when I went to work with David Rocker
in ’84, I was short this wine cooler company called Canandaigua Wine, and it was one of
the greatest fads of our time. Wine cooler. And
I showed the wine cooler commercial at Grant’s and they were literally spending money like
drunken sailors promoting this brand. And they were up against Seagrams, they were
up against Gallo, they were up against everybody. And Richard Sams, who’s now a hero, and I
like him and he likes me, and he respects me for
sure, he almost bankrupted the company by spending. They were spending so much money
in advertising to grow sales at 60% that I said to myself, if sales slowed down to 40%,
these guys will lose money. Well, sales slowed down to minus 30%. And when he hit the brakes on advertising
spending, every shareholder went through the windshield
and the stock literally went from 30 to three. And then Richard’s dad, Marvin, who owned
most of the stock, I made peace with Marvin. We covered our short I think at eight. The stock is three. I’ll never
forget this. Covered the short. And Fidelity, who owned like 20% of the company,
fired the portfolio manager and put their whole piece
up for sale. Like 2 million shares in the stock trade
on the Amex. So I call up Marvin and I said, are you interested
in buying the stock here at three? Because
we’re not short and we’re long a little bit. He goes, I would buy all of it if you could
find the block. So he bought a bunch. We bought a bunch. A bunch being like 15% of the company,
10% of the company, something like that. And I think the market cap at the time was
$40 million. I think we made 10 to 15 times our
money and it now trades at a $40 billion market cap. So to me, the short of Canandaigua on
the wine cooler and then going long after they wiped it off to me was the best thing
I’ve ever done. But this is really interesting because obviously
a lot of guys look at short sellers and the accusation is oh, yeah, you get short of stock
and you talk it down so you can buy it back. What we’re talking about here is a stock trading
at a completely preposterous valuation, right? Which is also part of it. It doesn’t have to be a fraud, it’s just too
expensive. Right. And this was in the ’80s and this was a fad
slash failure. But see, what people don’t
realize is shorting stocks– OK, I’m an investor. I think you can either be an investor in life
or you can be a trader, but you can’t do both. Yeah. Agree. There’s some really good traders, hats off
to them. There are some really good investors. I’m
an investor whose specialty is on the short side. Yeah. And I think if I know a short really, really,
really well, and I always say when I’m short a
company, I know it better than the guy running it. And I don’t mean to sound arrogant with
that, but I do know– No, I completely understand that. But I do know the companies better than the
guys who run it. Conversely, when things change-
– and I always say thesis creep is fatal– when things change, I change. And I’m strong enough
in my beliefs and secure enough in myself when things change, I’ll change. And I’ll admit
things changed. And if I have to admit I’m wrong, I’ll admit
I’m wrong. And I’ve been doing this long enough that
I don’t mind saying I’m wrong. I don’t mind saying
I made a mistake. I don’t mind saying I fucked up. I don’t mind apologizing to somebody. I
don’t mind any of that. No one does it to me but, you know, that’s
just the way I sort of go. This idea short sellers have been basically
all mixed up with fraud. Uh-huh. And people assume if you’re a short seller,
you’re only going after fraud. Uh-huh. But in a market like we have now where valuations
are so egregiously– I mean, you talk about companies burning cash. Look at Tesla. I mean, just burning almost a billion dollars
a quarter, and yet it still has all these guys that believe
the stock is going to go to the moon and Elon’s the next great savior of the world. But if you look at the numbers, it’s preposterous. But it
doesn’t mean the company is a fraud. It just means where it’s trading now doesn’t
match the valuation. No, I totally agree. A lot of people ask me about Tesla and I say
there’s some really smart guys in this thing who are short it and the
conversation doesn’t need the likes of me. I’m not
involved in Tesla and I’ve never been involved in Tesla. And there may be a time for me to get
involved in Tesla, but I’m too busy on the current things where I think I can win. There will be a time for Tesla maybe one day,
kind of sort of. But it’s just to me, I have no
intrigue with that because it’s one of these tastes great, less filling names. Elon says tastes
great, the skeptics say less filling. Elon says, you know, it’s great. Shorts say less filling. And
if you put a gun to my head, I’d probably be short it. But he has so many levers to pull in a hypey
market. He can develop a rocket ship, or a
spaceship, or a tank, or a boat, or a truck, or a train, or a plane. I just don’t fucking know. But I would rather take my chances in low
lifes who cheat where the balance sheet is bad. Where it’s clear they make it up and they
don’t have an Elon pedigree. Let’s come back that because I remember reading
David Einhorn’s book, Fooling Some of the People, about the financial thing, which was
an amazing story. The Allied, yeah? Yeah. Allied Capitol story. An amazing story. And for me, who hadn’t been an activist short
side like that, to read the inside story of what went on there with all the shenanigans
with having his trash gone through and all this
stuff, to me, that was a real eye opener To you, I
guess that’s business as usual. Those kind of things. Oh, shit, I have stories far, far, far more
exciting and dramatic than that. I mean, he wrote
that, I mean, it was sort of PG in color. But it was such a– to your point earlier–
it was such a simple story clearly stated. And when
you read it, you kind of went, well, he’s right. I mean, there’s no two ways about this. Well, he was dead right. But, you know, the funny thing is the guys
at Allied were so politically connected it was one of these, again, it got
to a tastes great, less filling where they blamed the
short. I have this line. I always say, you never argue with a crazy
person because people watch and won’t know who the crazy one is. And the Allied story literally became one
of those. And I try
to stay out of stuff like that, at least when they’re going on, because it’s sort of like
a brain drain. Yeah. Right? I mean, Allied was going to the regulators
about the shorts, the shorts were going to the regulators about Allied. And again, depending what regulator is on
the case, you never know what you’re coming up with. And I’ve been on all sides of those coins. I’ve been on all
sides of that and it becomes a real sanity check kind of thing. But it’s a great story. And Allied
didn’t end well for the guys that owned it. That’s for sure. The example of Allied Capitol and David Einhorn’s
experiences throughout his very public and ultimately successful battle to prove allegations
of financial fraud illustrates perfectly the mental
pressure under which short sellers operate. And I wanted to get a sense from Marc as to
how living on a chicken farm isolated from the
financial community helps him handle that particular
aspect of the life he’s chosen. So sometimes they hide under the house. OK, ladies. See, they look all shabby because they’re
shedding their fathers. So I throw this out there so they can have
that. Come on, guys. Oh, they are hiding under the house. Come on. Come out, come out, wherever you are. Yeah. So they’re all over. So I call this Chicken Park. So I used to have a bunch of them. I
haven’t resupplied or gotten little ones lately. It’s a diversion. When you’re having a bad day, I can come out
and trim, or pick, or water, or do whatever. Just get away from it. See, there’s a rabbit over there. Pears. It’s important to have that because the stuff
that you do is so mentally– Oh. It takes up everything. It’s overwhelming
It’s just brutal. It’s brutal. But you kind of love it. I mean, you love– I’m not a professional
athlete or a coach, but I totally understand what it would be like at game day or something
like that. I totally get what that would be about. That you live to compete. And that’s sort of what this is. It’s competing, it’s problem solving, it’s
exposing just really, really, really, really bad guys. I remember I was a kid playing football, or
soccer, or rugby, there were guys in those teams
that loved getting hit. They just loved the contact. They just loved getting in there, and mixing
it up, and pounding on each other. They just loved it. It was what they lived for. I mean, in doing this, I realize that I’m
going to get– I sort of view it like as a cattle drive. You know, I’m going to get MiMedx cows from
Omaha to Fort Worth. I’m going to get them
there. But I may get a couple arrows in my ass on
the cattle drive. I just have to make sure I don’t get them
in my back. I mean, I’ve gotten many arrows in my ass. I just don’t want them in my back. So that’s just something you always have to
watch for. But man, I love the cattle drive. I mean, there’s nothing better than a good
old cattle drive. You feel like you’re getting the job
done. And the thing that’s just like an absolute
pisser is at the end of the day when MiMedx is one,
two, or three, everyone’s going to say how easy it was. Or how obvious it was. Or yeah, that was so simple. Well, let’s talk about MiMedx because this
is something– we’ve mentioned it a lot already. Yeah. Let’s tell that story. Let’s go back to the beginning. How it came on your radar, and just walk
us through the story. Because I’ve followed your Twitter feed, I’ve
followed the presentation. It’s just a fascinating story. The beauty of MiMedx is I have certain tells. I always say on Twitter that my wig indicator–
Right. Literally. CEOs who wear wigs. I think I’m 13 out of 14. And this guy Pete Petit, he sued Capital
Form for writing research. Caught my attention. He sued anonymous bloggers to get their
name. Caught my attention. But then on his website site, he mentions
me and my former partner David Rocker. He says I’m
a member of a Cali cartel, tax evader. Believe me, I’m not a tax evader. Money launderer–
I’m not one of those. All this stuff. And Carson brought it to my attention and
my lawyer sent him a letter to take it down or we’ll sue
you. And when they took it down and sent a letter
saying they took it down, I put it on my Twitter. And Pete Petit has bullied so many women,
former employees, customers. The second I put it
out on Twitter, my direct message– Him backing down. Him backing down to me. It was almost like a symbol that Mugabe has
been overthrown in Zimbabwe. People got into the streets and celebrated. And that was, I think, a sign that there
was a big change. But why do you think he went after you in
the first place? Why–
He was stupid and he bought off on the rhetoric that I’m this all powerful guy who controls
all these skeptics, and actually believed in all
this wolf pack bullshit rhetoric that’s out there. If he’d seen you in the pink Crocs, then maybe
he wouldn’t have bought into that. If he would have just called me up and said,
what’s going on? That would have been different. But I always say there’s no greater motivator
than disrespect. And this guy showed me the
ultimate disrespect by defaming me and accusing me of a bunch of shit. I figure if you’re doing
something like this, you have a ton of stuff to hide. And the stuff that has come Luke’s and my
way, I’ve never seen the amount of evidence of
criminal activity, kickbacks, Medicaid, VA, channel stuffing, revenue recognition bullshit
in my ear. So when people ask me on Twitter what I think
of MiMedx, at first I said it’s in my top 20
all time. Then I said it’s in my top 10 all time. Now it’s in my top five. I think their sales are overstated by 70%. I think it’s a criminal operation. I think Pete’s the
mastermind behind it. I think people are going to go to jail. Probably him and maybe their
general counsel. And they all hassle me and follow me on Twitter
through anonymous things, and threaten me, and this, that, and the other. And it’s just wonderful. So how do you go about– the battle lines
are drawn. They come after you, you push back,
now you’re starting to get people come to you and say you don’t know the half of it. Here’s
what’s going on. How do you then build that into something
tangible that you can put a case forward. Well, just this past weekend, someone in Georgia,
a company, was doing business with MiMedx and they have proof of revenue recognition
fraud at MiMedx. And there are some
lawsuit– most people can search under MiMedx or the plaintiff or the defendant and find
things, but in this weird state court you need a docket number. Yeah. So this guy reached out to me and he said
you should look up this verse MiMedx. And I look
it up, and a friend of has LexisNexis looks it up, and someone else looks it up. No, we can’t
find shit. This is on a Saturday. 10:00 Pacific time. So I go back and I say I need a case
number, docket number. Gives me the docket number and we get all
this shit. And I spent my Saturday reading his deposition,
reading the complaint, reading the exhibits. And I say, fuck. This stuff is just dynamite. And it’s proof of revenue recognition fraud. It’s
proof. So I take it, distill it, rewrite it, highlight
it, keyword it, put some of it out on the website,
sent part of it to the government. The government didn’t know about it. Exhibits people didn’t
know about it. And you start weaving this and I say to myself,
fuck. If they’re doing it with this guy, who else
are they doing it with? And it helps build the mosaic that MiMedx,
which even though they have 90% gross margins, they don’t really
make much money because it’s an SG&A fraud. They’re kicking back to the doctors through
SG&A. And they’re playing games. Giving doctors
stock to create a pod, to create distribute– just all these illegal activities. But none of these are new, right? These have been going on forever. Exactly. But as I said, there’s only really six frauds. Right. Yeah. And it’s like primary colors. Again, I wasn’t too good in school. I vaguely remember the
primary color thing. But MiMedx is a shade of red. I don’t know if it’s crimson or I don’t know
if it’s sunset red. I don’t know exactly what it is, but it’s
gets your ass thrown in jail red. I’m playing for keeps here. This is not shorting a stock at 13 and covering
it nine and an eighth, making four points and saying, god,
aren’t I smart. No, no, no, no, no, no, no. No. This is for the whole enchilada because I
think you’re running a fraud. And my lot in life is
exposing people like you. And this is what I will do. And the deeper you go and the more you lie
and put out these bogus press releases, the more
I’ll dig in. And that’s what he doesn’t understand. And that’s what people don’t understand
about me. Because at the end of the day, I’ll save the
system money. I’ll save the VA money. I’ll save Medicare money. I’ll save his customers money. Crooked docks may go to jail like
they did with Insys. I think they’re being investigated by the
DOJ, SEC, VA, HHS, and probably the FDA. That’s
speculation on my part. The company has yet to put out an AK saying
who they’re being investigated by. They dance around the thing. I don’t know if they’re going to get raided
tomorrow, a week from tomorrow, a month from tomorrow, or a year from tomorrow, but I
play until not only the whistle blows, I hear the echo of the whistle. And I’ll keep lobbing stuff over to the government. I’ll keep giving stuff to journalists. I’ll keep
the web site updated. I’ll keep tweeting about it till this thing
blows. And what they don’t
understand is I won’t stop. You talked about something here that brings
me something else back to mind which is Overstock, which you mentioned about it. Yeah. And I’m curious because you’ve been on both
sides of Overtsock. You were a big critic of
Patrick Byrne, right? Yeah. And you went after him. Uh-huh. And now you’ve been talking about a long side
of the company. Make some money being
long. Have you ever spoken to him about how he thought
of you when you were going after him? And psychologically–
Yeah. All the time. All the time. I mean–
So how does it affect him having you on his tail? Well, Byrne’s big beef was with my ex partner
David Rocker. That was his real big beef. And
it got really personal between those two and we got our ass sued. And I told Rocker at the
time, I said leave Byrne alone because we can get it right on the fundamentals here. The company is a mess. It’s in shambles. This, that, or the other. You don’t need to attack him
personally. Crazy, to me, makes you dangerous. And Byrne is a form of crazy, much like I’m
crazy. And I don’t view crazy as a negative. I view crazy as dangerous, and unpredictable,
and not easily defendable. It’s sort of like a knuckle ball. When the knuckle ball is working, you can’t
hit it. When the
knuckle ball’s not working, you can powder the fucking thing, right? You can hit it a mile. It’s
like batting practice. It comes in a batting practice speed and if
it goes like this, can’t hit it. If
it goes like this, you can powder it, right? So Byrne becomes dangerous. And we got in this lawsuit and regulations
changed and this, that, and the other, and we really got rat
fucked by some of the stuff that went on. And David
Rocker went bye-bye and I ended up settling this thing with Byrne. But I always, in a weird
way, respected him. So any guy who’s fought and beat cancer, fought
Amazon and has held his own against them, fought and sued Goldman Sachs and prevailed,
and had this naked short thing, this is a fucking guy who I’ll line up with. But when the stock was sitting at 15 this
past summer and someone called me up and said have you looked
at Overstock? I said I haven’t looked at it in a while. They said you should look at it. I looked at it. And I
said, this thing is a long, not a short. I called him up and we talked. And, you know, he said
some stuff to me that made me get over my issues and I said some stuff to him that made
him get over his issues. But once I got past it with him and looked
at his business, he was so shunned by Wall Street,
the stock was so ridiculously cheap at 15, 16, 17, I said this thing is just going to
go way the fuck up. I said it at Grant’s at 30 and now it’s
roughly at 60. So, I mean, I’ve been in this thing
since kind of June, July, August, and it’s essentially quadrupled. And now people are hassling me all over the
place because I’m long Byrne and say I respect Byrne. I said, you know, I can respect someone and
not be sleeping with him or he’s my brother. But I admire what the guy has done, and I
admire his perseverance, and I admire people who don’t give up. Well, you know, I wanted to get you talking
about that because you have to be agnostic when
you’re a short seller. And so it’s not about the guy necessarily,
it’s about the situation. The guy
may follow on. But if he’s been on the wrong side and now
on the right side, you have to be able to change, as to your point earlier on. Thesis creep, to me, is fatal. And as a skeptic or a short seller, it’s double
triple fatal. But as a
long guy to have your head in the sand and not say my story has changed and I have to
check my ego at the door, otherwise I’m going to
lose my money, and worse, other people’s money, you know, you’re really a fool. The 2017 version has nothing to do with your
grandfather’s Patrick Byrne. And people change and I change. And I do the best I can with what I have,
and I don’t give a fuck what people scream, heckel, or whatever
from the cheap seats. The idea that after the fact, frauds are always
thought of as easy to spot, is in direct contrast to the reality of trying to prove them at
the time. So I wanted to take Marc back to his early
days and try to understand how he learned to cope with having events go dramatically
against him. So what was your first moment when you realized
the Baldwin thing was pretty smooth and the Canandaigua–
Yeah, Canandaigua wine? It’s now Constellation Brands for those watching
at home. All right. There you go. But what was the first one of these where
you had that oh, shit moment where things started getting kind of crazy
and you were out of your comfort zone? Well I was short This Can’t Be Yogurt– TCBY–
which I don’t even know if they’re still around, but it was this frozen yogurt franchise, TCBY. It came public through Chicago Corp, which
is a bucket shop brokerage firm in Chicago. Based in Little Rock, Arkansas. Again, this is in the early ’80s. I’ll never forget it. It was run by a guy named Frank
Higginbotham and he would just roll out these franchisees like topsy and he was printing
these comps. And this is why I’ll never do a valuation
short again. Never. And I thought the stock was crazy after it
was up 15, 16-fold. Then it went up about 20-fold. And I don’t know, I think I had it double
against me, which is just no fun. And I was younger
and it wasn’t good. And after it doubled, McDonald’s came out
and said, we’re getting in the frozen yogurt business. I’m thinking, OK. This is the end of the line for TCBY now,
so we did some more. Again, I’ll
never forget it. Carolyn Levy, who is a restaurant analyst
at Shearson, or Lehman, or someone like that– again, dumber than a fucking box
of rocks– actually came out with research and
said McDonald’s entry in the frozen yogurt business is a plus for TCBY, and the stock
went up on that. And I said, holy shit. Right? Holy shit. I said I’m going to fucking die right here. David Rocker
said, what do you want to do? And I said, I want to fucking jump. I want to jump out of the
seventh, eight floor window of Rockefeller Center because I’m a young guy. I thought this was
completely insane. The stock was trading at maybe 70 times earnings,
but they were still doing sales. And the
biggest elephant in the room came out and said, we’re going to get in this business. And this
lady said this is really good. And people thought she was smart. So I said, what do you want to do? I said, I think I’m right. I said, I know we’re going to get
them, but I don’t know what the stock’s going to do. So David said, well, do you want to do
more? I’m thinking, yeah, but, you know, I’ve never
seen anything like this. So we did more
and it went up some more. But then shortly thereafter in the fall when
McDonald’s rolled this out more, their sales started
to get a little iffy and then it broke. And then when it broke, the one thing I sure
do is when things break, I go for it. You push it. I mash the gas really hard. Good, Bad, or indifferent. So at one point, we were down a ton
in this thing. And I mash the gas on the downside, we ended
up making a pile on this. And
that was a huge lesson, but it was like an oh, fuck moment. And
But how do you manage your emotions? Because if that’s– so you’re saying it’s
all about emotion. Because you understand the story going in,
you understand how every little piece of news affects your narrative. It’s the emotional side that’s so difficult
for people to handle. How
do you learn to do that? I mean, that must have been a salutary lesson
for you. Well, clearly I’m fucked in the head. And I tell my friends and my friends who know
me, I mean, I belong in a straitjacket. I mean, I didn’t really have a good childhood. My dad was a
drunk and he was dead. So I view myself as a tough guy who’s somewhat
scarred, but I fear my fear, emotion. I don’t fear anyone. Yeah. I don’t want to say I’m fearless. I’m scared to death of heights. I’m scared of a lot of things. I
fear scary movies. I can’t sit in a scary movie or blood or guts. I mean, I literally go to movies
and if something gets too dramatic, I go like this. And I tell my wife, wake me up, tap me on
the shoulder when the scary part’s over. So I’m scared of that. But I’m not scared of any man and I’m not
really scared of situations. And good, bad, or
indifferent, when I think I have something figured out, people think I’m cocky. I’m not cocky,
but I’m highly confident in my ability of sorting things out because I’ve come a long
way off not a lot of– I’m not a Harvard guy or a
Yale guy. I went to jerkwater schools and didn’t do
well. So I have tremendous faith in my ability to
figure it out. So I don’t really fear situations when I think
I have you. And I combine that with
if I find myself in a trap, I will literally bite off my arm to get out of the trap. I will just outwork you, I will outfight you,
I will out-hustle you, I will outgun you, I will outmuscle
you. Because when you’re exhausted, I’ll just keep
going. But when I’m wrong, I’m
wrong. But because a stock moves against me doesn’t
necessarily make me wrong. Sure. But when you are wrong– what was the first
time when you had to say this is a busted flush? I’ve got to get out. And how do you handle that emotion? Because that challenges your
sense of almost invincibility, which you have to have if you’re going to do this thing. You have
to believe 100% in these things. You know, my biggest losers tend to be the
shady companies that get taken over. Right. That’s where I’ve lost the most. I’ve lost big in The Money Store, big in Green
Mountain Coffee, big temporarily in Joseph Banks, big in Diamond
Resorts. This retailer, which went bust many
times, Parisian, back in the day. Where I’ve lost the most is being short a
fraud that gets taken over. Because right usually
before you hit the wall, you try to sell yourself. And there are dopes out there who buy these
frauds. Learning Company by Mattel, which is my old
buddy Kevin O’Leary, that’s where I lose the most. Where I just get taken out. And that’s always just like a shitty, bad
day. But you suffer
that day, you take a shower, you either have a drink or smoke some pot or whatever, and
you turn the fucking page. Yeah. Right? You turn the page. I think it’s probably like a defensive back
getting torched for a touchdown, which costs them the playoffs,
the game, the season, the Super Bowl. You just
need to get the fuck over it. But a defensive back, he can look at a calendar
and say, you know what? I’m back on the
field– I– I–
–and you just don’t know when the next one’s coming. No, I get it. The market doesn’t wait for anybody, and the
market would just as soon bury you. And people would just as soon bury me. I mean, I know that going in. But in terms of being
wrong wrong, I’m rarely wrong about the fundamentals. I could be wrong about the stock
forever. I mean, I’m early, and early is really wrong. I mean, I was early about the subprime stuff
during the Russian crisis in the late ’90s, 2000. I was early on the subprime shit here in 2008. I was early. I mean, early, to me, is really wrong. In terms of the fundamentals and figuring
it out, without sounding weird, I don’t miss on the
facts. I don’t miss on the research. I have no margin of error to be wrong on that. I miss on
timing. I miss on underestimating how stupid the herd
can be. I miss on how corrupt and
criminal a management can be. And things can go on far longer than you would
think. So how do you fine tune that over the years? Because as you get better, you get less early,
right? If you’re getting better, you’re trying to
That’s right. So it’s kind of like life saving. All right. So I was a counselor at a boys camp and
I was a sailing guy and this, that, and the other. But the guys who used to teach the kids how
to be like life savers for a summer job, they used to have this saying– reach, throw, row,
go. So the second you see a guy drowning or failing,
you reach for him. And if you can’t reach
him, you throw him a buoy or something so they can grab it. An inner tube. And if it’s too far
from that or you don’t have something, you get in a rowboat or something where you row
out to them. And if you don’t have that, you jump in to
save them. And it’s the same thing with the shorts, right? I have something identified, and I probably
have in my head 500, 600 names in my head at any
one time. Literally. And in my head, there are
various forms of reach, throw, row, go. But when they hit go and it’s all syncs up,
I go. And
that’s how I try to get timing. I’m not interested in reach. Like a lot of guys– like you mentioned Tesla. Tesla, to me, is a
reach. Or Tesla is a throw. It’s clear the guy is burning cash. It’s clear that he has issues. But
he has so many believers in an easy money environment where people believe in pie in
the sky stuff. It’s early. OK. I would rather short Tesla– seriously, and
I will be– at probably 140 down from 340 when this guy is floating around, limped,
can’t raise money, story has holes in it, this, that,
and the other. And I always say jaguar in a tree. There’s some guys who are interested in climbing
a tree and wrestling a Jaguar out of the tree. Well, that’s great. He can bite off your arm, he can cut you up,
he can do all sorts of things. And he can knock you out of the tree. I’m interested when a guy like you or Luke
shoots the Jaguar out of the tree. The jaguar is on
the ground screaming, crying, whatever. And once the thing is all disemboweled on
the ground, I’ll go in and cut him up. That’s what I’ll do at age 57. So I don’t tackle anything that has momentum,
unanalyzable. Just because it’s too high. Like
the FANG stocks, I could care less. I could care less. I could care less what Cramer’s touting. I could care less about the NIFTY, or IBD
100, or whatever the hell is going. No interest. And I’m also not interested in well-managed,
well-run companies who invest for the future. I’ve never been short Amazon once. I’ve never been short Google, Facebook, Netflix,
any of those guys. And you know what? Those guys don’t know me. Right. Or if they know me, they know me in a distance. The rat bastards and the mother fuckers of
the world who cheat and steal, they know me quite well. They know who I am, they know what
I’m up to, and they know that I’m potentially out there for them. Because if you’re legit and
you play by the rules and you just run regular things, I don’t short stocks because you’re
going to miss a quarter or Netflix is going to cut
price, raise price. You could tell me tomorrow Facebook’s going
to do this, that, and the other. I couldn’t tell you
what the stock would do. But I would tell you that if MiMedx gets raided
by the feds or they take away Petite Pete to make him resign or
conduct an internal investigation, I’ll tell you the
stock will go down 80%. So I try to get involved in analyzable situations
where I think I have a jump. Where I think I
can out-think, hustle, figure someone else and stay away from this stuff where it either
is caught in a market ether, unanalyzable, or people
think it could go to the moon. Because I don’t want
to get into a debate with anyone over valuation or how high it can go. The discipline involved in short selling,
the importance of knowing what you know and not
drifting into areas where your skills are perhaps less honed is a crucial part of what
makes a successful short seller. And Marc is extremely black and white about
the companies he shorts, preferring to stick to companies he believes
to be largely fraudulent and not getting caught up
in quarterly performance. Marc’s experience in 2008, however, was a
perfect illustration of just how tough It can be to
trade from the short side, even when everything is lined up in your favor. And as he recounted
his personal story of the financial crisis, the pain caused by how that period unfolded
for him was both poignant and emotional to watch. I can’t talk to a well-known short seller
without talking about 2008 because everyone would
think that that was just paid out for you, but your ’08 story, what I understand of it,
was a total car crash. So, I mean, I’d love to talk about that. Calling it a car crash is being kind. Right. So talk us through that story because, you
know, everyone would think that that would be just days in the sun for you. Well, here’s the crazy thing about 2008. I truly believe in what they call that PTSD. Posttraumatic
stress syndrome or whatever it is, and I clearly suffer from it from this 2008 thing. So we were short the market in a really big
way in 2008, and I was probably having the best
year of my life. And this was Copper River. This was Copper River. And I think through August of 2008 in a straight
up market, I think we were up 35%. 35% gross. And we’re short. We’re net short. We weren’t really on margin per
se. We weren’t leveraged up or anything like that. We had big positions. So when the decline or whatever hit, we were
doing fine. Then I kind of recall the government
did a short selling ban on financials. And that was a really bad day because although
we weren’t short that, that, that many financials, they threw a bunch of names in
the can’t short ban that were five stepsisters removed from it. Had you not seen that coming? Because it seems to be a fairly straightforward
play for the authorities. Well, no. We didn’t see it coming because– and this
is the crazy thing. At the time, a guy
worked for me named Richard Sauer, who was with the SEC. And Sauer went to Washington
to talk to the SEC about short selling bans, reg SHO, this, that, and the other. And Cox and others told him wouldn’t do
a short selling ban, nothing would happen. So much
so that he said if they were ever going to think of doing something like that, they’d
put it out to committee–
Trial balloons. Yeah. Commentary. Put it out for commentary. So I say, OK, no problem. So it’s just business as
usual. We’re up 35%. Certain things you’ll never forget. Just, you’ll never forget. So I was at
an Oakland A baseball game with the CEO of Safeway, head of IR Safeway, they were
playing the Toronto Blue Jays. I get this email or text that they’ve put
through a short sale ban that night effective, like,
immediately. And I look at this and I just say, like, what
the fuck? Right? Where does this come
from? So the next day, we got, like, killed. I don’t know. I think we were up 35%. I think we lost 6%, 7%, or 8% because I had
some financials up 20 some odd percent. I remember that. They put through this reg SHO ban where if
these hard to borrows, you then had to settle in a certain time frame. And we were short a whole lot more these reg
SHO names which included Josie Banks and all these
other things. So they did that and then I think we lost
another 5% or 6%. So we went from up 35%, the
market rallied a bit, to like up 20% or 22%. Yeah. Which is fine. But painful. I mean, you’re right–
Painful, but I knew the whole thing was going to melt down when they put that through. I knew
it in my head this thing is going to blow. So I get a call from Goldman Friday afternoon
saying they’re changing our haircut, our margin requirements. And I’m thinking, what? Or why? They said, well, you’re vowel and since they’ve
changed the rules, you’re going from a 30% haircut to like a 60% haircut. And I said, huh? Why? They gave some cockamamie reason. And I said, OK. I said, well, let’s do the math. They said, well, you owe, you need to come
up with $700 million by Monday. All right. I said,
you know, we’re a $2 billion fund. I said, ain’t going to happen. So come Monday they said,
well, have you come up with the money? I said, no. Can’t come with a money boat. We’ll start
covering names if you guys want to do this. And the market’s starting to go down. So we’ll start covering names and I’ll come
up with your $600, $700 million in a week. Four days, five days, whatever. We’re covering stuff. They
said, you don’t seem to understand. We need it now. I said, well, we’ve been doing business with
you guys for 25 years. Never once in all
environments have we seen this. What’s going on? Something’s going on. And this cocksucker, motherfucker Ravi Singh,
who I’ve never heard of before, all my guys were– I couldn’t talk to anyone who I knew
there. So they put this Ravi Singh on the phone and
I said, you know, you’re going to– if you do
this, you’re going to put me out of business. And that would be unfortunate and unfair because
I have this right, we’re having a great year, my names were right. What’s going on here? And he gives me some double talk and said,
you don’t understand, right? You’re under house
rules now and you haven’t come up with the money. We’re now taking over the portfolio. And
I just said, like, you can’t do this. And they said, well, we’re not only doing
it, we’re going to take you to like 70%. And I said, well, you’re going to put me out
of business if you do this. So the market is tanking. It’s absolutely now in freefall. And they’re sitting there buying our
shorts up like buying a million shares of American Capitol strategies at the market. So the
market is imploding and our shorts are– And your names are getting through the roof.
–and our shorts are going through the roof. And I’m thinking, like, this is a fucking
shit show. So we go from up 20% to the way they were
going. Up 5% to 0%–
In a market that’s going so far your way. In a market that’s melting to the bottom of
the sun. So they’re blowing out of our longs, which
are going down like a rock, and they’re taking up our shorts. And our ratios are getting worse,
and worse, and worse, and then they kept the haircut the same. So down 20%. When they
had us down 20%, we managed and we got through all the margin requirements. We were
compliant. We had plenty of money. And we never had a Fed call. It was just a house call. It was never a Fed thing. It was a house
thing. So I’ll never forget it. So we call this guy Sussman up, who was like
our account guy. And I said, well you’ve completely fucked
me over, right? To the point where I’ll never recover
and clearly I won’t have a business. We’re OK now, right? We have plenty of money. We’re within the haircuts. We’re all good? He goes, yeah. You’re good. You’re good now. OK. I said, OK. Business as usual. And
someone else calls back like two hours later, you know, and our names are starting to work
and we’re actually doing better. We actually made 6% or 7% that day. So they call back and say, no. We’re going to have to– we want you to go
to 100%. You
know, full cash. I said, well, why? They just said it’s just house rules. They’re saying that the
market’s melting down. So when it was all said and done, I think
when Goldman was done and they stopped, I think they had us down
50%, 52%, 53%. But the tragedy of the whole thing is we had
one managed account with someone who I don’t really need to mention that had some money,
but it wasn’t under the Goldman thing. And I
think that account for the year, because it wasn’t tampered with or fucked with by Goldman,
I think that account was up 105% for the year. I would have been up 105%. And that account was set up the same way as
the main fund? Yeah. It was all the same thing. But when they recover our ACAS at 30%, which
ended up going to 1% months later, the other guys stuck
with it because they didn’t have to cover it. So
I think we would have been up something like 105% if not for these Goldman guys. Which, I mean, personally cost me more than
the zip code would make in a year. You know,
an entire zip code. But money comes and goes. It’s not the thing. I mean, it’s however many
years later and it’s still hard to talk about it. This, you know, it’s funny–
Just letting people down the way that all happened is just so, so, so hard. Yeah. It just never goes away. That whole thing. It was beyond brutal and I learned a lot from
it. And
as few people as I trusted before, I trust even less now. And I don’t even speculate people are
out to get me, I know they’re out to get me. I mean, there’s no mystery of paranoia. I’m not
paranoid. I flat out know. Man, that was just– it was so brutal. I mean, it’s just nothing you’ll
get over ever. For me, hearing you tell that story, your
entire demeanor changes. You can see the memories
and the pain of it all. Oh, it’s painful beyond pain. But my pain tolerance and my pain threshold
is very high and my fear component is very low. And that’s a dangerous thing to whoop out
on some people. And I mean, every time, I take that Goldman
story with me and I’ll hit someone with a little
extra force. So if someone doesn’t think I’m driven, or
motivated, or think I will stop, they have no concept about what I’m capable of or what
I could do. So at the risk of picking at that scab with
one more question, how do you– because this is
what I asked Steve about when he told me his story of ’08. How do you have those
conversations with your investors? I mean, because it’s visceral, right? The whole thing is such a painful conversation
to have. To be right and to be– you have done
the right thing with money and then have someone else come in, an outside agent that changes
the rules on you. How do you have those conversations? It was almost next to impossible because I’m
not in the excuse game. I hate excuses. I don’t
make excuses. So I blame myself, myself, and myself. And people say, why? Why did it
happen? How did it happen? This, that, and the other. I said, I have no answers other than
what went on. And in retrospect, we should have had numerous
primes but we didn’t. We had a Lehman thing, which added insult
to injury. That’s just something on top of it. We
had Lehman offshore, which had some over-the-counter derivatives in them. Puts of names
that didn’t trade puts. And we were way up on that account and when
Lehman went under, they took our money as well. There were just a lot of things along the
way. And other than to say I’m sorry, no one paid
a heavier price than me. And I’m done with this forever, and ever,
and ever. And I think I was
pretty good at what I did. And the final chapter in my professional story
is this, which is not the chapter I would write, but I don’t think
Julian Robertson and his hedge fund career would
write the final chapter he wrote either. Well, you’re a much harder target for these
guys, the way you’re set up now, than if you were
a fund. Well, I like kind of the David and Goliath
thing, and I like the underdog, and I like this me
against them routine. I like the me against them because they don’t
know what the fuck I am up to. They don’t know what I’m up to, they don’t
know what I’m capable of, and they don’t know what tricks I have up my sleeve. Hearing Marc tell his story of 2008 and watching
his entire demeanor change as he recalled what was clearly an incredibly painful period
for him was something I just hadn’t expected, and it amplified my feelings about just how
emotionally fraught the short side of the market
can be, and how tricky the process is even when things are going your way. Understanding how to successfully make money
on the short side of the market and mastering the emotions involved is something that many
have tried, but few have managed to find success with. So I wanted to try and get a sense of some
of the other lessons that Marc has learned throughout his storied career. Let’s talk about the art of short selling,
because it is an art. There is no two ways about it. It’s
something that very few people are equipped to do. Yeah. To the point where you’re not controlling
your emotions. How do you– do you go looking for
them or do they just land in your lap? You see something and it– let’s talk about
how you actually identify these things and go about
building a case. That’s a really good question. There’s different types of it. I mean, I kind of view myself as a
huge fish that’s sitting in the water near a waterfall. And I’m just sort of meandering through. I’m not letting the current push me one way
or the other. And I’m watching all the bait and all
my food sources come down through the waterfall. And I’m thinking, do I want a shrimp today? Do I want some plankton today? Do I want a
minnow today? Do I want someone’s stale bread they threw
in the river or whatever? So I’m
just like a stalker. I watch, and watch, and watch, and watch,
and watch, and there’s always something that hits me. There’s always something that says, wait a
minute, this doesn’t make sense or this is wrong. Or why is this company suing anonymous shorts? Or why is this law firm calling me up asking
me who the players are behind BofI, threatening me with a subpoena. That’s the kind of stuff
that makes me want to get to the starting line. Badger Daylight is a company that makes hydrovac
trucks. And for those at home who doesn’t
know what a hydrovac is, instead of using a Caterpillar tractor for excavation or digging,
you use a pressurized water thing, which is a
commodity. But given their pitch and given how they
say things, the whole story makes no sense. Really makes no sense. And when I heard the story and it made no
sense– because they said they’re going to grow
North America by a huge margin, I started calling various North American operators and
said what’s your market growing by? And they say 2% to 3%. And they say, how does Badger
say it’s going to grow at 30% to 40% for the next blank years? He goes, they’re full of shit and
they’re liars, and they lose money. But this is one phone call you’ve made. Two phone calls. Exactly. Then that’s a starting point. If someone were to say, yeah, Badger’s kicking
ass and taking names because they have a special head
on their power thing, I just say too early. Not
interested. But the second I make, or Luke makes, or a
friend makes a call, someone says, it’s funny, I called New Jersey, you know, the
New Jersey operator of Badger, and Badger says
New Jersey is their biggest market and New Jersey said their business is down 40%, that’s
a tell. When Badger says they’re doing great in Eastern
Canada and the head of Montreal has sent me an email saying he’s going to go bankrupt,
that’s a tell. When California says they’re toxic
dumping in people’s fields, that’s a tell. When I can’t reconcile the balance sheet,
that’s a tell. When the stock trades at 30 times what I think
are fictional earnings, that’s a tell. When I can’t get a bull to answer a question
straight up, that’s a tell. So I take all those– it’s
kind of like my chili. I’m a fish sitting at the water and I see
all this stuff coming down and I figure, I’m hungry. I want a shrimp. I see this big shrimp come by, I go for it. And when I go
for it, I go for it with gusto. So what do you do? Once you’ve made those calls, how do you build
your own case to the point where you think, OK, this is a viable
short to go after these people? And then once
you’ve done that, how do you then go about getting the word out so that other people
understand your case? Well, it’s part word and its part now I have
various websites out. I mean, I’m avid on Twitter
@AlderLaneeggs and I tease with it. But it wasn’t until this clown Terry Corcoran
in Canada called me out and said I make shit up and
I shortened the store, which I don’t do and I took
that personally. I said, if that’s what he’s saying, what I
need to do is create websites and put my whole case
out on the website– or the legal stuff I can put on the website, because I am working
with regulators on various things and I’m not going
to expose that. And I lay out the case on a
Badger Daylight, or an Exchange Income, or HCG, or MiMedx. I put the information out there. And when I put the information out there on
the websites or through Twitter, I get a lot of
feedback. I get feedback from former employees, I get
feedback from competitors, I get feedback from customers who they’ve screwed. I get all sorts of feedback, which then goes
and builds the case more. And from a mushroom, it turns into a mushroom
cloud. And from a mushroom cloud, it turns
into a nuclear event. And from a nuclear event, it turns into a
war. And on some of these
names, I mean, Badger, I’m not afraid to say, is a massive fraud and it’s also a criminal
operation. And I have no problem you running any of that
because I can prove it. I can prove it. And I’ve
gone to the authorities in Canada and the authorities in the US about it, and we’ll
see what happens. I mean, we’ll see what happens down the line. I think there’s a tremendous case to
be made that this company should be shut down because they’re are an illegal, toxic, and
hazardous dumper in the US. And I have people who’ve witnessed it, who
know where it went on, and who know their MO. I have a couple lawyers. I have a lawyer in Canada, I have two lawyers
here. One is a former
federal prosecutor and they see all my stuff. And they say I can go with this, or I can’t
go with this, or I should do this, or let me write
the letter here, and I just go with it. And some people spend money on publicists,
and PR, and country clubs, and planes, I spend money on lawyers. I spend lawyers making sure I get it fucking
right. And all of these names
I’m involved in have a common screwing someone theme. Badger’s screwing the environment. They’re ruining the environment in California. EIF, which is running dangerous planes, is
screwing the residents in Manitoba, the First Nations people who are discriminated against
flying into these death traps. MiMedx is ripping
off the VA, Medicare, Medicaid through various kickbacks. I was in INSYS, which was
fentanyl. That story has been well told. Home Cap’s ripping off the government and
screwing subprime people. So there’s always a
theme of some form of crime against environment, humanity, first nations people, things like
that. Understanding how to successfully make money
on the short side of the market and mastering the emotions is something that many have tried
but few have managed to find success with. So I wanted to try and get a sense of some
of the other lessons that Marc has learned throughout his historic career. You want to hear a good story? So I’m sailing along having dinner with my
pals in San Francisco, I don’t know, umpteen years ago. And the CEO of PF Chang comes up to the table,
a guy named Rick Federico. A friend. Now a friend. And he says, Hi, Marc, I’m Rick Frederico,
CEO of PF Chang’s. I said, I know who you are. He goes, I don’t know if you’re short my stock
or not. I don’t care. I said, I’m not short your
stock. I said, but I know your company. And he goes, but if you ever want to short
it, you call me up with whatever issue you have. I’m not going to talk you in and out of it,
but I will at least address your issues. I want you to at least reach out to me first. And I said, that’s a stand up way of doing
things. And I said, first off, I’ll never short your
stock now because you seem like a stand up guy. But I’d like to call you from time to time
and we’ll talk about other restaurant companies
that you think are doing things right or doing things wrong, and I’ll do the same. And when I was in the business, we used to
chat. I helped him on Krispy Kreme, which we
were short, because his pal wanted to invest in it and I saved this guy money. But that’s the
way to do it. The way to do it is not to pick on me, make
fun of me, threaten me, harass me, things like that. It’s to deal with me straight up on what the
issues are. And if I was running a company and I was after
your ass, I would come clean immediately with whatever issues you have and say, these
issues have been brought to our attention. We’re
hiring an outside investigator to go over this stuff. We don’t like what we see. We’re
suspending guidance. Clearly, we’ve fallen short and we will fix
it. We’re not going to come with projections. We don’t know what the issue is, but I’m here
to fix it. And the shorts, I appreciate them bring it
to our attention. They deserve whatever they’re
going to make. I’ve failed. I’m resigning immediately and appointing my
right hand man, Grant, to pick up where I left off because
frankly, I don’t deserve to run the company. Stock would go down, stock would get killed. The longs would sell, the shorts would cover,
and that would be that. And just imagine. Imagine if you’re Home Cap, right? Soloway. 77
year old blowhard doing all this bad stuff. Shorts figure it out, right? The OSC’s up his ass,
which he doesn’t admit. OSFI is up his ass, which he never admitted. Come out and say, you know what? I’ve had a very distinguished 35 year career,
but you know what? We fucked it up. We’ve lost our way. And instead of making $4, we’re going to
make a buck. And we’ve got to take these provisions, and
we’re going to get rid of these people, and we’re going to clean it up. And when I find a suitable replacement, I’m
resigning and Grant’s taking over the helm. The stock would go down a lot. It would get killed, but the company would
still have something. The shorts would move on the way people move
on because we’d say it’s all out in the open now. It’s all out there. They’ve come clean. They’ve admitted it, right? Rather than digging a
hole to goddamn China. Which is why I tell Pete Petite, or Pepe Le
Pew, or whatever I call him, the little fella, Pete,
you’re a 77 year old man. I’m sure you’re a good husband to your wife. I’m sure you’re a
grandfather. If you keep it up, you will go to prison because
you’re guilty of Medicare fraud, kickbacks, aggressive accounting to say the
least, channel stuffing, lying to the SEC, and lying
to investors. If you at least come clean and admit it now,
maybe you’ll avoid jail. Maybe. Maybe. If people
don’t turn on you enough. Your stock, your company, it’s worthless. Someone will buy you for
assets or your patents, which are worthless. Whatever. But at least you will not dig a hole to
China for me to bury you under. Because I will bury you we have so much stuff
on you. And that way you’ve been caught, you’ve been
had, it’s over. Don’t keep pushing out the
string because you keep screwing every new investor who buys your worthless stock off
your fake PR. That’s how this stuff should be handled immediately. And my solution– because the
only job I’d ever take right now to move me from here is running the SEC because I think
I’d be really good at running the SEC. What should happen is companies should not
be able to sue skeptics. What should happen is
if you’re going to sue a skeptic to shut them up or this, that, and the other, it should
go immediately to the SEC. A special hearing, a special process, winner
take all. If you’re the company and you’re being wrongly
vilified by shorts, the shorts should be fined, banned, whatever. You know, whatever price that’s paid for spreading
false rumors. And if
you’re the company, the CEO should resign, adequate steps to the numbers should be taken,
and punishment handed out accordingly. Because the court of law has no place in the
court of public opinion, which is the stock market. And this concept of quieting skeptics, or
shutting people up, or threatening to sue people to
drop coverage of a stock is very dangerous, very bad, and it’s something I fight against. In an ideal world. Unfortunately, there’s two immediate things
that jump to mind when you say it will never happen. One, when people get caught lying, they tend
to figure I need to lie bigger. And two, the stock price. Unfortunately, all their wealth is normally
in their options, and their shares, and the stock price. And so they instinctively do anything they
can to try and stop that going to zero. I mean, you’re right–
But say what say what you want about Hong Kong or say what you want about the UK or
things like that, they will halt the stock and they will halt the stock forever. They will crack
down. I mean, it could be rigged up until the halt,
but once the halt happens, that’s the end of
the line. I mean, that’s the end of the line with these
guys. And more of that should be taken because people
who do good work who are scared to at least use their own name– I’m not scared
to stand behind anything I do, which is why I use
my name. Not some anonymous blogger, but people who
aren’t should at least have some form of safe harbor to state their opinion,
right or wrong. And if you think you crossed the line, take
a SEC arbitration. The company should say, fine. Here we go. Here we go. Because that way, it will stop the MiMedxs
of the world or the AremisSofts of the world from costing people
money, wasting their time, and threatening people because all it does is it cuts back
on the free flow of information. And increases lawyers’ income unfortunately. Well, yeah. I mean, I do that anyway. Trying to not increase their income too much,
but it is what it is. But that’s just my–
Well, I don’t know if we’ll ever see you as head of the SEC, but if it was an elected
position, I’d sure as hell vote for you. I’ve got to say that. Fuck. I mean, I think I could fix things so fast
and I think the market would go up because I
would just take a dozen of these guys and just drag them down Main Street and say, if
you do this, this is what happens to you. Rather than just push this, you know, it’s
just toothless. It would certainly fix a lot of problems. Marc, we’ve taken so much of your day up. It’s been
fascinating. It’s been revelatory to me. I was looking forward to this for months and
it’s lived up to and surpassed every instinct I had of
how much I’d enjoy it. A lot of fun. It’s great. Really great having you. Thank you. Glad to do it again. Absolutely. Any time. Well We’ll come back and revisit MiMedx for
sure. Yeah. We’ve got to do it when things are a little
more green. We can pick some fruit or
something like that. When Marc agreed to spend the day with me,
I was excited to talk to a man I followed for
many years, and I was itching to get inside his head and try to get a better understanding
of how he thinks. I’ve always had a huge amount of admiration
for his tenacity, his combative spirit, and his refusal to back down against
seemingly impossible odds. And if I’m honest, a
little jealousy at his fearlessness in saying exactly what’s on his mind in any given situation. Because I talked to Marc and he took me deeper
into his process on the world he inhabits, I
learned so much more about what drives him, how he handles his emotions, and after hearing
the story of his experiences in 2008, how scarred he still is by a series of events
which were out of his control and which assaulted the
very sense of justice which drives not only Marc, but
many short sellers. That sense of justice is often overlooked
in favor of the outsize profit short sellers can make
when they’re successful. But talking to Marc cemented in my mind that
for every successful battle these guys fight, there are skirmishes
galore, each of which takes its toll. And as the
serenity of Alder Lane Farm grew smaller in my rear view mirror, I realized it takes a
special kind of skill set to do what Marc does, and
I just don’t have it.

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