How To Turn $100K into $4,000,000 with Distressed Investing

So after Scott came on the pod and was like, I have my distressed guy in Europe, I'm like, Ben, find me the distressed guy in Europe. I feel like I could rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel. Never. All right, so Scott Galloway is on our podcast.

He's—

and we ask him, we say, you know, we heard the story that you were buying distressed FTX claims after FTX went into bankruptcy., and everybody hated it. It was like, it was a disgrace. It was the symbol of a bad, bad business, a bad investment. I heard that you were buying up claims on the cheap and that those claims are now being paid out, you know, in full or even more than full because Sam Bankman-Fried, whatever, he was doing his thing. He had owned enough assets that would make all the creditors whole. And so he tells a story about how he's got this guy who's brought him into a couple deals and he was talking about distressed investing.

And when he told the story, he like, he like kind of dismissed it. He was like, I bought $10 million of FTX shares or something like that.

Or $2 million. $2 million. I think it was something like that.

Sorry, whatever it was, it was like a 7-figure bet. And he sort of just said like, yeah, I just did this one thing. And Sean and I were like, rewind, what? And that's when he told the story.

Also, it was a moment where it's like, hold up, put some respect on the podcaster's name. I mean, I think a lot of people make fun of Scott. There's like the inverse Scott Galloway index and stuff like that, basically about his bad calls he's made in his life. And I think in general, people don't really realize— and Sam, you do a good job of this— you're like, actually, you were an entrepreneur who sold a company for $100 million. He never really talks about that much. And then he'd done some interesting investing stuff. And I just feel like because almost he's so good at the gift of gab, I think people sort of bucketed him as all talk, no walk. Yeah. So it was interesting to hear one of his interesting walk stories. So then I got in touch with Tommy and we— I say, tell me about this. I'm interested. What are you doing? What are you— what's going on? And he had some interesting stories. So I wanted to invite him on the podcast to do two things. Teach us about this category of distressed with both, both me and Sam. Are pretty much novices in this. Like, we are— we're missionary guys. We are— we like vanilla. Like, we do very basic stuff, you know, when it comes to business and investing. This is more exotic, and it's got me interested. I want you to start with a little crispy description of, like, what's the big idea with distressed investing? What are you trying to do? How do we wrap our minds around this? And then I want to play a game called First, best, worst, weirdest, which is where we go through maybe the first play you did, the best play that ever worked out for you, the worst deal that went sideways, and then just something where shit got weird while you were doing it. But I want first, just can you just make us a little smarter? Teach us distress investing 101. What are we talking about?

Steak is the kind of the known, the known value that's there. It's the substance. It's the thing that will make you give you a margin of safety when you buy. The sizzle is the upside of how good this could be if things go right. But you, but you still have the steak even if things don't go great.

Exactly. And that's even what the whole pitch on FTX with, with Scott was, which is you're buying a steak, you're buying $0.20, you know, you're going to get $0.30 in cash back. Plus you have all this crypto sizzle. And unless you're, you know, I don't want to say a Luddite, but unless you're just really, really aggressively against crypto, there was a lot of optionality built into that. And if you look at the history of distress, some of the best ones have been financial service bankruptcies, Ponzi scheme cases, as well as like the dot-com cases were actually pretty good. You think of things like Comdisco, which was a famous large bankruptcy. And a lot of those actually, they kind of petered out because there wasn't as much debt. It was just equity values went to zero. So, so if you look at the history, they can be pretty good. And that was kind of the playbook was, as my friend would say, who's a pretty smart investor, he says you avail yourself to the optionality, you know, so because you sort of set yourself up to either buy that for, for free and you get it for free or buy it extremely cheaply. So that's what we're doing in FTX and that's what we really try to replicate in almost everything we do, no matter if it's crypto or just general distressed.

Is your company just you? Are you just a guy or do you have a team?

I'm just a guy. I mean, I have a small team. I think Scott calls me a lifestyle business guy, but I would describe it as what's nice about what I do is I get to choose when I work, how hard I'm working. If there's no deals, I don't have to work on stuff. And also because I'm in a low-cost jurisdiction, you know, that passes through to my clients. So, you know, is Scott paying the usual fees that you would pay if you went to a big distressed firm? Probably not. I mean, maybe because they want Scott as a client, but for the most part, the fee structure would have to be higher. Your cost structure is higher.

So can I dumb this down? Like, in a way, like, I'm kind of a caveman and you can tell me if I'm right, but basically you find distressed deals, you convince rich people to buy them, and you take a small cut. Is that right?

Yes. Or I invest my own capital.

But you invest your own money and you're so good that people come back over and over again.

Well, if you lose money for people, they generally don't return your phone calls. They might call you, but they don't, they don't pick up when you call.

So let's walk through an example together. And I think we should use FTX because it's a pretty well-known company. It's kind of what we were already talking about. So walk me through the origin story of, of the FTX deal so that we can kind of see like a, we can get like a blueprint of the type of thing that you're going to try to do. What is the type of thing that you do? So where does the story start with your FTX interest?

Yeah. So we were, I had already been involved in a number of crypto distressed situations. And I should back up to just say as a backdrop, like having studied so many different investors throughout my life and kind of that's what I was really always interested in is principally just being an investor. One of the things you'll realize is the guys with really good returns also invented a category. So I was very interested in crypto distress as a category and I thought, hey, crypto's the future. No one's willing to touch crypto. So back in 2014, '15, I was already looking at Mt. Gox, you know, myself and at the time my partner we were the largest buyer of claims in Mt. Gox.

But before you tell the Mt. Gox story, I just want to double-click on— you said some of the best investors, they ended up like— actually, now when you look back, they kind of had invented a category. Can you give a couple of examples of people, of guys who did that?

So like Howard Marks is the, is the prototypical example, right? Like he kind of invented the whole idea of like institutional— not just him. There were other people, of course, but he was and, you know, very early. And basically him and a group of people invented the idea of institutional asset class distressed investing. So what that does is it compresses, it lowers, you know, cost of capital and really brings a whole pool of capital that would have never invested in this. So the long-term returns might go down, but it's because the actual, the actual cost of capital is coming down. And so your, your, your tailwind returns are just enormous.

And what does that mean? Does that mean that like institutional investors, they, they were like normally afraid of this and Howard was like, no, this actually makes a ton of sense and it's actually kind of stuff safe and here's why. And so he convinced large institutions to buy into that.

Yeah.

Is that what you're saying?

To allocate. And the same thing with like early venture guys. I mean, I guess before you have like the '70s and '80s, I mean, Alan Patricoff and people like that, these were guys that really invented the category. And of course they have huge firms now and, you know, the valuations for startups, but it, it's like, it's this wall of liquidity that creates these kind of tailwind returns, which are fantastic. You want it, I mean, you kind of like, that's the most amazing thing is catching one of those waves.

YC is a good example of this, where YC basically created the category of the, the, you know, the accelerator, right? It created the category of this pre-seed, pre-everything, pre-product, pre-revenue, pre-traction investing. And so that really wasn't a popular category. Now it's a whole industry. There's angels and there's super angels and there's seed funds and pre-seed funds. There's a whole industry now that specializes in that category. But it really started— even Paul has said this— as an experiment. He was curious, like, how early on could you fund somebody? Could you fund a student? Could you fund a grad student? And, you know, he sort of thought it might be too early, but he wanted to go see what happens when you do that.

Yeah. And even, you know, for me, when I was starting my hedge fund, my first, when I was really a kid, some of my early investors were Goldman partners that were partners when it went public. And they were all sort of early LBO guys, like levered buyout guys. Before private equity became a real institutional asset class. And the returns were just insane. Like insane returns.

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Yeah, it was sort of Coinbase before Coinbase, but it had some nefarious characters involved.

Yeah. So there was a huge kind of like sort of hack problem with, with Mt. Gox. So, Tom, what happened with, with Mt. Gox? What did you actually do there?

Let's start with that. Yeah. So, so Mt. Gox was really the first— it was almost 80% of the volume at the time in 2014 when it went under. And it was the largest exchange. I mean, other than going peer-to-peer and going to a Starbucks and buying Bitcoin, like that was where you traded Bitcoin. And they had a pretty aggressive hack. They tried to cover up the hack, which was the real crime, was the cover-up. Eventually they filed for insolvency in Japan and what's called a Chapter 15 in the States. That's kind of irrelevant. That just recognizes the foreign proceeding as the main proceeding. And, you know, you could buy claims for a while you could buy them for about a fifth of the market price of Bitcoin. This is when Bitcoin is like $300. And then in 2018, the estate actually sold some Bitcoin to have enough to pay people the cash value of their claim at the petition date. When I say cash, I mean fiat. I'll try to use fiat. And so you could buy below the cash, you get the Bitcoin for free.

Sorry. So just, just to, just to slow this down for a second, when you say buy the claims, what you're saying is I was a customer, let's say, of Mt. Gox, and boom, I lost my money. It's insolvent. I don't know what's going to happen with this. It's going to go through a bankruptcy process. I'm hoping maybe in a few years I'll be able to get something out of this. And guys like you knock on the door and you say, I'm so sorry for your loss. You know what? I'll offer you something today for the rights to that claim you have as a customer, as a creditor in this bankruptcy thing. It's going to take a long time. It's a little uncertain. You know, so I'll give you— and in that case, like for every kind of dollar worth of claim, what were you buying the claims for at Mt.

Gox? Yeah. So the original trade, Bitcoin was at about $300 and we were buying the claims for about $80 per Bitcoin.

Were you a Bitcoin person or were you just a, a distressed person?

I would say, yeah, I studied economics. I remember reading about Bitcoin when it was like $10 and I was like, wow, that's cool if it works.. But other than that, I had no— I was like, this is pretty crazy.

All right. So dumb question. They get hacked. Yeah. So they don't have the Bitcoin. So what is underneath? I get in the, in the FTX case, 'cause he had invested in all these underlying companies and they still had their, some assets. What did Mt. Gox have that made you think that the claims would be worth anything?

So, so just if you want to, if you want to do it in, in Bitcoin terms, there's about 800,000 Bitcoin that was supposed to be there. Within a first, like, month or two, they basically found 200 Bitcoin.

Found 200 or 200,000?

200,000.

Okay. So they found 200,000 of the 800 that's supposed to be there.

You bought the assets after you learned that he magically discovered— Yeah, of course. So you're like, minimal downside, potentially high upside.

That was— so the stake there was they got 200,000 Bitcoin sitting there today and it's $300 a Bitcoin. I can buy it at 25%, you know, for 25% of that value. So that's your stake. And your sizzle was maybe they'll find more, maybe Bitcoin price will go up. Is that right? Is that the right way to think about that?

Basically. Yep. Maybe they'll find more and, and you get a 5x return on Bitcoin. That was the original pitch. And I remember the first hedge fund I pitched it to, the guy literally laughed me out of his conference room. And whenever I saw him around town, he would just be like, Bitcoin. I mean, it was like 2015, to be fair.

But look, it's the Bitcoin loser. I'm imagining like The Big Short here. Because I don't know anything about this world. So my only reference point is movies. So I'm imagining you're Michael Burry, you're sitting in your room by yourself, you're pouring through the papers and you're like, you're like, pen, and you're like, you know, doing the math. You're like, $2,200,000, $800,000, $0.25, we get $0.05. The equations are popping out of your head. And then you go to the hedge fund and then they sort of laugh you out of the room and they're like, listen, do you want to just get lunch? Because we're not doing this. Do you want to make something out of this hour? Were you just getting laughed out of the room in that way?

Well, I remember the name of the fund. I won't mention them. They're out of business now, if that's any— this is any concern. But name names.

Yeah, they're dance on the graves.

The guy won't remember, but the firm was Southpaw. I don't know what happened to the guys at Southpaw. It was like a $2 billion hedge fund. Anyway, it doesn't really matter. It was forever ago. And to be fair, fair to the guy, like I said, oh, there's crypto exchange, you can buy claims for a fifth of the market value. He's like, crypto? You mean like Bitcoin? And I said, I said, yeah, yeah, Bitcoin. He's like, you want me to buy Bitcoin? And I was like, well, you know, the claims get 5 times your money. And he's like, he started slapping his knee. He was like, Tom, that is the funniest shit I've heard all week. He was like, he was like, what else are you working on?

And I was like, what's the real idea?

Were you in a pension?

Were you an employee somewhere? No. Were you on your own?

What did you end up making on the Mt. Gox trade? How much did you end up getting in and what was the— what was the in, what was the out?

Over what period of time?

Oh yeah, like 7 years.

And is that because Bitcoin price appreciated basically?

Yeah. So some of it is about 5x of it is the discount and then the rest is the appreciation. Right. But he put it on in 2000. The big— the guy I'm describing who was our real first outside LP outside of the fund, which, which liquidated and we sold the claim. And I think that claim we bought, the original claim we bought from a Googler actually. It was pretty funny. And I always joke because I was a kid and, you know, I had my standard documents, but I didn't have documents for like a Japanese court. And he was like, so how do we do this, Tom? And I was like, you know, I don't know. And he said, well, why don't I ask? So I always joke that Google wrote my original purchase documents for, for the purchase of, you know, like, I don't know the name of the firm, Stepshoe and something, or some, some firm that worked for Google. Because this guy was like a big up at Google. But yeah, about 40, 40+ times. But a lot of it is appreciation. But the really interesting thing about that guy that originally did the deal with us, this family office guy, is we were buying the Bitcoin for free because he put that trade on in 2018. That was the Big Short moment because you were getting it for free.

Explain that. Why did you get it for free?

Why do they sell it for below the cash value at that point? Is it because there's still a time delay? Is there an uncertainty?

Like what? Yes. And the— there was uncertainty around whether who got the uplift in value. So in 2018, there was this big argument. Who gets the uplift in value? Does it go back to Mark Karpeles, like the guy that kind of didn't do us right, or does the uplift in value go to the customer account claimants? The same thing happened in FTX. The same thing happens in all the crypto bankruptcies. Who gets appreciation and value post-petition. Petition meaning the date the company files for insolvency.

As you know, I'm an absolute outsider. I'm learning about all of, all about this right now. But like Mt. Gox and particularly FTX, those were pretty big news headlines. And as an outsider, when I see this, I just think, oh, I'm sure like there is no opportunity because everything is being taken care of. Like they're going to catch the bad guy. But then also all the big dogs are already after this. Like, there's no way to make money. There's no opportunity. Not me. Someone else is probably like on top of this. But the way that you're describing yourself, maybe this is like you're underselling yourself, but you're kind of describing yourself as like just a smart guy who just like kind of gets in the mix and figures it out.

Take out the smart part.

Well, you're doing it again. You just, you just did it again. But you like how many, like literally how many human beings like how many human beings are actually getting after this? Like for the Mt. Gox and like, who do you, who do you phone?

Yeah, a lot of questions in there. Okay. So you're right in some sense. All the big firms have a corner on the, like the bond. If you want to try to play the bonds and stuff like that, you can't open up a Fidelity account and trade distressed bonds. You call them and you say, oh, can I get a quote on this bond? And they're like, well, that's in default. You're like, I know it's in default. I'm asking what the quote is. And they're like, oh, we don't trade in defaulted bonds. They're way too risky for you to be looking at. So there you'd have to have like real prime brokers and, you know, you have to have serious money to play that game.

Also, you have to worry about getting run over by big distressed firms, sort of actually just like in The Big Short where the two guys who had the garage hedge fund, which was big, I mean, big for a regular guy, it was $20 million of their own money they were playing with. They were like laughed out of Chase or something like that.

Yeah, yeah. The same thing with the rotors markets. I mean, you have to have serious setups and serious, like, calm lines. You have to have lines with your, with your PBs to be able to do this stuff. And so I knew the other side of the market or kind of the— that's why I said on the lowest rung of the totem pole, which is the claims market. So there are probably like 10 firms out there that really do trade claims. And, you know, I say this lovingly because I'm one. Most people in space are not super smart. It's kind of like the, the, the, the, I don't know, in IT maybe it's more like the— oh gosh, I'm gonna offend somebody— like the network administrator. I don't know, like the kind of like the lowest level of IT person. This is like the lowest level distress person.

Yeah, like the rejects a little bit.

Yeah. And so, but I kind of like hanging out with the rejects. What can I say?

Right.

Anyway, so, so you're, you're kind of like a, uh, like what's that, you know, they have a shark and they have the thing that like lives on the shark, the food chain, like a symbiotic Yeah, you're like that little thing that eats the stuff that falls off the shark and the shark kind of likes you because you keep the barnacles off it or something. And that's you as a trade claim buyer. If you befriend some of these largest trust firms, the cases we're largely talking about, when you have cryptocurrency exchanges going under and things like that, you're talking about customer account claims and customer account. What's nice about that, like both in FTX and then if you go back to Mt. Gox, is the docket was largely customer account claims. And so it's all trade claims. There's not a lot of structured debt.. And so certain setups are just not appropriate for a small person or home gamer to be trying. But you know, you can literally buy claims. There's no, nothing that stops you.

But do you go, do you, do you put out a press release and you say, hey, all 100,000 FTX or Mt. Gox claim holders, or, okay, please email me and let's talk.

Right. Yeah. If you've been wronged by this curly-haired man, call me. Yeah.

and there, there are only 3 people with your same name.

So, man, so you're hustling.

Like, this is work. Yeah.

Yeah, you're hustling. There's a lot of work.

The work here is you find the person, you contact them, you get them interested, you verify their ownership and that they haven't already sold the claim to somebody else. There's like a whole bunch of work that you do so that guys like me could just invest in and just buy the claim. And we feel like, all right, you've done the diligence on this, you've done the cleanup work on this. That's what we would have to trust you. And that's why you get paid a carry or a fee.

That's why people from investors. Yeah. And you know what's interesting is so it is a lot of grunt work. That's why I think sometimes it gets like the more like, you know, guys holding footballs who, you know, played, played hockey or something in college. You know, there's not— it's not like the, the brainiest side of distress, but actually there's a lot of intricate, like, I'll call them corner cases, like claim corner cases where you really do need to know a lot about the legal side. I mean, with ChatGPT, it helps a lot, but still it helps to have a bunch of experience. And, you know, prompting ChatGPT is just as important as anything. So the more you know, the more powerful it is.

But it seems like a good life for you. Yeah, you're hanging out in Italy. It seems like you work project to project. And what's the upside here for you? Like, can you make tens of millions of dollars in one year?

Yes. I mean, I don't know. Not— I mean, 7 figures, definitely. 8 figures is pretty hard. What happens is you get people to push back on your fees. They say like, oh, you're not in New York, you're not a real firm. Like, it's just a few guys. Like, you're just a broker. And but, you know, you build a reputation over time and then people will pay you more and more. And but you can definitely make 7, 8 figures, especially in a good year, especially if you have something work out and you have a promote on it.

So let's, let's walk through that game I talked about. First, last, best, worst, weirdest, whatever. So what was the first life? Maybe you were a kid, maybe you're in middle school or something like, you know, Sally didn't want her bike anymore and you're like, oh, your trash is my treasure, you know? So what was your first foray into buying distressed assets?

Okay, so my parents were the more bankruptcy lawyers or lawyers. My mom specifically was a consumer bankruptcy lawyer. So I used to hang out like at the courthouse as a kid and like hang out with the clerk's office and with like U.S. trustees and stuff. So I kind of grew up like really—

Did you like it or she just like didn't have daycare and you had to go?

Yeah, basically. She didn't have daycare. A single mom, basically like no daycare. Tom's got the clip-on tie and he's in court with me.

So a lot, lot of clip-on ties.

Yeah. My associate. Yeah. So, and this is like paper files everywhere. So no. So I grew up kind of hanging around it. We'd always hear about stuff from— I remember when I was a kid first hearing about like HUD houses. I was like, what's a HUD house? What's that? Oh, you can buy these houses and, you know, they're really beaten up, but you can get really good deals. So I remember my brother and I flipped a HUD house. My mom put up the capital. I have no idea what the numbers were. We probably bought it for $20,000 or $30,000 that, you know, my mom put up and we probably sold it for $60,000. We did the demo. Demolition ourselves, which was a, you know, I have to say, God love my parents. I'm glad I wasn't injured severely. You know, doing demolition when you're 14 is probably a bad idea.

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So these are the kind of things I was talking about when I was a kid. These were, these deals would come up, you know, there was a whole thing where they, the baseball card industry went through this, this, they were, they were printing cards. They said they weren't printing. I don't know if you remember this, Sean. And, and there was a bit of fallout in like the collection market for baseball cards. And I'm sure a few of them went under, probably like the microbrewery thing where people overmade microbreweries. And then I've seen a bunch of microbrewery bankruptcies. And I remember seeing it was the entire shop was $3,000, which is a lot of money when I was a kid. And my mom was like, you want me to put up the money and buy the whole thing? And I was like, we can do that. I was like, uh-huh. So I would hear about these things as a kid and I guess it probably colored my, my imagination for what was possible. And then I kind of like between that and, you know, I was really obsessed. So I started, I guess I bought my first stock when I was 11 or 12. I can't remember, but I was sort of obsessed with Warren Buffett as a kid. But I mean, and then what happened, guys, is over time is I sort of melded the two things together. It's like, what would Buffett do if he had the specific knowledge, you know, the Naval term, like specific knowledge of bankruptcy plus what he knows well, which is like, you know, valuation and sort of like deep value investing or value investing. So I kind of melded those two things together.

Yeah, it's almost— I actually think there's three. There's— you have knowledge of the law and not as fearful. It's like I speak the native tongue of bankruptcy court, right? So it's like, okay, I feel I can get more certainty than the people who hold the claims, right? Like I have a better idea of where, how this will play out and how long it'll play out, take to play out and where the puck will land. So it's like knowledge of the legal code, deep knowledge about deep knowledge and interest in deep value investing, which I like admiring Buffett and Howard Marks and a bunch of these guys and, and really learning from their playbook. And then the third is just the entrepreneurial hustle. To go cold call, knock on doors, raise the capital, get the claims, do the verifications, go travel to, you know, wherever and make it happen.

Right.

So you kind of needed that Venn diagram to be able to do what you do. That's what I'm hearing.

And I think for me, like, I got kind of obsessed with the adventure of investing. Like, for me, you know, like my very first, like, real distressed investment was this thing called Ethonex Energy where people had all these restricted physical shares. And so like, I literally drove around like the Northeast and bought shares off of people and like, we'd go into the local bank and get things medallion signature guaranteed. And I was like, oh, I'm just like Buffett in Snowball where he's like going around and buying shares of the hunting lodge.

He's like knocking on the door of GEICO, like, can you give me a tour of the office? And like, like trying to like figure it out.

Yeah. If somebody hasn't read Snowball, can you tell us a sort of a Buffett hustle story or a Buffett devalue distress story?

Gosh. I mean, I must have read it at least 10 years ago. So yeah, I mean, he was famous for— there was some security, I can't think it was a hunting club that he joined just so he could buy stock in this. I mean, maybe you guys have heard the story, but there was like a hunting club that also had oil on its land. And so it's probably an apocryphal story where he like, you know, gets all the hunting gear and like joins the hunting club. You know, Buffett doesn't give a shit about hunting.

Hello, fellow hunters.

Hello there. And he's got his rifle on his, you know, and they're like, you don't suppose you want to sell some of your shares, do you? So I can't remember exactly what the story was, but it was something along those lines. And I think it was like, you know, you could, you know, now, you know, one of the things I took away from Buffett is you're always using your unique competitive advantages, just like in any business, right? And all the lessons from business kind of apply to just pure investing and, you know, using those new competitive advantages. At the time, there was all this informational arbitrage. That's probably less and less now. They're still scuttlebutt, meaning like making phone calls and channel checking and like getting out in the field and hustling. And hustling goes a really long way. But, you know, now you have other advantages, like you can invest in Japanese insolvencies. Buffett couldn't invest in Japanese insolvencies because you didn't have Google Translate. So, you know, you just have to keep pushing the boat out. To me, that's the real lesson of Joel Greenblatt or Warren Buffett. Joel Greenblatt was like a famous specialist investor, which is, you know, you play the field And you use everything.

We just talked to Howard Marks and both Sean and I have read a bunch of Buffett stuff. You're doing something I have, I, you know, I don't want to, I don't know how great of an investor you are other than like this one topic is really fascinating to us and you seem wonderful, but you're doing something that they do, which is you use really great language. So you've used a few phrases, you've used a few really good phrases that helped me understand things a little bit more effectively. So you're like, I just, You just got to keep pushing the boat out. Or you're talking about like scuttlebutt, like you've used these words that have done a really good job of explaining what you do, which in my head means you have done a very good job of creating a framework on how to think about this type of stuff.

For me, I think it's all about valuation. Just how you manufacture the valuation is like the sauce and like how you, you know, you're making your sauce like you guys are doing venture deals. Like so much of it is probably access and connections and reputation and being able to get allocation. But also being able to vet founders or vet VC firms and like, you know, and also knowing what the docs look like, like all that kind of like, well, not a Venn diagram, but that, that whole like soup that makes it work. That's that we have the same thing and what we're doing. I mean, Howard Marks is an absolute legend and, you know, he has a very famous— I mean, I'm sure he talked about Bruce Karsh, who was— did, you know, a lot of the investing. And Howard Marks is like the great communicator. I mean, the guy, I mean, that's one of the things I think people don't appreciate is you can still work on investments, make really good returns. But those guys are like monster communicators. Like they are great at fundraising and, and, and they're great at what they do. So it's just, it's, they have like multiple skill sets or, you know, or they have partners to back them up.

You, you sent us a list of your like core philosophies and you told us the first one, the steak and sizzle philosophy that you live by. Tell us about some of these other ones. So one is shop Madison, not Canal. What does that mean?

All right, let's do the next one. He said start young. The first decade is tuition. I love this. This could apply to any field, by the way. I think that's a great phrase just in general.

Well, you guys, come on, y'all. Y'all know a lot of this stuff. But for me, I started when I was 12. I was terrible. I think the first— I could tell you the first stocks I bought. I bought Home Depot because Bob Nardelli, who has passed over for whoever, I think maybe Jack Walsh or maybe Emmett, whoever became the CEO of GE, came over to Home Depot and he was going to GE Home Depot. Well, that didn't work at all. And, you know, so I wasn't investing at all in valuation. I was based on a story in HBR. There was this huge article in Harvard Business Review, and I was like 12 years old, like reading this, being like, oh yeah, ethos. I don't even know what this word means. He's going to change the ethos. The culture was like the first stock. Yeah, I was like, I was like, ethos, what's— I never heard of this word. Sounds smart. So that was like the first stock. And the other one I bought was Inco, which was a large nickel producer in Canada that actually did work out. It was based on like the rising price of nickel. I read about in Foreign Affairs. And the third one was from a Forbes article. It was EMC, which is a chip manufacturer, which I can't remember what happened to that one. I think I— you know, the thing is, is like, you know, this is the thing about stocks, especially when you're young and you've never done anything. You buy them and you're like, okay, I bought them. All right. And then day 2, you're like, now what do we do?

My kids are I have a 1-year-old, a 4-year-old, and a 5-year-old. And for my 4- and 5-year-old, I just, like, they were trying to earn something. They wanted, like, ice cream or a treat or a toy or whatever. They're like, if we do this, can we have that? And I was like, here's what I'm going to give you. I'm going to give you $100. They're like, $100? I was like, I'm going to give you $100 each. But because I was teaching about, like, we were at the— we were, like, waiting in the parking lot and I was explaining what a grocery store is. I was like, yeah, so somebody owns this business and then they buy the stuff and then they sell it to us. I was trying to explain what a business is. And I was like, failing miserably. I was like, oh my God, why is this so hard to explain what a business is? But I basically told them, I gave them $100 each. And I, this weekend, I'm going to present to them 5 stocks of products that they use and buy. So like we bought a Nintendo Switch. That's like, here's Nintendo stock. Here's, and I'm going to let them pick and let them invest it in an account where they're going to start to see whether it's going up or down. And I'm going to have them explain in their, whatever their logic is of why they picked, you know, either Nintendo or whatever., you know, Yamaha or whatever, whatever, whatever stock that they pick. And then they're going to get to like ride the ups and downs of this. So I'm with you on start them young, even younger than, than you would guess.

Well, yeah, I just think that, you know, I don't know, you know, my own experience, like, you know, you'll meet guys. This is a common thing. I'll meet guys, I don't know, when I'm here on holiday or wherever, and they'll have an exit. Like I met a guy who was like a very early employee at Airbnb and he had probably $80 million or $100 million. But he's never actually invested money. So now he's 45, probably 50, and now he's like, you know, I'm so good at this, like, I'm going to buy some Duolingo and I'm going to, you know, do this and do that. And I'm like, well, you just need to respect the fact that you've actually never invested money. I mean, you are amazing operator and you got on a rocket ship.

That's all we say that all the time on here, which is there's a huge difference between investing and earning like via a company.

Yeah. And I'm, you know, just— it just— it takes a ton of experience to be good and, well, even to be okay.

A question that Sean has asked me before that I love, which is like, basically, how do you invest your own money? And I want to ask you the same. Do you— since you are a professional investor, do you have 100% of your portfolio in a variety of deals like this, or are you doing any passive stuff, or is it all active?

It's all pretty active. Yeah, I don't, I don't, you know, like you— for me it's like tax advisors, great people that like, you know, estate planning advisors, great guys that want to manage my money. No, thank you. Partially because I enjoy it, but also I don't think that I've reached the capacity where I have more money than I know what to do with. You know, I think that I can still find a lot of deals. I mean, you know, your opportunity set when you have, you know, $1 million or $10 million or whatever is just a lot better than if you're, you know, if you're at $100,000 or for it, you know, the optimal, the optimal, the optimal strategy changes based upon your capital base.

So when you say active, do you mean it's all distressed? It's like your specialty. That's where you're putting most of your net worth, the majority.

Yeah, I put most of my money in our own deals.

Right. When you, you were saying like, you know, early on with your hedge fund, you were putting 5% into that deal. You weren't allowed to because you have as investors to get like, you know, as crazy as maybe to match your own conviction in the deal. Now that that's not the case anymore, like how concentrated have you gotten? Like, do you have you gotten to any— have you ever been at a point where you just like insanely concentrated?

I kind of like it when it hurts a little bit because it's so— I'm so concentrated, but maybe that's me. I don't know.

I mean, that is—

I feel like it's a little bit like an entrepreneurial bent. Like you kind of— if you're not pushing yourself, then, then, then I wouldn't feel comfortable with it. I mean, I understand if you have a big exit. Yeah. For me, I'm constantly investing in other deals, friends' deals. I have pretty— I feel like I have pretty good deal flow in the distressed area. And then the claims work. I wouldn't say it's free money, but you can almost reliably compound your money on a small base. You know, like a few million bucks or something, you can reliably compound that at pretty aggressive rates.

What do you mean by pretty progressive rates? What is that? Is that 15%? Is that 25%? Is that 30%? What are you talking about?

There's these guys, Sean, like in— I used to live in Texas and there are guys who like, I didn't know what their job was. I'm like, I don't know what you do, but you're really wealthy. And I just started calling them capital men. They're just capital guys where they just like—

do they like it when you call them capital men?

It's a good phrase. I think you're a capital guy.

Maybe. I don't know. I guess I'm— for me, I feel like I've spent my entire life studying like the history of sort of like modern investing, like guys that bought banks out of bankruptcy before, you know, before, you know, when you could do that. You know, guys that have minted enormous fortunes with, you know, like there's a guy that bought a tobacco company around the time they were doing the settlements with the tobacco companies who made a fortune. So I've studied a lot of these things and I've always wanted to be, to do just one deal like that. So I guess I've always aspired to do that. But I mean, if you, there's that phrase, you know, what is it? A position well bought is already half sold. And I do think when you're doing sort of very special sit, sort of deep value distress stuff, if you're selective, the problem with the fund and the big institutional money management firms is they always have to constantly be finding deals. The nice thing about being a little bit of a home gamer is you can kind of select, you can be very selective. You can literally do nothing in a 6-month period or a year if you just can't find anything. And you know, there's still the claim work and bring in income, but you don't necessarily have to swing. I mean, we've seen deals over my lifetime. I've seen deals where guys have, you know, turn, you know, $20 million into $3 billion and, you know, $6 million into $80 million in one year. I mean, you see some incredible deals in the space and, you know, you're getting high optionality, low risk because the price you're paying. But it's a ton of work and a lot of brain damage for sure, and a lot of hustle. And that's not necessarily the claims.

Well, distressed, distressed in general, as a small player, you can get totally hosed. So don't like— every now and then I'll hear someone, even smart friends, will say, oh, well, you know, KKR is going to make sure everyone's taken care of because they don't want the bad press. I'm like, what are you talking about? It's not like Wobegon. They are going to walk all over you in bankruptcy court. So I never understand this logic. And it's only from many years of being like, oh, they're going to play nice. No, they're not going to play nice. And don't ever assume that. And sometimes you do get a gift. They'll do, you know, things that'll, that'll be a little more gift-like to wherever you are. If you're in a preferred or if you're in equity, God forbid you're in equity, but if you're even in claimant and things like that. So that's one of the ugly sides. I think also one of the ugly sides is, you know, it's very transactional and financial. So it doesn't exactly— you don't get people who are like giving you the starry eyes of the future. A lot of times you're sitting across people arguing over a pie that ain't growing. In fact, maybe the pie is bad apple pie that's already gone off. So it's like they're really arguing over, over, you know, something that could be either dying or shrinking. So I think it has an emotional toll on you being in distressed investing. Also, you are actually hearing people's life stories like, you know, I will not mention names, but, you know, companies will go bankrupt and this will be someone's entire life's work. And they're, they're Picasso and they're spending 2 hours telling you about their Picasso and you just can't— you just got to let them. You're almost like a guidance counselor walking them through, you know, maybe doing a deal or transaction and try and be as respectful as possible. The fact that this person might have just lost their life's work or their family's fourth generation business, etc., etc. So you, you have people and they emotionally are in distress. So it is a tax on you, but also you need to be as respectful as possible. And I don't think— was like, what else? I mean, I think as a small player, it's very hard. I think for me, I always say that investing isn't— I would— I wouldn't say I'm good. I'd say I'm okay investor. I'd also say that it's a bit of a disease. So I kind of like feel compelled to do it even though sometimes maybe it's not the best thing for me. So I always joke that it, you know, it's kind of a disease. Like I'm looking at this stuff on nights and weekends, on Sunday morning. You know, I'm, you know, just like you might be having another call with a startup that you think is interesting or trying to get on an allocation for something like I'm doing the same thing with my deals. Like I'm trying to learn a little bit more and see if I can find something. So yeah, I don't know if I answered your question.

No, you did. The second part of the question is we've been glamorizing you a little bit, but you called me, you know, before the pod and you called Ben and you were like, hey, like, just, you know, like, if you Google me, you're going to see some stuff. I want to be able to, you know, do you guys want to ask me questions? Do you want me to talk about that on air? Like, do you want me to clear the air about this? So like, hey, here's an opportunity because if somebody Googles you, yeah, there's like a settlement case. I don't know what's going on with this. Like, what do you want to say about this?

Yeah. So, and I, that's why I said, I said, Ben, I got like, you haven't said anything about this and I'm wondering why you haven't. And I just want to put it out there, which is, yeah, I was involved in this receivership in Delaware. And I got some pretty nasty headlines. And I have to say, you know, as I've gone through my life, I've had a lot of ups and downs like any, anybody or any entrepreneur for sure. And this was a down one. And I'm, I'm glad to have it behind me. But basically it was a receivership that I was in charge of. I, you know, we hope we made a lot of money for the shareholders. So the, the court didn't like some of the way I went about, you know, my activities. And sort of aggressively slapped me on the wrist or maybe in the face. And I'm glad that everyone in— it's called Fun.com— is getting a good recovery and I'm glad to have it behind me. But yeah, it's like one, something I wanted to bring up because I didn't want to act like it was something that didn't happen.

Okay, but what'd you do? You're like, ah, it's not my best moment. What'd you do?

So the biggest thing is, so I was running this receivership And of course, because of that, I was in charge of doing everything, whether it's like administrative work or like running the bank accounts and doing the taxes. And, you know, while I'm sorry, I'm sorry, dumb question.

What is doing the receivership mean? You're taking it through bankruptcy. Is that what that is?

Okay, well, you know, sorry to make it awkward. I just had to ask, uh, try to understand what—

No, no, I'm glad you did. I just— and I've, you know, my thing is for me, reputationally, as someone who does what I do, it's important that, that I try my best. But I think in the end, over time, I'll be able to talk about it more and more.

Sam, you look highly amused by this, by this question and answer. What are you thinking?

The headlines aren't good. Yeah, I saw the headlines. I understand why you'd want it addressed. It's not— it's not a good headline. Yeah, I'm reading it as you spoke. So did you admit guilt? Is that what it is? That— no. What's implied with the settlement?

Do you—

did you think it was a question of liability?

Yeah. So I don't know how to even ask this question. I can't ask this. There's no admission of liability.

You can ask because you should. My only thing is I don't— I never— I'm glad that is a good outcome for shareholders and I wouldn't want anyone to be inflamed by the stuff I say. Like any shareholder to be like, oh, he's not like admitting, you know, in my estimation it's a lot more gray than the court tries to make it out to be. But at the same time, like, I respect the court, you know, like I was raised by lawyers. If a court says, you know, I don't care what you're arguing, I disagree with you.

We've had a bunch of people who've come on this podcast before that I think have had stuff. I mean, I think it's fairly common in the world of business. You do business for 30, 40 years that at some point something can, you know, it's extremely common for something to go down where you get sued or you sue somebody or whatever happens. Um, that part's not uncommon. What is interesting, like Sam, I don't know if you remember when, um, we had Martin Shkreli on and he sort of got this character which is like he's the bad guy., and he like leaned into it and like inflamed it and like did a bunch of stuff, which was like really crazy.

And I remember when we—

and he got in trouble and then he had the issue where you got in trouble and he was like, hey, everybody made money. And then they're like, yeah, but like you went to jail. So like, you know, something happened and you paid the price. And I remember you were telling him, you were like, and this was, this is now like years later, he had like literally like done his time. And again, he's quite a character. Like, he, Shkreli's like an actual, he's an actual character. He— I think he plays a bit. I think he plays up that character, and I think he likes it. He likes mixing it up in that way. But I remember just thinking, like, it's so interesting how to handle something like this. It's such a, such a tricky spot to be in, um, because there's many versions of things like this. Like, there's I did something wrong not knowingly, or unintentionally. I did something wrong intentionally. Then there's like the Shkreli case, which is kind of like I did something wrong intentionally But everybody, like, made money. And so who's, you know, so, so it all worked out, right? And even, for example, like, Elon right now, I think, is getting sued in, like, you know, 15 different courts by 50 different people, like, publicly feuding with the president and Sam Altman and others, right? Like, there's a lot of people just, like, constantly mixing it up. And I don't know, it's just, it's very interesting to see how, uh, that side of, that side of entrepreneurship, that side of business, that side of investing.

I definitely think it has to have, you know, maybe not as aggressive as mine was, but I definitely— people think over time you're going to have scrapes with, with certain stuff and the whole bad guy thing. And I know Scarelli did kind of lean into that, I guess. Even now I feel like, well, I don't know if he does now, but kind of, I don't know. It's a different way to do it. For me, I kind of like don't view it as a good thing for me. I kind of view it as like something that if someone's going to be a business partner to me, I need to be able to explain and, you know, frankly, probably more candid than on air. But at the same time, like, try to respect the outcome of the whole thing.

How long did this last?

Gosh, 2022.

Oh, wow.

3 years.

So now that has to feel horrible. I've gotten in trouble before when I was in college and just like waiting to hear the verdict. I remember like that feeling and mine was not— I think your, your, your consequences are significantly worse than my consequences and I can't imagine 3 years of what's going to happen?

You know, for me, I tried to resign my— resign myself to whatever happened. Like, I have to accept responsibility for that. That was a big one for me. So I like really was, you know, bracing for the worst but trying to do the best. Also, like, even, even with the settlement, but like way before the settlement, different things that went on in the case, I was really trying my best to be constructive and cooperative with what the court wanted me to do. But at the same time, like, you know, not everybody is going to love your decision-making. I guess it's like, you know, in a weird way, it's like, you know, it's, it's, you know, I grew up in the South where people are way too like, I don't know, maybe, maybe sometimes, you know, maybe my upbringing was a bit too like people-pleasing. But this was more like, you have to do the right thing whether someone likes it or not, and you have to do what you think is the right thing. So that's what I really— a lot of what I got out of this. And I try my best. And people might not like what you've done, but— or, you know, what you've made a decision like, oh, you're doing this, you're trying to hide this, or you're trying to do this and you're not cooperating here, but you're still trying to— you're still trying to, to find some middle ground. So— but it was a big one. It's a big, big one over me.

I wanted to ask you, we can end with this. I want to ask you for a bit of a reading list. Like, if I was going to try to get smarter about this stuff, what are like, I don't know, the most influential books or blogs or people that are worth checking out? Like, give me your kind of top 3 in no particular order, but what's your shortlist on stuff I would go read just if I wanted to get smarter about this stuff?

Isn't it like a $2,000 book now?

You like Kirkukorian? Sean, have you ever read about Kirkukorian?

You've told me about him, but I haven't read anything about him.

Oh my gosh. That's one of the best biographies of all time. Kirkukorian.

Oh, you like that one?

That's a— Oh my God. Yes. The Gambler. That's one of the best. Basically, he's an Armenian, I think. I think Armenian immigrant. Yes. Raised in Central Valley, California. Went to the Army. When he got back, his first little business was a small airline, which basically just means he somehow convinced someone to lease him a small Cessna and would fly people back and forth from like, I don't even know, all around California. Like, it sounds more glamorous than it was, but he grew that over something like 15 years and sold the business to TWA, which was the large airline company at the time. And he made a little bit of money, but he parlayed that into buying the, what would now become the Las Vegas Strip. And then he parlayed that into buying this other thing, this other thing, this other thing. And he worked his way all the way up from being a nobody, poor, no running water immigrant to owning, what was the car? Chrysler. And I think he also owned like Warner. Did he own Warner? But he for sure owned Chrysler.

MGM, I believe.

Sorry, MGM. And the biography is basically his thinking. He's very calm, he's very methodic, he's very like kind of traditional immigrant, like where he was like straightforward. It is what it is. I don't stress about it. But he was a total kind of degenerate gambler and he died with a net worth of something like $15 or $10 billion.

Any, any good SBF stories?

You know, it's funny, it's like, so I was in crypto and then Sam became like this, like Rockefeller of crypto, like John D. Rockefeller of crypto. And I was like, who the hell is this guy? Like, I never even really— I never really ran across him in passing. And a lot of people that worked for him were like, you know, whatever, EA or EI, effective altruism. Yeah, EA people. So you had a lot of people around him. I just didn't know any of those folks. They weren't like hardcore crypto people. Yeah, it was kind of a weird thing when I saw him coming up. I was like, man, how did I miss this? Where'd this guy come from?

We had Robert Greene from 48 Laws of Power on the pod like 2 weeks ago or something like that. And yeah, he kind of— we have— you read 48 Laws of Power? It's like the book is what it sounds like.

I own the book. I think I breezed through it. I read all of it.

48 Laws on Acquiring Power or whatever. It's very sociopathic, but that's like kind of the point, which is like it's The Sociopathic, but it's real. And one of the laws is like to reinvent yourself. And, and also we had talked to him like we were like, when you have social media, you can like talk to your people, talk to your audience, like while you're on the toilet, like any, any hour you can tweet anything. How do you deal with that? And he was like, basically, like, you want to have, you want to have planned silence. So you like, you know, the best way to be loud and in everyone's face sometimes is to just shut up and not say a word, disappear for a while and disappear for a while. And he was talking all about like powerful people who kind of come out of nowhere. John Rockefeller is one of these guys who he was one of the richest men in the world before everyone, like no one had seen a photo of him. And it was all part of a plan, I think. And it sounds like Sam Bankman-Fried, we didn't give him enough credit because when at least when I saw him coming up, I was like, oh, he's just an artist and he's just this typical Silicon Valley type of like like, he just doesn't know, he doesn't have any manners. This is all— but it turns out it was probably all planned where he was like, I want to appear as though I slept on this beanbag. I want to appear as though I'm playing video games while I'm talking to Sequoia over a $200 million deal. And it was straight out of Robert Greene's 48 Laws of Power, uh, which is pretty funny.

I mean, I met a ton of people that work there, of course, and a ton of people that were like in the orbit. And it's kind of crazy to see the different I guess like Munger does it best, right? The Lollapalooza effect of like the whole thing. Like everybody's getting drunk off the money.

Were they straight?

Like straight? Yeah. Like almost all the people, all these employees, they didn't know anything. They weren't just normal nerds.

They're just normal workers. Just normal. They weren't part.

Well, I think they know. I mean, like, I met the lady, she was the head of payments and she was like an expert at getting like payment licenses. So basically like banking licenses around the world. And she had worked for somewhere and then she got— then CZ pulled her over to Binance and then she got poached by Sam. She was just the best. Of course, he had to pay her like she was the best. She was making millions of dollars a year. But like some of their contracts were insane. I mean, Sam was giving out 10-year contracts to people, guaranteed 10-year pay contracts, you know, like million-dollar contracts to like salary employees, a little bit like the, you know, like AI, you know, Meta thing. I mean, it's a little bit like that because he had so much money coming in from VCs. And of course, he had an unlimited, you know, well, not unlimited, but he had a big customer base to dip into. So between that, I mean, he was making unbelievable like whatever you want to call it, unconscionable contracts too.

Dude, just to put this in perspective, I think Zuck, I think the news about this stuff kind of came out, you know, let's just call it even 3, 4 months ago. Okay. So let's just say this has been going on for 3, 4 months. The, the researcher stuff, if you go look, so 4 months ago, the stock was at about 500. Let's even, let's go April 1st. So 586. Today the stock's at $784. So he's spending this money or he's making these offers, which has, you know, multiple effects, right? First, it raises the price for all of his competitors. So he's like, cool, even if they don't take my offer, now they have to pay 100x what they were paying for talent before. Like, way to screw up their business. In his own business, this, the stock since then, it's now at $784. So it's up 33%. So what's 33% of it? It's almost a $2 trillion stock.

$600 billion or $500 billion.

It's crazy. It's crazy. That is the magic of the markets.

Um, hey, Tommy, we appreciate you doing this, brother.

Oh, guys, thanks for— thanks for having me on. It's good to meet you guys in chat.

All right, that's it. And we appreciate you. That's the pod.

I feel like I can rule the world. I know I could be what I want to. I put my all in it like no days off on the road. Let's travel, never looking back. All right, let's take a quick break because as you know, we are on the HubSpot Podcast Network, but we're not the only ones. There's other podcasts on this network too. And maybe you like them. Maybe you should check them out. One of them that I want to draw your attention to is called Nudge by Phil Agnew. And whether you're a marketer or a salesperson and you're looking for the small changes you can make, the new habits you could do, the small decisions you could make that will make a big difference, that's what that podcast is all about. Check it out. It's called Nudge and you can get it wherever you get your podcasts.