THE MILLIONAIRE DENTIST PODCAST

EPISODE 58 TRANSCRIPTION

Announcer:
Hello, everyone. Welcome to the Millionaire Dentist podcast brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry, finances, and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.

Casey Hiers:
Hello and welcome. This is Casey Hiers back at it again for the Millionaire Dentist podcast. I have our cohost, Jarrod Bridgeman in studio and a special guest, Will Taylor. Will, thanks for joining us.

Will Taylor:
Hey, thanks for having me again.

Casey Hiers:
I try to avoid the news, but I keep seeing Reddit, short squeeze, short sale, GameStop, AMC. We're a financial firm. I thought, why not have one of our analysts come in and talk to us a little bit so our listeners can maybe understand what in the world has been going on in the last four or five days? Can you shed any light on that, Will?

Will Taylor:
Yeah, absolutely, but I'm going to start off by saying very strongly, this podcast is not meant to be a form of investment advice. This is simply an educational process on what has been going on and basically repeating the news in layman's terms.

Casey Hiers:
The first term, I think our audience, and really, I want to know, what is a short sale? And then let's evolve that to the short squeeze that's happening that everybody's talking about. Will, what's a short sale?

Will Taylor:
Sure. Short sale is pretty simply when you were betting on a security to decrease in price. For example, if you Google the definition of a short sale or you want to basically understand how the ins and outs of it work, say I'm working with Fidelity and I want to short sell or I believe that X, Y, Z stock is going to decrease. If I go short sell X, Y, Z security at $10 a share today, if that's what it's listed at, then basically I'm borrowing shares from the investment firm at a price of $10. If the price decreases to say $7 and I go back to the firm that I borrowed the funds from and say, "Hey, I want my $10 per share," now it's at seven, I gained $3 for every share that I purchased.

Will Taylor:
However, the downside of a short sale is there is an unlimited loss potential. If I'm buying one share of X, Y, Z stock at $10 a share, the worst thing that can happen to me is I lose $10. That stock goes to zero and I lose my $10. If I'm short selling it at $10, it could go to a thousand dollars and then I'm out anything over $10, you're out $990.

Casey Hiers:
I'm out $990 on a $10 stock.

Will Taylor:
And you're obligated to cover that. And I am obligated to cover anything that it went above that $10 short sale purchase that I made for it.

Casey Hiers:
Will, that may have been one of the cleanest and most understandable definitions I've heard, so thank you.

Will Taylor:
I'm glad to hear that.

Casey Hiers:
Okay. We've got short sale. Now, short squeeze. This is what everybody's talking about, right? This is what happened. The hedge funds get into GameStop at five bucks thinking it's going to go down to $2 and they make their three and they're happy, and then it goes up to 400?

Will Taylor:
Yeah. You got it. Basically what has happened is a bunch of private hedge funds, in this particular case, these Reddit users went out.

Jarrod Bridgeman:
Reddit, for those of you that don't know, is a social media platform anybody has access to.

Will Taylor:
Similar to a Twitter or Facebook, or basically anyone can talk about whatever they want to.

Casey Hiers:
A forum for the common man.

Will Taylor:
That's correct.

Casey Hiers:
Or woman.

Will Taylor:
There you go. In this particular case of what is called a short squeeze, what happened is a bunch of financially knowledgeable Reddit users started doing their research to find huge holdings of short stock positions for major hedge funds in the United States. At one particular hedge fund, they found millions of shares that were short sold at ... I can't remember the exact number, but just to make it easy, let's say it was $5 a share, anticipating it to decrease in value to maybe $2 a share.

Will Taylor:
These Reddit users decided to use their social media platform and their millions of followers to execute what is called a short squeeze, which means they go encourage their followers and anyone else that will listen to go buy GameStop over and over again to drive the price of it up. What that does in that case is it forces the hand of the private hedge funds to either withstand this increase in cost, which every dollar that's going up, they are losing because they're betting on it to go down, so they can either try to ride the storm or to save themselves from that infinite loss potential that we just talked about, they have to go get out and then make up anything that was over that say $5 a share that they started at.

Will Taylor:
In this particular case, that was a very substantial number. And then what also happens is when they go have to buy back their shares, that continues to drive that price up. They're basically playing into the hands of these Reddit users, thus the short squeeze.

Casey Hiers:
Normally, hedge funds have a limited cap and unlimited gain or growth potential. That's what they're used to.

Will Taylor:
Correct.

Casey Hiers:
This got flipped on its head.

Will Taylor:
That's right.

Casey Hiers:
And the common person united, bought some stock, drove it up and then you said they've got a couple options. I guess the third option is, "Let's make sure the common person can't buy any more of this." I mean, the plot thickens, right? When different apps don't let you buy it, that's what got a lot of attention at the end of last week.

Jarrod Bridgeman:
As a personal investor, I've been using an app and I noticed that I got an email and I got a notification on my phone saying, "Hey, we're no longer allowing trading on" ... Was it AMC and it was GameStop, and then the next day they came out and were like, "Well, now you can do a few."

Casey Hiers:
And that's odd, right? That's what caught a lot of people's attention and this story caught fire.

Will Taylor:
That's exactly right. Well, first and foremost, it caught fire because GameStop was the first domino to fall and it was a stock that had for years been declining in single digits, which is why these hedge funds owned so many shares of it on the short side. And they'd probably performed very, very well for a period of time having it go south. But the issue came, and to be honest with you, I'm shocked that it took as long as it has until now for social media to utilize their power for something like this.

Will Taylor:
But yeah, so the price was in reality artificially inflated drastically over a short period of time for other people's profit, which I don't work in a private hedge fund and I'm not trying to play one side or the other, but that is essentially what the hedge funds do on their end of things with their massive buying power but they do it as a private equity company, not on social media and not encouraging the world to do the same thing. In a sense, the hedge fund companies got beat at their own game and the SEC and the regulatory bodies and these individual apps that are holding regular investors didn't know what to do, so they panicked and thus you see the backlash that you're seeing on the news every day.

Jarrod Bridgeman:
Let me ask you real quick. These Reddit guys, somehow they found out which companies held all the GameStop shares. Is that public knowledge? Can anybody kind of find that out or did they have some other inside knowledge?

Will Taylor:
No. In theory, large holding positions, some hedge funds, some regular mutual funds, whatever that may be, you can go on and there's typically a ticker associated with it, just like there would be for-

Casey Hiers:
So if you know what to look for, it's common knowledge.

Will Taylor:
Correct. If you know what to look for and where to look for it, then it is common knowledge. Now, common is a very loose term here. The people that created this on Reddit are financially knowledgeable people, but yes, in theory, anyone could do this but like I mentioned earlier, it's frankly shocking in the world of social media nowadays that it took as long as it did for something like this to happen.

Casey Hiers:
Well, I find it entertaining. It is kind of a David and Goliath thing to your point. We're not praising or criticizing the common man who invests or the hedge fund, but I find it interesting that virtually the same thing that hedge funds do was done to them and now they're upset about it, understandably so when you're losing billions of dollars.

Casey Hiers:
The best analogy I heard on one of the financial shows or channels was it's as if in football, you go for it on fourth down, you don't get it and then New York calls into the umpires and the referees and says, "You get two more downs to try to go ahead and get this touchdown. You didn't get it on fourth down, but that's okay. We're going to change the rules." A lot of these Reddit folks feel like the rules were changed simply because they actually did to the hedge funds what hedge funds like to do to small companies. Is that-

Will Taylor:
Yeah, to an extent that's pretty much accurate. The only thing that I would really add to that is where the fine line is drawn here is that these hedge funds or mutual funds or quote unquote "companies" are regulated and these individuals on social media, because they are not a company, do not fall into in theory SEC or whatever regulation, so they can say and do whatever they want. Now, the SEC has already come out and said they will be looking into this of course, because-

Casey Hiers:
Shocker.

Will Taylor:
Yeah, weird.

Jarrod Bridgeman:
And we've got politicians on both sides of the spectrum.

Will Taylor:
Yeah. And the first thing that both sides of politics have agreed upon and the past hundred years is the fact that what's happening isn't right. What your political view is, what your investment view is, is really irrelevant here. It's just a matter of an unprecedented strategy working and the rest of the world trying to figure out where to go.

Casey Hiers:
I'll tell you what, if somebody ever thought that the game is rigged, this doesn't help them not feel like that.

Jarrod Bridgeman:
It's kind of disheartening, especially if you're one of the million users that finally during quarantine was like, "You know what? I'm going to play with the stock market. I'm going to buy a couple of shares of Apple, Facebook," whatever the case may be and then you see this and it might be a little disheartening for some.

Casey Hiers:
For this podcast, here's what I want to talk about. Here's what I want to put a bow on it for us, for our listener, the practice owner. You don't need to be in a big hedge fund. You don't need to be on Reddit trying to figure out the next short squeeze situation. If you're a practice owner, you can save $100,000 a year for retirement. You can apply the wealth preservation principles to your investing so that you don't really have to get caught on either side of this. Will, is there any validity to that?

Will Taylor:
100%. And in regards to these particular instances that are occurring, and to be honest with you probably will continue to occur until there is some sort of a regulation that comes out that makes it to where they can't, which I would anticipate is probably going to happen, but the issue here is the average investor needs to understand that these type of scenarios are not sustainable. Again, we are not giving investment advice here, but GameStop stock is not going to increase forever. This is a strategy that is used to inflate a price for a non-infinite period of time and then it is eventually going to go back down when people start to sell to capture all of this money that they gained using this particular strategy.

Will Taylor:
If you're a dentist that is 35 years old and looking to retire at 55 or 60, this is not a strategy for the long-term to make or break your retirement, so please don't think that when you're seeing people making all this money in these short periods of time online that you are missing the boat on some magical retirement strategy.

Jarrod Bridgeman:
This would be more similar to going and walking into the gas station, buying a whole stack of scratch off tickets and hoping that you kind of hit it big, right? But these it's either a complete waste or hey, maybe I won 50 bucks.

Casey Hiers:
It's not a sound retirement strategy. I think that's-

Jarrod Bridgeman:
Correct.

Casey Hiers:
I think that's what we're trying to get at, right? Again, we're not offering financial advice on our podcast. We do for our clients, of course, but as a practice owner, get your tax management situation, right, get your overhead down, capture it from your practice, save 80 to $100,000 a year, utilize a wealth preservation investment strategy and the turtle wins the race.

Will Taylor:
Yeah, that's exactly right. Savings over the long-term has proven and will continue to prove a successful route to get you to retirement. Attempting to time the market and find loopholes in the system have proven to be an unsuccessful way to plan for retirement. Nobody can time the market. These people are trying and for a short period of time, has it worked? Absolutely. But in the long-term, there's a reason that buy and hold or invest over the long-term is a proven strategy that has worked for forever and that attempting to time the market is a proven strategy that has not worked forever.

Casey Hiers:
Well, guys, I think that's probably a good stopping point. Will, I appreciate you shedding some light on some of these terms that we hear in movies or on a headline. Appreciate you giving us some depth, nice Cliff Notes version, and be well.

Will Taylor:
Hey, of course. I appreciate you having me.

Jarrod Bridgeman:
Thank you.

Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.