How to Bet Against a Fraud w/ Freddy Brick

Freddy

That wasn't me. you know, I was was interested in like having a nice lifestyle, but I and I was kind of like broadly interested in like the stock market and the perspective of like companies and what made them go up and down. But yes, certainly didn't have like any fancies of being like Ken Molas or like Steve Schwartzman or something. And so

I kind of did like a whole bunch of different work experience in different places and ended up one summer working an asset manager before I went to university. And I was like, oh, this is like pretty cool. know, these, you know, these guys like reading newspaper all day and like they're kind of interested in like the way things are working and politics and you know, like kind of confluence of things that I was actually interested in.

And like, yeah, they also like drove nice cars. And so I was like, okay, this kind of seems like it could be a good place to spend time. And, you know, I think so that that kind of like got me sort of somewhat more interested formally in finance as potential career. And then I think, you know, really what ended up pushing me in a short selling, ironically, was like the financial crisis. So, you know, at the same time as I was

starting at university and really learning like finance theory and the kind of very basic building blocks and accounting, the financial crisis was unraveling. And so I saw this confluence of like, hey, there's this kind of like small group of like outsider type guys who made, you know, what I refer to you as like, fuck you money betting against like the financial system, which was then kind of glorified in Michael Lewis's book, The Big Shore.

and a whole bunch of other like excellent books on the topic. And at the same time is, know, so I was kind of seeing that I'm like, wow, these guys structured this like truly asymmetric interesting trade. And, know, it was like highly lucrative as well. And so I thought like that was kind of interesting. And so that's, that's one thing that I think probably, you know, even till this day is like frame the way that I look at risk and think about.

trade structuring and downside. And then the first job I got was at a fund in Hong Kong and they were very active in shorting like a wave of Chinese frauds and kind of like, you know, the pioneering like cutting edge of like what I now do, which is activist short selling. And so again, I had this like second data point of like, you know,

taking concentrated risk positions, really getting in, doing the work and seeing that like pay off really well. And so like, think those two kind of reinforcing points were like, wow, this is like an excellent way to spend your time and career. Who knows? Had I been born like three years later and my first taste of financial markets would have been 2011. Like I probably would have been like an idiot venture capitalist, much workier with like the FBI never turning up at my door, but.

I joke there are some smart venture capitalists, I gotta tell you, there's a lot of people that are in venture capital that really don't seem to understand anything about business. But as I've learned over the years from some pretty sharp venture capitalists, like you're not necessarily betting on like the person who has the best business model. You might be betting on the person who's able to raise the most capital to kind of backfill, reduce the cost of capital. And then like, we'll find out in 15 years time if they had a good business model.

Jeff Albaum

You

you

Freddy

Yeah, lot of those people have less stressful days than me, think. I think about that long and hard, so, yeah.

Jeff Albaum

Dude, that's insane. So how did you go? So you were at the fund in Hong Kong and then how did you get to the States and yeah, all that story.

Freddy

Go.

Yeah, so I knew a couple of guys at Muddy Waters. I was doing a little bit of like fraud based short selling in Asia. And so ultimately, when I left that fund, one of the guys used to work here had reached out. And at the time Muddy Waters were based in San Francisco. And so I flew out. mean, you're coming from Hong Kong, which was a phenomenal place to live back in like 2011, 2012 was

China was booming, Europe was still really depressed, the US was sluggishly coming out of borderline economic depression, if not a real recession, and so Asia was just fucking booming. So was a really cool place to be, but there was a lot of pollution, the climate's pretty hot and humid, and you go to San Francisco, it's blue skies, it's like...

loads of nice women everywhere and you're like, oh, it's awesome. There wasn't like too much of a stretch to get me to go to SF and yeah, had like, you know, despite like how poorly that city has run, which probably anyone who's sitting in Austin, he used to live and work there knows it was a nice place to live. It definitely wasn't as dystopian and like, you know, it wasn't as bad as.

Jeff Albaum

Yeah.

Freddy

it got to in the pandemic in like 2014. It was actually a pretty nice place to live. So yeah, that's how I ended up there. And then we moved the business to Austin in the middle of the pandemic. And yeah, we've really enjoyed being in Austin too, actually. It's been a great place to live.

Jeff Albaum

And you've mentioned a couple of times fraud-based short selling. Can you break down, you know, for me, who's super naive on the entire subject, how do I think about short selling in general? And then is fraud-based a specific subset of short selling?

Freddy

Yeah, so most short selling breaks down into a couple of categories and we'll just pop fraud for a second. Most short selling easy either to hedge long exposure. So it could be, hey, I run a fund for every dollar invested. I have a mandate that only 50 cents can be long the market. So I might buy.

$10 of 10 different companies and then I'll short $50 of the S &P. So that just gets me to like a target exposure that investors want. Yeah, so owning a stock. So if you own a stock, you're long the stock. If you're betting against it, you're short the stock. So again, investor gives me $100. I tell them, look, for every $100, I'll be directionally, you know, buying the market for 50 cents.

Jeff Albaum

And when you say long, that means like.

Freddy

And the way I reduce the exposure is I short. And so a lot of short selling is index based or it's what they call relative value. So you might be long the bond, short the equity in some ratio because you're expressing a differencing in pricing between two instruments or to be a little bit more esoteric and complex, you might be long one part of the.

a bond and short, you know, different maturity because you think something happens within a certain timeframe. But at a very high level, a lot of short selling like is really just for positioning and to manage people's exposure. Then within that, you have kind of one of a deeper, which is like fundamental short selling, which is basically I am betting against a company. Most of it is kind of melting ice cubes.

where you say, okay, mall operators, those businesses suck, all right? You've got this real estate, 25 minutes outside Austin, no one wants to go to this thing anymore. Like if I wanna go to, you know, I've got Amazon or I can buy everything from every store I want online, it comes straight to my house. So no one wants to go to malls anymore. And this is a B grade mall. This isn't even like an A grade mall where it's a nice day to like hang out with the family, get out of the house. like,

I think this business has problems. So what you do is you get stock, you go to a bank and a bank will lend you stock and the price that they will lend you the stock at is based on supply and demand. So if it's a stock that's in really high demand, the fee I will pay to borrow the stock is higher. And if it's a stock that no one else wants to short or there's lots of supply, even if other people want to short, the fee I will pay is lower. And then I go into the market and I short the stock at say 10.

Well, if I'm right and it turns out at 10 bucks, I sell it out, okay? So I sell the stock at 10, I get 10 bucks, I stick that in my bank account. Company has earnings in two months time. If the company's numbers are worse than people think, so people think, okay, they're gonna have 20 tenants and the tenants are each gonna do a certain amount of sales per square foot.

Jeff Albaum

At 10, 10 is the price you. OK. OK.

Freddy

And it turns out that like actually six tenants paid to get out the leases because the foot traffic in the mall is so much worse than people expected. And maybe we had a really hot summer and the guys that were left in the mall were only selling overcoats. And so like, you know, their numbers were really bad. So they can afford to pay less and less rent. The stock will decline. So maybe the stock declines to eight. So what happens is you go back into the market and you buy the stock at eight.

And so you sold the stock at 10, you pocket 10 bucks, you go back into the market, you buy the stock at eight, so your cash flow out is eight, you keep the difference between the two. And so I don't know the exact number, probably 80, 90 % of people who are looking to short companies are looking to short things like that. Boring businesses.

Jeff Albaum

Got it.

Freddy

fads, things that are like over earning like Peloton rights. So Peloton got to like a 30 billion market cap. It wasn't a fraud. They weren't doing anything wrong. It was just once everyone sat inside and bought a Peloton, which was really just an iPad attached to a bike. you know, people extrapolate, oh my God, they're going to buy like more and more. And then it's going to, know, everyone in Africa is going to have a Peloton. Everyone in Asia is going to have a Peloton and they're to be able to sell them like a yoga subscription and no one's ever going to cancel.

Well, tell you what, turns out that if you go outside after the pandemic, no one wants to use the Peloton and mine like everyone else's, it's just something I hang clothes on. So that's kind of a classic example of where people get overhyped, they get excited, the management team aren't doing anything wrong. Like maybe on the margins, they're doing like little bits and pieces to make the business look better. But generally speaking, it's just a product cycle. It's a fad. And so a lot of short selling is really trying to be forward looking.

and take a view on the next quarter, the next year, the product lineup, whether they're be successful. Fraud and accounting short selling is really a bit of a subsect of that. I would say accounting based short selling is probably a larger subsect. Fraud based short selling is really like a very, very small niche-y subsect. And then within that, what we do where we're activists about it, where we publicize our views is even smaller.

So you would think that shorting frauds is great. You would think that's like the best return because like it's a fraud, right? Like the stock should be worth zero or very close to zero. If you had unlimited time and an unlimited risk budget, yeah, I mean, in theory, like shorting frauds is pretty good. The problem is you can short a fraud down here at 10 bucks.

the stock can go to a hundred because no one else knows it's fraud and the management team are very charismatic and it looks like things are going really, really well. And then it can go all way up from a hundred all the way back down to zero. And the problem is if you had a 1 % position at 10 bucks and it went all the way up to a hundred, it's now a nine, 10 % position and you might be out of business by then. So the issue is risk managing frauds is extremely difficult.

relative to kind of the way most people do the kind of melting ice cube short selling. And so our approach is when we find companies that are fraud and fraud is like an amount of what we do. A lot of what we end up doing is kind of what I would call legal fraud. And I can get into that in a bit more detail, but like outright frauds, you know, there isn't the factory, the product like, you know, actually kills people, off balance sheet debt that they haven't explained, things like that.

Jeff Albaum

Hmm

Freddy

That kind of fraud is, you know, if you don't go out there and expose it, it can go on for a very, very long time. Probably one of the best known cases is a company called Wirecard. People started shorting that in probably 2007, 2008. It got up to like a 20, 30 billion euro market cap. know, the German chancellor was defending it. Deutsche Bank nearly bought the business.

SoftBank invested and ultimately it was a total zero. None of the cash was ever there. There's an excellent FT series on the former, I think it was the CEO, think it was the COO Jan Marsilek, who it turns out was a Russian GRU intelligence officer. Like crazy, crazy story. They had like Syrian intelligence follow people around in London, like.

I have a friend whose house was broken into and his laptop was stolen. Like our computers were hacked. Crazy shit. The, FT did a podcast. If Google FT, I want to say it was like agent of chaos is maybe the podcast written by, I can't remember the name of the journalist, but really, really good on a guy called Yan Marseilleck. Like that is like how insane fraud based short selling gets.

Jeff Albaum

Dude, okay, what does your day look like? Like what do you do? Because you were just like, where do you start? My mind is like, I can't even think of what I would do if you say, hey, Jeff, go figure out how to find, how to investigate a fraud to think if you want to short it or not. what's that process like?

Freddy

So yeah, my day starts early, just because I have a nearly two year old who likes to wake up at 5.30. They call it like a sleep regression, but like it's torturous. I know people who probably got like six kids being like, ah, suck it up. no, so like for us, we don't do tons of screening. A lot of what we're looking for are

Jeff Albaum

Yeah.

Freddy

bad people, low quality auditors, funky kind of business descriptions. So we don't do tons of like account, just pure accounting based screening. Yeah, my kind of typical day is I get into the office around quarter to eight, review the P &L, have three or so, we have two funds that really do short selling.

So look at the P &L, just check where things are relative to hedges and like where the total exposure of the book is. Make any decisions around things you're going to put on or trim or those kinds of things. So we kind of look at that, opens and then, you know, for the most part, it's actually like pretty quiet. Like we're not sitting around screaming buy sell. Like on one monitor, I've got like some stuff we're looking at. Let me know if the Wi-Fi is cracking because it...

I definitely blurt for a bit. And then from there, like we've usually got two, three projects at any time that are kind of in the middle of the funnel. So sometimes we have funds that will come to us and they'll say, hey, I look, you know, it could be anywhere as detailed as like, hey, I just like 10 page deck. I'm already short the stock. I'd love you guys to take a look at this and see if it's something you want to publicize.

Jeff Albaum

No, you're good. You're good on my end.

OK.

But in that case, they're incentivized because you said they already had a short position. So if you publicize it, that's good for them, right?

Freddy

Yeah, their hope is that we go out, we have quite a well-known brand and we talk about this and like that catalyzes the move. But it could be something as innocuous as, hey, Freddie, I was at this conference, I asked the CFO question, he just like didn't really answer it, I followed up with him twice, it should be a very bog standard question for him to answer, I can't really understand why like he was so evasive or like his answer totally doesn't make sense or.

Jeff Albaum

Got it. Got it. Got it.

Freddy

maybe I'm looking at a cool transcript for a company that seems to be doing much better than everyone else in a highly commoditized industry. And you sort of notice like, hey, the analysts keep asking the same question and they always obfuscate the answer and they're always changing the narrative. Like one time they're talking about, it's all about revenue growth. Then it's all about EBITDA growth. Then it's about free cashflow. And then like, you know, they keep jumping around and nothing ever stays the same. And so...

You know, for us, that's kind of what we're often looking for, just like things that are a little bit outlier. The other thing we end up finding is we often end up being a little bit thematic because if you have something like genuinely good, so let's take, for example, Tesla, okay, like controversial stock, but like he's been successful. How he's got there, like we can argue about, like,

Yeah, it's a 1.6, 1.8 trillion cap, whatever. So you have like the first mover Tesla, and then you have companies two, three and four that IPO that are kind of EVs. So maybe it's Rivian and maybe it's someone that GM have a partnership with. They're kind of real, right? They're probably like real people with real venture backers. Whether they're going to be successful or not, I don't know. But then you have the grifters, okay? Then you have the people like, hey, they just have like

$28 billion of capital raised in IPOs. Wow, like we've kind of got something that looks like that. I mean, it's shitty, it's a hybrid, it's not an EV, doesn't really work, but you know what? Investors are excited that looking for the next winner in that space, if we kind of take this, we just pretty things up around the margins and we take it public, it could work. And like, you know, we might be able to get a $5 billion market cap and sell a bunch of stocks. So,

We often find ourselves, know, people five through 25 that are IPO-ing in an industry, that's usually an area for us where like, okay, that could be interesting. Like there's a lot of capital, a lot of people are rushing through the door there. Like that might be an area where like there's the kind of people we like to follow because the chances are that those people are really just like attracted to the capital.

And the people who have maybe gone and raised like, like, well, I was really successful tester investor. I'm going to go and raise a dedicated fund to invest in EV companies. Well, if there's only five good ones and you've raised a billion dollars, you might say, I'll put some money in the rest of these things, like whatever. And so that that's often kind of what you see happening where there's this kind of symbiotic relationship between the people who raise capital, the people who want to put product to work.

Jeff Albaum

Hmm.

Freddy

And that's not necessarily great alignment for investors medium to long term.

Jeff Albaum

And maybe this is a silly question, when you're shorting like in your day to day when you're shorting a stock, does it have to be publicly traded or can you short a private company?

Freddy

Yeah. You can't really show private companies. People have tried it over the years. Like there's private companies that issue debt or loans. Like sometimes people have done that. But generally speaking, it's been a very, like people have looked at it, but the problem is you have information asymmetry on the guys on the long side in the private company know more about the company, generally speaking.

So you have information asymmetry, then what's the mechanism of accountability on posting margin? So it's kind of tricky both ways.

Jeff Albaum

Mm-hmm.

Sure. And so again, maybe this is question, like when you're looking at, like you said, companies five through 25 who are pre IPO. I know you said you don't do a ton of like accounting auditing, but like surely you're looking at some numbers. Like what are you looking at to see their numbers?

Freddy

Yeah, you are. So, you know, an example of that, there was a company called Excel Fleet Corp. It won public vice back in 2020, 2021. can't remember off the top of my head. It was an E.

Jeff Albaum

And there's, sorry, just to pause for a second. So there's SPAC, there's IPO, and just can you explain the difference between the two?

Freddy

Yeah, so SPAC is a company where you have a sponsor. So you have like a deal person, like typically an ex banker or something. And they say, look, I've raised 200 million bucks and I'm going to go and buy a private company and you're going to pay me for the privilege of doing that. And you're paying for my like deal underwriting and quality due diligence and my deal flow. It's honestly like the most one way sided bet in like

history of finance. It's fucking insane.

Yeah. So, generally speaking, the reason the pitch to companies is like, look, it's faster, right? You don't have to go through this like long process. We're not going to under price your stock, a bank will under price your stock so that clients can make money on the IPO part. Like we don't have an incentive to do that. That's total bullshit. There's lots of diverse incentives from SPACs. And the idea is, yeah, it's just a faster route to access.

Jeff Albaum

And yeah, I don't understand why do people do that as opposed to, and I honestly don't, I couldn't tell you what like IPO, Initial Public Offering, but I don't know what that is.

Freddy

the public markets with honestly less scrutiny. Look, an IPO is like a longer process. And then you have this kind of like, do I, don't I get to IPO? Like if the market cracks while you're trying to market your IPO, that can be tough as well.

Yeah.

Jeff Albaum

But this is what I'm confused about because you said like the it went public via SPAC. So in my mind, I understand that to mean once it goes public, it's public. It can be listed on any exchange. So what's the down like if you do want doesn't it make sense to get to the market faster like to go public faster?

Freddy

Yep.

It does, it's but you dilute because you pay the promoter effectively like through equity dilution. it's also historically and like rightfully so been seen as a like less classy way to go public. Generally speaking, like if you have a great company, why can't you just go to a bank, get investors excited and take the thing public? Why do you need like

Jeff Albaum

Got it.

Freddy

the stamp of some SPAC sponsor to be like, oh, I diligence this, this is great. And for the privilege, you end up with 10, 20 % of the company, like as your kind of upside equity. So there's a lot of downsides to SPACs. They're great enrichment vehicles for the people who run them, genuinely.

Jeff Albaum

Got it. Got it. Got it. Okay. Okay.

Okay, all right, so going back to XL Fleet Court. when publicly it's back.

Freddy

that I was a company, for example, that you know, they had these like, we looked at what they actually had. And it was like this crappy hybrid truck thing. And they had this pipeline of sales. were like, oh, know, we did like maybe 12 million sales in 2020. They were like, oh, 24 million sales. And they're saying like, yeah, by 2025, we're gonna do like, 3 billion of sales. Like, I can't remember the exact numbers, but it was some like insane ramp.

And we've got this, they had a slide deck with their sales projections. And we spoke to a former and we were like, who's buying this crap? Like, I mean, these things are literally like the technology was likely no better than like your Prius. Like genuinely that was like the level of technology. was like the brake restorative. It takes energy from the brakes. So if you're like UPS and you're stopping every three seconds, in theory, you could make some energy savings.

And so we spoke to him and I was like, well, how, know, so I spoke to a former sales guy and he was like, well, yeah, the backlog, like it was more art than science. I'm like, what do you mean? He's like, so I speak to Coca-Cola and I'd be like, hey, how big's your global fleet? And they'd be like, you know, 9,000 vehicles. He's like, okay, well, like, I don't know, would you trial this? And they're like, yeah. And he's like, cool. mean, what, you know, if you think about it, like what percent of your fleet could like maybe eventually...

use these vehicles and this was at the time where everyone was like green washing. like, you know, was like, ah, we gotta like, you know, shovel these partnerships with these green companies and hybrid. So he's like, yeah, I mean, yeah, like, is it fair to say that maybe 5 % of your fleet could be using our vehicles in five years time? Yeah, sure. Okay, cool. Five times, you know, 30, okay, cool. Put that down as like, you know, $150 million like pipeline order. That's basically like what they were doing. And so again, it's not, you know, it's not a

It's not a tight metric that like, that's not a metric the SEC, like there's no defined thing for pipeline, right? So it's this like squishy area of like, these guys actually ended up paying like I think a decent size fine. Cause like probably they found some emails being like, yeah, Hey man, like juice those numbers up. So like, clearly I think there was some like very thoughtful wrongdoing there, but that's not a metric. Like there's no such thing as like pipeline or like order backlog. These are not like,

established accounting metrics. So if you're just making aggressive projections and I you're stupid enough to like literally email your boss being like, hey man, I'm totally making these projections up, but like we can juice these for the decks of investors by the stock, which very few people are stupid enough to actually do that. You know, it becomes this like subjective, hey, like, I don't know, we spoke to Coca-Cola and just turns out they weren't as enthusiastic after the fact, like, oopsie.

Jeff Albaum

you

Freddy

We sold loads of stock, investors got absolutely fucking hosed. well, rinse and repeat. So that's kind of the stuff that we find is pretty prevalent in some of these companies.

Jeff Albaum

you

Freddy

Yeah.

Jeff Albaum

Dude, that's wild. Do you think that you've always had this BS detector, or has that been honed over your career? Because I feel like at the end of the day, you're looking for things that are not real. Right? Is that fair?

Freddy

Yeah, it's a question. I think like, look, you, you know, to a certain extent, like, you have to have a natural degree of skepticism to do this. You know, you can't see fraud everywhere. And then there's a balance between like, okay, these guys are just like marginally pushing the envelope. And this appears to be like really profoundly problematic. So it's

You know, it's, like a fine line that you got to calibrate and work out, like what will people care about? What's kind of just generally understood to be like traders path. mean, look, Elon was like the master of this, right? Like he, you know, he did things that I think were well over the line and he just pushed the line further and further and got investors to not care. And it reduced his cost of capital. And some people think he was playing this very long game.

Some people think he was just doing whatever he had to do to get to the next stage and know, sort of kind of lacks regulator and said like, hey, the chance of getting caught or the fine I'm gonna pay is relevant. So yeah, it's.

so I think, you know, if you look at like the board minutes when he took, so that was a solar city, the, the kind of rooftop solar thing he had, I mean, he's done like fake demos with stuff from time to time, whether it's like the robo taxis or the solar roofs or any of these things. And he's like outright fake demos and people just like, whatever he was kind of demoing. didn't really matter. And so he's, he's kind of created enough room for himself that people sort of expect it.

Jeff Albaum

What's an example of that? What do you mean?

Freddy

in a way that more buttoned up companies wouldn't get the latch you to do it.

Jeff Albaum

Right, all right.

Dude, it's so funny, as you were saying, like the robot taxi thing, in my head, I was thinking, oh, well, everyone kind of knew it was fake, but like, it's okay, because they knew it would be real at some point. And I was like, oh, yeah, like, that's not a thing for other people.

Freddy

Right. Yeah.

Right. To be like, mean, that's, you know, if I do that, that's like fraud, but yeah.

Jeff Albaum

Right, right, right. That's super interesting. That's super interesting. Can you share, it's totally fine if you can't, the biggest bet you've ever made and how it worked out?

Freddy

Yeah, it's funny, like the names we've put the most amount of money to work into haven't actually always ended up being like the best P &L scores. The ones that have like ended up from like just a remuneration perspective being the best have sometimes been like the smaller ones that move a lot more. I know probably like the biggest swing we ever took at something was a Japanese company called Nidec. Very liquid Japanese company they make.

Jeff Albaum

Mm-hmm.

Freddy

hard disk drive motors and then they they had like another part of the business where they do other kind of electric motors What's crazy about that is like no one cared at the time we published a report explain why Nagamori that CEO was like totally full of shit how like You know, there was this narrative like he was brilliant at &A He was going around doing like acquisitions every couple of months and we went and we looked at all these acquisitions and people like nah, he never came here

Like they never improved anything. The operating margins never improved. And 10 years later, literally just the other month, about a year and a half ago, they started admitting they had some major accounting problems all driven by this highly aggressive culture of his. Literally like 10 years later, people cared. Like we were like 10 years too early. And it's literally everything we said like.

channel stuffing, very aggressive, like inventory accounting, revenue pull forward on stuff, subsidiaries that had to meet like certain thresholds that they couldn't. And so yeah, sometimes you're right and the market just does not care. And a lot of that is to do with how, know, CEOs are like generally very charismatic and oftentimes it's about narratives. And if you can't break the narrative and get people to really like focus on the numbers or what's going on,

there's a pretty good chance these guys get away with it.

Jeff Albaum

Mm-hmm.

Sure. So is the process for your firm like you will, do you have your, you're investing money as well, but you're also publishing this research, right? So it's okay.

Freddy

Yep. Yes, the model for us is we take positions out of the research, like it's all fully disclosed. It's not a big secret. We take positions out of the research, and then we publish the research. And the idea is like, you you catalyze the stock to reprice. And that's how effectively you make the money to pay for the ability to go and do the research. So like in many senses, I mean, it kind of straddles between like investigative journalism and

Jeff Albaum

Sure.

Freddy

like a more traditional hedge fund model.

Jeff Albaum

Sure, This is gonna be a broad question, how do you think about, for you personally, how do you think about learning? Because you were just describing things and I was just thinking, man, you must be seeing so many different kinds of companies doing so many different kinds of things and I'm sure you have this general accounting framework, how do you think about all this stuff?

Freddy

Yeah, so I think one of the biggest sort of mistakes that people make in investing or especially in like short activism is like, there's a lot of known unknowns and then there's unknown unknowns. So.

you know, you when we look at new industries or even industries that we know reasonably well, like we bring in specialists, we speak to former employees, we speak to experts in like even within like accounting, like, so minutiae, or accounting standards of change, we bring people in to help us understand these things better.

Jeff Albaum

Mm-hmm.

Freddy

So a lot of it is like learning through people. Look, you can get like awesome papers on stuff. I certainly wouldn't rely on like research from investment banks that stuff is complete fucking garbage. But there are like often good industry pieces and kind of teach ins where they have slightly less of an incentive to just try and like force a stock idea down your throat. But those pieces be better.

Yeah, I mean, think industry conferences are an awesome way to learn. You ideally want to get out of a place where someone's trying to sell you something if you're trying to learn about it, because ultimately you want to get into an environment where people can tell you and they don't have a particular bias to telling you one thing or the other. So yeah, we find industry conferences can be a super useful place to really learn about things.

Jeff Albaum

Mm-hmm.

Sure.

Sure.

Freddy

And then yeah, mean, Twitter's got some like really interesting stock ideas and people who are like subject matter experts and things. So yeah, like we try and suck in a pretty broad, yeah, pretty broad like base of places we're pulling in from.

Jeff Albaum

Okay. And do you, what percentage of your time is spent learning new things versus analyzing like existing, like underwriting, so to speak?

Freddy

Yeah, last time learning new things that I like, I'm definitely spending a lot more time thinking about how we can incorporate AI into the business recently. I mean, up until...

last year, I just thought it was a bubble and a complete waste of time and garbage. And I've like completely changed my view on that. Just having used some of these products now over the last four or five months. I really do think this is like transformative workflows, like quite how I'm entirely sure yet, but like I can certainly see like lots of use cases. So I think the moment that's where I've really been focusing my time on learning and just trying to suck in as much as possible.

Jeff Albaum

Yeah.

Freddy

It doesn't help that obviously things are changing pretty fast there. So, but I think like the core building blocks, like trying to get up to speed on that is probably time well spent.

Yeah, so mostly using the Anthropic products, using Claude a lot. Yeah, I've used Gemini a bit. think that's pretty good too. I sometimes it's nice being able to like switch between the two just to try and like, you know, it has a bias to telling you what you want or it has a bias to kind of sounding helpful. so...

Jeff Albaum

So what are those four to five products that you've been using or things that you're looking at with AI?

Freddy

being able to take what you want and put it into something else or say, hey, I'm taking this out of a conversation now, putting this into another conversation, find all the faults with this, or look at this from the perspective as a risk manager, or look at this from the perspective of a journalist or something and trying to engage with it like that. The Excel plugin for Claude is awesome. I'm actually just trying to get co-work as well installed.

Jeff Albaum

Mm-hmm.

Freddy

Yeah, just taking like an open view that like, a bunch of this stuff's really cool. I want to kind of fiddle around with as many different things before we like sit down internally and really kind of work out what we're going to try and build on. So yeah.

Jeff Albaum

Totally. And I mean, you kind of just mentioned it, but it sounds like AI is something you've changed your mind about pretty recently. Is there anything else you've changed your mind about recently that you can think of?

Freddy

Still not in a cold plunging. I'm not sure there's like any science behind that stuff.

Jeff Albaum

Still not into cold plunging?

Freddy

I mean, like, I don't it's kind of, look, on that, like, it's funny. There's this like study in the UK of like, know, people who live near Hampstead Heath, go and do like this, you know, they do these cold water swims, like, you know, they live longer. I'm like, yeah, because all the houses around there are like six million pounds. And so like, and anyone who can be bothered to get up at like six in the morning to go and like do some exercise, like who's in that bracket of wealth, like guess what? Lo and behold, they live longer. What a shock.

I don't know. It's funny. think there's like, you know, a lot of people who buy cigarette lighters die younger. You know, is what it is, right? There's a cause and effect there. Yeah, I think like, you know, honestly, I think for the most part really have like massively changed my view on AI. Like November, December last year, I just thought it was...

Jeff Albaum

Yeah.

Freddy

I hadn't used a lot of the products for a while. I'm not actually that, I wouldn't sound like the earliest adopter on tech and I don't spend time, this model is coming out that. And then I randomly used the core for something in January and was like, wow, this is really like a step change function forward in terms of like the output I'm getting. Certainly not perfect.

Jeff Albaum

Mm-hmm.

Freddy

But to get from like zero to 50, 60, 70 on something, it's really fast. And I think the implications for the way we work and for young people entering the labor force and kind of like my sense is for like mid-tier plotting along the bottom 10 % of most white collar workforces, like I think the implications are pretty profound.

Jeff Albaum

You mentioned you had a two-year-old. So how do you think about their future in just a world of AI? Do you think about what it'll look like in 18 years or 16 years?

Freddy

Yeah, it's honestly, it's like a little fucking grim to be honest. Yeah, I, well, I think the kind of transition between where we are now and where we end up in a couple of years time is potentially quite painful. Okay, I think the back end of it could be pretty cool. Like I went to a meetup, like a beginner AI meetup thing last night and there was this dude there who,

Jeff Albaum

Really?

Freddy

He's one guy and he's been into AI for like three or four years. Like I honestly don't know how good he is with the stuff. He was showing some like cool basic things he built. And he was just like, look, I'm one man. And he's like, I've been able to apply for this grant that took me like three weeks from Europe, which would have taken me like, he's like, I asked other people that guys takes like six to eight months. I can do marketing, I can chop up video, can do, he's like, I can do all this myself. He's like, okay, maybe it's not the best.

you know, maybe it's not like making me the salesman of the year or like, you know, maybe like my grant application is like pretty good, but he's like, all right, but it didn't take me six months. And like, I don't know how to do this. And I can get like pretty basically good at like most of these things. And so.

I look at a lot of young people who I think would have probably gone into these more corporate roles. And I think the ability for them, if they've got a good idea to iterate and test it, if they're hungry and they wanna do things. And yeah, I think the ability for young people to really accelerate and have these mini little businesses that instead of needing five people, you have one or two. And I think the moat for a lot of these kind of...

smaller to like mid-size incumbents is getting eroded like pretty quick. So yeah, I think like that's actually pretty cool and exciting and could really change things. But I think like the pain point between then and now could be, yeah, it could be a little tough for people.

Jeff Albaum

Mm-hmm.

Totally. Yeah, that's fair enough. That's fair enough. Well, when you think about yourself, do you consider yourself a pessimist or an optimist writ large in general?

Freddy

funny. a really good friend once taught me like skeptics sound smarter, optimists live in bigger houses. I, I guess I skew pretty neutral. Honestly, I look, am I optimistic and like my ability to like, you know, juice decent investment returns and continue to find interesting ways to make a buck? Sure.

Am I, you know, do I often like look at how the sausage is made and see a lot of risk or other people like, it doesn't matter. Like, you know, that scenario, you play it out like 10 times and nine times you're fine. And I'm like really focused on the 10 % of the time it's not fine. Like, yeah, does that make me a pessimist? Does that make me like just pretty attuned to like risk and like capital impairment? You could argue that both ways.

Yeah, like, look, think humans like to either kick the can down the road or like find quite creative solutions to stuff. So I'm not, I certainly don't sit around expecting the world to end anytime soon. It's only gonna end once.

Jeff Albaum

Yeah.

Mm hmm. Right, right. What's that quote? Like you're if you're only going to totally butchering it, but it's like, you only die once and then it doesn't matter.

Freddy

Yeah, I think that would be fair.

Yeah, what the?

Jeff Albaum

No. Well, Freddie, I appreciate you, man. Thanks for coming on. Thanks for doing this. If people want to learn more about short selling or this type of stuff, like what do you, are there resources you recommend?

Freddy

It's like the worst thing to learn more about like

The worst thing you can ever do is learn about short selling, find something that's a fraud, short it and think that's a good way to make money. It's, I think there's some really good books out there. I think like, you know, you can read any, like any of the literature around the financial crisis. One, one book I want to plug, if you ever get a bit more advanced, my friend Marie Boyd wrote it, Fatal Risk. It's about AIG. It's a really under the radar book. It's brilliant. It's probably the best book on the financial crisis.

so yeah, fatal risk by Roddy Boyd, if you ever get like really advanced, but there's, there's tons of good literature out there on, short selling. so if you're interested, check it out.

Okay, so I think if you want to take a question, greatest trade ever, Greg Zuckman was pretty good about john Paulson subbrine trade, big shorts, very good. The Andrew Ross Sorkin book.

Jeff Albaum

What would be the book to prepare to read that book? Like what would give you good fundamentals to read the advanced one?

Freddy

name alludes me that was pretty good. No, I thought that had some interesting perspectives. 1929 but I don't know I like towards the end I was a bit like I was expecting to get a little bit more in the weeds and like it was really good on the characters and stuff. But yeah, it'll come back to me it was like one of the seven old books on the financial crisis but yeah, any of those speak of prep.

Jeff Albaum

Not as new and not 1928, the other one.

Mm-hmm.

Freddy

Cool. Yeah, great being on, man. Really appreciate it. Cool. Take care. Bye.

Jeff Albaum

Okay, awesome. Well, Freddie, thank you again, man. I appreciate you. This has been so interesting.

Thank you. All right. Bye, everybody.