This Hedge Fund Manager Got Away With Insider Trading… Then Made Billions
Oct 19, 2023
01:08:39
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Hedge fund manager Steve Cohen's success story. Working long hours in China and success of a Nine-Nine-Six company. Work schedule and productivity. Comparing project launching in media and software industries. Managing business risks and sharing success stories. The sardine bubble and tech company valuations. Brian Johnson's quest to avoid death.
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Quick takeaways
Tech companies have often prioritized growth and valuation over profitability, leading investors to play the 'greater fool' game.
The frenzy in tech company valuations mirrors the sardine bubble, where speculation drove up prices without considering underlying profitability.
Investors should prioritize sustainable businesses with steady cash flow over those reliant on rising valuations and speculative investments.
Deep dives
The Sardine Bubble: A Lesson in Market Craze
In a famous but lesser-known bubble, sardines disappeared from the waters of Monterey, California. Commodity traders began bidding up the price of a can of sardines, leading to a soaring price. However, when a buyer decided to indulge, they quickly fell ill upon opening the can. The seller informed them that these were not eating sardines, but trading sardines. This phenomenon reflects the current tech company valuations, where the focus has been on growth rather than profitability. Each funding round aimed to sell the narrative to the next investor, until the music stopped and the true value was revealed.
The Flaw in Chasing Tech Company Valuations
Tech companies have often prioritized growth and valuation over profitability. As each funding round increased, investors played the 'greater fool' game, hoping to sell their stake to the next buyer. However, this strategy has its limits, as eventually the true value and profit potential of these companies must be realized. This approach parallels the sardine bubble, where the focus was on trading sardines rather than consuming them. The recent shift in market sentiment highlights the need for a more balanced approach to long-term sustainability.
Drawing Parallels Between Market Frenzy and the Sardine Bubble
The frenzy in tech company valuations mirrors the sardine bubble, where scarcity and speculation drove up the prices of sardines. Similarly, investors have chased growth and valuation in tech companies without necessarily considering the underlying profitability. This approach worked as long as the narrative was maintained and investors were willing to buy into the illusion. However, like the buyer who discovered the sardines were not meant for consumption, the market is starting to question the sustainability of these valuations. It serves as a cautionary tale to reassess investment strategies and prioritize sound fundamentals over short-term hype.
Reevaluating Investment Strategies in Light of the Sardine Bubble
The sardine bubble illustrates the dangers of solely focusing on valuation and growth in investment strategies. Like the trading sardines that offered no real value beyond speculative trading, chasing tech company valuations without regard for profitability can lead to a similar disillusion. The recent market shift demonstrates the need to reassess investment methodologies and prioritize sustainable and profitable businesses. By learning from the mistakes of the sardine bubble, investors can avoid being caught in the frenzy and make more informed decisions based on sound fundamentals.
The danger of investing in non-profitable tech companies
The podcast discusses the risk involved in investing in non-profitable tech companies and the potential for their valuations to plummet. It highlights examples like Hoppin and Better, emphasizing how their valuations have dramatically decreased over a short period of time. The discussion extends to the crypto industry, particularly with regards to NFTs, where the motivation for investing often revolves around the expectation of price appreciation. The speaker suggests that investing in companies that generate steady cash flow and have sustainable business models should be prioritized over those reliant on rising valuations.
Understanding the importance of cash flow and sustainable investments
The podcast dives into the significance of cash flow and the focus on sustainable investments. It explores the idea that profit is merely a hypothesis, while cash flow is a tangible fact. Drawing examples from historical trends and failures like Enron, it emphasizes the need to prioritize cash flow-generating assets rather than assets that solely rely on valuation or speculative investments. The discussion also touches on the importance of understanding the game one is playing, whether it's venture investing, crypto trading, or investing in cash-flow businesses. By focusing on investments with controllable factors and avoiding excessive risk, one can aim for steady, if smaller, returns.
Episode 509: Shaan Puri (https://twitter.com/ShaanVP) and Sam Parr (https://twitter.com/theSamParr) dive into the white collar crimes of Steve Cohen, the pros and cons of working 100 hours a week, and how to play the right game as a founder, investor, or asset manager.
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Past guests on My First Million include Rob Dyrdek, Hasan Minhaj, Balaji Srinivasan, Jake Paul, Dr. Andrew Huberman, Gary Vee, Lance Armstrong, Sophia Amoruso, Ariel Helwani, Ramit Sethi, Stanley Druckenmiller, Peter Diamandis, Dharmesh Shah, Brian Halligan, Marc Lore, Jason Calacanis, Andrew Wilkinson, Julian Shapiro, Kat Cole, Codie Sanchez, Nader Al-Naji, Steph Smith, Trung Phan, Nick Huber, Anthony Pompliano, Ben Askren, Ramon Van Meer, Brianne Kimmel, Andrew Gazdecki, Scott Belsky, Moiz Ali, Dan Held, Elaine Zelby, Michael Saylor, Ryan Begelman, Jack Butcher, Reed Duchscher, Tai Lopez, Harley Finkelstein, Alexa von Tobel, Noah Kagan, Nick Bare, Greg Isenberg, James Altucher, Randy Hetrick and more.
