Chit Chat Stocks - WallStreetBets founder Jaime Rogozinski

Episode Date: March 3, 2020

Jaime Rogozinski started WallStreetBets in an attempt to build a high-risk investing forum, but it took on a life of its own. Jaime has also written his own book chronicling his crazy ride titled "WallStreetBets: How Boomers Made the World's Biggest Casino for Millenials". Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

All right, today we are joined by Jamie Rogozinski, the founder of WallStreetBets. And so for anyone that's unfamiliar with what WallStreetBets is, why don't you kind of describe what it is, just so everyone knows. So WallStreetBets has evolved over the years, but what it is today, it's an online forum of high-risk trading with the stock market, highly uh with stock options with uh highly leveraged bets um on popular stocks that you get to see frequently for people taking all or nothing um you know directional trades uh you have people with risk tolerance uh sorry levels of risk tolerance that are just not found elsewhere um uh so i guess that's the way that i can describe it what uh what inspired you to start the page also did you ever think it would get this big so i was inspired by i wanted to start a forum

that had high risk trading um not nearly what it looks like today today it resembles more like a casino um yeah i suppose i was going more for a day trading type forum or even more high risk investing really you know something that's less diversified uh and just little by little took on its own life you know that was really the inspiration for it um and definitely didn't expect it for it to take on the life that it did and certainly has done just that so does wall street bets um does it make any money is it like a because it's a giant community i think it's one of the largest on reddit right now does it make any money for any of the like large members or moderators or creators like yourself or is it just all organically community driven thing

so it does not make any money for any of the moderators or any of the members it's not it's not a for-profit subreddit I don't think any reddit subreddit works that way I think the only people that make money on reddit is reddit itself by selling advertisements with the exception of a book that I just wrote that I released this month that's the first time that I've made any money technically I won't say any of that until royalties get paid out a few once from now and um there's another moderator that designed a logo and i think he sells t-shirts but uh outside of that you know the the entire moderation team it's about 50 of them or so they're all volunteers uh and all the the uh content is is all driven by users that you know

want to contribute to it so it's all it's all volunteer if you i mean do you want to discuss the book a little bit what uh what's it about what inspired you to write a book and kind of what was that process like so the you know the book it's it's been an idea of mine i think the first time that i thought about starting the book probably uh the seed might have been planted around the same time that the idea to start wall street bets was um uh and this was you know a long time ago eight years ago uh it was when i was learning about trading learning about investing And I got wind of these really complex volatility ETFs, these leveraged volatility ETFs. And there's something that had just blown my mind as to how they worked and how they

were so easily accessible and legal and people could just buy them as if they were shares on a broker. And so it intrigued me a lot, especially coming on the heels of the financial crisis. So I was kind of inspired by that. I said, this can't be possible. At some point, somebody's going to realize this whole system is a house of cards, but just kind of sat on that

and decided instead to start WallStreetBets and just went about my life. WallStreetBets took on a life of its own and a lot of great stories started taking place on WallStreetBets from different people that had taken different trades or done different interesting things with the markets, but more interestingly, things happened in the market itself that it changed.

Mainly brokers, you know, the market for brokerages changed. You know, the commission structure changed, started getting cheaper and cheaper. Now, of course, we know that it's practically free. The market for ETFs has exploded. It's just, you know, enormous right now. Now people can make their own ETFs pretty much, you know, including these inversed and leveraged ETFs. And you had, of course, you have the cryptocurrencies, which I don't really touch on the book, but you have these, you know, you have these proliferation of brokers.

And of course, now you have all these, these young adults that are just flocking into the markets. And of course, now you also have what we call the fractional share purchasing. So you have so many different ways for, for people to enter the market with no money or very little money and experiment with really dangerous things. and at the same time I'm watching when Wall Street Bets people do much more than just experiments I mean they're straight up lighting things on fire and

doing it in a very systematic way you know so I take all these different components of what's happening in the you know the financial system not only in the US but the global financial system and I'm using stories from Wall Street Bets to illustrate

these systemic risks that are it played. That's quite fascinating. What's the book called again? I don't think I got the title. The title of the book is called Wall Street Bets, How Boomers Made the World's Biggest Casino for Millennials. Okay. Well, that is quite the hook there. Yeah. Okay. So let's dig into Wall Street Bets a little bit. Something that it's become really well known for, especially on social media and stuff like that is basically the congregation of investors coming together and sort of pumping up a stock. Do you think that Wall Street bets can single-handedly move individual stocks? And then if so, what are some of the examples that you've witnessed?

You know, it's impossible for me to tell you. I'm not really an expert in that field. Um, uh, I suppose it's possible, right? The mechanics of it, uh, you can have certain, uh, conditions with certain types of stocks that are more susceptible to being, um, uh, manipulated or prices being moved. Uh, uh, so in those respects, I guess it's possible. Um, you know, I suppose you might be referring to some of these articles that have been, uh, referenced in the past, I think, week or two weeks. with regards to Virgin Galactic

and I forget what the other ones are. You know, I guess if you wanted to have Wall Street bets move stock by buying the actual shares themselves, I guess you'd need to have some type of huge coordinated effort. I don't believe that there'd be enough of an interest in doing that, especially since these guys tend to really work with stock options itself.

This latest thesis came out. by a journalist that said that uh you know funds or or quant funds or whoever's on the other side of these options trades are decided to do delta hedging by buying the underlying shares and therefore driving up the price you know that's an interesting thesis and i guess it's up to him to back it up i i can't really speak much to that um uh you know if it's possible it's possible if it's not it's not i can't i'm not in a position to say whether or not it's it's uh, it's, it's real or not, but certainly entertaining and certainly interesting. Definitely. Um, you also talked about wall street bets sort of taking on a life of its own. Uh, and

in that process, there's been some pretty crazy bets. Uh, what were some of the craziest that you've seen over the years? Uh, well, there's been a lot of crazy bets. I mean, you know, I guess a lot of people define crazy by the sheer amounts of money that are, that are being bet. Uh, and I guess I've become somewhat immune to, to the amounts of money that are being bet. So I'm no longer impressed by the amount of money. So in terms of crazy, I'm not going to necessarily lean towards the amount of money that goes there. Uh, I would say, you know,

more the risk or the types of risks that people are taking. I'd say that's kind of crazy. So this is people that are deciding to make huge stock option trades with their retirement funds, right? The Roth IRA or the 401ks, whatever they're allowed to gamble their retirements away. Anyone that does that, I think is crazy. More specifically, if you're looking for examples, there's two that come to mind. There's one guy that had accidentally well not accidentally without knowing both how much he was risking or how he ended up making money he had a fifty thousand dollar account uh and he was uh he was selling these two cent credit spreads on spy and tf using um stock options just as this uh

stock option maneuver and he sold a whole lot of them i think it was like uh I think it was a thousand, if I'm not mistaken, of them. So he did this without realizing he was actually risking his entire account because he didn't realize what assignment risk was. And he was standing to just make a couple thousand dollars in the best case scenario. Oh, according to his options calculator, that's how much he was, you know, in school you learn about options and you have this payoff matrix

and say, well, this is how much your maximum payoff, this is how much your maximum loss potential is a lot of people don't realize that when you get assigned uh the stocks you know something's on the other other side of these options trade they have the option of course to exercise them and then that really throws your entire bet calculation out the window in this particular case it worked in his favor uh he got assigned like 800 or so of his uh options and and the market moved in his favor the following day uh the stock broker had had to lend him $23 million in order for him to meet the obligation to buy, I forget how many shares of SPY. The market moved in his favor and he made $100,000. He instantly sold

it all. He was on Wall Street Bets immediately posting, hey guys, how much interest do I have to pay for margin for borrowing $23 million? He had to pay like $10,000 for interest or whatever the margin um but he he didn't realize what he was doing right he realized that he bet his entire fifty thousand dollar account and he didn't really realize how he made a hundred thousand dollars so that that was crazy in itself and i guess the second craziest bet would have been the more recent high profile bet where um you had uh one guy and then subsequently a lot of copycats that decided to take the infinite margin glitch uh with robin hood where they they took advantage of an oversight by their broker where they took whatever a couple thousand

dollars worth of deposit in their account and they took insane amount of leveraged bets but most people didn't take the final bet but the first guy that did this took you know whatever two three four thousand dollars worth of deposits leveraged up to fifty thousand dollars and decided to go all in with uh you know apple earnings uh options trade that expired that following day so it was literally an all or nothing bet using money that was his so and he lost it and obviously could have made a lot of money too we don't know what happened so i guess i would say that's also crazy as well one guy that made a lot of money one guy that lost a lot of money i i would say levering up 500 times or 50 times on an earnings trade is is quite crazy yeah it qualifies for

sure. Do you find that it's like people sort of risking without knowing basically their entire retirement? Is that like commonplace? Does that happen a lot? No, no, I don't think it happens a lot. And the people that do, I think know the risk that they're taking on. The people that actually use their retirement accounts to do it with. I think that most of the people that that are engaging in this super risky behavior uh you know i think they have this this kind of hope to try and get out of this rat race so you know they have disposable income they have enough money that they're able to clearly throw at the market and they don't have any kind of long-term strategy you have a lot of professionals that dedicate themselves to being sustainable

traders and so they have these systematic approaches where they have uh these positive expectations on any given trade and they have a strategy and they say okay well you know use their whatever technical analysis so you know everyone has a road strategy and they're very careful with their risk management and they're very careful with how they're professionals right these guys they come in here and they joke about it they say i'm gonna YOLO I'm gonna go all in and they do these these reckless things you know a lot of times they lose they put the thousand dollars and they're gonna lose it all and you know occasionally although recently it seems like quite

frequently but you know I would say before the last couple of weeks you know a lot of people lose but you have people that take a thousand two thousand dollars and they make anywhere between fifty to two hundred and fifty thousand dollars and what they do after that is they take that money and they stash it into their retirement so they they put it down paper in their apartment or they close their brokerage account i've spoken to many people that have done that they just call it quiz like they literally just trying to get out of whatever situation that they're in and so they're not taking this market strategy is is a way to they're using there's a lottery ticket you know they're

using it as a way to to get out of this temporary situation that they're in and they've done it time and time again wow and then there's fascinating there's the uh and that's you know emboldened by all the new tools that you were mentioning that traders have these levered etfs all the new commission-free stuff and then like robin hood and some of the other brokers making it a lot easier for people to trade options oh absolutely yeah no i mean and all the brokers are doing it now even you know wall street best loves to make fun of the the antithesis subreddit investing are investing and they love to push the vanguards uh you know smpetf vanguard now offers commission-free stock options right so that's i mean if you want to think about the the epitome of

robin hood changing the landscape for the rest of the brokers you know they they obviously disrupted the entire industry and uh and there's more to come right there's another broker that's not on people's radar yet it's doing some stuff that i believe is even more dangerous i also covered that in the book her name is alpaca they're they're doing some stuff that really freaks me out there they want to take and they already do uh offer they want to allow people to be their own robin hood but they're going at it from an automated standpoint so they're allowing people for free to automate their strategies and they're advertising themselves is you know hft compatible so you have all these kids that are already loving to find these cheat

codes or whatever and they're very technically inclined and these guys are offering uh all the same stuff but they also offer like robin hood for example does not allow you to short sell stocks these guys do right so i mean they they they're playing with fire and they're giving it away for free so uh and they're allowing people to use drag and drop interfaces to automate their strategies So if you want to talk about some interesting things that are coming up, they're coming up. Wow, that's something riskier than Robinhood. That's quite something. All right, we'll transition to more of the community aspect.

Do you know any of the individuals that engage on WallStreetBets personally, or is it mainly all just anonymous accounts and you've got to know each other online? Yeah, I've gotten – it's all anonymous. i i uh i don't know anybody personally at least i didn't so i i didn't at one point um i became quite close with a lot of the moderators you know this subreddit first got started we had a chat room and we spent endless amount of hours together and talking about stuff and uh joking about things both about market things and personal things we created a very close friendship and we uh and we got to know each other in real life some of them came uh to my wedding and i went to theirs

and you know been on trips together in different countries and so you know we've we've created a friendship um but it was entirely done through after meeting on the subreddit and then that's on one side the other side is the subreddit is now so big that literally you know i was in thanksgiving a couple months ago uh family dinner talking about whatever we're talking about and someone that was a close family friend and we're talking about the stock market or whatever and this guy comes up to me he says oh you have to check out this place it's called wall street bets you know he's telling me how great it is and you know i just for the sake of not skewing the conversation i didn't tell him that i was familiar with it but you know it's hard not to bump into

people that don't know about wall street bets anymore especially in the world of finance i was going to ask especially now do you ever like overhear people around you talking about oh have you seen everything that's going on with wall street bets and yeah i mean you just kind of sit there and listen and kind of laugh inside um you know i do i do it's it's more frequent now than it was previously and ever since this book came out this month now my name is tied to it so there's no there's no more pretending that i don't know what it is but um uh but yeah it's definitely fun to listen to people talk about it there's people around me that you know the the comment then it's it's it's definitely entertaining it's it's fun to watch something started off as

something small and something that was meant to just be a resource for you know a very small community to be uh such a big impactful i don't know i i wouldn't even know what to call it subreddit i mean everyone a lot of people flock to it yeah almost almost a million people on there now yeah well i mean almost a million people subscribe to it but the traffic is uh yeah i mean it's well above that i'd suggest the number of people that visit it's well above that right right because yeah we don't have reddit accounts and we're on there so yeah we definitely count on that uh and speaking of the accounts growing really fast and people like getting really into these crazy bets uh that are kind of wall street bet style do you get worried when you see all

this going on that there is market mania forming as you become like the number one trending page on the site so worried in what sense uh like mainly i would say not for the page but like you personally that oh is this like are we getting into a euphoria in the market like overall are we going to have like a you know like any sort of bubble forming i don't know um no um i mean i guess all right so wall street bets almost the name of the play the the i guess because we've had a bull run for the past 10 or 12 years you know it's easy to associate i've seen a lot of commentary especially today that there was some news uh you know where people have associated wall street bets

with you know directional bull investors um it's you know the moment that the market switches if it switches to directional bear market i have no doubt that any everyone on wall street bets is going to be just as happy shorting the market so you know this euphoria is is two ways with wall street unlike the the other forums or places that are that are actually banking on their nest eggs and are actually trying to responsibly grow their retirement accounts wall street bets is literally gambling with their money and they're just betting on red or black right and so as of the past 10 years it's been a very safe bet the bet that the market's been going up and so they make kind of a joke about it so am i worried that you know that we've reached the top because

there's you know so many people that are going to it i could care less you know i'm indifferent as to what the the popularity of the subreddit is with regards to where we are with the market um i know that the subreddit will just change their their betting strategy um uh as soon as they see fit um they'll definitely feel some growing pains as soon as the You know, the market conditions change because their mindset is probably accustomed to buying calls instead of buying puts. But they're a smart bunch, and so I have no feeling they'll adapt to it. But on the other side, when the subreddit is trending and it's getting a lot of users, I do sometimes am concerned with the growth of the subreddit,

and making sure that we don't grow too quick, too fast, because that's when things could spiral out of control. We do try to keep the 50 moderators or so that we have on there. We do try to keep close tabs on everything that takes place. And so whenever we do experience these big spurts of growth, we do what we can to contain it. has wall street bets, uh, changed your like personal investing strategy at all? Um, or are you kind of riskier? I guess, I guess it's more of a personal question, but, um, has it like made

you more risk averse at all? I started wall street bets. No. Um, I, uh, so, so, so there's two things right you have investing and then you have then you have that you know then you have trading there's these concepts somehow end up getting mixed together there's two separate things so i have my retirement accounts and that's just money that that grows and that's you know interest bearing accounts or yeah like long some stocks or some other assets um and and i'm not planning on touching that and that's that's there for when i need it many years from And then there's trading. I have never gotten a taste for gambling to do it now. That's definitely something that I've never been interested in. I went as far as trading, right? So I take, you know, I'll take different, I like Forex, you know, like foreign exchange. I like indexes. I've never liked the currencies for technical purposes. But, you know, when I lived in, I no longer lived in the U.S., but when I lived in the U.S., I definitely loved stock options.

There's a lot of interesting things that I could do then. And there's a lot of different strategies that you can develop around trading for in a profitable fashion. You don't need to be, you don't need to have an appetite for risk in order to trade successfully. In fact, it's quite the opposite. A successful trader just needs to know how to mitigate or control their risk. as long as you control your risk that's how you end up making money it's about the most important part of any given trader so you know so i'm not sure if that answers your question but you know you have i in my head i have two concepts one's for investing and i'm really not very partial to

that you know i have my plans for retirement and that's kind of boring and then i do trading activities and that's a lot more interesting and i have my strategies run up but i don't have been interested in losing any money when i'm trading i do obviously use money i have lost a ton of money um but i've learned in the process and i figured things out in order to to to get past that and uh i think the name of the game is to make money and that's like mitigating my risk yeah um with all the news that's gone on especially these past two weeks you talked about the articles that are being written and there's a lot of these uh theses coming out about pump and dump like with the virgin galactic stock for example is there any legal ramifications to

like a forum like wall street bets um i mean there's definitely first of all assuming that any of that is true um i don't know that it is um but if it were uh you know the the responsibility lies on whoever it is that's doing illegal stuff, right? Whoever it is that's engaging in illegal activity. With regards to WallStreetBets with myself or with Reddit themselves, we do and always have regardless of what's happened in the news, have been against anything that's been illegal, right? This is against any type of pump and dumps.

This has been against any type of market manipulations. This has also been against any type of personal threats against other individuals we also take things like you know suicide uh uh threats very seriously you know we take our moderation the moderation team takes their job and not even job they take their you know the roles really seriously and and uh they love what they're doing they do a really good job there's a lot of guys that are on the moderation team that are professionals uh in the field and they can spot a lot of these things really quickly And so regardless of the news, we've always taken it very responsibly. It's in the subreddit rules that people are not allowed to engage in any illegal behavior or attempt to engage in illegal behavior, period.

And it's not only because it's illegal, it also detracts from the quality of the community and the spirit of what it is that we're trying to do. um outside of that you know not not personally concerned with uh with myself or the moderators or reddit you know i think as long as uh we're not encouraging or embedding any kind of behavior we're covered under the communications the communications decency act several federal laws uh that have us covered so and there's been many rumors that we've been contacted by the sec and shut down and none of that's true i've never been contacted by the sec that's funny that's funny uh yeah i mean that does make sense if you're hands off i mean you can't stop people from choosing you know what they want to do with their money as long as they're following the rules

on the reddit in your subreddit community uh one last question before we hit our wrap-up questions just another fun one what's the most money you've either seen someone make or lose on wall street bets so most of all of money lost i think that one's easy uh 4.3 million dollars in one day wow uh and that was you know that was that was an interesting case because it wasn't an irresponsible yolo trade and for your listeners yolo i made that reference to that you only live once it's an acronym that's pretty much died away died off everywhere else except for on wall street bets somehow it's still alive there um uh it's the term they use for an all or nothing but now this this guy is young he's 25 now but a couple years ago um almost exactly two years ago

uh on the day with it they've now coined the bullmageddon day on february 5th uh when the indices dropped like three or four percent but the the fix ended up spiking over a hundred percent this this guy uh he was 20 i want to say he was 23 at the time but he taught himself how to trade at the age of 20 he took like 50 grand from some savings and some inheritance and he over the three years he managed to very successfully and very impressively turn it into a four million dollar fortune and he was trading these volatility etfs uh and on this particular day he was had a huge amount of his money on and he wasn't even doing stock options he was buying the actual shares of X ID for anyone that knows is the inverse it's no

it doesn't it's been liquidated no longer exists credit Swiss it should be inverse VIX ETF it tracks the volatility index and it inverts it and so on the day that the VIX went over a hundred percent this thing pretty much dropped to nothing uh but for many technical reasons um the market broke that day at least the volatility market everything about the volatility products that day broke and he lost pretty much everything on that day um but he you know he posted he posted this on reddit and and uh obviously got a lot of attention from it and you know some some of these big institutions reached out to him and were very impressed by his track record if he asked him to prove what he if he actually successfully traded

his way up to to about four million and he's uh they offered him a job and he's now gainfully employed i talked to him as part of my book so i know that he's you know obviously not happy to have lost that money but he's he's recovered from it uh that's fascinating most amount of money he'd made it probably recently some guy made using his broadfire he made uh like he said he made eight million then i went on his computer to verify it and he had slightly less than that allow me to say how much he made so i'm not going to but it was pretty close to it and then he made and then he put another post the following day or two days later showing that he made another million after that so i'm gonna say he made and i do believe that he actually made around eight

million from about a hundred grand with a series of maybe 15 trades what i mean what kind of trades net those returns well these very you know these stock i mean once again he did ask me to not share so i'm not going to but there was he was doing stock options trades i mean he shared some of them online um he was trading tesla for some of them so that's i mean you can make a lot you could have made a lot of money uh trading tesla options the last few months here yeah um so we talked a little bit about commissions getting cut to zero and sort of the accessibility for anyone to be able to trade have you seen like traffic and subscribers grow uh quicker since the commissions have been cut to zero yeah not not only that i found something even more interesting as the

research i was doing uh yeah the answer is yes absolutely but but even more interesting i i have a graph that i can send you afterwards where i i put the growth that the number of subscribers wall street bets has uh and i superimposed it with the number of of users that robin hood has you know over the same years uh and then i marked when they started offering stock options as a product not only not only did the two lines overlap perfectly i mean the slope is just identical the the the the slope before the the stock options was just growing at a steady rate and then the moment they started offering stock options that slope increased like fivefold and you know both their growth and and wall street bets growth uh increased exponentially

so that's the only that's the only broker that i was able to do that that comparison with as other brokers don't have that breakdown nearly as clean but i can probably use them as a proxy and say yes uh most most likely the proliferation of these commission free brokers not only have the quantity of brokers because there's other ones too there's you know weepo and there's i forget there's the uh their names escape me but there's there's a bunch of new ones that have come into play but even the old ones or the ones that previously existed they all also now offer free everything too so uh it's it's now the new way of doing things charles schwab td ameritrade e-trade uh right and they're all buying each other anyways right now so they're all going

to be the same one um yeah we'd love we'd love to see that chart afterward uh but let's get into our wrap-up questions the first one we have here uh what's one financial saying that you disagree with well financial saying disagree with i'd have to go with i think i want to say it's warren buffett but but i could be wrong but it's you know have fear when people are greedy and get greedy when people are fearful yeah that makes no sense to me whatsoever i mean why would you want to go against the grain you know people are buying just ride the bull train and the people what you're selling then get out like there's there's no reason to get uh to get run over so that's interesting yeah don't want to get too cute or something like that there's definitely

a lot of timing that goes into uh that that saying for sure anyone look anyone that's been fearful over the past 10 years or 12 years is completely you know this is going to be very unhappy with themselves because they've missed out on the most spectacular bull run in the history of I don't know if that's actually true or not, but it's a very impressive bull run. I don't want to commit a lot of money by simply just buying and holding. So at this point,

it makes a lot more sense to sell when people are selling and just buy when people are buying. And sure, if you ended up buying at the very top and you're the very last guy to hold the bag, then I guess that was the risk that you were willing to take. But people have been calling it market top since, I don't know, I mean. For a while.

Yeah, for a really long time. Even, what was it, December 2018 when we had kind of a big slump. Everyone's like, oh, this is it. It's all over. And then the entire, all of last year was one of the most impressive rallies that I've seen. And so, you know, anyone that took their money out

is probably kicking themselves for being fearful when others were grieving. All right, well, we'll hit the last question here. What is one piece of advice you have for anyone starting out in the investing world? I mean, I wouldn't give any investing advice to anyone. It's not really my place. But if anyone wanted to get into the world of trading,

I guess it's something that I'd be more familiar with. Risk management is probably the one universal rule that will apply to pretty much any strategy. And I guess you might even adapt it into the world of investing right so if you want to talk about in the world of investing diversification and having you know different asset classes and there's not the other so i guess that could be considered risk management and in the world of trading risk management is has a slightly different definition for it but making sure that you still have money to play with um is the only way to

make money in the long term yeah kind of don't put all your eggs in one basket um well that's gonna do it that's our last question thank you for coming on jamie i really enjoyed it yeah no thank you for having me me too yeah and i want to say thank you uh for starting wall street bets because it's such an entertaining site um and i hope it keeps going strong thank you very much have a good one don't you wish you could just hit skip on the worst parts of your life you know the same way you can skip an ad i get it i'm siaya and i live in ice cove i've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently that's how I roll. So bundle up and

come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem.