Today's Top Short Sells, From AI Victims to Chinese Scams
Summary
Investment Strategy: Edwin Dorsy focuses on short selling, particularly targeting companies involved in corporate misconduct and those vulnerable to technological disruption.
Disruption Focus: Dorsy highlights companies on the wrong end of disruption, especially those affected by AI and lab-grown diamonds, as prime short-selling targets.
AI Impact: Companies like Chegg, which offer homework help, and stock image platforms like Shuttertock and Getty, are seen as vulnerable to AI-driven disruption.
Diamond Industry: The rise of lab-grown diamonds is expected to significantly disrupt the natural diamond market, impacting retailers like Signet, which rely heavily on traditional diamond sales.
Chinese Stock Scams: Dorsy discusses the manipulation of US-listed Chinese stocks through overseas groups using platforms like WhatsApp to orchestrate pump-and-dump schemes.
Market Manipulation: The podcast highlights the sophisticated methods used by scammers to manipulate stock prices, emphasizing the need for investor awareness and regulatory intervention.
Call Center Vulnerability: AI is expected to disrupt call centers and business process outsourcing, posing risks to companies heavily reliant on these services.
Key Takeaway: Investors should be cautious of natural diamonds as they are likely to lose value due to the increasing popularity and cost-effectiveness of lab-grown alternatives.
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferrris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McLaclin, editor of the Stanberry Daily Digest. Today we talk with the Bearcave editor, Edwin Dorsy. >> We've had Edwin on before. He's not like anybody else because all he does is short sell research and he's definitely somebody you ought to be reading if you're not doing so already. I know he'll have a lot of great things to teach us. Get your pens and pencils out and get ready. So, let's do it. Let's talk with Edwin Dorsy. Let's do it right now. Edwin Dorsy, welcome back to the show. Great to see you again. Dan, Corey, it's an honor to be back. I'm so happy to be back here. >> All right, so let's like before we get into specific stocks and whatever, let's remind our listeners um like who you are and and what you're what you're all about. >> Yeah, absolutely. My main job is I write a newsletter called the Bearcave that's broadly focused on exposing corporate misconduct. There's kind of two elements to the newsletter. There's a free weekly recap where I summarize what's going on in the shortseller world. I'll summarize new activist short campaigns, highlight suspicious resignations, and link to interesting tweets. And then twice a month for the paid readers, I'll do these deep dives into companies that I feel are misleading investors, harming customers or on the wrong end of disruption. So my publications read by a lot of short sellers and investors who want to know what stocks to avoid, what's doing poorly in this market. >> Okay. And let's if we could um you know you mentioned people in the wrong end of disruption and other things. What do you have a favorite category of short? Every time I talk to somebody about shorting they're like oh I like to short stocks. Boom. And then they have like this one idea. >> You know so I would say it's changed a little over time. Historically I've been really good at the consumer protection angles where I'd be really great at seeing what consumers are complaining about to regulators. under this administration that's this isn't the environment for those types of shorts companies that so so now I've shifted a little more to focusing on companies on the wrong end of disruption so I would say my favorite shorts right now are companies that I believe are going to be hurt by AI or some other form of disruption >> all right so uh that that sounds like a good idea to me um >> me too Yeah, >> I remember the first time you were here. Uh, yeah, it was end of 2024. You talked about how you kind of got into this and >> was it care.com was one of the the first ones um that you were that that raised your eyebrows and that's more of the consumer protection angle, right? Yeah, >> exactly. Okay, so Care.com for PE listeners who might not remember from last time was this billion-doll publicly traded babysitting platform where babysitters could advertise their services to parents and parents could advertise their services to babysitters. And the big element of this platform is safety. You've got to vet the people and make sure they are who they say they are. And I saw that there was a bunch of lawsuits against the company. So I decided to test out their screening myself and tried to sign up as Harvey Weinstein. I use a photo of Harvey Weinstein. I made up all the information and lo and behold at the end of the process they said, "Do you consent to the background check?" I said, "Sure." And then three days later, they approved me as Harvey Weinstein as a verified babysitter on their site. So, I knew they weren't doing their checks. And those are the types of shorts or diligence I've done historically, but now I'm focusing a lot on more of the disruption and a lot of US-listed China scams. Those are kind of my two focus areas. Now, >> I'm glad you mentioned both of those. um let's stick with the disruption while while we're there. So, uh you know, tell me about that. What's what does the diligence process look like for that versus, you know, um looking for lawsuits on the consumer side? >> Absolutely. So, for disruption, it's going to depend on what it is. There's kind of two big fields of disruption I'm looking at, which is AI and lab grown diamonds replacing natural diamonds. We can talk about each of those. with AI, it's very company specific. So, one of the companies I've criticized in the past that I was really proud of is CHEG. For those who don't know, Cheg was a multi-billion dollar homework help company where students would go pay Cheg a monthly fee for help on their homework or getting answers. And right away, just as somebody who was in college not that many years ago, I I knew this chat sheet BT would be a perfect replacement for check. It's giving you the answers right away. It's a lot cheaper. It's a lot faster. It's a lot more user friendly. So I you don't want to just go off gut intuition. You want to find evidence to back up your claim. Now sometimes it's in the financials, but if it's in the price in the financials, it's kind of too late and the market's reacting. So I try to look at leading indicators before it appears in the financials. One easy thing you can do is that the customer bases on Tik Tok, you go on Tik Tok. So, this is very simple, but for che all I did is I searched che on Tik Tok and everybody's talking about deleting Cheg, which is not a good thing. And you'll actually find that students hate Cheg. They hate Cheg because it's expensive. They hate Cheg because in the past, Cheg has worked with schools to rat out students that were cheating, which might have been the ethically right decision, but poor for the business because it doesn't engender goodwill. I found that students had a lot of animosity towards CH. They were excited to switch. And then one final thing that is kind of consistent with the consumer protection angles that I've talked about is I love it when companies try to make it a lot tougher to cancel. To me, that's a sign that the kind of end is near. And if you look at CH and I document this in the bear cave, they made their cancellation flow from a simple, you know, just click to cancel to this really weird sevenstep process. You cancel. Are you sure? Are you absolutely sure? Can we give you a win back offer? and second went back offer. Literally six stages and then at the end they would say, "Oh, we're sorry to see you go." So you'd think it would be cancelled, but you need to click one more time to confirm cancellation. So I, you know, you see those games, you see a lot of complaints to regulators about people getting build after they've already canceled. You see the people leaving for a new product. Um, so that's one example on AI. A lot of other times it's just trying to be somewhat intuitive and understanding how the world's evolving. So I haven't written about Shuttertock and Getty, two stock image platforms, partly because there's some complexity in that they're trying to merge with one another. But those to me are going to be obvious losers going forward. No one's going to pay $50 for a stock image if you can get an AI generated one just as easily. I see this as a newsletter author myself. Substack has it embedded that we can just create AI generated images super easily. So that's kind of on the AI front and we can jump in a little more there and talk about call centers and call center software if you want which are two other you know subsets of the economy I think are going to be hurt by AI. Now the other area of disruption that I think is really prime for a short is the diamond industry. Especially if you talk to younger consumers, lab grown diamonds are becoming increasingly popular. They're chemically, physically, and optically identical to natural diamonds, but a lot cheaper. And I think and what the market is showing is that consumers are happy to shift to lab grown diamonds, which is lowering the price of all diamonds. And I think it's going to upend the diamond industry and it's going to hurt uh the retailers like Signet that sell a lot of natural diamonds. >> Wow. Yeah. People have been talking about diamonds for so long and the finally because they always said, "Well, it's a cartel and you know they have so many more diamonds than they're willing to release one to the market, etc., etc., etc." And and now that dynamic it doesn't matter anymore. >> Yeah. Yeah, because you can grow them in a lab. >> You know, I think I think historic the diamond industry is filled with and I'd love to talk about diamonds for a while that the diamond industry is built on marketing. I think historically people said cartel. I think now it's maybe a little more loose than that where Debeers controls a lot. Al Rosa and Russia controls a lot of diamond production. I it's more that the lab grown diamonds have been around forever, but only in the last two or three years have they gotten to such a quality that no one can really tell the difference between natural diamonds and lab grown diamonds. Like they're the same thing. And they've gotten to a price point that is so much cheaper. And if you hear I think the traditional investor sentiments are well you know guys might prefer buying lab grown diamonds but women will always want the natural thing. And you know, you see what actual consumers are saying, especially the younger ones. You know, the trade-off is simple. If you can get a bigger diamond that's higher quality, that's half the price, and spend more on your honeymoon, plus it's ethically sourced, and doesn't involve any child labor negatives on the environment. That's a trade-off basically nine out of 10, you know, millennials will want to make. And everybody's shifting towards lab grown diamonds. So, this is an area of disruption that I think is going to continue. And if you look at some historical precedent, Dana and Corey, because I know you guys talk um about, you know, kind of metals and gold and stuff in the past, I is in the 1800s, one of the most valuable uh metals was aluminum. Aluminum is actually at the top of the Washington Monument. People don't notice this, but 100 ounces of aluminum is the capstone of the Washington Monument because it was one of the most valuable metals at the time. And 10 years after it was built, aluminum lost 99% of its value because we were able to massproduce it a lot easier. I think lab grown diamonds are the same thing where now that we have a influx of lab grown diamonds, we're going to see the price of diamonds fall so much it's going to become commonplace. And when something becomes commonplace, nobody wants it anymore. It used to be that women in the 1800s would have aluminum jewelry. Now nobody wears that. with diamonds. It used to be, you know, people will have diamond jewelry in the future. It's so common place and so cheap, nobody's going to want it. >> I understand the um the idea that Signet, for example, takes a hit on their their natural diamond inventory, right? We get that part. But couldn't they become like the biggest seller of of lab grown diamonds? Does this necessarily mean that they have to take a long-term hit to their business? That's a great question and I think the answer is a little bit nuanced which is screwing with the marketplace. The signet in some ways natural diamonds are good lab grown diamonds are good for them because the margins are higher. So even if it's a slightly lower price point the it's very cheap to produce you can sell it still. So the margins are huge. I would say there's some evidence that sign doesn't want a loud crown diamond future especially for engagement rings. Signant has kind of two divisions. engagement rings which are about half the business and fashion jewelry like earrings and bracelets with the other half and we'll talk about each. So for engagement rings they very clearly do not want a lab grown future and that's bad for them and I'll explain why but the indication that we know they don't want lab grown is they've been launching new ad campaigns to push consumers back towards natural diamonds. They've add warnings to their receipts saying that lab grown diamonds may not hold their value, which is true, but natural diamonds won't either. They've said they've put out initiatives to retrain their store employees to push people towards natural diamonds. So for management and everybody, we we see that they prefer a natural diamond future, which means if this loud grown diamond trend continues, it's probably going to be a negative. So I even if the selling prices are lower, why does lab grown hurt them for engagement rings if the margins are so much higher? And the argument I would make is even though it might be a temporary benefit if people shift to lab grown in the long run it's going to kill you because the history of lab grown and that this is continuing is just they get cheaper and cheaper and cheaper and the selling prices go down and down and down and it this effect has been happening so much that it's also pressuring natural diamonds where natural diamonds for the longest time were flat to going upish. Even in 2022, they hit like an all-time peak partly because of the Russia Ukraine war and the supply being constricted. And only now are diamond prices really starting to freefall. So when lab grown kind of becomes the standard and becomes endlessly cheap and now anybody can retail it and you can buy them online or at Walmart or anywhere, then that's going to pre put pressure on the price of natural diamonds. It's going to put pressure on the price of labron diamonds. And Signit's most profitable part of their business is selling kind of warranties and extended service agreements on the engagement rings people buy. So for a 10% markup, you can buy these warranties. That becomes, you know, less less profit when the selling prices are lower. And if it's going to if labs truly become so commonplace, will people even want these warranties? So in the short run it might not hurt them this much because they're going to be going from a higher to lower selling pro point but with higher VA margins but in the long run if the prices just continuously decline which is the market showing what is happening and is what you'd naturally conclude that would hurt them. Likewise, on the fashion jewelry side, so far it's a temporary benefit because now consumers can get really nice diamond jewelry for a lot cheaper. But but in the long run, what we've seen historically is when these things become so commonplace, nobody will want them. And that's kind of the bet I'm willing to make. And at the end of the day, if you're the world's largest diamond retailer, whether it's lab grown or natural, if the price of diamonds continuously fall, that's going to hurt you. And you even look at other lab grown diamond companies like Brilliant Earth. They've done terribly since going public because it's tough to make money selling an item that's constantly losing its value at 2 to 3% a month. My last thought that about this is just that I could see I could see somebody serving the very very high-end customer um surviving and absolutely thriving by selling only you know the super gradea natural diamond you know like whatever the whatever the highest rating of a diamond is I have no idea I don't know anything about diamonds in that regard >> but you know that's obviously not a large market. Um, and I don't it's a guess that that might even occur. Um, but yeah, this this this sounds interesting and it sounds bad for Sigma. >> Yeah, it does. Yeah. In addition to being the short, I mean, it's also just a fascinating like case study in uh the the technology meeting like natural resources and and and you know, that's played out over time, over history. It's just it's interesting to hear it about diamonds. Yeah, >> that was a great insight. Yes. >> Well, thank you to piggy back a little bit on what you said, Dan, which is maybe at the very high end, people will stick to natural. You know, part part of me is a little hesitant when I hear that because there's really no way to tell the difference. Even jewelers cannot tell the difference anymore where professional jewelers are being fooled. Now, that could be true. And if it is true that the high-end sticks to natural, Signet doesn't cater to the high-end. Sign Peters lower and middle inome consumer. They have the Jared, the Zales, the K. They're kind of mall based. They had those commercials. Every kiss begins with K. Their customer base is totally different, which is like even just being a mall-based company that's a little dying. Typically, the independent jewelers give a much better value proposition than the sign, which invests so much more in marketing. It I've been in a few of the stores. It seems a little outdated and old. So, you know, there's Cody Coodi is a publicly traded company that owns Lugano Diamonds, which is the very highest end, and they only do natural diamonds. They're going to be the ones that, if your intuition is correct, will benefit. But, Signet, I think on all ends, is going to be hurt. Yet, we've seen the stock rally a ton recently, and it's just because this huge long-term headwind is actually a short-term benefit in a way, and I think that's befuddling the market. >> Wait a minute. Let's clarify. huge long-term headwind is a short-term benefit. How? >> So, lab grown diamonds are a huge long-term headwind because they're going to drive down the price of all diamonds. But they're a short-term benefit because right now you can sell them at a price point where you can still make a huge profit margin on them. >> Oh, I see. Okay. >> Because if a consumer gets a lab grown diamond ring now, it might be half the cost, but it's going to be an 80% profit margin. But in the future, the natural diamonds and lab grown are going to be much lower price points, >> right? The supply has not caught up yet. So, >> exactly. >> Yeah, I'm looking at this chart now and uh Dan, it's this is one of the stocks that has doubled since March. Um, >> okay. >> That we were just talking about in another episode, but it's still what 10 10 price earnings. So, um, >> yeah, there you go. >> Not priced for to do much. Yeah. All right. Um, so that's uh that's a pretty healthy disruption there. Lab grown diamonds. >> Um, and and you know, as is AI, >> do you have I I know you've um you've written recently about a couple of stocks like uh QMM. >> Yeah. >> And you you actually actually let me talk there's something I want to ask you about specifically with this one. Um, >> yeah, >> I noticed in the first couple paragraphs of your writeup, you mentioned that it's the the stock QMM Holdings is being manipulated by an overseas stock manipulation groups and and it's a Keman Islands holding company um operating in Hong Kong. Now, if you just told me Keeman Islands holding company, I'd say red flag. >> And if you told me operating in Hong Kong, I'd say red flag. or you know dark uh pink or whatever. You know what I'm saying? But but when you tell me overseas stock manipulation group, Keeman Islands, Hong Kong, it's like, you know, red red. It's just And how do you know though? Like how do you identify something manipulated by an overseas stock manipulation group? Most people probably don't even know this exists, I'm thinking. >> Yeah. So, the way I kind of first I I've known for a long time there's a lot of US-listed Chinese companies that come onto the market through an IPO or reverse merger and tend to be overvalued or lie about their business and then collapse. This was documented in 2017 in the China hustle. It's gone on for a long time, but it's actually evolved to something different. And what made me start looking at this phenomenon of manipulated Chinese stocks this year was one of your past guests, Herb Greenberg, started writing a few stories about these WhatsApp groups used using uh WhatsApp to manipulate stocks. And then there was a story by Dave Michaels in the Wall Street Journal about CLU, which was a pump and dump that used Facebook ads to recruit people to WhatsApp groups and convince them to buy this worthless stock. And then that manipulation group made $400 million from the pump and dump, half of which was seized by US prosecutors before it transferred to China. And seeing those two things, Herb Greenberg's kind of talking about it and Dave Michaels is talking about it and there's a lot of money here and there's publicly traded securities made me want to dive in head first and understand what is actually going on. So, the way these manipulation groups work is they typically take out ads on Facebook or Instagram to convince people to join WhatsApp groups. Sometimes they'll impersonate uh big personalities like Kathy Woods. Sometimes they'll make up fictitious brands and then they control the floats of these stocks. They'll own 80 90% of the float. They'll send it up through Wash Trading. And then towards the end stage in these WhatsApp groups, they'll convince you, the average investor, to buy it. And it's usually not just, hey, buy this sam scam stock. They'll spend months kind of convincing you that they're legitimate by giving you good stock recommendations or legitimate stocks and then try to convince you to buy this scam stock right before it collapses. And I've gotten in a lot of these WhatsApp groups. I know a lot of people in the WhatsApp groups. I've even made a website where anybody can upload screenshots from these WhatsApp groups into like a crowdsource library. And that's allowed me to more accurately kind of predict how these scams are evolving and when they're going to collapse. So, I've written about four in the bear cave so far. Three have already collapsed. QMM is kind of in the process. QMM is in the process of collapsing. Um, but it's definitely a huge focus area for me that I love to talk about. >> Okay. Have you ever shorted Canadian uh stocks? No, I know there's a lot of, you know, lot of manipulation ones there and they do like more paid stock promotion. The the what'ss are slightly different and I think on a much larger scale, too. >> Okay. Interesting. And so, specifically QMM, which I didn't I didn't tell the listener what they do. It says digital media advertising service, virtual avatar, and virtual apparel technology company. Whatever any of that means. I'm not sure what all that means. >> Virtual apparel technology. All right. >> Yeah. Virtual avatar. I got to get me one of those. I don't know what it is, but I got to get me one of those. >> Yeah. >> So, this stock is being manipulated by, you know, on WhatsApp or whatever. Plus, it's in the Cayman Islands. Plus, it's operating in Hong Kong. Is do you think there's a real business there operating? >> Typically, all these stocks have a really small underlying business. So QMM is, as far as I can tell, they produce commercials for small and medium-sized businesses in Hong Kong. So there's a real business doing a few million dollars in revenue. It's declining. It's an unprofitable business. At the core of these stock scams, which really reach hundreds of millions of dollars in market cap, is just these small and medium-sized businesses. Another one was CUPR that had eight employees that had $50,000 in annual revenue. $50,000. Okay, less than $100,000. It's a very tiny business. And uh they did maggot based healthc care. So they're I'm dead serious. They would sell you maggots that you could put in a wound that would clean up the wound. It is just the weirdest business in the world. And the thing that makes these stock scams so different now is historically with these Chinese companies, you would be lying about the revenue and profits and business model. What the scammers have figured out is we don't need a lie at all. We can say we're a small business. We can say we're unprofitable. We can say revenues are declining because as long as we have a ticker, we'll be able to manipulate it and dump it onto these WhatsApp groups. And I mean, there are hundreds of these stocks that are being manipulated with, you know, one or two crashing every week. And I'm trying to get really good at predicting which ones are about to collapse, >> right? So, if you know, um, I don't want to be too specific here. Let's say there's a North American city where a lot of people are are just printing up shares for, you know, really suspicious reasons. And let's say if you know a lot of people in that city, you know, the next time person XYZ puts out an offering and starts a company or whatever, you know, at some point this thing's going to, you know, pump and and crash and dump. >> Yeah. Um, so it would seem to me that if you knew who the actors were, uh, in, you know, China or Keeman Islands or wherever they actually physically are, >> like you're talking about Washington DC, Dan. Jeez. >> Yeah, that's right. Washington DC. Um, yeah, you know, DJT. Uh, you could you could uh just kind of look for their next thing. I mean, do you so do you look actively for the people who who tend to be behind these things or do you not have to worry about that because for whatever reason? >> I think your intuition is dead right. And in the US, I do a lot of that. I try to track board members from one failed company to another or the underwriters or whoever. With these Chinese companies, it's it's it's not really that simple because the businesses I think are unconnected and the boards are kind of like unconnected. I think the these the way it kind of works is these scam operations based in Southeast Asia find small businesses that are legitimate and convince them, hey, go public. Look the other way. You don't need to do anything. You got plausible deniability and we'll guarantee you you get $20 million your bank account. So, it's not actually like the business. It's like there's this dark network that I haven't been able to fully figure out that's kind of going to each of these businesses. And so it's not that >> that was my next Evan Evan that was my next question. Are they starting scam businesses or are they doing what you're saying right small businesses? >> Yeah. >> Yeah. And then you So they do issue. So typically, you know, it's so insidious. There's like a pump and dump right after the IPO where the kind of insiders will sell and then usually they repump them. So, if you look at QMM, just look at the stock chart. You'll see it initially went went from four to like 12 and then collapsed to a dollar in November 2024. And now it's slowly been pumped again to about $5. And you know, it's down a lot today. But >> so it gets repumped. And what people don't realize is a month and a half ago, two months ago, they sold 40 million shares of stock, more than doubling their shares outstanding at 20 cents a share through like a pipe. And you might wonder, who are these investors? And the investors are and these like pipes are all the same. They're the scammers, but they don't disclose who the scammers are. They never say the names of the scammers buying all the stock at 20 cents that's now going to be dumped at $5 in these WhatsApp groups to people before they collapse. So, it's it's not easy for me to track the individuals because the ones who we do get disclosed are kind of irrelevant and like a byproduct of the scam. And the ones who actually matter are hiding their identity. It's easier for me to track these WhatsApp groups and just I'm in a lot of them. I spend an hour a day talking to scammers and facetiming them and like I'm really trying to get in the weeds of the infrastructure here. So, I pretend to be a victim and you know, a useful idiot to them to actually see how they're operating. That's awesome. >> Yeah. So, just to let the listener know what we're looking at here, um, since Jan since January 1st, the low in this stock was April 1165. The high was August 26, $5.17. And it doubled in the month of August. The stock did it doubled from what, August 11th to the 26th? Not even the whole month. >> I mean, just breathtaking, right? >> Yeah. >> Amazing. And it's it's crazy. And because the scammers are being issued a ton of stock at, you know, well below market, they're making a killing. Like I estimate this is over10 billion dollars a year going from US investors being promoted stocks in WhatsApp groups to overseas stock scammers. And you know, the back of the envelope math is we know from the Wall Street Journal article, CLU and the kind of indictment there made $400 million. And there's more than 25 of these every year. 25 would come out to about 10 billion a year. Something funny though is so you join these WhatsApp groups like I do and they start telling you, you know, to try to build trust. Buy uh Rocket Lab, sell it two days later. Buy Palunteer, sell it two days later. So they give you a bunch of legitimate recommendations. But this this enterprise is so profitable, they can invest in things to make the scam seem more legitimate. So, one of the fake WhatsApp groups I'm in is called FNC Asset Management. Okay? And there's a real firm called FNC, but these guys are impersonating them. And they they told me, you know, do these trades. And I'm pretending to do the trades. And they want screenshots to verify you're doing the trades so they know you're real and following their advice. And they said, you know, you're such a good person. You're you're following our AI driven plan. Uh we're going to send you some gifts in the mail. we're going to send you a mug and you can be and I'm like there's no way this mug arrives, right? They're not going to ask and they're like, "Check your mail, you know, and I check and I'm like, it's not coming." And you know, they're like, "Oh, it's probably delayed." But, you know, I checked my mail and I actually got a real mug from the scammers. This is a scam group impersonating a real asset management firm sending me like branded Tumblr to encourage me to continue to be part of the scam. just came from a scam group spending like 50 bucks to ship me like tumblers and stuff because they're so profitable and all they need to do is just seem legitimate. So this whole dynamic people kind of have of, oh, scammers are going to try to get me to transfer money to them. That's kind of outdated where now it's like they can just get the money by convincing you to invest in a NASDAQ stock that it's going to fall 95%. So Edward, >> it's really funny how much it's evolved and how bad regulators have been at stopping it. >> Yeah. What I'm wondering is these people are sophisticated enough to run this scam on WhatsApp or wherever. You know, they're sophisticated enough to use the internet, but they can't look use the internet to look you up and know that you're the bear cave guy looking for scam. I mean, it's just like what? >> Yeah, it's crazy. >> No, there's so much craziness. What one of my favorite things I I'll tell you, Dan and Corey, is sometimes, you know, they impersonate legitimate asset management firms. Sometimes they, you know, make up firms and say like we're part of whatever XYZ asset management. Other times they'll impersonate social media accounts. So if you look, you know, on X, you'll often see in the replies people are saying like, hey, like trying to impersonate the account and then they'll have a WhatsApp link. You click on those, it'll bring you to the scammers. There's one scammer who's even impersonating me. So, I'm talking to a fake Edwin Dorsy and he's giving me stock recommendations and I'm talking back and it's just it's there's just nothing stopping these guys. It's super profitable. It's getting >> real. >> Oh, >> yeah. Wow. And but you said you put you've put together like open- source uh kind of repository of all these these scams. Is that in your newsletter or is that be available elsewhere? >> No, it's this is freely available for everybody. everyone should I'm going to put this you know it's called stopnasdacchinafraud.com that's the what the website is called and you can go to it and basically anybody can upload screenshots from these scam group chats stop nasdaqchinafraud.com and it has uh a little bit over 500 uploads so far it's getting about 50 a day so you know if you're in these scam group chats if you come to the site you'll see okay everybody else is being scammed this is how they work. It gives me a and anybody else who goes to the site a near real time look into what stocks the scammers are promoting so I can see track in real time what they're doing. So it's partly investor awareness, partly a useful tool for me and I kind of hope one day it'll help law enforcement you know shut all these accounts down. And what I found is when you kind of free up information and try to bring transparency to, you know, issues then that kind of leads to unexpected insight. So, right now I have 600 or so, 500 or so screenshots from all these WhatsApp groups that I and others have submitted to the site. Somebody emailed me last night saying, "Look, I was on the site and I work in the telecom industry and I realized all the phone numbers used by the scammers are from T-Mobile." And I'm like, "How do you know what carrier?" And it turns out you can actually easily find out what carrier every phone number is associated with. And what he we kind of determined is T-Mobile has it the easiest way to get multiple eSIM cards per te uh per telephone. So, you know, all these scammers are using T-Mobile because that's how they can impersonate us numbers the easiest. And literally a 100% of them are using T-Mobile. And that little insight you can only get when you crowdsource information. But that's really useful. Now law enforcement can one day, you know, go to T-Mobile and say, "Why are you doing all this? Give us the payment records for these numbers." and it becomes slightly easier to shut these down and like understand the infrastructure. >> That's great. That's a great resource like just for people in general and then the fact that you're you're doing the work and then yeah, hopefully it it uh reveals all of it, you know? Uh >> yeah, >> it's that's awesome. >> Yeah. And there are posts like every day. I mean, there's screenshots like every single day and a lot of them on each of the recent days. >> Yeah. Thanks. >> It's really cool. You're building something there. That's really great. >> And it's not just US. Something that surprised me is I thought it's going to be a lot of US and really old people. It's not. It's it's international. There's there's posts in Arabic, in Hebrew, in you know, I I talked to somebody in Qatar who lost $270,000. It's very much international even though the companies are always listed on the NASDAQ. Um, and it's really sad because, you know, a lot of these people are just honest, hardworking people with a low degree of financial sophistication. They're convinced to buy it. And even after they get scammed, what the scammers will often do is they'll say, "Oh, we have another stock to make back the money for you." And that stock will always be a scam. Like, it kind of never ends. And then, you know, towards the end, you'll be pitched recovery services. You know, they'll they impersonate regulators. So they'll make it seem like they're from the SEC or FBI and they want to talk to you and they say, "Look, we're investigating the scammers." So the scammers will impersonate regulators investigating the scammers and say, "Hey, we know you lost this much and if you pay us a 10% of that, we'll recoup the money and add you to a lawsuit." And so they scam you a third time. There there's no limit to the to the craziness that goes on. And it's just affecting ordinary people. And part of the reason I think it hasn't been shut down and we've seen no regulatory scrutiny was if it was affecting really wealthy people. I think there would be a lot there would be lawsuits. They would get shut down fast. But it's just affecting ordinary Americans who lose 50 to 100 grand in these schemes. And usually they're a little bit at fault. So they feel embarrassed. They don't want to come forward. But I I hope with enough attention it can change. >> Yep. I do too. >> Yeah. Me too. >> Oh man. It's a sad state of affairs, but I don't know. That's the way a lot of things in this world are. Like it it's no surprise to me that there are just legions and legions of and legions of people on social media who have enough money, you know, like you're saying, 200,000. That one guy, 270, and and yet know so little that they can't detect an obvious scam, you know, right from the get-go. Um I that's just sort of the way it goes, isn't it? I mean, if you if you if you wipe them out here, they pop up over there. It's it's impossible to get rid of them almost. >> Yeah. I mean, that's part of the reason I think podcast like, you know, podcasts like this that just bring at least like some level of education to everybody. It's it's so important because it can give you useful insights, but it can also just teach you kind of how the world works to avoid these like pretty obvious scams. I you know I it it's just crazy. >> Yeah. Yeah. There's just I'm the the older I get and the more I think about this sort of thing. Um it's like levels of awareness, you know, it's it's it's not merely forest for the trees. It's like, you know, it's you're young and it's like tree, two trees, 10 trees, 20 and you know, and then you get to be 60 after doing this for almost 30 years. And it's like forest, you know, finally it's like, you know, you got to hike backwards 10 miles to see the forest. Uh, and that takes years. And um there's no substitute for it either. And it and and educating people, which I think is a large part of what you do really. >> Yeah. >> You know, you're you're educating people about this whether they realize it or not. You're teaching them what to look for and and you know, then you have, you know, stop NASDAQ, china fraud.com, and that that is an explicit, you know, tool for that type of education. Um, and yet like you can you can learn to short these things, can't you? like you can turn it around. You can turn the tables. >> Yeah. So, well, there's kind of two sides to it. There's the education and awareness side, which is great. And, you know, one criticism people give is, well, they're only going to see your posts after you've written them. Okay? And people love to criticize you for all sorts of things. I was like, well, it doesn't help them because it only they see it after you've written it. And I say that's true in most cases, but that's still good because it prevents them from being rescam. Once you get scammed, you lose the money and you come to my post because you look wonder why the stock is down. You understand how the scam works and you're not going to invest in another one of these because people frequently just get pitched the second scam. And some people do find it before it collapses. Now, on the shorting front is these things, you know, so somebody made a joke post. This isn't real, but somebody on Reddit said they lost their entire net worth shorting the companies I highlighted as scams because they took these huge positions and then it squeezed after hours. And what the scammers will do is they'll often try to, you know, manipulate the stock after hours up to 300% just to drive out any short sellers who might not be aware. So you really if you do short these it needs to be small positions. The way professionals tend to short these is they take big positions in the morning and then cover right before the close. That way if there's manipulations in the after hours it won't affect them. >> After hours manipulation is a global industry just you know. >> Yeah. It's it's especially for these where they love to harm the short sellers and they kind of can control the float. So you you only want to short them when they're being promoted in the WhatsApp groups, which means the float is more distributed. You typically want to do it intraday. And historically, these things collapse most frequently around 3 p.m. For whatever reason, 3 PMs on Wednesdays and Thursdays are like the favorite time of scammers to let these things collapse. So like once you like, you know, I think the free part of my newsletter, I want awareness and warning. And then for the more paid professional readers, I'm like, let me tell you the nitty-gritty of how these like to do do it. Um, but the big salient point I want to say is no, nobody should take huge short positions in these because they can manipulated stocks can be manipulated more. You know, it's it's a risky thing. >> It's worth That's right. It's worth pointing out shorting is hard. Most of our listeners probably shouldn't do it. >> Yeah. But that but what I'm really um just kind of figuring out here as you're talking as we're talking is that shorting is hard. Most of our listeners probably shouldn't do it but you should really read good short research. >> Yeah. >> You you really really should. I mean there's just no substitute for it. Like what we do with you know lots of due diligence and and good analytical work on the long side. That's great and it goes quite away. You know it's good as far as it goes and it goes quite a way. But there's a piece there that's missing if you don't read some good short research. Uh, you know, at least now and then. I I there's definitely a place even if you never short one stock. >> Just saying. >> So, I have a question for you here. >> Yes. >> Um, one of the better um guys over the years who I've gotten the odd short idea from directly or indirectly is Whitney Tilson. >> Yes. and he famously um was shorting um Netflix I think it was and and met with the CEO and then turned around and went long which was the thing to do. >> Do do you ever I mean you're looking you're not looking at Netflix here or maybe you are but you're looking at these god-awful China frauds and other things. Do you have you ever once has it ever happened that you are looking through the you know basically like the scum of the market earth? A have you ever found a situation like that where you said oh not only is this not terrible it's a decent long idea? >> You know I've never So I don't short the companies I write about in my newsletter. I really try to make it clear to my readers. I I make money from reader subscriptions and not trading it. So if if I' I've done a lot of times where I start the research process digging into something that you know seems like a consensus narrative and the company is terrible but then I can't reach that conclusion and maybe then it's a good long. That has happened a lot. But if I'm at the point where I'm writing about it in my newsletter, usually I I I feel like the issues are so multiaceted. there's a problem with the business and there's an kind of ethical aspect with the management team that's wrong. I'm not going to just write about it if there's an overvaluation which can be corrected or like a single issue. So because because there's usually some like big underlying integrity issue with the businesses I write about. It's not one of those that a little bit of a governance switch can fix. Um, you know, maybe like, you know, in one or two cases there was ones that were very CEO focused. Like I wrote about Six Flags because they had a really bad CEO, but now that the CEO is gone and they merged with someone else, maybe then it can do a little better. But most of the time, like Signit is going to, I think, suffer regardless of who the CEO is, regardless of what they announce. I think it's just kind of, you know, really gonna So, I don't I don't do that a lot. Sometimes I see these short I think sometimes the most consensus short ideas can be to me some of the worst ones. Like people love to rail against Tesla. Tesla has had so many short sellers for so long and I'm really proud of the fact I have not once criticized Tesla in my newsletter because I just I don't have an opinion on whether the stock is going to go higher or lower. I just think, you know, there's so many worse people companies out there. Like Tesla's doing useful things. Elon Musk, you might hate him, but he is a smart individual who's good at building businesses and that kind of so like I like to me I'm proud of kind of avoiding that one even though it may be a good short. It's not my favorite thing. And I I give a ton of credit to Whitney Tilson. So Whitney wrote that Netflix uh you know short and then what happened is so he um who Reed Hastings, the old CEO founder, he had the best response ever to a short seller. And I encourage you and every listener to look at this, you know, and this is part of the lore is usually they love to, you know, threaten to sue the short sellers or call the short sellers idiots or ignore the short sellers. Whitney Tilson wrote a detailed blog po, sorry, Reed Hastings wrote a detailed blog post to his friend Whitney Tilson publicly just going point by point by point on why he thought the short thesis was wrong. And I think the stock is up 100x or something since then. And that just spoke to me because you never see executives do that. And I I'm just amazed more people haven't copied that Reed Hastings approach of, you know, here in a neutral tone of voice, not being accusatory or threatening. Just let me politely lay out the future. And ironically, Whitney Tilson was like a little right in the short term because Netflix stock did dip a little, but in the long run, Reed Hastings like totally totally was right. And that's what's kind of missing in the market is respectful disagreement being measured. Um, a and if I ever saw a CEO respond like that to an activist short report, writing a detailed, respectful, non-inflammatory blog post, to me, that's the one sign that'll make me think, I want to get long this heavily shorted stock. >> Yeah, that is. Yeah, we've had Whitney on and he told that story. It was a great story. Yeah, >> he did tell that story and he'll also tell you that the mistake he made was not holding on to Netflix long enough and letting letting the winners run as well. And so, >> yeah, >> but but yeah, I I think you're right. Like if if you're if you believe in your business, if you're a CEO who believes in your business and think you're doing all of the right things and and have a good strategy, why would you not >> kind of publicly at least even acknowledge, you know, some criticism and just um and and just address it like head on, you know? When they don't, that's a signal, too, right? So or when various levels of denials and and going silent like that that's signal too, right? >> Yeah. >> Right. >> No, Edwin though, you make that's a great point. >> You know, every the overwhelmingly overwhelmingly the responses are like even like cussing the guy out in public or what you know the CEOs just they just go off. >> They go off. They say this person's an idiot. They don't know what the hell they're talking about. you know, um, pretty famous, uh, conference call, Jeff Skilling, you know, called a guy a, you know, profane name and he, you know, he's kind of like hot mic kind of moment. And, uh, it would be even even if they were, even if they were a good short, they could probably really, you know, coast for months or or more if they just handled it right. if they just got did that credible, you know, pointby-point response, you know, if they could pull off anything like that, they remained polite and respectful and just said, "No, no, no. We disagree, you know, and didn't go off, but they don't do that. You'd think they'd figure it out." You'd think people would figure things out. I guess you could say that with a lot of things, but >> I don't know. Seems like low lowhanging fruit for this for the for the heavily shorted CEO to me. We got to start an advisory for the companies that get hit by short reports. Like this is how you respond. You know, like Leven Brother CEO, he literally said, "I want to rip the short sellers hearts out." You know, it's And it's like, "Come on, guys. We have a pretty good precedent here with Reed Hastings." Literally just copy that and, you know, you'll get a 10% bump just from people believing. >> Right. Right. just from that little extra doubt, you know, because right now as it is, >> boy, you you get the right guy putting out a short reporter on you and uh you know, the day he puts it out, you you are just, you know, crushed. Um, so yeah. Yeah, that would be nice. Well, I don't know if it would be nice, but it would be logical. >> Yeah. >> And and who knows if if if you got more people to behave reasonably, maybe there would be some kind of self-fulfilling prophecy. Maybe, you know, maybe if we maybe we could educate people to the point where some of them might see the error of their ways, you know, and if it's one in a thousand, it's worth it. >> Yeah. >> Just prayers. Hopes and prayers is all that is. I just want to put it out there. I got to, you know, I'm getting older. I got to put this stuff out in the universe because, you know, you need to leave as many good vibes uh as possible behind you. But yeah, I figured I I figured that um I figured I you know, the answer would be basically, you know, no, I'm not, you know, having, you know, Netflix moments with like Whitney every 10 minutes or whatever, but um it's a question worth asking. >> Yeah, that was a long way of answering no. >> Yeah. Yeah. Sure. No, and it's a good way of answering no. And we and it's the the the Whitney, you know, Netflix example is is a really great case study and I think we've established that. You could probably go and Google the the blog post. >> Yeah. Um, >> before we before we uh get out of here, I do want to go circle back to the AI uh you know sector that you're looking at just briefly on on the companies that are I guess viable to be disrupted or the sectors what were like the top like I don't know one or two that you're looking at right now. >> I think the biggest you know so there's homework help companies like Jake and Nerdy those are kind of already priced in. There's the AI stock image companies because AI can generate images more easily. That would be Shuttertock and Getty, but that's a little complicated because they're trying to merge. And beyond that, I think the three kind of areas that are most primed for AI disruption are call centers by extension call center software companies and then business process outsourcing, which is also like often like a synonymous with call centers. basically these businesses that employ huge numbers of people in countries like India, the Philippines, kind of developing world economies where you can get labor really cheap to do historically pretty like monotonous tasks. Um, some of these business process outsourcers, they all say we're not going to be hurt by AI, but I like looking at their customer case studies. What have you actually done for customers? And one of the business process outsourcing companies said, "We worked with the bank and we transcribed 500,000 hours of like recorded audio from their customer service departments." I'm like, "AI is perfect for that." You know, we we we analyze, we have humans approve or deny accounts based on risk metrics. I'm like, AI is perfect for that. Even now with call centers, increasingly we're going to see calls uh customer service issues being prevented before a phone call by AI. We're going to see AI, you know, a lot of times in call centers, the work is a human answering and then routing you to the right person. We're going to see AI do that more. I think the future of customer service is going to be more inappbased. people solve their own issues and then when you can't you go to an AI and you explain the issue and if they can't solve it then it goes to a human very briefly who has all the context they need to make decisions. If you look at um I looked at the earnings call transcripts for a lot of major public companies and they all said call centers, contact centers, whether it's a bank or a telephone company, these huge organizations that have big call centers, they said this is going to be a point of cost savings for us because we can use AI automation to get rid of a lot a lot of the manpower there. I I think it's a little bit something that's going to take maybe a year or two to play out, but I would not want to be long. And call center, business process outsourcing companies. Teleperformance is a big one in France. Uh concentrics, CNXC is a big one in the United States. Those are ones that I just think, you know, the headwinds are so strong. This is not a business prime for the future. >> All right. Um well, thanks for that. I mean, I'm I'm writing all that stuff down. I'm writing down like every every ticker, every company, everything so I can avoid it all if nothing else. But it is time for our final question. >> Awesome. >> It's the same question for every guest. No matter what the topic, even if it's a non-financial topic, same identical question. If you've already said the answer, by all means, feel free to repeat it. The final question is for the sake of our listener, if you could leave them with one takeaway, just one thought today, what would you like that to be? My my one takeaway, circling back to the beginning of the call, is don't buy natural diamonds. They're going to lose all their value. Don't buy natural diamonds. This is not the time to buy a natural diamond. >> All right. Sounds like uh sound advice if you're worried about the value of that thing on your sitting on your finger there for year after year. >> Not a store of value anymore. >> Yeah. >> No way. >> Right. Well done. So, thanks for that and thanks for being here, Edwin. It's been a pleasure to talk with you again. Absolutely. Thank you guys so much for having me. I admire the show and I'll continue to be a listener. >> All right. Well, you will continue to get a call every now and then to be on it. So, there's that, too. >> Thank you guys. >> Opinions expressed on this program are solely those of the contributor, and do not necessarily reflect the opinions of Stanbury Research, its parent company, or affiliates.
Today's Top Short Sells, From AI Victims to Chinese Scams
Summary
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferrris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McLaclin, editor of the Stanberry Daily Digest. Today we talk with the Bearcave editor, Edwin Dorsy. >> We've had Edwin on before. He's not like anybody else because all he does is short sell research and he's definitely somebody you ought to be reading if you're not doing so already. I know he'll have a lot of great things to teach us. Get your pens and pencils out and get ready. So, let's do it. Let's talk with Edwin Dorsy. Let's do it right now. Edwin Dorsy, welcome back to the show. Great to see you again. Dan, Corey, it's an honor to be back. I'm so happy to be back here. >> All right, so let's like before we get into specific stocks and whatever, let's remind our listeners um like who you are and and what you're what you're all about. >> Yeah, absolutely. My main job is I write a newsletter called the Bearcave that's broadly focused on exposing corporate misconduct. There's kind of two elements to the newsletter. There's a free weekly recap where I summarize what's going on in the shortseller world. I'll summarize new activist short campaigns, highlight suspicious resignations, and link to interesting tweets. And then twice a month for the paid readers, I'll do these deep dives into companies that I feel are misleading investors, harming customers or on the wrong end of disruption. So my publications read by a lot of short sellers and investors who want to know what stocks to avoid, what's doing poorly in this market. >> Okay. And let's if we could um you know you mentioned people in the wrong end of disruption and other things. What do you have a favorite category of short? Every time I talk to somebody about shorting they're like oh I like to short stocks. Boom. And then they have like this one idea. >> You know so I would say it's changed a little over time. Historically I've been really good at the consumer protection angles where I'd be really great at seeing what consumers are complaining about to regulators. under this administration that's this isn't the environment for those types of shorts companies that so so now I've shifted a little more to focusing on companies on the wrong end of disruption so I would say my favorite shorts right now are companies that I believe are going to be hurt by AI or some other form of disruption >> all right so uh that that sounds like a good idea to me um >> me too Yeah, >> I remember the first time you were here. Uh, yeah, it was end of 2024. You talked about how you kind of got into this and >> was it care.com was one of the the first ones um that you were that that raised your eyebrows and that's more of the consumer protection angle, right? Yeah, >> exactly. Okay, so Care.com for PE listeners who might not remember from last time was this billion-doll publicly traded babysitting platform where babysitters could advertise their services to parents and parents could advertise their services to babysitters. And the big element of this platform is safety. You've got to vet the people and make sure they are who they say they are. And I saw that there was a bunch of lawsuits against the company. So I decided to test out their screening myself and tried to sign up as Harvey Weinstein. I use a photo of Harvey Weinstein. I made up all the information and lo and behold at the end of the process they said, "Do you consent to the background check?" I said, "Sure." And then three days later, they approved me as Harvey Weinstein as a verified babysitter on their site. So, I knew they weren't doing their checks. And those are the types of shorts or diligence I've done historically, but now I'm focusing a lot on more of the disruption and a lot of US-listed China scams. Those are kind of my two focus areas. Now, >> I'm glad you mentioned both of those. um let's stick with the disruption while while we're there. So, uh you know, tell me about that. What's what does the diligence process look like for that versus, you know, um looking for lawsuits on the consumer side? >> Absolutely. So, for disruption, it's going to depend on what it is. There's kind of two big fields of disruption I'm looking at, which is AI and lab grown diamonds replacing natural diamonds. We can talk about each of those. with AI, it's very company specific. So, one of the companies I've criticized in the past that I was really proud of is CHEG. For those who don't know, Cheg was a multi-billion dollar homework help company where students would go pay Cheg a monthly fee for help on their homework or getting answers. And right away, just as somebody who was in college not that many years ago, I I knew this chat sheet BT would be a perfect replacement for check. It's giving you the answers right away. It's a lot cheaper. It's a lot faster. It's a lot more user friendly. So I you don't want to just go off gut intuition. You want to find evidence to back up your claim. Now sometimes it's in the financials, but if it's in the price in the financials, it's kind of too late and the market's reacting. So I try to look at leading indicators before it appears in the financials. One easy thing you can do is that the customer bases on Tik Tok, you go on Tik Tok. So, this is very simple, but for che all I did is I searched che on Tik Tok and everybody's talking about deleting Cheg, which is not a good thing. And you'll actually find that students hate Cheg. They hate Cheg because it's expensive. They hate Cheg because in the past, Cheg has worked with schools to rat out students that were cheating, which might have been the ethically right decision, but poor for the business because it doesn't engender goodwill. I found that students had a lot of animosity towards CH. They were excited to switch. And then one final thing that is kind of consistent with the consumer protection angles that I've talked about is I love it when companies try to make it a lot tougher to cancel. To me, that's a sign that the kind of end is near. And if you look at CH and I document this in the bear cave, they made their cancellation flow from a simple, you know, just click to cancel to this really weird sevenstep process. You cancel. Are you sure? Are you absolutely sure? Can we give you a win back offer? and second went back offer. Literally six stages and then at the end they would say, "Oh, we're sorry to see you go." So you'd think it would be cancelled, but you need to click one more time to confirm cancellation. So I, you know, you see those games, you see a lot of complaints to regulators about people getting build after they've already canceled. You see the people leaving for a new product. Um, so that's one example on AI. A lot of other times it's just trying to be somewhat intuitive and understanding how the world's evolving. So I haven't written about Shuttertock and Getty, two stock image platforms, partly because there's some complexity in that they're trying to merge with one another. But those to me are going to be obvious losers going forward. No one's going to pay $50 for a stock image if you can get an AI generated one just as easily. I see this as a newsletter author myself. Substack has it embedded that we can just create AI generated images super easily. So that's kind of on the AI front and we can jump in a little more there and talk about call centers and call center software if you want which are two other you know subsets of the economy I think are going to be hurt by AI. Now the other area of disruption that I think is really prime for a short is the diamond industry. Especially if you talk to younger consumers, lab grown diamonds are becoming increasingly popular. They're chemically, physically, and optically identical to natural diamonds, but a lot cheaper. And I think and what the market is showing is that consumers are happy to shift to lab grown diamonds, which is lowering the price of all diamonds. And I think it's going to upend the diamond industry and it's going to hurt uh the retailers like Signet that sell a lot of natural diamonds. >> Wow. Yeah. People have been talking about diamonds for so long and the finally because they always said, "Well, it's a cartel and you know they have so many more diamonds than they're willing to release one to the market, etc., etc., etc." And and now that dynamic it doesn't matter anymore. >> Yeah. Yeah, because you can grow them in a lab. >> You know, I think I think historic the diamond industry is filled with and I'd love to talk about diamonds for a while that the diamond industry is built on marketing. I think historically people said cartel. I think now it's maybe a little more loose than that where Debeers controls a lot. Al Rosa and Russia controls a lot of diamond production. I it's more that the lab grown diamonds have been around forever, but only in the last two or three years have they gotten to such a quality that no one can really tell the difference between natural diamonds and lab grown diamonds. Like they're the same thing. And they've gotten to a price point that is so much cheaper. And if you hear I think the traditional investor sentiments are well you know guys might prefer buying lab grown diamonds but women will always want the natural thing. And you know, you see what actual consumers are saying, especially the younger ones. You know, the trade-off is simple. If you can get a bigger diamond that's higher quality, that's half the price, and spend more on your honeymoon, plus it's ethically sourced, and doesn't involve any child labor negatives on the environment. That's a trade-off basically nine out of 10, you know, millennials will want to make. And everybody's shifting towards lab grown diamonds. So, this is an area of disruption that I think is going to continue. And if you look at some historical precedent, Dana and Corey, because I know you guys talk um about, you know, kind of metals and gold and stuff in the past, I is in the 1800s, one of the most valuable uh metals was aluminum. Aluminum is actually at the top of the Washington Monument. People don't notice this, but 100 ounces of aluminum is the capstone of the Washington Monument because it was one of the most valuable metals at the time. And 10 years after it was built, aluminum lost 99% of its value because we were able to massproduce it a lot easier. I think lab grown diamonds are the same thing where now that we have a influx of lab grown diamonds, we're going to see the price of diamonds fall so much it's going to become commonplace. And when something becomes commonplace, nobody wants it anymore. It used to be that women in the 1800s would have aluminum jewelry. Now nobody wears that. with diamonds. It used to be, you know, people will have diamond jewelry in the future. It's so common place and so cheap, nobody's going to want it. >> I understand the um the idea that Signet, for example, takes a hit on their their natural diamond inventory, right? We get that part. But couldn't they become like the biggest seller of of lab grown diamonds? Does this necessarily mean that they have to take a long-term hit to their business? That's a great question and I think the answer is a little bit nuanced which is screwing with the marketplace. The signet in some ways natural diamonds are good lab grown diamonds are good for them because the margins are higher. So even if it's a slightly lower price point the it's very cheap to produce you can sell it still. So the margins are huge. I would say there's some evidence that sign doesn't want a loud crown diamond future especially for engagement rings. Signant has kind of two divisions. engagement rings which are about half the business and fashion jewelry like earrings and bracelets with the other half and we'll talk about each. So for engagement rings they very clearly do not want a lab grown future and that's bad for them and I'll explain why but the indication that we know they don't want lab grown is they've been launching new ad campaigns to push consumers back towards natural diamonds. They've add warnings to their receipts saying that lab grown diamonds may not hold their value, which is true, but natural diamonds won't either. They've said they've put out initiatives to retrain their store employees to push people towards natural diamonds. So for management and everybody, we we see that they prefer a natural diamond future, which means if this loud grown diamond trend continues, it's probably going to be a negative. So I even if the selling prices are lower, why does lab grown hurt them for engagement rings if the margins are so much higher? And the argument I would make is even though it might be a temporary benefit if people shift to lab grown in the long run it's going to kill you because the history of lab grown and that this is continuing is just they get cheaper and cheaper and cheaper and the selling prices go down and down and down and it this effect has been happening so much that it's also pressuring natural diamonds where natural diamonds for the longest time were flat to going upish. Even in 2022, they hit like an all-time peak partly because of the Russia Ukraine war and the supply being constricted. And only now are diamond prices really starting to freefall. So when lab grown kind of becomes the standard and becomes endlessly cheap and now anybody can retail it and you can buy them online or at Walmart or anywhere, then that's going to pre put pressure on the price of natural diamonds. It's going to put pressure on the price of labron diamonds. And Signit's most profitable part of their business is selling kind of warranties and extended service agreements on the engagement rings people buy. So for a 10% markup, you can buy these warranties. That becomes, you know, less less profit when the selling prices are lower. And if it's going to if labs truly become so commonplace, will people even want these warranties? So in the short run it might not hurt them this much because they're going to be going from a higher to lower selling pro point but with higher VA margins but in the long run if the prices just continuously decline which is the market showing what is happening and is what you'd naturally conclude that would hurt them. Likewise, on the fashion jewelry side, so far it's a temporary benefit because now consumers can get really nice diamond jewelry for a lot cheaper. But but in the long run, what we've seen historically is when these things become so commonplace, nobody will want them. And that's kind of the bet I'm willing to make. And at the end of the day, if you're the world's largest diamond retailer, whether it's lab grown or natural, if the price of diamonds continuously fall, that's going to hurt you. And you even look at other lab grown diamond companies like Brilliant Earth. They've done terribly since going public because it's tough to make money selling an item that's constantly losing its value at 2 to 3% a month. My last thought that about this is just that I could see I could see somebody serving the very very high-end customer um surviving and absolutely thriving by selling only you know the super gradea natural diamond you know like whatever the whatever the highest rating of a diamond is I have no idea I don't know anything about diamonds in that regard >> but you know that's obviously not a large market. Um, and I don't it's a guess that that might even occur. Um, but yeah, this this this sounds interesting and it sounds bad for Sigma. >> Yeah, it does. Yeah. In addition to being the short, I mean, it's also just a fascinating like case study in uh the the technology meeting like natural resources and and and you know, that's played out over time, over history. It's just it's interesting to hear it about diamonds. Yeah, >> that was a great insight. Yes. >> Well, thank you to piggy back a little bit on what you said, Dan, which is maybe at the very high end, people will stick to natural. You know, part part of me is a little hesitant when I hear that because there's really no way to tell the difference. Even jewelers cannot tell the difference anymore where professional jewelers are being fooled. Now, that could be true. And if it is true that the high-end sticks to natural, Signet doesn't cater to the high-end. Sign Peters lower and middle inome consumer. They have the Jared, the Zales, the K. They're kind of mall based. They had those commercials. Every kiss begins with K. Their customer base is totally different, which is like even just being a mall-based company that's a little dying. Typically, the independent jewelers give a much better value proposition than the sign, which invests so much more in marketing. It I've been in a few of the stores. It seems a little outdated and old. So, you know, there's Cody Coodi is a publicly traded company that owns Lugano Diamonds, which is the very highest end, and they only do natural diamonds. They're going to be the ones that, if your intuition is correct, will benefit. But, Signet, I think on all ends, is going to be hurt. Yet, we've seen the stock rally a ton recently, and it's just because this huge long-term headwind is actually a short-term benefit in a way, and I think that's befuddling the market. >> Wait a minute. Let's clarify. huge long-term headwind is a short-term benefit. How? >> So, lab grown diamonds are a huge long-term headwind because they're going to drive down the price of all diamonds. But they're a short-term benefit because right now you can sell them at a price point where you can still make a huge profit margin on them. >> Oh, I see. Okay. >> Because if a consumer gets a lab grown diamond ring now, it might be half the cost, but it's going to be an 80% profit margin. But in the future, the natural diamonds and lab grown are going to be much lower price points, >> right? The supply has not caught up yet. So, >> exactly. >> Yeah, I'm looking at this chart now and uh Dan, it's this is one of the stocks that has doubled since March. Um, >> okay. >> That we were just talking about in another episode, but it's still what 10 10 price earnings. So, um, >> yeah, there you go. >> Not priced for to do much. Yeah. All right. Um, so that's uh that's a pretty healthy disruption there. Lab grown diamonds. >> Um, and and you know, as is AI, >> do you have I I know you've um you've written recently about a couple of stocks like uh QMM. >> Yeah. >> And you you actually actually let me talk there's something I want to ask you about specifically with this one. Um, >> yeah, >> I noticed in the first couple paragraphs of your writeup, you mentioned that it's the the stock QMM Holdings is being manipulated by an overseas stock manipulation groups and and it's a Keman Islands holding company um operating in Hong Kong. Now, if you just told me Keeman Islands holding company, I'd say red flag. >> And if you told me operating in Hong Kong, I'd say red flag. or you know dark uh pink or whatever. You know what I'm saying? But but when you tell me overseas stock manipulation group, Keeman Islands, Hong Kong, it's like, you know, red red. It's just And how do you know though? Like how do you identify something manipulated by an overseas stock manipulation group? Most people probably don't even know this exists, I'm thinking. >> Yeah. So, the way I kind of first I I've known for a long time there's a lot of US-listed Chinese companies that come onto the market through an IPO or reverse merger and tend to be overvalued or lie about their business and then collapse. This was documented in 2017 in the China hustle. It's gone on for a long time, but it's actually evolved to something different. And what made me start looking at this phenomenon of manipulated Chinese stocks this year was one of your past guests, Herb Greenberg, started writing a few stories about these WhatsApp groups used using uh WhatsApp to manipulate stocks. And then there was a story by Dave Michaels in the Wall Street Journal about CLU, which was a pump and dump that used Facebook ads to recruit people to WhatsApp groups and convince them to buy this worthless stock. And then that manipulation group made $400 million from the pump and dump, half of which was seized by US prosecutors before it transferred to China. And seeing those two things, Herb Greenberg's kind of talking about it and Dave Michaels is talking about it and there's a lot of money here and there's publicly traded securities made me want to dive in head first and understand what is actually going on. So, the way these manipulation groups work is they typically take out ads on Facebook or Instagram to convince people to join WhatsApp groups. Sometimes they'll impersonate uh big personalities like Kathy Woods. Sometimes they'll make up fictitious brands and then they control the floats of these stocks. They'll own 80 90% of the float. They'll send it up through Wash Trading. And then towards the end stage in these WhatsApp groups, they'll convince you, the average investor, to buy it. And it's usually not just, hey, buy this sam scam stock. They'll spend months kind of convincing you that they're legitimate by giving you good stock recommendations or legitimate stocks and then try to convince you to buy this scam stock right before it collapses. And I've gotten in a lot of these WhatsApp groups. I know a lot of people in the WhatsApp groups. I've even made a website where anybody can upload screenshots from these WhatsApp groups into like a crowdsource library. And that's allowed me to more accurately kind of predict how these scams are evolving and when they're going to collapse. So, I've written about four in the bear cave so far. Three have already collapsed. QMM is kind of in the process. QMM is in the process of collapsing. Um, but it's definitely a huge focus area for me that I love to talk about. >> Okay. Have you ever shorted Canadian uh stocks? No, I know there's a lot of, you know, lot of manipulation ones there and they do like more paid stock promotion. The the what'ss are slightly different and I think on a much larger scale, too. >> Okay. Interesting. And so, specifically QMM, which I didn't I didn't tell the listener what they do. It says digital media advertising service, virtual avatar, and virtual apparel technology company. Whatever any of that means. I'm not sure what all that means. >> Virtual apparel technology. All right. >> Yeah. Virtual avatar. I got to get me one of those. I don't know what it is, but I got to get me one of those. >> Yeah. >> So, this stock is being manipulated by, you know, on WhatsApp or whatever. Plus, it's in the Cayman Islands. Plus, it's operating in Hong Kong. Is do you think there's a real business there operating? >> Typically, all these stocks have a really small underlying business. So QMM is, as far as I can tell, they produce commercials for small and medium-sized businesses in Hong Kong. So there's a real business doing a few million dollars in revenue. It's declining. It's an unprofitable business. At the core of these stock scams, which really reach hundreds of millions of dollars in market cap, is just these small and medium-sized businesses. Another one was CUPR that had eight employees that had $50,000 in annual revenue. $50,000. Okay, less than $100,000. It's a very tiny business. And uh they did maggot based healthc care. So they're I'm dead serious. They would sell you maggots that you could put in a wound that would clean up the wound. It is just the weirdest business in the world. And the thing that makes these stock scams so different now is historically with these Chinese companies, you would be lying about the revenue and profits and business model. What the scammers have figured out is we don't need a lie at all. We can say we're a small business. We can say we're unprofitable. We can say revenues are declining because as long as we have a ticker, we'll be able to manipulate it and dump it onto these WhatsApp groups. And I mean, there are hundreds of these stocks that are being manipulated with, you know, one or two crashing every week. And I'm trying to get really good at predicting which ones are about to collapse, >> right? So, if you know, um, I don't want to be too specific here. Let's say there's a North American city where a lot of people are are just printing up shares for, you know, really suspicious reasons. And let's say if you know a lot of people in that city, you know, the next time person XYZ puts out an offering and starts a company or whatever, you know, at some point this thing's going to, you know, pump and and crash and dump. >> Yeah. Um, so it would seem to me that if you knew who the actors were, uh, in, you know, China or Keeman Islands or wherever they actually physically are, >> like you're talking about Washington DC, Dan. Jeez. >> Yeah, that's right. Washington DC. Um, yeah, you know, DJT. Uh, you could you could uh just kind of look for their next thing. I mean, do you so do you look actively for the people who who tend to be behind these things or do you not have to worry about that because for whatever reason? >> I think your intuition is dead right. And in the US, I do a lot of that. I try to track board members from one failed company to another or the underwriters or whoever. With these Chinese companies, it's it's it's not really that simple because the businesses I think are unconnected and the boards are kind of like unconnected. I think the these the way it kind of works is these scam operations based in Southeast Asia find small businesses that are legitimate and convince them, hey, go public. Look the other way. You don't need to do anything. You got plausible deniability and we'll guarantee you you get $20 million your bank account. So, it's not actually like the business. It's like there's this dark network that I haven't been able to fully figure out that's kind of going to each of these businesses. And so it's not that >> that was my next Evan Evan that was my next question. Are they starting scam businesses or are they doing what you're saying right small businesses? >> Yeah. >> Yeah. And then you So they do issue. So typically, you know, it's so insidious. There's like a pump and dump right after the IPO where the kind of insiders will sell and then usually they repump them. So, if you look at QMM, just look at the stock chart. You'll see it initially went went from four to like 12 and then collapsed to a dollar in November 2024. And now it's slowly been pumped again to about $5. And you know, it's down a lot today. But >> so it gets repumped. And what people don't realize is a month and a half ago, two months ago, they sold 40 million shares of stock, more than doubling their shares outstanding at 20 cents a share through like a pipe. And you might wonder, who are these investors? And the investors are and these like pipes are all the same. They're the scammers, but they don't disclose who the scammers are. They never say the names of the scammers buying all the stock at 20 cents that's now going to be dumped at $5 in these WhatsApp groups to people before they collapse. So, it's it's not easy for me to track the individuals because the ones who we do get disclosed are kind of irrelevant and like a byproduct of the scam. And the ones who actually matter are hiding their identity. It's easier for me to track these WhatsApp groups and just I'm in a lot of them. I spend an hour a day talking to scammers and facetiming them and like I'm really trying to get in the weeds of the infrastructure here. So, I pretend to be a victim and you know, a useful idiot to them to actually see how they're operating. That's awesome. >> Yeah. So, just to let the listener know what we're looking at here, um, since Jan since January 1st, the low in this stock was April 1165. The high was August 26, $5.17. And it doubled in the month of August. The stock did it doubled from what, August 11th to the 26th? Not even the whole month. >> I mean, just breathtaking, right? >> Yeah. >> Amazing. And it's it's crazy. And because the scammers are being issued a ton of stock at, you know, well below market, they're making a killing. Like I estimate this is over10 billion dollars a year going from US investors being promoted stocks in WhatsApp groups to overseas stock scammers. And you know, the back of the envelope math is we know from the Wall Street Journal article, CLU and the kind of indictment there made $400 million. And there's more than 25 of these every year. 25 would come out to about 10 billion a year. Something funny though is so you join these WhatsApp groups like I do and they start telling you, you know, to try to build trust. Buy uh Rocket Lab, sell it two days later. Buy Palunteer, sell it two days later. So they give you a bunch of legitimate recommendations. But this this enterprise is so profitable, they can invest in things to make the scam seem more legitimate. So, one of the fake WhatsApp groups I'm in is called FNC Asset Management. Okay? And there's a real firm called FNC, but these guys are impersonating them. And they they told me, you know, do these trades. And I'm pretending to do the trades. And they want screenshots to verify you're doing the trades so they know you're real and following their advice. And they said, you know, you're such a good person. You're you're following our AI driven plan. Uh we're going to send you some gifts in the mail. we're going to send you a mug and you can be and I'm like there's no way this mug arrives, right? They're not going to ask and they're like, "Check your mail, you know, and I check and I'm like, it's not coming." And you know, they're like, "Oh, it's probably delayed." But, you know, I checked my mail and I actually got a real mug from the scammers. This is a scam group impersonating a real asset management firm sending me like branded Tumblr to encourage me to continue to be part of the scam. just came from a scam group spending like 50 bucks to ship me like tumblers and stuff because they're so profitable and all they need to do is just seem legitimate. So this whole dynamic people kind of have of, oh, scammers are going to try to get me to transfer money to them. That's kind of outdated where now it's like they can just get the money by convincing you to invest in a NASDAQ stock that it's going to fall 95%. So Edward, >> it's really funny how much it's evolved and how bad regulators have been at stopping it. >> Yeah. What I'm wondering is these people are sophisticated enough to run this scam on WhatsApp or wherever. You know, they're sophisticated enough to use the internet, but they can't look use the internet to look you up and know that you're the bear cave guy looking for scam. I mean, it's just like what? >> Yeah, it's crazy. >> No, there's so much craziness. What one of my favorite things I I'll tell you, Dan and Corey, is sometimes, you know, they impersonate legitimate asset management firms. Sometimes they, you know, make up firms and say like we're part of whatever XYZ asset management. Other times they'll impersonate social media accounts. So if you look, you know, on X, you'll often see in the replies people are saying like, hey, like trying to impersonate the account and then they'll have a WhatsApp link. You click on those, it'll bring you to the scammers. There's one scammer who's even impersonating me. So, I'm talking to a fake Edwin Dorsy and he's giving me stock recommendations and I'm talking back and it's just it's there's just nothing stopping these guys. It's super profitable. It's getting >> real. >> Oh, >> yeah. Wow. And but you said you put you've put together like open- source uh kind of repository of all these these scams. Is that in your newsletter or is that be available elsewhere? >> No, it's this is freely available for everybody. everyone should I'm going to put this you know it's called stopnasdacchinafraud.com that's the what the website is called and you can go to it and basically anybody can upload screenshots from these scam group chats stop nasdaqchinafraud.com and it has uh a little bit over 500 uploads so far it's getting about 50 a day so you know if you're in these scam group chats if you come to the site you'll see okay everybody else is being scammed this is how they work. It gives me a and anybody else who goes to the site a near real time look into what stocks the scammers are promoting so I can see track in real time what they're doing. So it's partly investor awareness, partly a useful tool for me and I kind of hope one day it'll help law enforcement you know shut all these accounts down. And what I found is when you kind of free up information and try to bring transparency to, you know, issues then that kind of leads to unexpected insight. So, right now I have 600 or so, 500 or so screenshots from all these WhatsApp groups that I and others have submitted to the site. Somebody emailed me last night saying, "Look, I was on the site and I work in the telecom industry and I realized all the phone numbers used by the scammers are from T-Mobile." And I'm like, "How do you know what carrier?" And it turns out you can actually easily find out what carrier every phone number is associated with. And what he we kind of determined is T-Mobile has it the easiest way to get multiple eSIM cards per te uh per telephone. So, you know, all these scammers are using T-Mobile because that's how they can impersonate us numbers the easiest. And literally a 100% of them are using T-Mobile. And that little insight you can only get when you crowdsource information. But that's really useful. Now law enforcement can one day, you know, go to T-Mobile and say, "Why are you doing all this? Give us the payment records for these numbers." and it becomes slightly easier to shut these down and like understand the infrastructure. >> That's great. That's a great resource like just for people in general and then the fact that you're you're doing the work and then yeah, hopefully it it uh reveals all of it, you know? Uh >> yeah, >> it's that's awesome. >> Yeah. And there are posts like every day. I mean, there's screenshots like every single day and a lot of them on each of the recent days. >> Yeah. Thanks. >> It's really cool. You're building something there. That's really great. >> And it's not just US. Something that surprised me is I thought it's going to be a lot of US and really old people. It's not. It's it's international. There's there's posts in Arabic, in Hebrew, in you know, I I talked to somebody in Qatar who lost $270,000. It's very much international even though the companies are always listed on the NASDAQ. Um, and it's really sad because, you know, a lot of these people are just honest, hardworking people with a low degree of financial sophistication. They're convinced to buy it. And even after they get scammed, what the scammers will often do is they'll say, "Oh, we have another stock to make back the money for you." And that stock will always be a scam. Like, it kind of never ends. And then, you know, towards the end, you'll be pitched recovery services. You know, they'll they impersonate regulators. So they'll make it seem like they're from the SEC or FBI and they want to talk to you and they say, "Look, we're investigating the scammers." So the scammers will impersonate regulators investigating the scammers and say, "Hey, we know you lost this much and if you pay us a 10% of that, we'll recoup the money and add you to a lawsuit." And so they scam you a third time. There there's no limit to the to the craziness that goes on. And it's just affecting ordinary people. And part of the reason I think it hasn't been shut down and we've seen no regulatory scrutiny was if it was affecting really wealthy people. I think there would be a lot there would be lawsuits. They would get shut down fast. But it's just affecting ordinary Americans who lose 50 to 100 grand in these schemes. And usually they're a little bit at fault. So they feel embarrassed. They don't want to come forward. But I I hope with enough attention it can change. >> Yep. I do too. >> Yeah. Me too. >> Oh man. It's a sad state of affairs, but I don't know. That's the way a lot of things in this world are. Like it it's no surprise to me that there are just legions and legions of and legions of people on social media who have enough money, you know, like you're saying, 200,000. That one guy, 270, and and yet know so little that they can't detect an obvious scam, you know, right from the get-go. Um I that's just sort of the way it goes, isn't it? I mean, if you if you if you wipe them out here, they pop up over there. It's it's impossible to get rid of them almost. >> Yeah. I mean, that's part of the reason I think podcast like, you know, podcasts like this that just bring at least like some level of education to everybody. It's it's so important because it can give you useful insights, but it can also just teach you kind of how the world works to avoid these like pretty obvious scams. I you know I it it's just crazy. >> Yeah. Yeah. There's just I'm the the older I get and the more I think about this sort of thing. Um it's like levels of awareness, you know, it's it's it's not merely forest for the trees. It's like, you know, it's you're young and it's like tree, two trees, 10 trees, 20 and you know, and then you get to be 60 after doing this for almost 30 years. And it's like forest, you know, finally it's like, you know, you got to hike backwards 10 miles to see the forest. Uh, and that takes years. And um there's no substitute for it either. And it and and educating people, which I think is a large part of what you do really. >> Yeah. >> You know, you're you're educating people about this whether they realize it or not. You're teaching them what to look for and and you know, then you have, you know, stop NASDAQ, china fraud.com, and that that is an explicit, you know, tool for that type of education. Um, and yet like you can you can learn to short these things, can't you? like you can turn it around. You can turn the tables. >> Yeah. So, well, there's kind of two sides to it. There's the education and awareness side, which is great. And, you know, one criticism people give is, well, they're only going to see your posts after you've written them. Okay? And people love to criticize you for all sorts of things. I was like, well, it doesn't help them because it only they see it after you've written it. And I say that's true in most cases, but that's still good because it prevents them from being rescam. Once you get scammed, you lose the money and you come to my post because you look wonder why the stock is down. You understand how the scam works and you're not going to invest in another one of these because people frequently just get pitched the second scam. And some people do find it before it collapses. Now, on the shorting front is these things, you know, so somebody made a joke post. This isn't real, but somebody on Reddit said they lost their entire net worth shorting the companies I highlighted as scams because they took these huge positions and then it squeezed after hours. And what the scammers will do is they'll often try to, you know, manipulate the stock after hours up to 300% just to drive out any short sellers who might not be aware. So you really if you do short these it needs to be small positions. The way professionals tend to short these is they take big positions in the morning and then cover right before the close. That way if there's manipulations in the after hours it won't affect them. >> After hours manipulation is a global industry just you know. >> Yeah. It's it's especially for these where they love to harm the short sellers and they kind of can control the float. So you you only want to short them when they're being promoted in the WhatsApp groups, which means the float is more distributed. You typically want to do it intraday. And historically, these things collapse most frequently around 3 p.m. For whatever reason, 3 PMs on Wednesdays and Thursdays are like the favorite time of scammers to let these things collapse. So like once you like, you know, I think the free part of my newsletter, I want awareness and warning. And then for the more paid professional readers, I'm like, let me tell you the nitty-gritty of how these like to do do it. Um, but the big salient point I want to say is no, nobody should take huge short positions in these because they can manipulated stocks can be manipulated more. You know, it's it's a risky thing. >> It's worth That's right. It's worth pointing out shorting is hard. Most of our listeners probably shouldn't do it. >> Yeah. But that but what I'm really um just kind of figuring out here as you're talking as we're talking is that shorting is hard. Most of our listeners probably shouldn't do it but you should really read good short research. >> Yeah. >> You you really really should. I mean there's just no substitute for it. Like what we do with you know lots of due diligence and and good analytical work on the long side. That's great and it goes quite away. You know it's good as far as it goes and it goes quite a way. But there's a piece there that's missing if you don't read some good short research. Uh, you know, at least now and then. I I there's definitely a place even if you never short one stock. >> Just saying. >> So, I have a question for you here. >> Yes. >> Um, one of the better um guys over the years who I've gotten the odd short idea from directly or indirectly is Whitney Tilson. >> Yes. and he famously um was shorting um Netflix I think it was and and met with the CEO and then turned around and went long which was the thing to do. >> Do do you ever I mean you're looking you're not looking at Netflix here or maybe you are but you're looking at these god-awful China frauds and other things. Do you have you ever once has it ever happened that you are looking through the you know basically like the scum of the market earth? A have you ever found a situation like that where you said oh not only is this not terrible it's a decent long idea? >> You know I've never So I don't short the companies I write about in my newsletter. I really try to make it clear to my readers. I I make money from reader subscriptions and not trading it. So if if I' I've done a lot of times where I start the research process digging into something that you know seems like a consensus narrative and the company is terrible but then I can't reach that conclusion and maybe then it's a good long. That has happened a lot. But if I'm at the point where I'm writing about it in my newsletter, usually I I I feel like the issues are so multiaceted. there's a problem with the business and there's an kind of ethical aspect with the management team that's wrong. I'm not going to just write about it if there's an overvaluation which can be corrected or like a single issue. So because because there's usually some like big underlying integrity issue with the businesses I write about. It's not one of those that a little bit of a governance switch can fix. Um, you know, maybe like, you know, in one or two cases there was ones that were very CEO focused. Like I wrote about Six Flags because they had a really bad CEO, but now that the CEO is gone and they merged with someone else, maybe then it can do a little better. But most of the time, like Signit is going to, I think, suffer regardless of who the CEO is, regardless of what they announce. I think it's just kind of, you know, really gonna So, I don't I don't do that a lot. Sometimes I see these short I think sometimes the most consensus short ideas can be to me some of the worst ones. Like people love to rail against Tesla. Tesla has had so many short sellers for so long and I'm really proud of the fact I have not once criticized Tesla in my newsletter because I just I don't have an opinion on whether the stock is going to go higher or lower. I just think, you know, there's so many worse people companies out there. Like Tesla's doing useful things. Elon Musk, you might hate him, but he is a smart individual who's good at building businesses and that kind of so like I like to me I'm proud of kind of avoiding that one even though it may be a good short. It's not my favorite thing. And I I give a ton of credit to Whitney Tilson. So Whitney wrote that Netflix uh you know short and then what happened is so he um who Reed Hastings, the old CEO founder, he had the best response ever to a short seller. And I encourage you and every listener to look at this, you know, and this is part of the lore is usually they love to, you know, threaten to sue the short sellers or call the short sellers idiots or ignore the short sellers. Whitney Tilson wrote a detailed blog po, sorry, Reed Hastings wrote a detailed blog post to his friend Whitney Tilson publicly just going point by point by point on why he thought the short thesis was wrong. And I think the stock is up 100x or something since then. And that just spoke to me because you never see executives do that. And I I'm just amazed more people haven't copied that Reed Hastings approach of, you know, here in a neutral tone of voice, not being accusatory or threatening. Just let me politely lay out the future. And ironically, Whitney Tilson was like a little right in the short term because Netflix stock did dip a little, but in the long run, Reed Hastings like totally totally was right. And that's what's kind of missing in the market is respectful disagreement being measured. Um, a and if I ever saw a CEO respond like that to an activist short report, writing a detailed, respectful, non-inflammatory blog post, to me, that's the one sign that'll make me think, I want to get long this heavily shorted stock. >> Yeah, that is. Yeah, we've had Whitney on and he told that story. It was a great story. Yeah, >> he did tell that story and he'll also tell you that the mistake he made was not holding on to Netflix long enough and letting letting the winners run as well. And so, >> yeah, >> but but yeah, I I think you're right. Like if if you're if you believe in your business, if you're a CEO who believes in your business and think you're doing all of the right things and and have a good strategy, why would you not >> kind of publicly at least even acknowledge, you know, some criticism and just um and and just address it like head on, you know? When they don't, that's a signal, too, right? So or when various levels of denials and and going silent like that that's signal too, right? >> Yeah. >> Right. >> No, Edwin though, you make that's a great point. >> You know, every the overwhelmingly overwhelmingly the responses are like even like cussing the guy out in public or what you know the CEOs just they just go off. >> They go off. They say this person's an idiot. They don't know what the hell they're talking about. you know, um, pretty famous, uh, conference call, Jeff Skilling, you know, called a guy a, you know, profane name and he, you know, he's kind of like hot mic kind of moment. And, uh, it would be even even if they were, even if they were a good short, they could probably really, you know, coast for months or or more if they just handled it right. if they just got did that credible, you know, pointby-point response, you know, if they could pull off anything like that, they remained polite and respectful and just said, "No, no, no. We disagree, you know, and didn't go off, but they don't do that. You'd think they'd figure it out." You'd think people would figure things out. I guess you could say that with a lot of things, but >> I don't know. Seems like low lowhanging fruit for this for the for the heavily shorted CEO to me. We got to start an advisory for the companies that get hit by short reports. Like this is how you respond. You know, like Leven Brother CEO, he literally said, "I want to rip the short sellers hearts out." You know, it's And it's like, "Come on, guys. We have a pretty good precedent here with Reed Hastings." Literally just copy that and, you know, you'll get a 10% bump just from people believing. >> Right. Right. just from that little extra doubt, you know, because right now as it is, >> boy, you you get the right guy putting out a short reporter on you and uh you know, the day he puts it out, you you are just, you know, crushed. Um, so yeah. Yeah, that would be nice. Well, I don't know if it would be nice, but it would be logical. >> Yeah. >> And and who knows if if if you got more people to behave reasonably, maybe there would be some kind of self-fulfilling prophecy. Maybe, you know, maybe if we maybe we could educate people to the point where some of them might see the error of their ways, you know, and if it's one in a thousand, it's worth it. >> Yeah. >> Just prayers. Hopes and prayers is all that is. I just want to put it out there. I got to, you know, I'm getting older. I got to put this stuff out in the universe because, you know, you need to leave as many good vibes uh as possible behind you. But yeah, I figured I I figured that um I figured I you know, the answer would be basically, you know, no, I'm not, you know, having, you know, Netflix moments with like Whitney every 10 minutes or whatever, but um it's a question worth asking. >> Yeah, that was a long way of answering no. >> Yeah. Yeah. Sure. No, and it's a good way of answering no. And we and it's the the the Whitney, you know, Netflix example is is a really great case study and I think we've established that. You could probably go and Google the the blog post. >> Yeah. Um, >> before we before we uh get out of here, I do want to go circle back to the AI uh you know sector that you're looking at just briefly on on the companies that are I guess viable to be disrupted or the sectors what were like the top like I don't know one or two that you're looking at right now. >> I think the biggest you know so there's homework help companies like Jake and Nerdy those are kind of already priced in. There's the AI stock image companies because AI can generate images more easily. That would be Shuttertock and Getty, but that's a little complicated because they're trying to merge. And beyond that, I think the three kind of areas that are most primed for AI disruption are call centers by extension call center software companies and then business process outsourcing, which is also like often like a synonymous with call centers. basically these businesses that employ huge numbers of people in countries like India, the Philippines, kind of developing world economies where you can get labor really cheap to do historically pretty like monotonous tasks. Um, some of these business process outsourcers, they all say we're not going to be hurt by AI, but I like looking at their customer case studies. What have you actually done for customers? And one of the business process outsourcing companies said, "We worked with the bank and we transcribed 500,000 hours of like recorded audio from their customer service departments." I'm like, "AI is perfect for that." You know, we we we analyze, we have humans approve or deny accounts based on risk metrics. I'm like, AI is perfect for that. Even now with call centers, increasingly we're going to see calls uh customer service issues being prevented before a phone call by AI. We're going to see AI, you know, a lot of times in call centers, the work is a human answering and then routing you to the right person. We're going to see AI do that more. I think the future of customer service is going to be more inappbased. people solve their own issues and then when you can't you go to an AI and you explain the issue and if they can't solve it then it goes to a human very briefly who has all the context they need to make decisions. If you look at um I looked at the earnings call transcripts for a lot of major public companies and they all said call centers, contact centers, whether it's a bank or a telephone company, these huge organizations that have big call centers, they said this is going to be a point of cost savings for us because we can use AI automation to get rid of a lot a lot of the manpower there. I I think it's a little bit something that's going to take maybe a year or two to play out, but I would not want to be long. And call center, business process outsourcing companies. Teleperformance is a big one in France. Uh concentrics, CNXC is a big one in the United States. Those are ones that I just think, you know, the headwinds are so strong. This is not a business prime for the future. >> All right. Um well, thanks for that. I mean, I'm I'm writing all that stuff down. I'm writing down like every every ticker, every company, everything so I can avoid it all if nothing else. But it is time for our final question. >> Awesome. >> It's the same question for every guest. No matter what the topic, even if it's a non-financial topic, same identical question. If you've already said the answer, by all means, feel free to repeat it. The final question is for the sake of our listener, if you could leave them with one takeaway, just one thought today, what would you like that to be? My my one takeaway, circling back to the beginning of the call, is don't buy natural diamonds. They're going to lose all their value. Don't buy natural diamonds. This is not the time to buy a natural diamond. >> All right. Sounds like uh sound advice if you're worried about the value of that thing on your sitting on your finger there for year after year. >> Not a store of value anymore. >> Yeah. >> No way. >> Right. Well done. So, thanks for that and thanks for being here, Edwin. It's been a pleasure to talk with you again. Absolutely. Thank you guys so much for having me. I admire the show and I'll continue to be a listener. >> All right. Well, you will continue to get a call every now and then to be on it. So, there's that, too. >> Thank you guys. >> Opinions expressed on this program are solely those of the contributor, and do not necessarily reflect the opinions of Stanbury Research, its parent company, or affiliates.