My Life in 4 Trades with Dan Tapiero | Best of Real Vision

[00:00] Welcome back to Real Vision. We got another great show from the vault for you today. Today, we got Dan Tapiero's My Life in Four Trades. This is Dan going all uh over the most important four trades he has ever made in his life as a trader. It's as evergreen today as we first recorded it a couple years ago, and Dan will be back on Real Vision with Raoul over the coming weeks. So, stay tuned for that. And don't forget, today we're running a special discount on our Exponentialist product. You get 15% off
[00:31] 6 months, 25% off a year. Just go to realvision.com/exponentialist to check out the deal. You won't want to miss it. Thank you for watching, everybody. Hi, everyone. Welcome to another edition of My Life in Four Trades. Joining me today is Dan Tapiero, founder and CEO of 10T Holdings. Hi, Dan. Welcome. >> Hi, how are you? Hi, Maggie. I'm doing well. This is going to be a really fun conversation, and I'm sure it was really hard to whittle down to just two of your best, two of your worst, given the long
[01:02] career you've had. But, you managed, and we're going to jump into them in a moment and discuss. But first, it's our tradition to just kick off with a little bit of background. So, tell us about your early years. Where did you grow up, and what were you like as a kid? Well, uh I guess as a child, I mean, I was born in New York City, and uh grew up there when I was very young, and then also later on in Princeton, New Jersey, and um then went to uh
[01:33] the school actually that I'm still involved with, uh Lawrenceville School. It's a boarding school. And um uh focused really on playing water polo and swimming, and uh uh it was a tough place academically, so you really had to work hard. But once you made it through that place, uh college was sort of a breeze, and um I ended up going to Brown and studying history and philosophy there.
[02:03] Um the um you know, that was uh great experience for me even though I can't say I was thrilled with all the liberal politics and stuff going on there and it's gotten much worse, but I stuck to my, you know, playing water polo and studying and was active on the newspaper there too. So, that was uh that was right up until I guess 22. I did an extra year actually at Brown to study
[02:34] uh another year in history and I used that year really to think about what I wanted to do uh afterwards and >> Were you thinking about finance? It's It's amazing, by the way, philosophers not on this program, I should say, but were you thinking finance or was it something else that you were were focused on career-wise? I'm sort of uh uh my my grandfather had been a banker um on my mother's side in London and um and my uh father's side had been in
[03:06] business for a long time. Um so, I was aware growing up of all sorts of things and we traveled a lot as well. So, I was always fascinated by foreign currency uh as well. And so, that was something but I wasn't, you know, I I wasn't one of these guys like starting a business at age nine or 12 or whatever it is. Um and uh I just, you know, I I I I had this approach where you know, I I really did like to read and I would read all sorts
[03:37] of things and then I would follow things that I was interested in. And I was talking to a friend of mine and he said, you know, you should take a look at this book, The Alchemy of Finance by this guy George Soros. He does lots of currency investing, trading, etc. So, I read that book and I mean, it was fascinating. I I probably read the first 100 pages of it, you know, 10 times over the years or more. I I can't even remember. And then I read that fund book, uh Jack Schwager's book, the the Market Wizards.
[04:09] And I again, I I was uh I was doing my MA that final year and I wasn't playing water polo, had a lot of time to sort of think about what interested me. And some of these stories really were exciting. I remember Bruce the the section on Bruce Kovner was just fantastic, you know, I just I thought, "Wow, that is sort of exactly what I I I could do." And I think in the the Schwager book when he talks about Kovner you know, he was a uh I think a
[04:40] humanities major as well somewhere and you know, I I sort of felt always that I thought in a similar in a similar way. And he would read widely and then come up with a big thesis about the world and then instead of writing a paper about it and getting a grade, he would put an investment on, you know, he would and I just thought, "Well, that, you know, I had a lot of energy." That seemed you know, exciting, connected to things I'd always sort of been interested in and
[05:11] so that's how, you know, I I came at it from an abstract a standpoint rather than >> of sense with that with that background when you think about macroeconomics, but it's funny because it's so it's switched, hasn't it? Where everybody's really intent on that MBA and that finance degree and and not at all thinking about liberal arts or any of that. Let's get some facts. 37% of you unsubscribe to this channel. That's almost four out of 10 just freeloading
[05:41] the alpha. So, come on, hit subscribe and I promise to keep leveling up the show with the best guests and the juiciest insight. Go on, do it now. Yeah, I I mean, I think the most, you know, valuable asset one can have is the ability to think critically and creatively. And I don't know, an MBA or economics I I tried to take one economics course and really I dropped it in the attic. It was just
[06:12] so boring. Um microeconomics or LSD in line or whatever it was called. I I just didn't make any sense to me. Um so, I actually got into this and had never really taken an economics course. And I I still think about things in the same way that I did, you know, in the very beginning at my very first you know, proper job that I had working for, you know, a tiger. And um Is that Is that So, how did you What what what
[06:42] was your first job? How did you get involved? Yeah, I It was 1991 and my um it was a recession, if you recall. I do. The '80s in the sort of late in '88, '89, it was still sort of really rah-rah even after the crash. And then we had that recession. And they had these trading classes at the investment banks back then. You know, uh And it was banking and trading. And I thought, well, okay, I'll
[07:13] you know, apply for a few of these. It seems like a good place to start. And they the the trading the training classes for trading had dropped from like 100 people to almost none. And so, um there was a firm doesn't exist anymore, Kidder, Peabody. I heard of it. Uh I was the one person that they hired in 1991 for the trading class. And I thought I was going to I there with 50 people or whatever, and it was just me.
[07:44] And the guy who was head there the guy who was the head there just said, "You know, why don't you like go sit somewhere on the floor and come back to me and you know, after a few months and tell me like what you're interested in kind of thing." So, I sort of devised my own schedule. This is an advantage of being at Brown where we didn't have any requirements, thank goodness, and I could like come up with my own uh you know, my own uh schedule. >> Curriculum on your own, yeah. curriculum
[08:15] on everything. So, I would spend the mornings out on the trading floor, and then I would go back into the back room and read for 4, 5, 6 hours. And no one was guiding or telling me what to do, and you know, I spent a month on the Treasury desk, then I was a month or two sitting on the CMO desk. That was Mike Reno, who was the CMO king of Wall Street at the time. I never forget because there was an empty seat on the on his
[08:46] desk, on like the CMO mortgage-backed trading desk, and no one was sitting there, and I was like, "Oh, I'll just sit here." But that was the seat next to Mike, who is like the king of of CMOs on Wall Street, and no one wanted to sit in the seat next to him. He was hollering and this and that. And I'll never forget, I I I sat down there, and he looked up at me and he looked over at me like I guess he just noticed I was sitting in this seat, and he said, "Who the F are you, and what are you
[09:17] doing sitting in this seat?" And I and I said to him, "Well, his boss, I said, told me to sit here." And you know, I said because that was the guy who told me to go find somewhere to sit. I said, "Oh, yeah, you know, Ed told me to sit here." And he's like, "Oh, okay." He's like, "Yeah, I'm I'm just new here and I'm supposed to observe and like learn stuff. And he's like, okay, well, there's a lot to learn here. And then that was it, right? So, I I there are a lot of funny things like
[09:49] that. >> other guy is probably like incredulous that that like the the sort of trainee gets the seat. Yeah, I was too young and and inexperienced to know better. And they may they they they thought I might be a good CMO structure. You know, you chop up the mortgage-backed securities. But I really wanted to be in trading. And so, I ended up taking a seat on this Treasury desk and sitting next to a really nice guy
[10:20] whom I became very friendly with, who in fact I am still friendly with and who I even spoke with just yesterday. Believe it or not, and he was a bond trader there. And um very nice guy, had had gone to Harvard, was there for 6 years, was a wrestler, was captain of the wrestling team there. And we just started talking and again, I had come at things from a very sort of abstract um viewpoint. And I'd done a lot of reading.
[10:50] He had done a lot of, you know, market meeting, Treasury bonds and T-bills, but I was, you know, a little more abstract. And I remember saying to him, you know, like, this isn't really that interesting here. Um and you can imagine a guy right out of college and like, who the hell does this guy think he is? He's I was like, you know, this just doesn't seem that interesting. I said, well, why aren't you I said, why aren't you at a firm like Soros? Cuz right, that for me was what trading was, you know?
[11:20] You know, and there were a few firms like Soros and Tiger was one of them. And uh 6 months later, that guy became the head trader uh trader in macro at Tiger. And we had been talking about it, of course, and you know, he'd been there 6 years, and Tiger was just moving into macro. And then 6 months later, he hired me. And I became the European bond and
[11:52] currency uh trader, and I ended up working for the two uh you know, partners above me. I was 24, I guess, and those guys were in their early 30s, which now seems like you know, just hysterical because I thought at the time they were so you know, So old, right? Yeah. So experienced. Oh my god, 10 years older than me, and I There's a big difference between 24 and 30.
[12:22] >> There is, though. There is. I know. And so I worked for these two guys at Tiger and just learned a phenomenal amount immediately. Uh was just I would say probably the defining experience of my looking back on it. I had one more, but like really of my career, because the analytical methodology, the way the narrative of an investment gets scripted, the research behind an
[12:54] investment idea, what, you know, um the the sort of thorough digging that's behind uh making a judgment, all those things were things that the analysts did at Tiger. And I wasn't I wasn't an equity analyst. So 95% of the firm, or 90% firm, all the Tiger Cubs, they're all equity portfolio managers. The very famous guys that you know, people read about, Lee Ainslie, Steve Mandel, you know, the the guys up
[13:25] on the Mount Rushmore. And I was in this quirky little new group with essentially three people. Me and the two senior partners and there was one other guy and then there was a a woman as well, but I was sort of the number you know, the guy who was tasked with coming in at 3:00 in the morning to be the European bond and currency guy. And you know, it was crazy. No one else obviously wanted that job. Um
[13:56] and as a 24-year-old guy, I you know, I routinely had stayed, you know, pulled all-nighters in college and had lots of energy. For me this was no problem. I mean, to work at Tiger uh you know, that was you know, it wasn't Soros, right? Which I had thought at the time was like the only really great trading place for to go. Um and but it was close, right? And it was >> good. Exactly. And it was it was very
[14:26] close and in a lot of ways I think it was a lot better. Um you know, in retrospect, but you know, funnily enough, they still put me through about 20 rounds of interviews. If you can imagine, like this is a real firm and you know, you're to meet almost every single PM or person there. It just was strange for a very junior role at the time. Um but what happened before was they were fooled around. Was that and I know the last one was
[14:56] Julian. Um and you know, but what happened was I sort of got lucky because um they knew activity was picking up in Europe and they knew they needed someone to man the helm uh in those hours. And of course that was the beginning of the ERM crisis, which was the >> going to say they probably went through such a I was just thinking about that when you said it. They probably went through such a rigorous interview process because they could see that they needed you know it this was not a
[15:26] throwaway position. This was going to be something that they were building. I don't know. I think it was I think that I may be the only guy who applied for it. So They still had to make sure you weren't crazy. Yeah, I know I I don't know. Um I don't know, but that was uh all of a sudden, like within you know, a month or two. Um you know, we just had the pound break out of the ERM.
[15:56] And the first currency trade I ever did uh for Julian and my two bosses there above me was the breaking of the um Irish punt out of the exchange rate exchange rate mechanism. It was It was very easy >> Robertson, right? For those who are less familiar with the history. He's legendary legendary traders and investors and managers. Yeah, it it was it was so strange because you know, the pound had broken against the D-Mark. So it had collapsed
[16:28] in value. But the Irish punt, which everyone had forgotten about, was still pegged to the D-Mark. >> the way, this is the world folks before the Euro when there was a massive amount of currencies, you know, there was a massive amount of activity and you know, cross trade and you know, this was a different time. Yeah. Yeah, but so but but listen to how in a way I not going to say how easy this trade was because it wasn't, but the pound had had devalued massively
[16:58] against the D-Mark, but the punt was still pegged because they were trying to peg the currencies. But all of Ireland's trade was with the UK. Yeah, so >> Not with Europe so much. So what happened was the Irish economy started to collapse. Currency was way too strong. So, Julian and uh the two guys I worked for and a few other guys, um Julian had quite a few outside analysts as well, said, "Look,
[17:30] we have to short this put." And I never even heard of the put and they I Someone said to me, "Dan, could you go out and find some liquidity?" And I'm thinking, this is just crazy. So, I call all my guys. Now, listen, I'm 24 years old. And um and this is the strangest thing. All of a sudden, I'm the number one client on the buy side for Credit Suisse. Not you know, or number two, you know, JP Morgan, Goldman Sachs. I pick up the
[18:01] phone. >> realize that and like the implications of that at the time or were you just kind of like just doing what was in front of you? No, I was sucking from a fire hose. I was just I was just like praying for survival. >> right. working, you know, 10-12 hours a day, massive positions on that we had. No, I I But, I did notice that when I called somebody up, they did something. They moved right away. And I got used to that. You know, some people would say, you know, Dan, that
[18:32] has a was a plus and a minus because for my first real job, I got used to being at the very, very top of the hill. Um And having power. And having power. >> Yeah. Yeah, and which is not a permanent position. At age 24, you know, you you go through ups and downs there and but my first experience was I was representing Julian. There it is. And that was a huge uh bat to weigh. And so,
[19:04] I called up my Credit Suisse guys and I said, "Guys, listen, this is 1992. Um late '92, or '93. It's it's in that period. And I said, uh, "Listen, we want to sort some Irish punt. Can we even do that?" Like I You know when else you don't read about it. And one of the guys, this very crafty English guy, says to me, "Listen, I think I've got a direct line into the Central Bank." And so, I was like, "Really? For liquidity?" So, all of the sudden we
[19:34] start doing 25, 50 million dollars, 100 million dollars. And um, and I say to Julian, I'm like, "I think I've got a line to the Central Bank." He said, "Well, what What does that mean?" I said, "Well, it means for now we can do sort of as much as you want to do." So, they're like, "Let's do 400 million." Awesome. >> Okay. There was no 400 dollars of mark punt. So, there was nobody in the world who had like that kind of
[20:04] size position. So, all of the sudden we start selling. And you know, we start pressuring it a little bit. And I'm watching this thing on the screen, like the forward points move out, and all of the sudden people sending me messages, like, "What's going on in the punt?" I'm like, "Well, I have no idea. You know, I I don't know what's going on. I You can't You know, you couldn't talk about the position at all." And so, you know, we finally were pressuring and
[20:34] then the that salesman, he put basically the entire position on. All 400. It was like with one guy. Which must have been like the biggest trading commission, I think, you know, whatever. For certainly in in his career at the time. These are very large spreads. And um, we sat there with it for, you know, not too long, but the Central Bank realized that there was selling pressure there. But listen, it wasn't an attack by us in
[21:04] the sense that people in the marketplace might think about an attack. It was simply a fundamental bet that that currency was misvalued versus the the the British pound. It was not um you know, it wasn't like, "Oh, we're out to get the Irish." No, I mean, it was it had nothing to do with it. >> bring up a really good point. So, there's a lot of things Believe it or not, this isn't even your first trade. So, we're we're going to we're going to I don't want to talk about any of the trades, but this >> gotten there yet, but we but we will because I think this sets a really important scene about what was going on
[21:36] at the time, the type of bets that were happening. This is the sort of beginning of you know, funds like Soros and and Tiger and like throwing weight around global financial markets. Now, what was possible, the leverage that was about I mean, all of these things. And then also the headlines, right? Because you you hear and we still know today, you know, Soros broke the Bank of England. You know, there's a there's a connotation to that. And so, I think the you know, the threads of all of what we saw through
[22:06] the great financial crisis, you know, the the personalities that were assigned to what you say is just a you know, a mismatched valuation. There became a narrative behind that, too, which is which is really interesting, I think. Um so, yeah, that that changed those events changed so much, I think. Yeah, I you know, I it just it was just fundamental sort of value-oriented investment. And opportunity, right? Yeah, yeah, we did our work and we
[22:37] realized that the peg, you know, didn't make sense and that if it stayed, that Ireland would fall into a deep depression. So, no one wanted a depression. It just made sense that their currency should track the pound. Yeah, it was going to happen. It was going to happen at some point. You were just You were just on the You were the first to realize it. It it needed to happen. Um but you know what? The thing with macro is is that and I think Rudi Dornbusch
[23:08] when I worked for Steinhardt Partners later on, he was our outside analyst for us, but Rudi well-known MIT economist used to say, you know, macro uh, it never happens when you expect it to happen and then it happens all at once and it then it happens more quickly than you ever thought it would. Something like that. I can't remember exactly, but you know, and so yeah, the punt needed to devalue,
[23:38] but it didn't necessarily have to within any certain period of time. Theoretically, it could have stayed pegged for 6 months, for a year. It could have theoretically. It's just we thought that there was too much pressure building and also we thought that the authorities would see the same thing we saw. Hey, it doesn't make sense to maintain the punt mark rate at this rate when the pound mark had changed so much. So
[24:10] anyway, then we put the trade on and uh I woke up one Saturday morning and I always used to wake up so early, obviously, cuz you know, I was normally getting up at 3:00 a.m. and I never changed my um, I never changed my sleeping pattern. So I would wake up on the weekends at like 5:00 a.m. and that was like me sleeping in. And I would go down and every for every day for like the first certainly 10 years of my career, um, I was I would read the Financial
[24:40] Times. The Financial Times was really the Bible for a while. Um, I don't think it's unfortunately so much so anymore, but and I remember getting going to one of those machines, pulling out the FT and on the front page of it, Irish punt devalues 10%." And I looked at that and I thought, "Oh my goodness, we just made 40 million." You know, it was uh just in one day like overnight on that trade. And of course there are many
[25:11] other trades in the portfolio and like this was not actually even that large a trade for us. Oh my gosh. >> Um but it was a trade that I actually helped execute and found the liquidity for and facilitated. So it was the first trade Yeah. This is just the first trade that I felt like I was really a part of. Yeah. Of course I'm not would never claim credit. That was Julianne and um my two But you're on the inside now of these type of of these type of trades
[25:41] and at that level of what's happening. >> I mean I the the uh it's like I was the mechanic changing the tire, you know. Uh Finding the parts. >> That tire >> Finding the necessary parts to get to get it going. So I think that's a great setup to jump into your trades because you obviously have manifested to the to the sort of really your dream your dream job or your goal as you're coming out. You find yourself there. You know now know you're at this sort of, you know, I don't want to say inner circle of
[26:11] power brokers of finance, but yes, that is essentially what was going on. You're you're operating and participating these massive trades that are making front page news. So so there's already very quickly a level of success. So we're going to go through now some of the some of the good trades and bad trades and we're going to go chronologically even though we talked about whether to do that or not, but I think it makes sense and we're going to do it. So the first So the first one is um a bad trade and that is
[26:41] uh in 1994 and that involves Japanese bonds. So there's going to be a theme of of global uh events, I think, in some of these. And that's a Japanese bonds wipeout. So, set the scene for us here. Are you still at Tiger? Are you someplace else? What's going on in your career at this point? Yeah, so um in 1993, the biggest bet, and this is the bet that made all of the famous macro money macro managers
[27:11] like I would say their first gigantic hit. So, as much of it and this was the the collapse in the interest rates um in Europe, US, and Japan. And I I think every, you know, Julian Soros, Lou Bacon, Tudor, they all made over a billion dollars like personally, not in like their funds. I I think personally, I can't I don't remember exactly, but um it was the trade that provided the
[27:43] liquidity for, you know, this sort of kicked off the golden age of macro, really. And um um in '93 uh I had mentioned one of the trades we didn't put down, but long uh Spanish bonds and uh I remember they they they rallied pretty much straight line 20 points. I mean, to have 20 points uh have a bond future go up 20 points in a straight line uh pretty incredible. And rates went down
[28:15] in two-year notes in the US to about 3%. They were eight in 1991, they went down to three. And in Japan, of course, '89 '90 was the popping of the bubble. And Japan then went into a I don't know, a 30-year coma >> slump, coma, but it was clear uh at the time uh and I was still at Tiger that um the the the Japanese economy was going
[28:45] to be in big uh was in big trouble. And um the rates there came down. Again, I think they were They didn't This was a They came down, you know, 5-600 basis points in a very short period of time in in 1993. And And I it started in '91 and then '92-'93 because the popping of that bubble necessarily meant that, you know, equity values were weak and that there was
[29:15] going to be a negative period. The '80s boom was over. And it was a very clear bet. And the data coming out of Japan, I remember looking at this in '93. I'd been long Japanese bonds. Tiger had been long more in '91-'92 and then had moved to focus on on Europe in in '93. And that's what I was doing there because that bet was even clearer and hadn't moved yet. Um so I'd had all of these in my own account. I'd had all
[29:46] of these Japanese bond calls on bond futures on and they also went up dramatically. And in 1993, as I said, every manager in the world had a huge had a huge run. Myself included. I was very active at that time in my own personal account. And at the time you could These were bonds. There was no, you know, ruling as long as you told you know, your boss you were
[30:16] buying them, you could buy them. There was no You couldn't You can't front run a bond, right, a future? Like the liquidity is nearly infinite. I was not buying that much. Anyway, so I did very well for myself in 1993 outside of the funds that I worked at. And I I made Let's just say it was thousands of percent return. And it was not on a small number. So, it was a very I I I sort of hit it well
[30:47] right away. You know, right out of school, I made a lot right away. It was maybe a little too much of a confidence boost, maybe a little too early, but it happened. I had a lot of conviction, I did a lot of work, and I had I was comfortable with a lot of leverage, especially using call calls. And um So, uh I had massive leverage on in these long these JGB calls, Japanese government
[31:17] bond calls. And I sort of stayed with it because the data through '94 because the data had stayed weak. But then the Fed in March of '94 started to raise interest rates. All right? And I still had my massive long in not in the European bonds that I'd had, but in the Japanese bonds. Thankfully, I had these call options. And the calls within about a week or two
[31:48] in the middle of '94 went to zero. So, it ended up being that I'd lost about 50% of everything I'd made in the previous year. Wow. >> So, within a week. Literally, it was a week. They went to zero almost immediately. Uh and I'd held them. And so, uh I was completely mortified. Like, this was my It was very early. It was my first really big trading loss. I had,
[32:20] you know, done the victory dance celebration just like any I guess in in in '93, I would have been 25, you know, jetting down to Miami, doing all that kind of crazy stupid stuff you do, you know, with the the big apartment overlooking the Central Park and the whole the whole thing, okay? It's dumb as you can imagine. I you know, I I didn't go completely overboard, but I'm just saying I was definitely very confident and I'd done it myself in sort
[32:50] of these interesting different ways. Um it wasn't uh and I just thought, okay, look, I was excited. I came out of school and this is I felt like naturally this is something I was going to be good at and you know, it was proven to be the case until I got wiped out in '94 and I still had made, you know, I if I hadn't had call options and I'd stayed with it, I would have
[33:20] been completely wiped out. Um but I I knew like risk management >> enough haircut that it it hit. It was a big enough haircut even though you didn't get completely wiped out, it was a big enough loss that it >> no, no. It was massive. You lose 50% of what you made in over a year in a week, it just I I didn't literally I did not say a word for like felt like 3 months. I did not literally speak. I was just so shocked that I'd
[33:53] completely missed it and gotten sideswiped and that the fundamental analysis I'd done was just not relevant. The market turned and the Japanese economy could be in complete meltdown and it wouldn't matter. It got priced in. And when the market prices something in it's obvious. Everything that I thought in March of '93 about Japan was more true in March of '94 but it didn't matter. They got priced in. The market saw it.
[34:24] So very important early lesson that you know, it's not really necessarily about what is your opinion or your view of the fundamentals. It's only important your view and your analysis is only important versus what the market has priced. And so there are all sorts of signs of euphoria and obviously my situation March of '93 was very different from March of '94 and
[34:55] it was just a like today. I mean I I don't let's say I laugh at it but I mean it's very obvious, right? That things had moved a long way. That was enough. I wasn't going to get another you know, 400 basis point drop in the following year, Right. And again, I did cut back a little bit and I I did have those calls. But it was it was an important lesson also in risk management that you know, those calls uh protected me to some in some in some
[35:26] way. I knew there was there was a lot of risk. I was massively leveraged. rich that I really was. I mean like it was like 50 to one. I was leveraged 50 times, something like that. We talk about risk of leverage all the time these days cuz people are, you know, continuing to learn that lesson the hard way. Yeah. Yeah, I I you know, I again, but because the risk was defined, it didn't matter that it was 50 times to me. I was like, "Okay." I didn't think that those calls would go
[35:58] to zero. But if they did, you know, I could still live and function. Well, I didn't actually couldn't really function. Uh that wasn't actually accurate. I was like for several months like nearly catatonic and I went back over the trade a hundred different times. What did I miss? How did I miss it? You know, I didn't do a trade for the rest of the year. Did anybody ask that or ask why? You
[36:29] mean for your own personal account you didn't do a trade or for at work, too? Yeah. No, at work I had one trade. It was very small. My activity just dropped off completely. >> ask about it? Did people ask what was going on with you? Well, so in '94 many of the large guys got destroyed. Like Michael Steinhardt, I think would made call it, you know, 50, 60, 70% in '93 was down 30% in '94. So,
[37:02] in 1994 the the two-year note went from three So, the movement in the two-year from three to eight was the largest bond market correction since 1929. Um I think the long bond correction. I mean, it was I can't remember the exact numbers on the long bond at the time or the 10-year note, but the funds rate went up to eight. The two-year note went up to eight from three. And many people got completely wiped
[37:33] out. And then of course, Mexico also got wiped out. And Bob Rubin came in and um basically helped restructure some of their oil revenues in March of '95. Um that was um the Mexican the Fed hiking uh program wiping out the weaker countries out there at the time. Mexico Um so, it wasn't just me. I just got wiped out right away. Uh it took another year for Mexico to
[38:03] blow >> ruined. Nobody noticed that you were sitting there and I not not putting a trade on. >> No one noticed because there were much bigger problems happening and many people were, you know, but for me personally uh it was impossible I mean, it was very difficult. Um but it it made me also realize the importance of having a little bit of that downside protection always, even if you have maximum conviction in your analysis.
[38:33] So, a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got 5 years to make as much money as possible, and this guide will help you navigate what's coming. The link is in the description. Download it now. Yeah. I mean, these are these are the lessons hard learned. So, your second trade is one of your best. And it's a few years later, so this is uh in 1997, the Asian devaluation. I I love I love that that you said in
[39:04] the email uh 1997 Thai baht Asian devaluation. Everyone else calls it the Asian financial crisis. So, we had a hint even before I looked at it was one of your better trades, cuz you you you know, you referred to it as a devaluation. But But um you obviously were able to come out of that catatonic state, but you had that lesson in your pocket. I'm assuming that helps now as you're moving forward thinking about this. But But walk us through, so where are you now? Are you at Tiger? Are you someplace else? >> no, I left, and I ended up going to work
[39:36] for Michael Steinhardt, who was a competitor, and I was head of macro research there. Actually, with one of the senior So, one of the um the the partner I'd worked with at Tiger, I ended up with him, and there was another guy who joined us. It was the three of us doing macro for Michael. Then Michael retired um in 1995, and I went to go work for I took some time off, and I um went to go work for what at the time was
[40:07] the largest uh Asian hedge fund. It was the first Asian hedge fund ever started, called Sofaer Capital. And um it was a billion dollars in 1996. It was a pretty big uh fund and he was a very I thought very smart, very good investor. And um he basically I said, "Look, it's time for me to have my own track record." So, none of this just in my personal account. So, I said, "Look, I I was looking for a position where I could
[40:38] have my own separate account and then I would run macro for the whole fund." And so, he was doing mostly long short equity in Asia and around the world. And that's what the whole team was doing and I was going to do the macro uh part of it. And so, what happened in early '97 was that the economies in Asia had really come under pressure. Um you know, I don't know if it was necessarily a delayed impact of the Fed
[41:09] raising. But, the uh Southeast Asian economies was called the What was it? The tiger miracle or something. The tiger in the early '90s. And they had big big booms into '92 '93. Um and then the economies weakened substantially. Um and then by early '97 they were really weakening and interestingly those currencies were still pegged to the dollar. It was sort of a vestige of a time like I guess in
[41:41] the '60s and '70s when those countries didn't have the ability to manage their own currency policies and you know, they were still pegged to the dollar. They outsourced their monetary policy to us. And we saw that and the dollar Thai baht rate again it was like the ERM crisis. So, this was a bet that was easy in a way for me to see because I was in on the front lines of the peg breaks
[42:14] during the RM crisis. And so I thought this is the exact same thing. The Thai baht valuation is much much too rich versus where it needs to be. And the dollar had gone up a lot against the yen. And so what happened was it was exactly like the pound punt trade. The yen had weakened a lot against the baht. It had weakened a lot against the ringgit, all of those Asian currencies. And so they were getting destroyed because their
[42:46] trading their export revenues had collapsed versus other currencies that had weakened against the dollar. Um because when the Fed raised rates dramatically in '94, that caused the dollar to go up a lot. But if you were pegged to the dollar, that meant your currency also went up a lot. It's It's amazing it played out almost the same way. It did. Um the So if your country was in a recession,
[43:16] and all of a sudden your currency went up 20% against a competitor, It deserved to go. >> wasn't going to be a Right, that was going to be not going to last. So what did I do? I said to Michael uh Sofer at the time, end of '96, early '97, I said, this is like the arm I wrote up one of my like 10-page analyses cuz I used to This is from the tiger days in my history background. I used to write up the
[43:47] thesis. So I said, "Look, we need to have a hundred million dollar Thai baht on. And these are the reasons." And I remember I I wrote these pieces. I probably still have them. For every single currency, I went through fundamental analysis explaining why it needed to devalue. And cuz I was going to I did some in my own account for the fund, so I had my own separate account and then I did some for the bigger fund. And um it was interesting because
[44:17] it didn't cost anything to be long the dollar short the Thai baht. It was only the interest rate differential. So when you bought dollar sold Thai baht one year forward, the cost of carry, the negative um cost of carry was one percentage point. And I was making the case that Thai baht needed to go down 20 to 30%. So just think about that trade. You're going to risk losing 1% to make 20 or 30.
[44:47] That was the best trade I'd ever seen in my career up until that point. So in February or March, somewhere about around that time, uh I put on a one-year dollar Thai baht forward and I just sat there and I said to Michael, I said, "You know what? I'm going to come in at 9:00 p.m. at night and I'm going to I'm going to work from 9:00 p.m. till 5:00 a.m. That's going to be my work schedule because I need to be there to live this.
[45:18] And I was 27 or whatever it was. Uh and not married, uh just starting to have a girlfriend who ended up being my wife, still my wife after 24 years and she can remember this. >> put up with that schedule. That's a good Yeah. A good allocation. Yeah, she put up with that schedule. She put up with a lot more also. Um and they thought probably thought I was nuts because Michael and his brother, you know, Philip, it was their fund.
[45:49] And they're like, "Holy, what what do we do getting this crazy guy here?" But this guy's going to make us some money hopefully. So we got on this dollar Thai baht and we just sat there. And then all of a sudden, pressure started building. I started talking to people about the thesis. I like circulated my memo that I wrote. It was just a, you know, it was an idea. And then all of a sudden, a lot of guys started coming in. Like, "Wow, risk one
[46:20] to make 20." Ooh, right, that's a macro trade and our max loss would be one. Yeah, like max, love having a defined bottom. Because then you create the asymmetry. Right? And so I sat there and I had a few other ones, but I was really just sitting there in the middle of the night with one dollar Thai baht that was pegged, watching and waiting. And then the pressure started to build and the forward started to move out. So
[46:51] then, there were so many people doing it that it ended up costing, you know, 2%, 3%. People were still doing it. They're like, "Oh, 4%. So it's like, I'll risk 4% to make, you know, 20 or 30%. This is fundamentally undervalued." And what was happening at the time, like you're saying like, "What was I doing in the middle of the night?" The central bank um was allowing capital exodus. So, what happened was the short-term
[47:22] currency reserves of the central bank were getting down to very low levels. It's like lower than two or like two or three months. And so, if some very small portion of capital flight started to happen, like Thai people leaving uh uh pulling their money out, um it was it would create a situation where the central bank didn't have enough reserves
[47:53] on hand to to allow that Exodus. So, that was the linchpin. That was the linchpin, the the fulcrum in a way. That was the point. And once you knew it went beyond a certain level, it was game over. And so, I was sitting there, believe it or not, on July 4th, I'll never forget this, in the middle of the night, 1997, in my T-shirt in the office we shared with Morgan Stanley Asset Management. It
[48:24] was Barton Biggs, was very good friends with Michael. And I had a little office, wasn't even office, it was more like a little cubbyhole there. And all of a sudden it prints across the tape, Thai baht on pegs. And we made, I don't know, within like a week or 2 weeks, it was like 50 million bucks or something like that. And then uh we ended up shorting over the duration of the year all of the
[48:55] other currencies that were still pegged that needed to de-peg. So, I the ringgit, the rupiah, the Sing dollar wasn't pegged, but it was going down. >> I remember, it's just dominoes. >> Yeah. Yeah. And the big one, I had two other big ones, I I bought these puts on the Indonesian rupiah at a four vol, but I bought the puts and uh they ended up going up 18 times. Like the value, right? You saw this because you were
[49:26] doing the you were doing the you were doing the um this you saw sort of history rhyming. Correct. Did other people, I'm surprised it wasn't more crowded because did other people sort of see the correlation or they were they just not looking in that part of the world? It's a little bit of both, but a lot of people, the macro, the New York macro community saw it. You You my friend, by the way, who I'd worked with for uh the first 5 years of my career, the the guy
[49:57] who I mentioned hired me at Tiger, he ended up um working at uh Lou Bacon's firm, Moore Capital, and he and I, like I don't know if I got him into the trade, I don't I don't even know, but he ended up doing the trade really big for Louis. So, um that was one guy that had it. I think they all had it. I think Julian uh you know, I wasn't in have in conversation with Julian, but I I I'm pretty sure they had the Thai baht
[50:28] devaluation. Um Soros, probably. I ended up working for Druckenmiller on and I remember him saying something about having it, but then he went the other way on the ringgit for some reason. He had some analysts who thought he should be long the ringgit, uh the Malaysian ringgit. So, he lost a chunk on that, but I it was you know, I tend to be very concentrated and focused on opportunities that I think are really clear where there's a lot of asymmetry. So,
[51:00] I didn't do anything else. I didn't have anything else. I didn't care about anything else. We just shorted every single currency, and our fund was the only Asian fund in the world that was up in '97 because in '97 the Asian stock markets went down like massively, 30, 40, 50%. I don't remember. There's a ripple effect through all that, which which which impacted so many even if they saw even if they saw coming. So, clearly your confidence is back by now, fully fully recovered.
[51:30] >> No, I I mean, it didn't take 3 years. I My confidence came back in '95 when the fundamentals in Japan, we I know we don't want to go back to this, but the fundamental view that I'd had in '93 that I thought was right that got sidetracked in 94, actually reasserted itself in 1995. I thought that Japanese rates needed to go to zero in 1993. You were just early. >> So it just took 10 years
[52:00] to either or longer to happen. They eventually did go to zero and stayed there for a long time. So I want to move I picking up on the on being concentrated and really focusing where you see opportunity. So your third one is one of your worst trades. It's a 2008 and this is so interesting. It's a VC investment in an Avatar Metaverse company. This is so interesting because of course everybody knows 08 what was going on in the focus. So we're we're you know sort of in the beginning of the financial crisis and you're already in that part
[52:32] of the world or you just beginning to get interested? Talk to us about that one. Yeah, so 07 uh very good year for me. Um I was then I had moved to focusing on agriculture and grains and starting in 05 06 I'm sorry 06 and um it had a a pretty nice windfall in a bunch of investments. Had a great years in end of 06 07 and even 08 ended up
[53:03] being a great year for me too. And a friend of mine came to me and said look I've got this uh you know investment that I'm doing in this company and it's a Metaverse and you go into you have your Avatar and uh you can like I'm like so what do you do? Well, you can hang out like in a room together and talk and people with similar, you know, uh hobbies can can talk and do this and
[53:33] that. So he said you got to come down. And again, I'd made a a decent chunk of money and people were always coming to me for you know for investments. You know, they were suggesting you know, coming to me with their business ideas etc. So, this is a good friend of mine who incidentally he and I had done a trade together before in a grain related thing that had we'd made 7X in 3 months, which is sort of my biggest shortest term hit up until
[54:05] the time. So, we'd had a good rapport, right? I didn't It wasn't just like somebody saying, "Hey, come look at this company." This is a guy who I respected, who did a lot of homework who together with me we both made this 7X in a 3-month period. This is while I was at SAC Capital uh in the early 2000s. And so he says, "You got to come look at this business." So, I went down, I looked at it and again, I hadn't made too many private investments at the time but I
[54:35] looked at the thing and I was like, "Wow, this is really interesting." I could see people from all around the world. So, I said, "You're telling me people from all around the world can get together in this living room and they can all talk about like cars that they like to drive." So, it was that kind of functionality. Avatars are a little clunky, but I was like, "This is really cool." And I sat down with the guy and he the CEO and he seemed like a decent guy. Um and I asked him about the financials.
[55:07] Right? And he's like, "Well you know, it's been a little rough period for us, but we just need some you know, money to like get through this little rough period and then we have this big deal coming." So, I said, "Okay, all right." And I was like, "Well, you know I wanted to see the financials." I had just to you know, you've got to have some books, audited record. Anyway, he kept hemming and hawing about that. And I my friend was the single largest owner uh outside owner, my friend who I had
[55:38] done these deals with. And he's like, "Dan, it's fine. It's all good." And it's I I don't think he misled me. I just think that I you know, maybe he didn't know. I I don't know. Anyway, the bottom line is I ended up making an investment in this company and it was only a few percentage points of the business that I ended up owning and um
[56:08] I never got to see the financials. And I completely trusted my friend who had a much larger position that had millions in it. And this is the guy that I had made a 7x. So, um made my investment and then all of a sudden a month later, I called him to try to speak with him. And like he wouldn't answer the phone. Things are whatever. I couldn't reach him. And then he basically you know, I I finally got him and he's like, "Well,
[56:39] you know, we're done. It's over. We're we're closing." And I was like, "Well, what do you mean you're closing? I just gave you this chunk of money a month ago." He's like, "Yeah, well, we we we couldn't get any money from anybody else and we don't have enough to run and we're just going to close." And I was like, "Oh my god, you just defrauded me because you knew you were going to go under." And maybe my friend didn't know. He probably had some inkling.
[57:09] Um but I was like, the money was gone, zero. And I didn't sue him. I didn't do I I don't I don't do that nonsense. I mean, I I leave that for sort of uh you know, yeah, that's a that's not a way to live happily or successfully. And so, but it's interesting cuz you you had such a process and research things like that that's the way you operate and then this one time you just kind of didn't follow
[57:40] your own rules, right? Yeah, it was a little bit of a different area for me. It wasn't macro. It was a little macro in some ways because it was this very big picture idea, but he was building this product. And again, I had I was maybe living like a little too confident from all my gains in the previous year and I was like, "Ah, it didn't matter. It didn't It wasn't such a huge amount
[58:10] in a sense. It It didn't change my life at all, of course, but it was really a a wake-up call that well, you don't do that again, you know, you don't you know, not only not go through your process, but that excessive trust on one character also, who was my friend, is not a great idea. And the guy just straight out lied to me and so I'm a pretty good sense
[58:41] I'm I have a pretty good sense when someone is just lying to me cuz there's a lot of misleading and lying going on. I still make mistakes. You know, I still make mistakes. You know, you it's it's it's difficult. There are there are a lot of you know, misleaders out there. You know, people who kind of And sometimes there's a lot of desperation, right? Like someone's reluctant to give up their dream and so they they think they're manifesting the future, you know, and
[59:11] Right. Right. And um I don't know if you ever are able to completely um scrub that out. I mean, I we can talk about this later on, but I mean, I pet in my current business in in the digital asset ecosystem world, um I passed on over you know, over 100 deals in the last 2 3 years. I passed on FTX three times. I
[59:43] passed on BlockFi, passed on Celsius. Um you know, but we had two companies in our portfolio. I mean, it was less than 5% of the UN combined, but I had two go to zero. And both the cases were guys essentially, you know, misled. Yeah. It's two out of 26. >> of the nature of any investing or trading. You know, you have your winners and you hope that they run high and then you're you're inevitably going to have things that don't work out, whether it's
[60:14] the, you know, the founders you know, or it's just the timing or you know, it's too early or that's the nature of VC investing, I suppose. Which by the way, I'm going to I'm going to switch things up. >> But hold on one second. That is not exactly right. Like meaning that you can make an investment and okay, the cycle turns, the growth goes down, whatever it is. But um fraudulent behavior is
[60:45] uh and it's there it exists in the current space. Um Losing money as a result of that is not the same as losing money because you were early or because uh you know, these two cases. Now, often they're connected, okay, I get that. But I'm just saying even now after 30 years plus of making investments and trading I you know, I relied on somebody
[61:18] uh internally on those two investments. I probably didn't do as much work as I should have myself. And this is the problem is that and I I removed both of those people from anything I'm doing in the future. But look, it's my responsibility. I run the fund, all investments are my responsibility. I have final decision-making on everything. So, I never blame anybody else. Uh it's my fault. But
[61:49] you know, had I done the full work you know, maybe I would have missed it, maybe not. There were things that were bugging me about these two investments. My only point is that there My only even after all these years right? And remembering that '08 experience, and again, this guy didn't blow up because of the financial crisis in '08, had nothing to do with that. It was just a straight-out fraud. He knew
[62:19] he was going under and he took my money to pay himself back some money before he announced that he was going under, right? And I I I I I wrote relied on someone else's judgment a little too much. The the the the the the the balancing point, and this is an interesting one and I'll I'll stop after this, is that you know if if you're to grow to a certain point
[62:50] um you have to have a team. You have to be able to rely on the team. You know, Warren Buffett, when he makes an investment, it's not just him doing all the work. He has a team of people who he respects and trusts and And you need that. You can't do everything yourself. Right. And so yes, very big part of this is, you know, partnering uh and having the right people working for you, but you don't even after 30 years, you still can make that mistake.
[63:22] So, they just have to try to um structure your portfolio in a way where if that does happen, it minimize you have you the the loss is not uh cataclysmic. It It's It's a loss within a portfolio. So, those two things were 5% of total AUM for me. So, it did you know, so so meaning like even after 30 years, you mean to protect yourself
[63:54] even when you're investing in things that you love. That's right. And and listen to your gut. And for the people on the other side, don't be an idiot and burn bridges because if things are you know, if you're if you're operating in a straightforward way and being honest with your investor, you're not you know, you're going to you're going to suffer the consequences of of that. Um which you you didn't sue, but you know, certainly many others could have pursued it that way. So, um you you really need to try to keep that moral compass, I think. I want to I want to for your fourth trade switch things up a little bit
[64:25] because we're going to do another one of your best. Long gold was in there in 2009, but I actually want to since we were just talking about this early foray, I want to I want to do the fourth one as um the best one, which is starting 10T because it's so interesting having heard your whole journey through macro being at a front row of not only some of the biggest trades that went down and profits that were made, but also the sort of you know, running in the circles of the names that are now legendary um and working with
[64:57] them alongside them. You've kind of You've kind of shifted your focus and are really concentrating on this digital space. So, talk to me about launching 10T. Why is that feel like one of your best ones yet? Well, it is the biggest macro trade of all time. Um the growth in the digital asset ecosystem and the broader general adoption of Bitcoin. Um
[65:27] I I think um it's something that's it's outside the existing macro um world. And so all the bets I I did and again, starting the gold company GBI, the company Druckenmiller I launched together AgCoA, which is a farmland REIT, I sort of moved from just trading in liquid markets to starting businesses because the risk reward, the
[65:57] asymmetry of the bet in starting a business is much greater than in just doing a trade. And also I'm more of a long-term uh investor and it's much easier uh from a lot of different standpoints to structure a a bet uh within an operating business. Um but so you know, the experiences that I've talked about in the beginning
[66:28] this idea of being able to sit through volatility um being able to um build a sort of broad diversified portfolio. Those are very important uh things. We didn't talk about my experience with AgCoA, which is a diversified portfolio of farms um that was built and ended up becoming the largest private farmland REIT in the US.
[66:58] And um we ended up selling in 2013, but the structure of the investment, the structure of 10T, how it exists as fund with 20 24 different companies. Um the way that it's it's put together is in a way it's built to optimize and leverage to the greatest degree the upside while having a control on the
[67:30] downside. And this space is the most difficult that's ever existed. This trading cryptocurrency, not just Bitcoin, ETH, but like all of these other various things. This is in my view 10x more difficult than trading, you know, the euro. So, the structure of 10T exists. Um it's it comes right out of my background in terms of
[68:00] um trying to create this asymmetry uh where you have a limit on your downside, but then you are participating in the upside. Uh I I think that the volatility in Bitcoin, ETH, the whole space doesn't exist in the old world. It doesn't. You don't have an asset that goes up, you know, 20x and then drops 90%, 20x, 90%. Um it's a whole, you know, it's a whole new world that's being built here. It it is literally the digitization of money.
[68:33] And I always say like the internet was the digitization of ideas and information. This is the digitization of money and value. And then it's something well beyond that. This whole concept that I talked with Raoul about back in 2019, this truth smiths machine concept. It's a permanent ledger that can't be distorted. And so, when you start to think about what is a permanent ledger digital ledger that can't be manipulated or distorted, like what's the value of
[69:03] that and how applicable is that to almost everything that we do? You know, maybe um you know, maybe can help remove the odds that you deal with uh fraudulent uh people or fraudulent things, right? Like the situation I have. >> you. So let me ask you so so I so I can see how this is the this this sort of new world um connecting back to your idea that you create a thesis, you get conviction, you you study things, you're all in it intellectually.
[69:34] Do you feel that your gut and all the experience you learned from these massive macro trades, do you feel like that process you can bring that process into into this chapter and this trade that you're looking at? >> Yeah, 10T doesn't exist uh at all without my previous background. It's not something that like we are right now the as far as I know the only growth equity fund in the world exclusively focused on crypto,
[70:05] blockchain, web 3, digital assets. It shouldn't be that just some old-time macro guy is is the only guy focusing on this. Where are all the other like the growth equity guys, the crossover guys? Where are the old the guys from, you know, the KKR's or Blackstone or, you know, Silver Lake and um but it's a very strange area because it's very interdisciplinary and it you need to understand macro and currency and monetary policy and cryptography and
[70:38] coding and tech and it's just it's so many different things. Um so you really have to be you know, you have to be able to think creatively about like what could the future look like and do you believe in that future? And that took me a lot of work to get to this point, right? It took me um It took me a lot of work. And so, maybe in some ways the strategy is unique to my background, but it's not exactly because you have people
[71:09] like, you know, Dan Morehead, Mike Novogratz. These are guys my age who were earlier than me to the space. Mike has Galaxy, of course, Dan very successful Pantera. And these are guys who had that macro analytical framework and they got and now they're all in on the space just like me because what you realize is, "Oh my goodness, all that stuff that we used to do." And those guys did many of the similar bets that I did. That's like a horse and buggy
[71:40] situation, right? Like that old macro, I mean, you can still make money there. Those guys are very successful, but it's really the old way. And the opportunity set in the new world is so huge. Um the only caveat is, as I said, the greatest macro investment trade of all time, but there's a caveat, is that it comes with crippling volatility that human beings aren't really normally, you know, used to. Or or or
[72:12] And so, the structure of 10T and the investments that we've made um in the fund, um the way we diversified it and the structure of of the actual equity that we own, um puts us in a position to weather that volatility and then also participate on the upside. So, I would say >> Like I certainly had There's no chance I could have come up with this. It comes right out of my experience with early,
[72:42] you know, macro trading in the '90s and then building at Cohen GBI. And I'm not even saying it's the best to structure. There are funds that are going to outperform us, but it is it is the only thing I could do to get myself to a place here where I feel comfortable bringing in outside investors. It's amazing. And when you put it that way, I just get the the sense that the sort of Brown University graduate who was studying history and philosophy and, you know, writing these thesis in his
[73:12] 20s is sort of applauding and has a front row seat to this. It sort of feels like that. So, it's a it's a fantastic arc. Um Dan, you have so many trades and so many stories. That's like impossible. We really need 3 hours. So, we'll have maybe we'll have to have you back for another one, but but it's been an amazing conversation. Thank you so much. My pleasure. Thank you. So, you obviously liked this video enough that you've got to the end. That's quite a big task. But listen, do me a favor. Hit the like and subscribe button and also
[73:42] check out what video's next cuz I think you'll love it. But if you want even more, and when I'm talking more, I'm talking about member generated ideas, incredible alpha research, everything there to help you in your journey, just head to realvision.com/join for the best financial intelligence out there and the pure alpha that's within the platform.