165: Michael Samuels – Speculating on Mergers—and a Case of “Excessive” Due Diligence

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What's up, boys and girls? Welcome. Right now you're listening to episode 165 of Chat with Traders. I hope you're doing fantastic and I hope you're about to enjoy this episode with my guest who is an equities and also to a lesser extent, I believe, an equity options trader, Michael Samuels. So I was actually introduced to Michael by an experienced trader and a fund manager who described Michael as being, hands down, the best trader I know.

And having seen his performance I can also tell you he is an advanced trader. Michael once traded for First New York and Apex Capital and now he trades his own money under the banner of Broom Street Capital. Michael describes himself as being an event-driven trader. He focuses on news flow surrounding mergers and acquisitions. shareholder activism and fundamentals to seek out what he calls valuation disconnects.

Coming up, some of the things you'll hear about include Michael talking about merger arb strategies, including examples, stories of excessive due diligence, which I think you'll get a kick out of. Time during his career where he's made mistakes, and more importantly, what he's learned from these mistakes, and plenty more. But I think there was also much more we could have discussed too. So at some point I'm really keen to try and get Michael back on for a second episode.

And just the last thing I'll mention here is Michael has also recently begun hosting a podcast of his own. It goes by the name of According to Sources. We talk a bit about this right at the end, but if you're curious to know more about merge arb and event driven trading, take a listen to it because he's doing a great job. That's according to sources. Now folks, on with the show. Here is Michael Samuels from New York City.

We're just getting I'm not sure how the earnings system or you know in terms of timing is over there, but Right now like earnings season's sort of like we're just getting going, you know, like the uh we got the banks last week and now we're getting some of the big tech names and so we saw Netflix last week and Microsoft is coming out any minute but Uh for me, you know, there was a few trades that I got into today that

Uh I got I got taken I got whipped around a little bit today and it all ended up fine. But I had those moments where you you know, I'm like, Oh my god, I can't believe I'm gonna lose this much in, you know, Domino's pizza and uh and and then, you know, it comes in but Just uh got too big before a conference call, which is always a big mistake. Uh right. Yeah. No, it is earnings season over here as well, which has been uh very interesting. Um

So yeah, let's uh let's hear a bit about how you actually got into trading. Like where did you even start out?

So, um I would say that I'm you know, from an early age and I mean uh like ten, you know, I I know that sounds crazy, but uh I wasn't really good at sports and those sort of things when I was young. Uh so I didn't gravitate to those to those things and Um, when I was ten or eleven, you know, my grandfather gave me some stock for a birthday and for some reason I was just extremely interested in in in the tracking of that. And I would ritualistically wake up in the morning, this is when you had to

still look up quotes in the New York Times every day to see how your stock had done and see you know, I I had shares of Coca Cola, like ten shares. And I would and I would see that and You know, from at that moment and this is I'm thirty seven, so this is like nineteen ninety.

Um and I would see well what are the you know, they would list stocks, what are the most active, what went up the most, what was what moved around the most, and you would see the same stocks every day at that point, which was Microsoft, Intel, Cisco, all those sorts of things.

And so I wanted to make more money, or I wanted to make money so that I could invest in those. But I was only, you know, 10, 11, and 12. So the only way that I could make money, and this was what my friends were doing, was to be a caddy at the local golf course. So I was a caddy at Wingfoot Golf Course from you know twelve, thirteen, fourteen, fifteen. And uh I was able to take that and to take some bar mitzvah money.

And my parents were, you know, encouraging and they let me just put that money into those crazy tech stocks, you know, like the Intels and the Microsoft. uh Cisco's and uh the as far as I knew, stocks only went up and I didn't learn for a long time that uh that that wasn't the case. So when did you eventually learn that stocks do come down also?

So uh I think I had a very grand plan in my head. So let's say from age thirteen to seventeen I saw uh you know, let's say five or six thousand dollars that I had been able to make catting and in in bar mitzvah money, that sort of thing. and that grew to maybe nine hundred thousand or something quite close. And I didn't

understand. And again, as I grew older, I got bolder in doing, you know, getting involved in some of the crazier tech names. The names of like real you know true garbage that I didn't understand was garbage, but just went up a lot. And so I'm trafficking in these garbage names and I'm seeing my PNL go crazy and I maybe I'm a freshman in college at this point and I just thought, well, I'll just sit on this stuff.

And by the time I'm out of college, I'll be worth like five million dollars, right? And I'll be able to move to New York City. I'm gonna buy this apartment. Life's gonna be great. And by the time I was a sophomore in college, which is a year later, that nine hundred thousand dollar portfolio was probably worth about one fifty. And so I probably cashed out around one hundred seventy five, something like that.

Now you told me this the other day when we had a a quick chat beforehand, uh, that you'd turn that five K or thereabouts into somewhere close to nine hundred thousand and my jaw almost hit the floor. How did that feel at the time? Like I I just can't imagine how crazy that would have been for you being like a, you know, fifteen, sixteen, seventeen year old teenager. Like

Did you tell your mates about it? Like w h how how were you feeling? No. Well first of all it just felt like a game, right? Because well for starters, while my parents would be very willing to encourage me to do this. There was no way they would ever let me touch that money. You know, so to me it was like, Oh, I'm playing this game.

uh and I'm watching this money go up and down, but because I can't touch it, it's not like I'm gonna turn sixteen and go buy like a Corvette. Like that wasn't gonna happen. So instead I was just saying, well how big can I make this? And no I didn't tell my friends because I that's one of those things like you're uh I always felt awkward talking about that sort of stuff and you know, I grew up in like a very um middle class neighborhood and

to say, hey, I just, you know, made this crazy amount of money would have felt weird and it probably would have made me feel a little bit isolated uh from my friends, if that makes sense. Uh so no, it was really just a hobby that I explored with my family. Okay. And what did your family think of this?

They thought it was amazing. But they also and you know, to this day it's you know, my whole family we have a family seafood business and uh you know, but they're hobbyists as well. They they love the stock market, but they never really not much evolved from where I was in those days, which was you buy, you hold, and you watch it go up. And and so they were of the belief that, hey, y by the time you just like me, by the time you get out of college, you're gonna have five million dollars.

So every w everyone was on board. There wasn't someone that tapped me on the shoulder and said, hey, maybe you should like take something off the table or hey, you're in this uh pet company that sells pet food online, uh, they don't make any money, maybe you should sell it. No one was ever doing that. Wow, what a crazy time. Crazy time. I wonder if I had been trading now as an adult in that time, uh, what I would be like. But y you know, we'll never know. So what did you do after

College. Like your your nine hundred grand had shrunk into one fifty. What did you do after getting out of college when you didn't have that five million dollars that you were thinking you may have?

Uh dream deferred, right? So I guess uh, you know, for me I had two passions growing up. One was investing, uh and the other one was broadcasting and the radio. And if you ask me, you know, when I was twelve, what do you want to do when you grow up? I wanted to be on the radio. My heroes growing up were Howard Stern.

and we have a we have a local broadcasting station here in New York called WFAN, which is has these two guys named Mike and the Mad Dog. So I I listened to Howard Stern and I listened to Mike and the Mad Dog and I want it to be like them. And so I I uh went to school, I was a broadcast journalism major. And uh, you know, by the time I was done, I had three offers. And the three job offers were in one was in North Dakota, one was in Texas.

Uh one was an in another uh outpost of the United States that you just wouldn't want to live in. And so uh I was like, Okay, so what can I do to blend these two interests together? And uh I got a job at C N B C working for a show called Street Signs which at that time was hosted by Ron and Sana and I would be uh sort of a producer, a researcher and I would be able to kind of blend the mix uh of loving finance and the liking of broadcasting and television and you know, the media.

From there, uh season one of Mad Money with Jim Kramer started about three months after I worked there. And he was a stock picker, you know, it's the like the show I was working on at that point was very political based. It was like very macro. And here was a guy that came along and was saying, you know, Buy Juniper, buy Microsoft, buy whatever it was and and I was very gravitated towards that. So I made a request to switch and get on that team and I did.

Uh and I probably I don't know if he would remember me because I only worked on that show for a year, but if he did, he would probably say, Oh, he was the really annoying guy who emailed me all the time. Why would he say that? He would say that because and in fact they banned me from emailing him, I think, after a while, because every morning I would pitch him on what I thought a great trading idea would be.

And I would like scour stock message boards and I'd read every newspaper I could find and and and I I thought I was being helpful, you know,'cause my role was to be a researcher and producer on the show, but I was just inundating him with so much stuff. that in the end he would say, Hey, you know, Mike, send me one email a day in the morning and and and we'll leave it at that. And there was an incident, I don't know if you guys uh remember

There was a character named Lenny Dijkstra. He was um a famous baseball player in the United States. And then he actually made it on our show Sixty Minutes, which is a news magazine very popular in the United States. And uh Dijkstra worked for the street.com. And Dijkstra would pitch stuff to Kramer. And he eventually went to prison, but at that time he was sort of like Kramer's sidekick.

And so Dijkstra was looking at the exact same message boards and and uh you know the equivalent of I guess what seeking alpha is today we had back then. And uh I remember we both pitched the same stock on the same day and uh There was a huge incident over who had pitched it and um yeah, so like I said, I think I was more a thorn in his side than than uh than a help. But uh at the time it was a good experience.

So w yeah, I mean I was gonna ask you that actually. What what did you make of the whole experience? Like, did you learn a lot from working on that show? I guess it forced you to be researching every day. I think at that point, you know, I'm twenty three, I'm right out of school, and because I kinda thought I was hot shit, because I had, you know, been looking at the stock market for a long time, that I thought I knew more than I did. And I thought um

you know, and and by working for him and looking at things on a daily basis, uh I thought I was only learning more. And and that had the effect I think of sort of inflating um my abilities or inflating what I knew and of course When you're sitting in front of a screen on a daily basis and not, you know, and trading and instead of researching and and looking at things from, you know, the the far outside, it's really different.

You know, it's very easy to make a broad call and say, Oh, I you know, I like the fertilizer sector, here is why. But then when you actually sit down at your trading desk and you have to do it and you know generate money on a daily basis, it's really different. So I learned a lesson But I would say I didn't learn it till later, if that makes any sense. When did you kind of transition from that into like the professional trading arena?

Sure. So uh after a year of that, uh I got sick of making TV money. And uh I don't know if you guys You know, you're twenty four, you're living in New York City, it's tough to live on thirty grand a year, uh and have an apartment and and go on dates and and live in New York City. So uh I was, you know, and also just doing the research I had really gotten that stock bug back.

And I was presented uh through a friend of a friend an opportunity to get at a trading desk uh in a like an apprenticeship program at first New York Securities which It was one of the bigger it still might be today, one of the bigger proprietary trading shops in the in the United States and had been around since the seventies. And uh, you know, I clerked for someone for a year. I got yelled at. on a daily basis like you know, like the worst stuff you would ever say to someone.

uh is what my boss would say to me on a daily basis. But it's like that's just like that came with the territory, you know? It's it's uh it's a very fraternity house atmosphere, or at least it was on that desk. But when you're surrounded by all these traders uh you know they probably had two hundred guys. You learn, you know, what strategies are gonna suit you, what strategies are not gonna suit you. And and at this moment also was like a a very pivotal moment in terms of technology.

That year when I was clerking for my boss, I would probably call down to the floor of the New York Stock Exchange. Фіфті, сиксті там. and just, you know, try to get flow from different specialists and try to get flow from floor brokers and Um, you know, obviously that's a like a very ancient thing. No one would ever do that today or very few, but at that time y it was necessary just you know, to see uh how many buyers versus how many sellers were involved in a name.

Okay. Now I just want to backtrack a little bit. I I'm interested to know how you actually got into the firm. Like how did you get an in? I know you said you had a friend there, but what was it that they saw in you or how come you were able to land the job like besides having a friend that worked there? Okay, sure. So the foot in the door was getting an interview. And uh do you wanna know like how I got the interview or what how the interview I think was handled?

Maybe a little bit of both. I mean I'm mainly asking the question because I know that there'll be people listening to this who are interested in getting into a proprietary trading firm or something like that. So I think it'd just be interesting to hear how you were able to get into it, you know,'cause you come from a journalist role. I mean, sure you had an interest in the stock market, but, you know, you had a chance to now get into a professional trading firm, you know what I mean? Right.

Yeah, so i if you had looked at my resume at that point, you know, you would have seen someone uh with no financial internships, someone that uh went to uh you know, a broadcasting school. Uh uh my resume wasn't sparkling by any by any means in terms of getting on a prop test. But I did have that Kramer angle, you know, and and at that point, we're talking season two of Mad Money, he was still sort of a big deal. And I was able to literally get that interview uh because my sister's

fiance at that point, his cousin was a partner at this firm. So I begged her to ask him to get me an interview. And that's how I got in. So really lucky in that way. And then as in terms of the interview, And you know, I can speak to this a little bit more because later in my life I ran my own training program at a at a different prop shop that I worked at. What I really tried to sell myself on is the idea that I live, breathe, eat, have a unbelievable passion for stocks.

And and when people would come to me and interview with me, those are the people that you really want to hire. Not the people that are like, I want to make this much so I can buy this car, I want to make this much so I can party and live that Wall Street life. You know, you want people that love trading, that love the stock market. And and the truth was, i you know, for me I didn't have to pretend it was a genuine feeling. So, you know, i for anyone that wants to get into that field

I mean, for your own good, for your own success in the field and for your own, I guess, well being, you should wanna love it. And if you don't love it, then you're probably in the wrong business anyway. Mm-hmm. Yeah.

And what was your experience like at uh First New York? Like you said that you were clerking for a while. How long did that last for and and what did you what sort of role did you slot into once you kinda moved up the ladder a little bit? Right. So clerked for a year. Um, you know, it's a great experience in just learning the mechanisms of of trading, right? And you know, a lot of it is just You know, my my boss at that point was a crazy active trader.

Uh You know, so I would be putting in you know, I could be putting in a few hundred orders a day. uh managing, you know, fifty options, you know, positions, spreads. So for me, I learned the language of Wall Street. I learned how to manage a book with lots of different positions. Um And I guess, you know, I see for me I've always been obsessed where where people can go wrong.

Uh you know, obviously I'm interested in whether how people are successful but I'm more interested in well, why do things go bad? And so I was able to see some of my boss's habits and and habits in the room of well, why isn't this working? Why does this person consistently make money? Why does this guy seem to be pounding the desk in anger all the time?

Um those are the things that I picked up on. And then after a year, you know, First New York gave you a a small book. So they would give you, let's say, a million dollars to trade. And and and you're on your own. You know, that's it. You you do through osmosis, you've learned a a style or or certain people's styles and you have a general idea of what you think you might want to do.

But, you know, when you're when you're thrust out on your own, um, you know, you you do feel like you're you're flying without a net a little bit. And uh and I learned very quickly, um, with some pretty big losses in the beginning, to to ratchet down and and be careful.

U can we hear a little bit more about how you did go once you went out on your own? Like what sort of style did you gravitate towards and and you know, how did you pick things up? So my first year of full trading was 2008, I believe. Either late 2007, early 2008. And, you know, as you know, things were just starting to get a little crazy. What I ended up seeing you know in a lot of my trading was people trying to around me catch bounces.

And you see this in a lot of trading firms that I notice. People always want to catch a bounce or short a top or you know catch that mean reversion and pivot move. And that was something that I tried doing and uh I didn't seem to have much success with it. That's it's such a tough game to play.

Um so I took a lot of lumps trying that strategy at first and it didn't really work for me. I saw people, you know, trying to trade sectors. So if like one bank was bad, let's say they would short all the other banks. And uh and that didn't really work for me. But you know, you you gotta try all these various things until you until you find something that does work.

And and in the meantime I had to not blow up. You know, the whole game is you you wanna at that point not get fired and you wanna come back and play tomorrow. And at the same time you wanna make some money. So uh does that you know help answer that a little bit? It does, yeah.

Let's fast forward a little bit and talk about how you're trading nowadays. I think that's probably a good way to lead on. Now, I think and you can correct me if I'm wrong here, but you would probably describe yourself as an event driven trader. I think that's how you've described yourself. Can you explain what that means and and how you make money? Sure.

If you're a new trader, you know, we'll go back to you know being a first year guy, if you're a new trader and you're and you're looking at your board, there's thousands of stocks to pick from. So where do you even begin? And and when you think about it, I'll put it in these terms also. The idea that, you know, every day Coca-Cola, we'll go back to that, Coca-Cola stock moves sometimes billions of dollars in market cap. And the only reason that happens is because the market's open.

But has anything inherently changed in the value of Coca-Cola to make it do that? No. It's just'cause the market's open and and and people are trading. And and you know, I don't know if uh you've ever owned a business or if your family had a business. Like I said, we had a a seafood company, a small seafood company. The idea that that seafood company going up and down ten percent on a daily basis would be crazy, but it happens in the public markets every day.

So the only way that you could trade that in my opinion was to know what Fidelity or Vanguard or BlackRock or any of the, you know, fifty guys that actually matter are gonna do that day. You can't do that. So the only way that in in my opinion that I can make money on a consistent basis is by wiping my slate essentially clean every day and coming in and looking, well, what inherently changed the value of a company today?

Long or short, more valuable or less valuable today than it was yesterday. And there's so many factors that could make this happen. You know, we it could be an earnings report, if it's a pharma company, it could be a drug was approved or rejected.

There could be a patent ruling. There could be uh you know, an activist may have taken a a stake in this and wants to push for a sale. There could have been, you know, want company A buying company B. Uh you know, there's so many things that inherently change the value of a company every day. So I gravitate towards those names because at least it gives me a a a field of names to pick from where I know that there's something more than randomness that's moving the stock around.

And what sort of stocks are you mostly playing in? Like I I think that you gravitate towards more of the the bigger names, like the blue chip type of stock? So the names that I'm gonna traffic in, by rule, you know, eventually we have to put self imposed rules in on ourselves, right? Otherwise and these come from making big mistakes. So one of my self imposed rules is I try to stay away from companies that have market caps of sub five hundred million.

And the reason for that is A, they tend to be less liquid and B, they tend to get manipulated. And I don't wanna take part in someone else's manipulation. And so, you know, if you if I stick to five hundred million and above, I think that things tend to act rationally. And what I mean by that is I I don't know Aaron, do you play poker or do you play chess or any of those games? Uh no. No I don't. Well, if you if you did or you talked to someone that that plays poker or chess, um

If you play poker or chess with someone that's been playing for a while, they tend to all play by the similar strategies and similar rules. But if you play someone that's never played before, or has very little experience, they do their own thing. And sometimes when I'm trading those companies that are have small market caps, it's like I'm playing poker with someone that's doing their own thing. And when I do that, things can happen that I won't anticipate.

Because, you know, like I said, they're playing by different rules than the ones that I know how to play by. Can you just explain that a little more? Like you said that some of the smaller names can be manipulated, you don't want to play in someone else's manipulation. Uh what do you mean like In what sort of way can they be manipulated? Are you just sort of saying that the order book's a lot thinner and it's easy to bully the price a little bit?

I mean I say this without factual proof, but I think it's a foregone conclusion that stock are absolutely manipulated, especially these small ones. There's There's ways of controlling the float. There's ways of uh knowing short interest. There's ways of knowing when sto a stock needs to be bought in. I say this mostly on on small cap stocks that go from, you know, one or you know, that a penny stock that goes from a dollar to, you know, twenty or whatever it is.

Often these are triggered by s you know some sort of small event. So I'll give you an example. Five years ago, and you see this in other examples, but five years ago there was an Ebola scare in the world, and you saw a lot of these stocks. uh maybe ones that made hazmat suits, maybe ones that made, you know, any sort of equipment that would go along these lines to help a situation like that. These companies went wild.

And these aren't comp this isn't a permanent thing. These companies aren't gonna have real value in twenty years, most likely. But it turns into a game that people play. You know, and and and I guess what I'm saying is I it you don't you know, it's like how many you don't want to be the last stack on that pancake stack, if that makes any sense. Because it's just what you know, people playing momentum, people, you know, one to the next to the next.

hoping that someone will just buy the stock from them for higher than what they paid for it. But there's no inherent value to it. And so those situations kind of scare me. Yeah. Okay. No fair call. Um, I think with the those abolished stoc stocks, um, Lake might ring a bell for some. Right. Are you ready to get serious about trading? Then join Tasty Trade, Investopedia's best platform for options trading in 2026.

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Okay, so let's let's speak about you know, being an event driven trader. You said earlier on that, you know y You come to the market each day, you've got thousands of stocks in front of you to choose from. you want to focus on the stocks which you believe have a reason that the value of that company is either going to increase or decrease that day. You're not trying to participate in just kind of somewhat random market movements.

That's right. How do you actually go about researching and finding the type of events which uh you like to get involved in? So I would say there's a few things that you can do. You know, if you're trading, you need some sort of news aggregator. You know, and there's lots of platforms that will do this for you. You know, I've had subscriptions to briefing.com and street account, and um, you know, nowadays

if you have a Bloomberg terminal, uh, they'll aggregate it for you and they'll tell you, you know, what's moving. But also really important, I mean, you should have a calendar of stuff in front of you and you should know, you know, who's reporting today and tomorrow, who reported last night. Then, and this is I'm just taking you through my morning routine, you know, so you do this, and then you spend most of your time reading Wall Street notes.

And having access to research is so important because at the end of the day, that's what's moving stocks around. People at Fidelity, if you're a fund manager at Fidelity or Vanguard or BlackRock and you're gonna make a decision whether or not to buy or sell your stock today, you're listening to Wall Street you know research. And so essentially what we're doing as traders, right, is we're just front running Fidelity. We're all doing that. And and and so I guess what I'm saying is

the research and getting ahead of that is the the most critical thing and anticipating what these big funds are gonna do. So what are some of the sources which you depend on most for your research? Like do you have uh Do you have like access to brokers and that sort of thing which provide you with special information or not special information, but information that isn't, you know, readily available on, you know, the front page of Wall Street Journal?

So all these banks, you know, I pay each Wall Street bank to get the research. So I mean th there there's ways of sort of circumventing that, but at the end of the day, if you if you want Bank of America research, you have to either pay a Bank of America broker or you have to put money in a in a wealth management account and get their research.

There's no there's no other way to do it. I mean there used to be ways and you know Bloomberg would would turn you on temporarily or sometimes there would be a subscription that came for you know with your Bloomberg terminal, but the only way to get that stuff is to pay for it. And and with you know recent rules, this MIFID rule change that has really clamped down on free research.

uh is costing me a lot of money because now I've had the pony up for stuff that I didn't you know have to do before. And as an individual trader, you know, I I have a a a fund of family office at this point, but it's just me. And You would think that So l let's use this analogy. First New York has a fund. They have two hundred traders and if they want Bank America research, they'll pay as a firm a hundred thousand dollars to Bank America.

If I call Bank America with one person in my office and I say, I want your research, they'll say$100,000. They don't look at it as how many terminals are going to be turned on. They look at it as this is a company and they're a company, which is crazy, but that's how they do it. Hm. So where do you get most of your research now? Uh I you mean like in terms of uh I'm not sure I understand the question. Like I it shows up on my Bloomberg terminal. Okay, so mostly through Bloomberg.

Right. Okay. Cool. Now you speak a bit about earnings, but obviously earnings is only uh what, four times a year? What about on regular? Day to day trading, what other sort of events are you looking to get involved in?

The other events I'm looking to get involved in. Well, we've been seeing a lot of activist short situations and a lot of activist long situations. So those are always something that that you know is can be very interesting. Um I don't know if you've been following, you know, Elliott advisors.

Uh they've been very successful in a lot of recent campaigns. It just seems like there's a lot of BS though that goes around uh in terms of if you know, even today I was looking, there was probably three activist short campaigns that came out on these random blogs and You know, again, I tr I try to stay away from that stuff, but

You know, as traders I I go where the action is. And so if the action is in these places, uh sometimes I feel like I'm I guess forced to play or sometimes I'm trading out of boredom, which is always a huge mistake. But you know, I'll I'll I'll go where that is. Um You know, I'm I'm trying to think of uh, you know, w what else happened. You know, earnings season does get stretched over, let's say, six weeks, but it l uh you know, to your point, um

it's it doesn't exist the rest of that time. You know, sometimes there might only be ten situations to trade in, you know, on a on a daily basis. It might have been a a critical upgrade from an influential analyst, or it may have been uh a you know, a drug approval, or it may have been a court ruling.

Uh you know, these days with politics, you never know what Trump could say that might sway an entire sector. So there's never a shortage really of of I'm I I'm rarely getting to the open where I'm like I have nothing. I usually have something. Right. How about merger arbitrage? Is that something you do much of?

So I would say I do something uh that I would coin pre merger arbitrage. And what I mean by that is you're sort of putting the puzzle pieces together of what a deal might look like if it happens. or if it doesn't happen. And so, you know, what I mean by that is, you know, let's say a month ago the Wall Street Journal breaks a story and they say Company A to buy company B. Well,

You know, then the game begins. And the game starts with, okay, well what might they pay for it? You know, let's say a stock is trading for a hundred, the Wall Street Journal story comes out, it's trading for one hundred and fifteen now. Now what do you do?

So the game is, well, do I think they could be bought up for a hundred and fifty or a hundred and forty? What sector are they in? Is it biotech? And biotech I might get a crazy premium. Is it you know, that's you know, we didn't talk about technicals here.

And it's something I really stay away from. But when you get into these situations, it is important because then I look, well well, is it possible that the story's been leaked? Did the stock ramp up into the story? And therefore I might like it a little bit less. Then I look into well, if a deal was to happen, would it get approved by our government? Would it get approved by foreign governments?

If the deal happened, what sort of spread would it trade at? Because people would be worried that it might get blocked by a foreign government. You know, right now, there's lots of anti-China stuff, anti-US stuff happening between those two countries, and we're seeing it hurt and block deals.

So all these different puzzle pieces have to come into your brain before you get involved in a name. Was an activist involved? Who's pushing for this? All these things go into my thought process before I enter a trade like that. Okay. And you called this what was it? Pre I call it pre pre merger arbitrage. Okay. Can you take us through uh an example, like a specific situation that you like?

Sure, I will. So recently, Warren Buffett, he's been a uh eighteen year holder of a company called US gypsum or USG. They make container board. He's owned it for eighteen years. And they got a bid about, you know, five months ago from uh a company called Kinoff, which is a company in Germany, private company, does the exact same thing. And Kanov, the stock was trading for thirty-five, USG was, and Kanov publicly bid forty-two. And USG rejected the bid.

And Warren Buffett did something that he hasn't done in fifty years, which he he sort of went activist in the situation. And the reason how he went activist was he's been in the situation for eighteen years. And the stock is flatlined, hasn't gone anywhere. And so in his mind, he said, I've owned this for eighteen years, the stock hasn't gone anywhere. What right do you have to turn this bid down? And probably not even consult me. He owns thirty five percent of the company.

So he went public with his displeasure in this and said he would replace the board. So now you've got a situation where your biggest holder is threatening to replace the board unless you sit down and negotiate. Now at this point the stock is trading around forty one. Sorry, can I just interrupt you? Um who declined the bid for forty two? USG, the company that that got the bid.

rejected it. Without consulting Warren Buffett. Without consulting Buffett. Okay. And the reason the reason that they rejected this bid was they said it undervalued the company and they called themselves the family uh the crown jewels. of this housing business. So you had a company that had a really inflated view of themselves. But how can you have an inflated view of yourself if you ha if the stock price hasn't moved in eighteen years?

So Buffett goes activists and forces them to sit down and negotiate. And so now you've got a lot of questions on you know that you that I'm asking myself. Is there any way that they can get more than forty two? Because the problem is if you're the buyer, right, if you're the company that launched that bid, you're thinking, why would I ever need to raise my bid? Warren Buffett already said take forty two.

So, you know, you c you can imagine this this negotiating room where the USG says, Well, we think we're worth fifty. And then the German company comes back and says forty-two. And then they say, How about forty-eight? And they say, How about forty-two? Because what leverage do you have?

So, you know, the way that I was playing that was just every time the stock would get below forty one, I would buy it. And the reason that I would do that is because if a deal was consummated at forty two, I think I couldn't lose money. So I want to be in situations, in my opinion, where the likelihood of a deal is extremely high, and I want to buy that you know I want to buy that stock at a price where I know it'll trade above if it's consummated.

So in that case with a forty two deal when I could buy it under forty one, that was a good price for me. And the deal ended up happening at around forty three fifty. Okay, now I just want to ask a few questions about around this'cause I don't have a great handle on how these whole takeover deals actually work. So if the stocks trading at thirty five dollars

Why is a company gonna bid forty two dollars? Because if it's trained at thirty five dollars, is that not the value of the company? Right. So what do you get when you when you when you what do you get when you own a company? So um you know, let's take an example using an oil company. You're getting if if Exxon bought, you know, a small oil company, let's say the company was trading at twenty, Exxon launches a bid for thirty. Why would they do that?

So not only are they getting the you know, the revenue stream, the yearly revenue stream from this oil, but they're getting the entire what I would call their their their surplus of oil. You know, they they're getting what they have in the ground. And there should be a future value placed on that.

And so you're buying future earnings. You know, when a c one company when one company buys another, they're buying this year's earnings and uh hopefully if they have a long term plan, they're buying fifty years more worth of earnings. So that's why companies will overpay.

You're getting an asset, you're getting um you know, and and that asset could change. If it's oil, you know, i it it's g yeah it's obviously gonna be oil. But you know, we're seeing Fox and Disney get into this huge merger now. You're buying You know, all these characters. You're buying movies, you're buying, you know, lots of things, you're buying brands, you know, that has value. But also just

We need to be more humble and and understand is the public markets are wrong all the time. So if a co if if the stock is trading for thirty five, the public market might be very wrong and this company sees more value. So if the stock's trading for thirty five dollars and a company comes out with a bid of forty two What's gonna happen to the stock price in most cases on the on the on the exchange? So I mean obviously it it it it will go up to reflect

to reflect that deal. You know, when a deal is signed, and now we're talking once a deal is signed, now it's merger arb, right? So the deal assigned before we were playing it, that was pre-merger. Deal signs, merger. So now it's how long is this going to take to close? 'Cause deals don't close, you know, with with the snap of a finger. It takes a lot it takes some time. Uh sometimes there's a s is it is it gonna be all cash? Is there a stock component to it?

Um like I said, does it need to get approval from foreign governments? There's lots of different factors and and people will Price that discount, meaning with the stock we talked about was for 42. That discount can be will be based on how many months it's gonna take.

You know, we're watching right now a deal about to fall apart and it's a deal that I've been watching for nineteen months, which is Qualcomm's deal to try and buy NXP semi. And you know, if you bought that if you bought that deal when it was announced You've been waiting a long time and you're down a lot of money. So you you calculated that wrong.

But how does the stock price get from thirty five to forty two? Like who th because it's only gonna get to that price if if people are willing to buy buy it up to that price. You know what I mean? Well let me ask you this question. If would you pay forty one dollars today if you got forty two dollars in a month guaranteed? Yes. But is there a guarantee in the in the listed markets?

There's a merger there's a merger agreement. Yeah, that's the guarantee. So how do they guarantee that though? How do they guarantee that the price is gonna come from thirty-five up to forty two? Because the what their deal is done off market. Um well it's it's it's a deal that's announced publicly. And if you have a what I would call a real buyer, so if BHP is buying a minerals company or a gas company, BHP has a reputation for being a good buyer that isn't gonna back out.

So you have to have faith that they're gonna consummate the deal. Can you tell us a little bit about this situation uh with Qualcomm and I can't remember who the other company you mentioned was. Um you know, you said this deal's kind of falling apart at the moment. I mean, how are you how are you trading around that? You know, one of the mistakes

that I've made is the uh I'll I'll call it the cost of time being sunk in or time sunk cost. The more time that I put into something, the more money I invest in it. The more research I do with it, the harder it is for me to change my mind on it, if that makes any sense. The short story in this again, this is nineteen months that I'm gonna try to sum up in two minutes. The short story is Qualcomm tried to buy this company an XPI.

They needed nine different countries to approve this deal. Eight of the nine countries agreed, and one country did not, and that was China. And what ended up happening was they got it got very wound up and wrapped up.

and all sorts of different international conflicts that are currently happening between the United States and China and Trump and you know the prime uh the you know and Chairman Xi And I have found myself uh at points, you know, head spinning over this thing and I've gone to drastic measures to try and gain an edge in this and the only result has been that it just made me crazy. And we know, if you want to, I can tell you about some of these drastic measures.

Uh sure. Yeah. So, you know, and again, y you have to stay within the the confines of legality, right? You know, so the you know, there was a point in this story um where The Wall Street Journal broke a story that said that Qualcomm executives were waiting for the 10-4 from China to fly over there and finalize the deal. So in my mind at that point, uh the signal that I wanted to see was the Qualcomm plane taking off from San Diego, California and going to China.

And now there's various services that track these sort of private planes. Uh but in this case that wasn't possible. And the reason that wasn't possible is because Qualcomm themselves blocks the tail number on their plane. So the next thing that the only other option you have then at this point is and again, this was a story that I had made up in my head. uh was that the only way to track this plane is to physically be out there in San Diego and watch it take off.

And so I literally just posted a uh we have something called TaskRabbit. I don't know if you guys have that there, but we've got something similar, yeah. Okay. So I posted something on TaskRabbit and the TaskRabbit post read something like Um go to this airport and watch this plane take off and send me a video of it. And and I got a response in about fifteen seconds.

And this woman who was uh you know, just a mother of three, she would drop her kids off at school and she would go to the airport and she sat there at the airport for me day after day after day after day. And she was probably there for like a week. And I had a deal with her and the deal was this. I'm gonna pay you X m you know, this much a day.

And if you get a video of this plane taking off, I'll give you this bonus money, this big bonus money. And she calls me a week later and she says, it's happening. And, you know, you're probably wondering, well, how did I know where the plane was going, right? That's the big question. They have this plane. How would I know? And the thing is you don't. But the way that and again, I was making a lot of this up perhaps. Um Qualcomm has two planes. Uh one is

for short distances and one is for long distances. And uh so I was tracking the big one. And the big one took off, and she sent me a video of this. And of course, she sent me the video of this at like 3 45 on a Friday. Where I have 15 minutes to make up my mind of what I want to do with this situation. And, you know, it's it that's the kind of stuff that can make you crazy. And because you think you have this.

piece of information that no one has. You think, well, what if it happens this weekend and I don't take advantage of it? Uh so I had better do that now. And not only that, but I was so mentally wrapped up in this thing, I was so like emotionally committed to it like it was a person, this trade, that I that I wasn't thinking rationally.

And of course I ended up putting on a large position. The deal is still not happening. And uh, you know, it's it's probably taken a few years off my life just watching this situation unfold. Right, man, that's a crazy story.

Have you uh have you done things like that in the past? Like other situations where you've kind of done some I don't know, stake out. Excess excessive due diligence? Yeah, yeah, let's call it that. Nothing to that extreme. Okay. You know, nothing to that extreme. I mean, a lot of this job, in my opinion, is It you know, you could call it getting lucky, but you have to be on these conference calls. You have to like be in the game. Like don't be lazy.

You know, one of the one of the best trays I ever had, I was just I happened to be a bit lucky, but I happened to be on this uh lumber liquidators, which is sort of like a a lumber supply company. Uh conference call in in you know two thousand and fourteen or two thousand and fifteen and they happened to mention in the call for you know at complete random that they were gonna be uh on a show called Sixty Minutes, which is an investigative journalism show that Sunday.

And and it was like, you know, a grenade went off in the middle of this call and one of the analysts, you know, it was an earnings conference call, suddenly no one cares about the earnings and and they said, Well what's You know, what what's the deal? Wha why are you gonna be on sixty minutes? He said, Well, you know, I I can't really describe, you know, the contents of it, but I will say this. I d I I stand by the safety of our wood.

You know, which implies, oh shit, well, the whole segment's gonna be that the wood's not safe. And you probably had five to six minutes before this hit, you know, the Bloomberg Wires and all the major news wires. And, you know, in trading, that's an eternity. Five or six minutes is an eternity. And, you know, it's I did great in it, but you look back and you say, Well, man, like I could have done this or I could have done that. But I guess what I'm trying to say is

One of the things to always remember is just don't sit on your hands. Like get in there. Like be on every call that you can get on. Like just just be there. So when you got that information, how did you actually build a trade around that? Did you just instantly go short the stock or was there something more to it? In that situation, and again I've replayed this in my head or oh, I should have done this or I should have done that. I mean, at that point the stock was trading for sixty nine.

you could have shorted it all you wanted down to let's say There was unlimited you know there was unlimited amount of liquidity in this name till, you know, sixty five. And at that point I think it was still like uh maybe down small on the day. And just so you know, on Monday after that segment, the stock opened at thirty. So you know, y ye there's lots of things I could have done. You know, I could have bought puts that were gonna expire the following Friday and

you know, before the ball and the puts had exploded. There was lots of things I could have done. What I did was just sort the stock outright because in the moment, you know, when it's happening, you just think what's the easiest way for me to get exposure? Yeah. Wow. Man, that's that's incredible.

Reflecting on your career, just moving off, you know, kind of the the merger stuff a little bit, just reflecting on your trading career, what's some of the times where you've really messed up? Sure. When I get in trouble. When I screw up, it's because I sort of veer out of the lane of what I'm good at.

And what I mean by that is at this point trading for twelve years, I'm good at these events, I'm good at you know analyzing some earnings, I'm good at following the research. That's what I'm good at. All the stuff we talked about before.

When I get into trouble is when I decide, you know, I'm gonna trade uh S P five hundred ETFs today. Or I'm gonna trade the bond market today because, you know, Trump's saying this and and interest rates are gonna go this way and the Federal Reserve is gonna go this way. And, you know, I mean listen to the way what I'm saying right now. I mean, this is so not in my wheelhouse, I shouldn't be involved in it.

And, you know, at this point I I think I'm pretty good at these event names. That's something that I think I'm better at than than a lot of other people. So then think about it, when I'm veering out of my lane and I'm going and and I'm trading macro stuff, trading bonds, trading S P five hundred ETFs, I'm getting into someone's lane where they're really good at it and I don't owe much. And when I do that stuff, I'm gonna lose because I'm playing against people that know more than I do.

And so that's when I get into a lot of trouble. Now that being said, you know, this is important. The only way to expand your horizons is to try and do this stuff, right? Like you you y if you're the first year trader and you're listening to this podcast, you're probably like, well, how do I know what I'm good at yet? You don't. And the only way to learn is is you do veer out of your lane a little bit and you try it, but you gotta start small.

That's all I'm saying. You start small and you gradually go up. And you see where you where you gravitate towards and and what you end up being good at. Yeah. Yeah, you gotta experiment a little bit. You gotta experiment a little bit. You know, but you know, today and this is something I s I still fall susceptible to this. You know, sometimes it's'cause I'm I'm it's out of boredom, you know.

As a trader, I'm always like when a trade is done, my mentality is, okay, well, what's the next one? And sometimes there is no next one. You know, one of the hardest things about the in this business is sitting on your hands and doing nothing. Being patient. And and and I know what a good trade looks like when I see it. But sometimes I don't want to wait for that. So I said, uh uh you know, I'm just gonna manufacture a a trade on my own.

And you know, doing that in a sleepy market, you know, that could be dangerous. Um, you know, an another thing that is a really dangerous game that's gotten me into a lot of trouble. is when I decide that I'm gonna either short good news or I'm gonna buy bad news. And and that's a game where I've decided as the trader, well, this is up too much, even though the news is good, this is up too much.

And when it's bad, I say, Well, it's bad, the news is really bad, but I don't think it should be down twenty percent, I think it should be down fifteen percent. And, you know, that's a that's a crazy game. Cause let's get you know, let's go back. Let's get into the heads of Fidelity again. If Fidelity is selling, they're selling.

And they're probably not going to stop selling if it's down twenty percent versus fifteen percent. So you're getting in front of this freight train hoping that, you know, buyers you know, the buyers show up or fidelity stops. So, you know, that's something that always has tended to get me in trouble. I've had big losses doing that. You know, tr you know, envy has been hurts me. Envy's real bad.

If I'm sitting next to someone and they're trading a product that I don't understand and they're making a lot of money from it, you know, I didn't trade bitcoins and all these cryptocurrencies, but I know a lot of people that did. And they made a lot of money, and I was certainly tempted to do it, but the that temptation was just out of envy because I, you know, I wanted to be making that money.

And if I did start trading that stuff and losing, then I would have you know, I would have been kicking myself. If I lost one dollar short of, you know, buying Bitcoin, I would've been so mad at myself. Yeah. Because it's not something I understand at all.

You know, and you know, I I don't want to just keep I I'll just keep bringing up points and things that uh things that have hurt me but When I have an idea, you know, if I think something's a buy, one thing that I tend to do is, and this is a big mistake, is I try to find things that agree with my point of view.

So if if a company had really good earnings reports What I'll do is, and sometimes this is conscious or or subconscious, I'll find the earn the research notes from Goldman Sachs and Bank of America that reinforce my viewpoint, and I'll ignore the ones that disagree with me.

And the reason that I'm doing that is just'cause, you know, I I wanna be right and I want people to agree with me. But it th but the truth of it is I shouldn't be doing that. I should be listening to all different vantage points and all different viewpoints. Um you know, the uh it you know, that that can get me in a lot of trouble. Um my tendency is is is to hold on to losers longer than I should. You know, I'm sure that people who come on your show probably talk about that all the time.

I hold on when I'm you know I get into trouble when I hold on to my losers longer than I should. And the main reason I do that, honestly, is because I'm trying to preserve my ego because I don't want to admit defeat yet. If I don't cover a position that's a loss, or I don't sell a position that's a loss, there's a slight chance that it'll come back and go the way that I want it to go. And how often does that happen? Rarely, right?

If I put on a position it's a slippery slope. If I'm putting on a position at nine thirty and at one o'clock it's way against me, I should get out. But I'm gonna hold on till four o'clock because I don't want to admit defeat yet. And what ends up happening, it usually is at its most worst against me by four o'clock. Yeah, yeah. When it just rips up into the clothes. Yep. Yeah.

All right, Michael. Well let's um let's leave it there. Uh there is one other thing I do want to ask you about. Uh I believe you've also started a podcast recently. So if you like or wanna learn more about event trading and about activism and about these names that I'm trafficking in. Uh I do have a podcast and it's called According to Sources. Um you can find me at according to Sources Podcast dot com or you can find me on Twitter at accord to TO Sources.

And you know, the reason that I started this is very simple. One, it you know, it's a it I like the medium. I told you I love the radio and and I and that's something if I wasn't doing this as a trader, that's what I'd be doing. But the second reason is Like I said, I follow Wall Street research. And there is a humongous void in this area of Wall Street research. No one is covering this.

If you want to know what the spread's gonna be when, you know, Shire gets bought by Takeda, I can't tell you how much bad information that I'm paying for. I'm paying Bank of America$100,000 a year for bad information. I would rather be the media in this case, be the person that posts about this stuff. Sometimes I'll post stuff.

You know, I'll end up being wrong, which is a good thing because what ends up happening is people wrote me and say, Hey, you're missing this. I was like, Oh, okay. Well that's great. I what I'm doing is I'm opening up the conversation. And that's why I think it's important. It you know, the this is a sector, like I said, billions upon billions of dollars trade in this every day. The people that cover it, these event desks, Don't know anything, for the most part.

So I'm looking for a conversation to get started and I'm looking for people to, you know, to write to and to write me back and just to just to open this up a bit more, uh, so that we can all understand things that are happening. And are you having guests on your show? I do. I do have guests on the show. What sort of guests are they? Like what sort of things do they do? So the event tra the head of the event desk at Nomura is coming on next week.

Uh we're just gonna you know what we're just gonna go through a bunch of different situations. Uh the reason that it's called according to sources. Um is because I do want to talk to the journalists that break this story. So uh my goal is to have guests on from the Wall Street Journal and other media outlets.

I would love eventually to have bankers. Um, you know, sometimes some people might have to come under the cloak of anonymity. You know, that's just you know something I'll understand. But, you know To specifically highlight these stories and talk to the journalists, you know, about you know things like if you know if the Wall Street Journal came on, one of the questions I would ask them is, well, why does the story get leaked?

You know, what's the motivation? When Company A is buying company B, how does that story get out to the paper and why? And there's so many reasons that could be. The CEO might just want it could be ego. The CEO might want his pa his picture on the cover of the journal. But it might be because he wants to see how a stock's going to react when the market sees that he's going to buy this company.

There's there's lots of different ways and things that are happening and dynamics at play, and I just want to learn about it. And uh and so that's why I'm doing this. Okay. Yeah, cool. So if someone wants to check that out, according to to sources.com. That's the best look. It's uh it's according to sources podcast.com. Uh according to sources podcast dot com. Cool. Well guys make sure you check that out.

Michael, thank you very much for doing the podcast. It's been uh it's been very interesting. I appreciate your time. Thank you, Aaron. Have a great one. You've reached the end of this episode of Chat with Traders, but rest assured there are more episodes. We'd love it if you'd leave a-