Chris Camillo, Dave Hansen, and Jordan McClain are the men behind Dumb Money Live. Dumb Money Live is a community of investors that focus on social arbitration investing. To this day, social arbitration investing (AKA “social arb”) is the most unique, clever way to invest money that we’ve come across. Let’s take a closer look at the Dumb Money investors, what social arb is, and how you can use it to your advantage.
What is “Dumb Money”?
When it comes to investors, there are two main groups. The first group is the people that work on Wall Street. These people invest money in a professional capacity. They are hedge fund managers, investment advisors, or high-powered bankers. These investors usually have millions (or billions) of dollars in capital, access to extensive research/tools, as well as connections in high places. This gives these investors an edge over the common man. These people are generally referred to as “smart money”.
The name “smart money” doesn’t necessarily refer to intelligence. Instead, it refers to the immense resources that these investors have at their disposal. However, the fact that professional Wall Street investors are dubbed “smart money” investors implies that any investor not working on Wall Street must be “dumb money”.
Dumb money investors are people that invest money but don’t do it professionally. Usually, they work a job during the day and invest money in their spare time. This group is also referred to as retail investors.
The name “Dumb Money Live” is very much tongue in cheek. Chris, Dave, and Jordan are on a mission to prove that the elitist suits on Wall Street aren’t the only people smart enough to invest money. So far, they’ve been quite successful in proving their point.
All three Dumb Money investors are retired and worth millions. The introduction to their YouTube channel states that they’ve turned $30,000 into $30 million. They achieved this through a brand new investing technique called social arbitration.
Is this legit?
In most cases, a claim like “I turned $30 into $30 million” is a red flag. Usually, investors that boast about incredible returns are lying so that they can sucker you in and sell you something.
With that said, there are a few reasons why the Dumb Money team is legit:
- All three members of The Dumb Money community are already millionaires and essentially retired. They have no incentive to try to sell anything. In dozens of YouTube shows, they’ve never once tried to sell a course/seminar/book or asked for money.
- They started the Dumb Money community in an attempt to bring more people into the investor class. In other words, they’ve made plenty of money investing their money and want to help others do the same.
- Chris is a published author and wrote: “Laughing At Wall Street”. For this book, he had to verify that his claims were legit and go through an extensive audit of his stock trades.
If you are still skeptical, feel free to visit their website or YouTube channel and make your own determination! Otherwise, let’s talk about social arb.
How does social arbitration investing work?
You can get a much more thorough breakdown of how social arbitration works by reading Chris’s book. But, here are the spark notes:
- Identify some type of trend or change in consumer behavior.
- Determine if and how this trend could impact a public company’s stock.
- Buy or sell that stock depending on the direction of the trend.
Social arbitration investing is fascinating because it gives everyday investors an edge on Wall Street. The entire goal is to discover a piece of information that other investors don’t know. To find this information, you can’t go to a company’s financial reports. That’s where 99% of investors are looking. Instead, you have to go out into the real world and discover things that are trending in real-time.
Let’s look at an example of social arb in action.
Social arb example
In Chris’ book, he describes a scenario where he went to buy his favorite energy drink at his local gas station. This was something he’d done dozens of times. But, when he got to the gas station he realized that they had stopped selling the drink. He asked the attendant, who said they stopped stocking it because few people were buying it. Chris hypothesized that this could be a sign that sales were falling for the energy drink company. Surely, the stock would drop when the company reported its next earnings. Sure enough, the company reported a sales decline a few weeks later and the stock fell.
Now, this example makes social arb sound much easier than it is. It doesn’t quite give justice to Chris, Dave, and Jordan for the amount of research that they do.
What kind of research is involved?
To be successful with social arb, it’s not quite as easy as identifying a trend, making a thesis, and ripping a trade. You also have to validate that what you are seeing is a real trend.
The more research you do, the better your chances of success. Here are a few ways that Chris & The Gang confirm their hypotheses:
- Channel checks: To confirm his hypotheses, Chris will literally visit retail stores in person, check inventory, and ask associates about sales. With the energy drink example, it might now have been a huge deal if it was only one gas station that stopped stocking the drink. But, if 10-20 gas stations in the area stopped selling it then it could make a large dent in the company’s sales.
- Google Trends: Web traffic is another crucial way to forecast demand for a product. If web traffic is spiking on a year-over-year basis then it could be a sign that people are buying more products (or vice versa). For example, the image below shows that “Hey Dude” shoes are becoming more popular over time. This brand of shoes is owned by Crocs, a public company. Could this surge in web traffic be a big sales driver for Crocs?
- Social media: TikTok, Instagram, and other social channels are other great ways to discover trending products. For example, viral TikTok videos can get millions of views and hundreds of thousands of comments. This inertia could encourage people to buy more of a certain product.
- Forming a thesis: Raw data is usually not enough to make a determination. It’s also important to understand what’s driving a trend. In other words, why are people buying/selling more of a product?
For social arb to work, there also needs to be an informational gap. You need to uncover information that Wall Street doesn’t know. If the financial media is already talking about a trend, then it’s most likely already factored into the stock’s price. But, if no one is talking about the trend yet, then there is an opportunity to make a trade.
Why is social arbitration so exciting?
99% of Wall Street investors use technical or fundamental analysis to make decisions. Technical analysis involves breaking down price movements of stocks in hopes of finding patterns. Fundamental analysis involves looking at a company’s financial statements to assign a reasonable valuation to that company.
For example, a fundamental investor will look at how much money a company makes, what its growth projections are for next year, and how expensive its stock price is compared to its cash flows. From here, the investor can determine if they want to buy/sell/hold the stock. There are two glaring problems.
First, all investors use this same data to make decisions. This makes it nearly impossible to get an informational edge. Second, companies usually report on data from the past three months. This means that the data is already fairly old when the company reports it. A company reporting Q1 earnings in April or May is talking about things that happened back in January, February, and March.
Laughing at Wall Street?
Instead of waiting for companies to report their financial information, social arb attempts to predict it. Doing so gives retail investors an informational edge over even the most powerful investment banker.
Additionally, Chris specifically focuses on companies that Wall Street investors are likely to ignore. Remember that Wall Street investors are usually wealthy, middle-aged white males that live in the northeast. This demographic is going to be inherently ignorant of specific companies/trends. For example, they are not likely to be as knowledgeable about companies that target women, children, or people of color. They are also likely to be ignorant of trends that are popular on the west coast but haven’t reached New York yet.
Final thoughts on Dumb Money
Dumb Money is active on YouTube, Twitter, Discord, and a Spotify podcast. All four channels are definitely worth a subscribe! It’s honestly worth tuning in just to listen to them bounce around ideas about different investments and the economy in general.
Of course, no investing strategy is guaranteed and social arb isn’t a get-rich-quick scheme. The Dumb Money guys are the first to admit that. In fact, they almost always encourage members of their community to “poke holes in their thesis”. In other words, they want you to speak up if you disagree with any of their thoughts or have information that they don’t.
In a world filled with scammers and snake oil salesmen, the guys at Dumb Money Live are the real deal!
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