How to beat Wall Street by using Facebook, reading tabloids and shopping – with Chris Camillo

Announcer: You’re listening to Tradestreaming Radio, with your host Zack Miller. Expand your mind. Become a better investor with the tools, tips and technology from the smartest investors on the planet.

Zack: Welcome to the Tradestreaming Radio, I’m your host Zack Miller and this is the place where investors learn directly from experts. Today’s guest expert is Chris Camillo. He’s the author of, “Laughing at Wall Street, How I Beat the Pros at Investing by Reading Tabloids, Shopping at the Mall, and Connecting on Facebook, and How You Can Too.”

Beyond the sensationalistic title of the book, this is a really good book. Chris is the real deal. He took $20,000 and turned it into $2 million in only three years, using his own methodology. He doesn’t look at balance sheets. He doesn’t look at income statements. His eyes are open. He’s an astute student of human nature and uses social networks. He has created his own ad hoc expert network to validate his ideas. He’s just a modern day entrepreneurial investor. There are a lot of great ideas in this book. Please check it out. It’s worth your time.

We appreciate your time. Thanks for joining us on Tradestreaming Radio. You can find the archives of this program at my website, Tradestreaming.com. You can also find the archives on iTunes. Please connect with us. Come back to the website. Enter your e- mail address and we’ll send you updates of all new events that we have on the site. We really want to connect as a community. Again, we’re appreciative of your time. If you’re on iTunes, leave a rating or ranking to let anyone else know that you’re finding value in this program. Thanks again, and we’ll catch you again soon.

Chris: My name is Chris Camillo. I’m not a professional investor. Investing is my hobby. It’s something . . .

Zack: On TV.

Chris: Yes. Exactly. It’s something that I love to do. It’s something that I mix in to my everyday life.

Zack: When did you get started in investing.

Chris: I have been investing on-and-off since the age of, roughly, 14. My first investment, that involved the methodology that I use today, happened when I was visiting a 7-Eleven store and I noticed that my favorite flavor of Snapple ice tea, and this was back in the late ’80s, was not available that morning. In fact, what used to be to full refrigerator doors of Snapple at the 7- Eleven had been cut, the previous evening, to just one-half of one door.

I spoke to the rep at the front of the store and asked him, “Hey what happened all the Snapple.” He pointed out that there were now lots of competitors and they had to cut down the shelf space, so they would be offering less flavors and less inventory.

I actually spoke to my older brother at the time who was a stock broker and said, “Hey, this can’t be good for Snapple. Is there a way that I can make money off of this, as an investment?” He had actually, taught me how to purchase a put option on a stock. It just happened to be three or four days later that Snapple would come out with their quarterly earnings report and, sure enough, they had announced that their inventories were increasing due to retailers like 7-Eleven purchasing less quantity or stocking less quantity of their product.

So that was something that I had noticed, just as a kid, that Wall Street was slow to pick up on and I was able to triple my money, a $300 investment. I was able to triple my money as a teenager just by identifying something that happened in real life, that the investing public at large had not picked up on, yet. So that was my first investment that methodology and it has been carried out throughout my investment career.

Zack: What flavor was that? Was that a raspberry or lemon?

Chris: It was lemon actually.

Zack: So, it resonates with me is the Peter Lynch, “buy what you know,” type of philosophy. Is that accurate?

Chris: Yes. I often say that, and I write about it in my book, “Laughing at Wall Street,” and the way that I invest, is a modern-day spin on Peter Lynch’s methodology. He is kind of a hero to me. But the one big difference, to me, is that my strategy is a little more pure, in terms of, I call it information arbitrage. I enter an investment or initiate an investment where I believe I know something that would materially impact sales or earnings at a publicly traded company.

I exit that investment the second that I determine that the investing public at large and Wall Street has recognized, what I knew, as fact. So it’s just a pure information arbitrage play. Now, Peter Lynch, that was a very large component of his investing methodology. As a professional, and a mutual fund manager, he did bring other things into play.

Zack: He did fundamental research, right?

Chris: Yes. He brought fundamental research and it worked for him, right?

Zack: Right.

Chris: But, for me, I came to determine that the only thing that really matters, at the end of the day, is that you do have that one piece of information on a company that no one else has. The fundamental part will play itself out. The fundamental part, in my opinion, mostly valued into companies. So, I tend to focus just on the information that other people don’t see, and that’s worked very well for me.

Zack: So, in the institutional parlance, it would be an events-driven strategy, were you figure that you have something that someone else is not looking at or haven’t seen. You’re in it just until that becomes realized and then you’re out looking for the next opportunity?

Chris: That’s exactly right. It could be an event. It could be a trend. It could be anything. One of my investments, a while back, was Cerner and Cerner Corporation was digitizing medical records, and was among a small handful of companies that did that. I had watched President Obama come out and, basically, said, and I’m not even sure if he was president at the time, how big of an initiative that was going to be for him. He was going to earmark $50 billion towards medical records. That was talked about a little bit but, really, the investing public didn’t see the investing significance of that. I thought it was pretty clear. Over the following to year period, Cerner went up, I believe 700%.

A lot of that had to do with the digitizing medical records being 100% funded by the government. I had had many conversations with doctors. I really get out there in field asking, “Hey, how is this going to impact your business?” or, “How are you going to take advantage of this?” In nearly every conversation I had with doctors out in the field told me that this was a huge game-changer for them. And every one of them was planning on pulling the trigger on taking advantage of that program, and they have, and it’s had a huge impact on Cerner’s retinue over the past several years.

Zack: That’s, really, interesting for me. You describe yourself as sort of an enthusiast, kind of an investing enthusiast. You don’t do it professionally, yet, to do your work, you’re actually spending time out there and doing leg work and talking to some type of expert network that you’ve built up or are building up, currently. That’s, a different methodology from “go out and buy something and hold it.” You’re, actually, doing the work that a professional investor would do. Can you talk about that process?

Chris: Yes. I break the process out into stages. It all starts with what I called the observation stage. I may look at 100 or 200 investment observations a year. That part is the fun part. That part is just living your life. Still, I make sure to really get out there, in my life, and read, watch TV, go to movies, eat at restaurants, go to where people are and really observe things on the street. That’s the most important part of this. That’s not, really, working, as much as it’s just living your life and retraining your mind to see your world differently, to pick up on these things that other people see but don’t necessarily see as potential investment opportunities. I can call out a couple of them.

Zack: Yes. Definitely.

Chris: One might be when you are out there… I went to my little brother’s 21st birthday, years ago. He asked me to bring him to the E3 Conference in Los Angeles. He was a big video gamer. I knew nothing about video games. I spent several days out there with video game addicts, in Los Angeles and I notice that the Nintendo Wii, which was not out yet, was really going to be a huge hit. At the time, everyone on Wall Street was focused on the new PS3 and Xbox.

But if you got out there with gamers that were actually trying and talking about these platforms, you realize that the Wii was going to be a huge hit. That was a huge investment play for me. Just because I was out there, hanging out with these gamers. I openly spent a few months on gaming web boards, really listening to conversations happening in real time, in advance of the release of all three of those platforms. Truly, it’s going out there and listening and seeing things differently.

That’s not really time consuming, because it’s just living your life. I have a process. Once you find something that you think might be material information that would impact a publicly- traded company’s revenue or earnings, to determine if what you see really would impact those earnings, and if it does, I have a little bit of a program that you go through to determine if what you see is widely recognized as fact by Wall Street. And that’s the tricky part, right?

Zack: Wait. Before we get that, the first part is, what I would call, the idea generation stage. So you’re out there living your life fully. You’re keeping your eyes open everywhere you go. You’re sensitive to early trends, to early consumption patterns and so now you come up with an idea, you have your own internal vetting process to make sense of that idea?

Chris: That’s absolutely correct. I, basically, correlate that process to that which scientists go through when they run experiments. You come up with a hypothesis. The example I use in my book is, you’re at a mall and you see a store with a huge crowd of people out the door and the registers are packed.

Zack: That’s not Apple.

Chris: It’s not Apple, but it could be Apple. But in the book, it wasn’t Apple, although Apple’s been one of my investments over the years.

Zack: Right.

Chris: You have to come up with a hypothesis. Why is there a line in right out the door. It might be because they’re going out of business, right?

Zack: Right.

Chris: There are 100 reasons why there might be a line. Is it local or is it happening around the country? That’s when, I teach people to leverage their networks, on Facebook, on Twitter, on LinkedIn, to reach out to people in their network and say, “Hey have you been to the mall this week? Have you seen this, in your town, in your city?”

I teach you to go through the same way as a scientist does, and develop a hypothesis, do testing and determine what the rationale is of what you saw. It might be 1 of 10 different things. If the rationale leads to a winning hypothesis that ultimately does say yes, you saw the line because, for example, there is a new product at that store, or they did an amazing job of choosing the seasonal apparel at that store, for example. That might be game-changing information for that company. If you were there at the beginning days of Urban Outfitters, when there was a huge trend in street wear and you were there at the right time in the right place, and you saw . . .

Zack: The whole grunge thing, right?

Chris: Yes. That’s right. That was a huge movement that was happening over the course of a year. If you were the first to see it, or you were there or at some other store when they had this phenomenal seasonal product line and you were the first understand what was happening in real time, you talked to the clerks at the store. That’s one of the things you do. You talk to the clerks at the store and say, “Hey, why is this? Why is this happening? Is there a huge impact? Did you guys do this well last quarter? Is this the biggest crowd you’ve seen at this time of year? How long did you work here?”

There are a lot of questions to ask them, but that’s the fun part. That’s my due diligence, right? My due diligence is not necessarily, hovering over financials and stacks. It’s really getting out there and determining is what you saw, will that correlate to a material impact on a company’s revenue.

Zack: So, I guess, the next question is do you, actually, ever get to looking at the financials or does your methodology avoid, digging in and looking at either fundamental metrics or momentum or anything like that?

Chris: I do not.

Zack: Okay.

Chris: I completely, 100%, ignore fundamental and technical analysis. The only time I bring into play financials, at all, is to determine the size of a company. This is one of the things that you have to do in your due diligence to determine, did you see something that would move the needle for that company. Obviously, with a small company it’s a lot easier to move the needle. With a larger company, sometimes, it can be more difficult to have something that you see, on the street, move the revenue or earnings needle for that company.

Zack: Are there certain sectors that you stay away from? For example, do you stay away from financials or biotech just because the trends are less clear?

Chris: Yes. I generally don’t stay away from any sector. I can tell you, there have not been any financials in my portfolio since I started this methodology. So, in a way, I do. If there was a way for me to information arbitrage financials, I would. It just hasn’t happened yet. I don’t, necessarily, stay away from biotech. I’ve had several successful biotech investments.

One thing that you can do with biotech, is if you have things that you see in your own life, maybe you know of someone in a study, or you know of someone dying of a disease and you’re researching that disease, because it’s now important to you, and while researching that disease you notice something, maybe it’s a new drug for that disease.

One of the things that I’ve done over the years is, actually, go out there on the Internet and find people that were in studies and where Wall Street was waiting for the pharmaceutical company to come out whether the study was successful or not. There was one company called Delcasse [SP] that was a huge investment of mine several years ago, when I was able to find, with other people, as well, eight or nine people that were in this study that were posting the study results as they were in the study on the Internet. One of them was actually hosting YouTube videos two or three times a week.

Zack: That doesn’t even sound legal, or culture.

Chris: Well yes. It actually, in terms of the legality, it’s public information. If I’m looking for a patient, right, on YouTube . . .

Zack: They’re publishing it publicly. They’re probably not supposed to.

Chris: I’m not sure as to what they were or were not allowed to do in that particular study, but certainly they were people dying, posting, not necessarily saying, “Hey, here’s how the study is going,” but, “Here is how my life is going,” right? And they could say, “Hey I’m in this groundbreaking study and I’m feeling better today. Hey, guess what I got my scans done yesterday and it showed that my tumor was being reduced, was down by 20%. So my tumor is actually shrinking.” Well, this was the actual information that we saw in real time on the Internet and that enabled us to be very aggressive. I say ‘us’ because it was me at a number of other people who were following these people in the Delcasse study. It was a really interesting way of doing due diligence.

So, no, I certainly don’t avoid biotech. There are times when even my methodology comes into play for biotech investment, but it is rare. More often than not, it would be a medical device study, like Delcasse was. Because if [inaudible 18:04] a medical device study and a study with pharmaceuticals, you can’t hide the data, right? People are out there getting surgeries. People are out there getting these medical devices, right, implanted into their systems.

So, the information, in a sense, is public, while the study is going on. You can’t put someone in the blind part of the study with [inaudible 18:30] the medical part, right?

Zack: Yep. I love what you’re talking about. This is exactly what I wrote about in my book, a year ago, “Trade Stream Your Way to Profits,” is that the whole research process has become so much more collaborative. It’s not sitting in a library like Benjamin Graham used to do, poring over yearly filings. You’re trying to go out there and connect all those nodes where the information lies and being able to assemble it that and make some actual ideas come out of that. I love that idea.

Chris: Oh, absolutely. One of the examples I use in the book is an investment I made, that I found entirely on Facebook and did my due diligence entirely on Facebook. One morning, I was on Facebook. One of our family friends, who happened to have twins put a post that said, “Hey, my twins were quiet for the first time ever for a period of an hour and a half. They’re watching this new show called Chuggington on the Disney Network,” which it just started airing that day. She was like, “I can’t believe it. I’ve never seen him react like this to a TV show.”

And, sure enough, a bunch of other moms chimed in and said, “I know, [Alexis] because my son, as well was chained to the TV this morning,” watching that same exact show. So there, I was not only able to observe and identify a potentially new hot program that was affiliated with a very smart publicly-traded company out of the UK. I was able to do my due diligence and determine that other people were seeing the same exact thing with their kids. I ultimately made an investment in Chuggington that went up 50% in just a couple of months, once the American market realized that it was going to be a huge success.

Zack: What’s a typical cycle time? I’m sorry to cut you off. What’s the typical cycle time between where you get a whiff of an idea and then you start to dig down into the meat of it. How long does it take you to decide whether to pull the trigger or not, to make that investment?

Chris: Usually, it’s hours or days. It just depends. It’s not something that I can, generally, study for months and months. There’s a pretty short window between the time that I make an investment observation and I’m able to do the due diligence to determine, one, will this move the needle for this company in terms of revenue and, two, does the rest of the world see what I’m seeing? As soon as I determine that it’s going to move the needle of revenue and the rest of the world does not see what I’m seeing, there you go, that’s an investment. Now, that only happens once or twice a year. So, I may have several hundred investment observations over the course of the year, but on average, I’ll only have one or two large investment plays a year. It’ll take anywhere of from hours to days to go through that whole cycle.

Zack: You said you make a decision to sell once information that you had, which you felt was unique or that people weren’t looking at it, because once that is made public you get out. So, what is the typical holding time, if you can put a number to it?

Chris: The typical holding time could range, most recently, my one investment in 2011 was Target’s Missoni line. Are you familiar with the Missoni line at Target a month or two ago?

Zack: Sure.

Chris: I had realized through several coworkers, as well as my wife, that notified me how big that was going to be.

Zack: The Stock Missoni, if that’s what you were going to talk about, was always one of these value traps.

Chris: No. I’m just talking about target.

Zack: Okay.

Chris: Every one on Wall Street knew that was going to be huge in New York and LA but they were unsure or if this 400-piece designer line Missoni that target came out with was going to be accepted in the middle of the country. Because Missoni is an Italian designer, right?

Zack: Yes.

Chris: He’s not someone, necessarily, that the common public would understand. So I was in line for several hours that morning, saw the entire line sell out in 90 minutes, right? I immediately go to a bunch of mommy blogs and fashion blogs and I hit twitter and was able to realize that what I had witnessed had happened at every single target store in the country.

Zack: A feeding frenzy.

Chris: Yes. Absolutely. I knew that was going to be huge news, for Target to sell out a 400 piece line in 90 minutes was major, major, major news. I knew, in fact, the information I had in my hands at that moment was not going to take more than a few hours for Wall Street to pick up on because Target is a big company and Missoni was, kind of, a big deal already. I made a trade in Missoni in a lawn chair in the back of the store.

A few hours later, sure enough, it’s all over CNBC. The next morning it’s on the today show. So, I was out of that investment by the next morning. I was able to double my money overnight in a leverage-options play on Target, and that was within just a few hours. There’s other investments I’ve been in for many, many, many months. There’s other investments, like Apple, where I feel that the market still doesn’t recognize what Apple is doing on a global scale in terms of changing our lives, and the impact that they’re going to have in the way it’s going to affect their revenue.

Zack: Chris, is that pretty typical for you, if you are using options, to make a leverage play, and not just buy the stock?

Chris: Yes. 100%. The reason I got my book deal “Laughing at Wall Street” is that I was able to turn $20,000 into over $2 million, in 3 1/2 years, from 2007 to 2010, in a down economy, as we all know. That was making one to two large investments a year. The only way you’d be able to generate returns like that, obviously, is through leverage. If I’m waiting nine months to make an investment and I come across an investment, that I’ll stand for a day, a week, a month or two, definitely, my money is fully- leveraged in that investment. I’m able to take that risk, making a leveraged investment.

I teach people from all professions and backgrounds, no matter what your background is, I teach you to use leveraged options in my book. The important part is to have a separate account, in part, because you’ll be able to compartmentalize your investment money into what I call “a big-money account,” an account with money that you’re not afraid to lose, specifically geared towards making these types of investments.

This big money portfolio is geared around getting rich quickly, right, in a matter of three, or four, or five years, while you have other accounts that are more diversified, conservative and geared toward getting there slowly. It is a higher risk, obviously, when you’re investing in options, but it’s something I do with everyone of my investments.

Zack: Chris, in a couple of minutes we have left, can you give us an example. Now this is not a foolproof method. There is no foolproof method. This is, sort of, peeking under the covers, but can you talk about where your method didn’t work, were you looked at something, you thought you saw that maybe you got it wrong.

Chris: Yes. In terms of my methodology going wrong, it’s hard to believe, and almost never goes wrong. It does on occasion. I can think of one investment in the last seven years where it went off. Listen, making one or two investment in a year. You’re not making an investment every week. You might make one investment every two years, using my methodology. Because of that, it doesn’t go wrong that often. Because, when you’re investing yourself and you’re truly pulling the trigger on information you have, when others don’t have it, you have to be careful to invest based on things that you’re seeing that really do have an impact on a publicly traded company, not things that are just important to you.

I once made an investment in a company called Silicon Image because they had a new HTMI port coming out,. It’s a 1.3 HDMI technology. At the time, I was building a home theater and my brain thought that this world that I was in, thinking about home theater stuff on a daily basis, was more important than it was, in terms of the general public.

That’s where “invest in what you know,” you have to be a little bit careful there. I tell people, it’s okay to invest in what you know, but it’s really important to remove those biases that you have. That’s the one thing that Wall Street does wrong. Wall Street tends to be very biased in their investment decisions. That’s why Wall Street was very slow to recognize Apple, because Apple was not huge on Wall Street. The last land where you’d see a lot of people using BlackBerries was on Wall Street if you think about it, right?

Zack: Yep. Very insular.

Chris: They generally tend to be biased on Wall Street, so I teach people to focus on product categories where Wall Street is biased and where Wall Street is slow to pick on trends. So, I focus on female and youth-oriented investment, mostly, not entirely.

Zack: Right.

Chris: Most of my successful investments tend to be youth and female oriented. Why? Because Wall Street tends to be a little bit slow on picking up on changes in publicly traded companies that are geared towards youth and female products.

Zack: That’s so insightful.

Chris: It’s not foolproof. I can tell you it’s hard for me to believe sometimes. I look at what it did and I actually have my investments portfolio audited on my website laughingatwallstreet.com.

Zack: With Covester?

Chris: No. I’m fully audited by an accounting firm. I believe I’m the only author of financial books in history to have my investments audited.

Zack: That’s great transparency.

Chris: So, at laughingatwallstreet.com or chriscamillo.com, you will see all my audited financials over that three and a half year period. And while it doesn’t audit the big money segment of my account, which went from $20,000 to $2 million, it just audits my entire account, which I think went from $67,000 to $2.4 million over that three and a half year period. So I know it’s hard to believe but this is really a spectacular type of methodology, if people would stick to it. But it takes a lot of patience to stick to a methodology that might encompass making only one investment in a year, out of several hundred observations. As you know, our mentality is to pull the trigger more often than once a year.

Zack: Right. They’ve done mutual fund research that showed if they were able to take more concentrated bets, mutual funds would perform better but they can’t they have to find a way to deploy that money and were looking to do the same thing.

Chris: You’re Right. That’s advantage that we have.

Zack: Right.

Chris: Go ahead. Sorry.

Zack: I know you have to run, but I have one last question and it’s a question I ask all the guests and we end on. So you’re out scouring the world for information. Are there some resources that you can recommend to us that you find yourself going back to, that you use a lot in this type of research, online or off- line?

Chris: You’ve got to use your own network. So really get involved with Facebook, Twitter and LinkedIn and get on those networks on a regular basis and see what people are talking about. But, most importantly, you have to live life. It’s just that simple. You’ve got to go out, hit the mall on a regular basis go to the amusement parks, read tabloid magazines, read all kinds of magazines, watch TV, watch talk shows.

The big investment that I missed was Michelle Obama wearing J. Crew on Jay Leno. I was actually watching that talk show, had a that tabloid on my kitchen table [that showed her] wearing J. Crew. Everyone was talking about it all around the world. All of Wall Street saw it and we all missed it, right? Obviously, her wearing J. Crew had a huge impact on the company’s revenue that next quarter. We all found out when they announced earnings.

But just live life. Really, that’s my one piece of advice. Just live life. But you have to start to retrain your mind, and that’s what I try to teach you how to do in “Laughing at Wall Street,” is how to retrain your brain to see your world through investing glasses and how to teach the people in your lives through sets of questions that you’re constantly and dialogue with everyone around you to determine if other people are seeing things that you’re missing. Because, at the end of the day, I miss way more investment opportunities than I catch. So my goal in writing the book was to expand my observational network to, potentially, thousands or tens of thousands people who read my book, have retrained their minds to see their world differently. Hopefully, they join my network at laughingatwallsreet.com and we are able to share all of our observations together, so were exponentially increasing the opportunities for us to catch the next big thing, when it happens.

Zack: Chris Camillo, author of “Laughing at Wall Street,” thanks for joining us today.

Chris: Hey, thank you so much. I really appreciate the interest and the opportunity.