I recently sat down with Michael Gayed and Dan Weiskopf on the Tidal Financial Group podcast to share my journey in the world of investment research. What started as a casual conversation about finding red flags in companies turned into an honest discussion about today’s market challenges.
We explored how I built my newsletter from scratch, the importance of staying independent, and why sometimes the simplest research methods reveal the biggest stories.
For me, it’s always been about one thing – helping investors see what others might miss.
What you’ll learn
- How a college newspaper editor built a 20k+ subscriber investment newsletter exposing corporate fraud
- Why common investigative tools (Google, LinkedIn, employee reviews) reveal more than complex financial analysis
- The patterns of corporate fraud and why they often surface in bear markets
- How qualitative research and independence from Wall Street lead to better investment insights
- Real examples of successful fraud detection: Akazoo (delisted) and ATI Physical Therapy (90% drop)
Table of Contents
Video
Watch my interview on the Tidal Financial Group Channel
Or watch it here:
Transcript
Michael Gayed: My name is Michael Guy. I appreciate those that are watching this episode of Get Think Tank that let’s start off with some quick intros and get into Edwin Dorsey and his research. Mr. Weiskopf, introduce us to the audience please.
Dan Weiskopf: Sure. Dan Weiskopf here, otherwise known as the ETF professor on X. Also lead ETF strategist for the ETF Think Tank and also portfolio manager or co portfolio manager of the largest blockchain etf. That’s me.
Michael Gayed: And then of course the guest for the hour, Mr. Edwin Dorsey, who I had on X Spaces. So weird to say X Spaces well over a year ago. I was very impressed with the conversation back then. So I’m excited to hear what’s going on in your role. But introduce yourself, Edwin, to the audience.
Edwin Dorsey: Well, Michael, Dan, first, thanks so much for having me. I’m Edwin Dorsey. I write the Bear Cape newsletter, which is a newsletter focused on exposing corporate misconduct. I generally criticize one to $10 billion public companies, US based tech or consumer that I feel is our misleading investors or harming customers. I also talk a lot about the active short space, follow questionable resignations and just follow the shorts of our industry as a whole.
Michael Gayed: So I’ll start off on my end. Corporate misconduct is hard to quantify, or maybe it isn’t. But how do you even go about identifying in a universe of thousands of stocks and thousands of companies which ones seem to have some corporate misconduct?
Edwin Dorsey: So I mean, being in big news that are out there in this space has its perks where you get tons and tons of inbound tips of people telling you stories and what they want to look you to look into. To start, you could just do a basic Internet search, look at the Better Business Bureau, look at Site Jobber, look at Tricepilot, see the complaints there, See the company’s positioning relative to peers. If there are more or less complaints, they seem more severe. Something that I can do that’s relatively unique with the Bear Cave that I think gives me an edge in trying to see how egregious problems are, is I’m really good at navigating the Freedom of Information app to go to government regulators to get copies of consumer complaints people file against businesses. So I won’t just read what’s online because that can be frivolous. It could be a competitor sabotaging them. I go direct to regulators, file out a FOIA request, and within weeks or months we’ll get hundreds of pages of consumer complaints people have submitted against companies to regulators. That’s one thing I use a lot in my newsletter to really figure out how egregious problems are. Sometimes you’ll get lucky. And also there can be government databases. So I’ve written a little bit on insurance companies in the past. There’s the national association of Insurance Commissioners. They have a complaint index where you can see the number of complaints against a company relative to the peer group. So this is this company getting more or less complaints than you’d expect for a company of that size. Sometimes that’s helpful, but usually to the way you said earlier, it’s a very qualitative process where I’m just reading lots of complaints, sometimes reading the company’s responses and trying to use the gut instinct to see if it’s really egregious or not.
Dan Weiskopf: Sorry about that. And talk about corporate governance. Do you have a position in a stock, long or short? But really mostly on the short side, I guess from your vantage point before you issue the report.
Edwin Dorsey: So, Dan, that’s a great question. Another thing that makes me unique, I do not bet against any of the companies I write about in the bear Cave. I only make money from reader subscriptions to the newsletter the Bear Cape. I don’t short, I don’t buy puts. And some people view it as a criticism you aren’t eating your own cooking, so to speak. Other people, what I would argue is it gives a degree of independence. One frustration I think many people have with activist short sellers is they might exaggerate, they might be bombastic. I remember one person called GE the greatest fraud since Enron and is going to zero. And all this because you’re trying to get that big single day move so you can make money on a short position or puts. Because I don’t have that. I really like to be understated, evidence based and just let the research speak for itself. So I don’t short or bypass. I just share the evidence.
Dan Weiskopf: And Mike, let me, let me just follow up with one more question. You use the term activist short.
Edwin Dorsey: Yeah.
Dan Weiskopf: And that’s that there’s a distinction between activist short and just somebody who’s shorting.
Edwin Dorsey: Yeah, absolutely, Dan. So, you know, traditionally a lot of short selling is. There’s a big hedge fund, analysts do some number crunching, think a company is overvalued and put on a short position and sit on their hands and do nothing. And that’s fine. Nothing wrong with that. We’ve seen a huge explosion over the last few years of activist short sellers who do deep research on one company and they’ll compile a 50 or 100 page report, they’ll hire private investigators, they’ll learn everything about the company. They’ll take a huge short position, they’ll get a lot of maybe short term puts and try to release a big report to get the market to see problems in a company, to get a big single day stock move. We, you know, early ones of that would be Citron Research and Muddy Waters Research. Now we have dozens of these activist short sellers who either take a position themselves or use a balance sheet partner, usually overseas, to take a position and try to move stock prices. And it’s something that, you know, you know, it’s kind of evolved over time. Where was first a few people, now it’s dozens of people. Now we’re seeing activist short sellers in effect become their own media arms where, you know, Muddy Waters has a TV show where they talk about Shorts, this new hedge fund called Hunderbrooke, which Shorts has a nonprofit newspaper that they use to disseminate ideas. It’s really been this explosion of this weird industry. Now I don’t really consider myself part of it because I’m not shorting myself, but I write about a lot of these players in my newsletter and kind of summarize what’s going on in that world. So it’s something I’m familiar with.
Michael Gayed: Let’s talk about how you create a template for analyzing companies. Right. So if you’re going to be trying to go after from an activist short selling standpoint, are you applying the same sort of checklists across companies that you’re coming across or is there some art to it?
Edwin Dorsey: I definitely think there’s a little bit of both. So one thing about me is I’m focused very much on the core qualitative aspects of a company and not the quantitative. So I’m not doing modeling. I’m not really even focused on numbers that much. It’s very qualitative. So something I do for all companies is I want to look at the people involved. One of the first things I’ll do is I’ll look at the board and just see what other boards the board members have served on. Because in a healthy company you’d hope that your board members have been on a lot of other successful, vibrant companies. If I see a board where none of the board members have served on other public company, that’s a red flag. If I see a board where a lot of the board members have a history of associating with companies that fell 90% plus, that’s a red flag because I focus a lot on a company’s relationship with their customers. I’ll read, you know, all the consumer review sites. I’ll do foia. I love reading Glassdoor and reading all the Glassdoor reviews in chronological order for a company. I always look at not just who the auditor is, but a lot of people don’t know this. You can actually figure out who this specific audit partner is responsible for auditing a company. That PCOB has this database that’s free and it’s easy to use. You just go, you type in any ticker and you can see the specific auditor responsible for auditing a company and their track record. So that’s another way I can just constantly do this for companies. Usually it turns nothing up, but sometimes you find, hey, there’s this person who has a history of auditing companies with accounting issues. Now he’s auditing this new company. I kind of want to bet against them. So I do all that. And then of course, there’s a lot that varies, company to company, depending on the industry they’re in.
Dan Weiskopf: Don’t, don’t a lot of partners who are auditors specialize in certain industries though. So it would, in certain industries have more complications than other industries. So what you’re, what you’re describing is, wouldn’t be uncommon. Right?
Edwin Dorsey: So, Dan, it depends. And where it’s most extreme with these audit partners issues tends to be in US listed Chinese companies. There’s a woman like, you know, my kind of understanding in a way is I think these auditors just like have fall people that they give their most complicated, questionable audits to that they use as the person they’ll blame whenever one of them goes wrong is that there’s like one woman, I think, who is responsible for Gia for Luck and Coffee, who the three companies she audited prior to each had like huge accounting issues and fell 90%. And it’s like, I’m just sensing something here where, you know, I can’t prove it, but I, I have a feeling that maybe you’re not doing great audits and you’re the person the questionable audits go to. So it’s not a catch all. It’s not like, oh, this person is on it and therefore everything’s wrong. It’s like a piece of a broader mosaic. And to your point about industry expertise, you’re totally right. Most auditors, people specialize in industries, except sometimes I’ll find somebody who like, is just scattershot. Or they typically audit very small companies in one industry and then they’re responsible for a $5 billion company in a different industry. And that makes no sense. And alone isn’t enough for a short thesis, but combined with other factors, it’s a red flag.
Dan Weiskopf: So I’ll follow up with that. I know there’s some discussions around BlackRock having corporate governance issues in the closed end fund area. Right. I’m not suggesting that you would ever even, you know, short a closed end fund, but maybe you would. I mean, is that something that you would consider?
Edwin Dorsey: I mean, I. I’m happy to look at anything. It’s a little bit outside what I’d normally do. Like I looked at BDCs a little because then you can look through the loan book. So I. I’d be curious. Probably not what I typically do. I. I am curious about governance. When you say BlackRock, for some reason my mind goes to ESG and ESG is one of my favorite topics to look at in companies to. You know, I don’t have a super strong opinion like you need to be pro ESG or anti esg. I. For me it just like is it genuine? And a lot of times my favorite shorts will have these big ESG slides and promoted but then actually be acting very unethically and it’s this contrast that to me becomes a really big issue.
Dan Weiskopf: Michael, you’ve got a question.
Edwin Dorsey: You want me to keep going, my friend, I got.
Michael Gayed: I got plenty of questions. Let’s talk.
Dan Weiskopf: Let’s.
Michael Gayed: Okay, so I’m looking at the. At your substack, the bearcade subs.com I encourage people to take a look again, you’ve killed. Okay, so you’ve got a number of stocks you talk about that might have problems. Has there ever been a stock, I assume there is, where you start saying, you know what? Those problems are getting rectified. Maybe I should be a bit lighter on. On my analysis or things are changing.
Dan Weiskopf: The camera is in.
Michael Gayed: So like, like ring going off as we were chatting.
Edwin Dorsey: Yeah, the. The. Probably one of my biggest mistakes with the barricade Biggest regrets is actually the first company I wrote on, Celsius holdings where they’re the makers of the energy drink Celsius. And they had a lot of issues. There was a lot of shady actors involved early in their state. Early in the company’s inception. They had some accounting oddities. They used a very questionable auditor. They had a weird revenue recognition policy. Just all the. All the kind of red flags around the core business was there. And I kind of missed the forest for the trees because the one thing that matters is the sales are real. And it was a very popular product that was getting more and more popular. So that is one where I think I really screwed up and you know, let all the red flags let me ignore the core point that the core business was doing really well. I don’t think I’ve had many screw ups like that but that one was up I think like three or four x since I wrote on them, you know, three and a half years ago. So that’s one I really regret sometimes just businesses outperform despite the red flags. I, I’m trying to think if there was one where I really think they rectified the issues and I’d want to go long. But you usually, it’s like, it’s very like moral and character problems and those aren’t resolved quickly that that might take decades but not six months or a year.
Dan Weiskopf: So along those lines you don’t have to be specific. You initiate a short report on something. Do you advise when to cover too?
Edwin Dorsey: No. So I probably wouldn’t describe the Bear Caves articles as short reports. I, I usually call them deep dive investigations and it’s somewhat odd in which I’m clearly saying I think this company has problems and a lot of short sellers. Read the articles. I never explicitly just say to short, I never give price targets. And again I’m very much not talking about numbers. What I like to say is if you’re a short analyst at a hedge fund, you would use mine for early stage idea generation. So it’s off the beaten path, it’s outside Wall Street Group think I’m not going to be talking about Tesla and Carvana and whatever. I’m going to be talking about problems at companies that nobody else is talking about. And in aggregate, I think if you look at the companies every now and they tend to severely underperform in the future, but it’s not like a trading service giving price targets and cover recommendations and the like.
Dan Weiskopf: So let’s dig into one of your favorite names like, well, Hershey. You were talking about that before. I’d love to hear more about that. Listen, I love chocolate. How could Hershey be a short?
Michael Gayed: I am not a short. I am fasting. What are you doing talking about Hershey?
Edwin Dorsey: It’s not about you. Oh, I, you’re right. I love talking about Hershey’s views and it’s the one thing I get criticized most for in the veracy of Hershey’s roughly $40 billion business. 30 times plus earnings seen as a super save dividend payer. Great for grandma’s retirement portfolio. People love it. And Hershey’s, unlike many of these Big CPG giants isn’t actually that diversified. The vast majority of their sales come from the U.S. the vast majority is from chocolate, and the vast majority is from really two brands, Hershey’s, and they also own Reese’s peanut butter Cups. And, you know, nothing was wrong with that business historically. However, there’s been one big change that I think investors have missed, which is that this really popular youtuber who I follow named Mr. Beast two years ago launched a chocolate brand called Feastables. And most people when as soon as I start saying, oh, there’s a creator, launched a new brand, they roll their eyes, they think, how, how impactful could it be? Mr. Beast isn’t like a normal creator. He has over 300 million YouTube followers. He’s by far the most followed creator in like the 10 to 25 demographic. His videos, which come out twice a month, typically are doing hundreds of millions of views, like a Super bowl, you know, every two weeks. And his chocolate brain, Feastables, as far as I could tell, has gone from about zero in sales to about 500 million in sales in the last two years. And it does that almost exclusive, largely through selling through about 40,000 retail locations in the U.S. they’re in every Walmart, every Target, and they’re becoming so big and popular. I think Feastables is ultimately going to take some share from Hershey’s, and we haven’t seen it extremely yet. But, but the core of my thesis on Hershey’s is I think Feastables is going to get so big that it’s going to take share and Hershey’s is going to start seeing volume declines and it’s going to become a big issue for them in the future. And I’m happy to talk more about.
Dan Weiskopf: Well, wait, why wouldn’t Hershey’s just buy them?
Edwin Dorsey: So that’s a great question. A few reasons. First, Mr. Beast and his managers have signaled they wouldn’t even take a multi billion dollar acquisition offer at this stage. Second, if you look at the Feastables marketing, I think it’s more likely a Hershey Sue’s Feastables than buys them. Because every day in the Mr. Beast video, they portray Hershey’s as the enemy. Hershey’s is for boomers. Hershey’s is for losers. Hershey’s is the worst tasting chocolate on the planet. We’re better than Hershey’s, but that means nothing because we could be second, worse. Hershey’s, that is just constant. They literally had one room in their video that was viewed 100 million times that just said Hershey’s sucks in big letters. They have contestants on some of the shows take the Hershey’s bar and throw it into a trash can. They’re, I think they’re asking to be sued rather than acquired. And the guy who founded it, Mr. Beast, again, very popular in the youth demographic. He had Crohn’s disease. He made this chocolate brand largely because he wanted a healthy, better for you thing. And like just Hershey’s is too processed. Not healthy is something people with Crohn’s candy. So it’d be antithetical to the mission to sell, antithetical to the marketing. And they’ve kind of explicitly said they don’t need the money, they don’t want the money, they’re not going to sell. So I kind of take it at face value that Hershey’s won’t buy them. But again, it’s this Wall street mentality. Everyone says, oh, Hershey’s just going to buy them. If they get bigger, I think they wouldn’t really sell and that, you know, they can’t solve the problem that way.
Michael Gayed: All right, so on, on the substack you have the. I found a post from last year, the Bear Caves ultimate guide for Bears. And you’ve got a huge list, a red flag checklist. I got to ask you on one of them. Well, I think it’s. Yeah, it point number 23 as far as a checklist for bears. Any company based in Fort Lauderdale. Okay, now I want to, I want. First of all, that sounds hilarious. All right. But. But what?
Edwin Dorsey: Okay, so in short sellers there’s largely seen as some areas that tend to have more promote and fraudulent companies than others. Florida tends to be one, Utah tends to be one. Some people say Nevada. One issue with Florida as a state, my understanding is Florida has very big homestead laws, meaning that if you are convicted of fraud, if you need to pay a big penalty, you will never lose your home. So one thing a lot of sketchy people do either while they’re making money or after making money, is they move to Florida. They buy a 50 million dollar home, all cash, and then they can never lose it. So Florida for that reason attracts a lot of people who make money in unscrupulous ways because you just buy a huge home and no matter what, the government can’t take it from you. So that’s why Florida. And then you see this in pockets, I think like Miami and Fort Lauderdale. And I, I think I just noticed that there was a. Anytime I look at a Company from Fort Lauderdale. I could never really find a successful one. You see a ton of stock promotions there. I don’t know exactly why Fort Lauderdale and not Miami. Maybe it’s little bit like cheaper area. I’ve been to Fort Lauderdale before and I kind of know the culture there. And I think Miami is not Miami for Lauderdale isn’t always known to have the most ethical people. So, you know, it’s, it’s a little bit homestead laws, it’s a little bit just. I’ve noticed a lot of things there and I’ve never really noticed a successful one. So Fort Lauderdale is one, you know, people like to say Utah has a lot of these MLM type scams because there’s, you know, a large Mormon population there. So then there’s a lot of selling culture there and then you got a lot of promotion, you know. So I think sometimes these blanket rules just work fine. Avoid Port Lauderdale.
Dan Weiskopf: Well, it used to be also there were a lot of bucket shops in Florida too.
Edwin Dorsey: Yes, stock promotion. Thank you.
Dan Weiskopf: Yeah, yeah, no, I get it. But did you say that you don’t.
Edwin Dorsey: Really hone in on balance sheets or.
Dan Weiskopf: That’s just not part of your trigger?
Edwin Dorsey: So I look at it, I definitely look at it because I wouldn’t be doing anything useful if I just say here’s a business that has all these issues but it’s trading at 2 times earnings. It’s like clearly the market’s pricing that in or if like it’s trading below net cash, then I’m not doing anything useful. So I use it. I look for businesses. I prefer businesses with a lot of debt. I prefer businesses I feel like can go to zero. I also have this view that Wall street is just good at getting like the number stuff, right? I don’t. I could write, you know, a thousand word report on the valuation, but everybody already understands that where Wall street struggles is qualitative. And that’s where I think my edge is. And I like to even say there’s a lot of things businesses can do to improve the financials in the short term, but actually degrades the value in the long term. And an example of that would be is if you raise prices and make it very difficult to cancel, that helps your financials. Everybody’s going to be like, retention’s going up, the financials are going, and Wall street will model it to infinity and beyond. But if you see that it’s actually not sustainable and it’s going to cause a lot of churn and customers are pissed, the value from that Decision is actually going down while the financials are going up. And that’s where I can come in and say, hey, the financials aren’t connected to riot reality. Let’s do it. So I obviously look at the balance sheet and income statement, same of cash flows and look at the basics there. It just really not, it might just get a paragraph in the newsletter rather than what you see a traditional financial analysis, which is a large, you know, portion covering it.
Michael Gayed: All right, I, I got another one.
Edwin Dorsey: Yes, let’s do it.
Michael Gayed: So this is like, this is like perfect for asking questions. Point number 32, CEOs who wear wigs. Let’s, let’s get into that because I, I, I, first of all, you have to, it has to be a bad wig, so you can tell that they’re wearing a wig. Is that just a joke or is there some legitimacy there?
Edwin Dorsey: So, so when I made this list, I kind of crowdsourced it from Twitter and I said to all the short sellers I respect, what do you think are the red flags? And the person who gave that one is Mark Cohes, a prolific short seller. A little eccentric, I think. He’s very smart on the short side. And he has this rule that CEOs who wear wigs. There’s, I think his view is there’s a dishonesty behind it where if you’re wanting to cover up something about your appearance, then you might be willing to cover up, you know, other things in your financials and the like. I don’t know how accurate it is. It’s just, it’s just one that I think has some humor value and maybe some truth to it. You know, I’m not saying short all CEOs of the week wigs, but, you know, I think he said Parker Petit had a wig and that failed. And he could probably give a few examples. You know, I, I do like to, though, look at a CEO’s appearance and how they present themselves and their interviews. And what I often try to figure out just by listening to them is, are they a missionary, where they believe in the mission, that this is like their baby and they’re going to die for the business, or are they the mercenary? This is a job. They’re getting paid a salary. They view it as a, you know, this is a way for them to make money. An example of a missionary CEO is Elon Musk. It’s his baby. He sleeps in the factory. You’re not going to do any. You’re going to kill him before you kill his business. You never, ever, ever no matter what, I never want to give out against the missionary CEO. If this is, this is your bait, I want to bet against the mercy. I want to use someone who views it not as a baby but like, like a babysitter. Like, you know, they’re just watching the business, they want to earn money, whatever, you know, but I never want to bet, get it? Bet against the missionary CEO, someone who has their heart and soul. It’s like, you know, they’re a mom to the business rather than a babysitter.
Dan Weiskopf: So are we all going to like pull our hairs right now just to make sure that we’re not? Go ahead.
Michael Gayed: The Jensen Huang from Nvidia, does he have a wiggle? I don’t know. Does he?
Edwin Dorsey: I don’t know.
Michael Gayed: You know, I’m sure even with AI, you can, you can probably get real here. No, I, I, the appearance point is interesting. Another one which I think is also interesting. But I, I, I find like every CEO does this. You said it’s CEOs that promote their stock. I mean everyone, I, I think the person I’ve always viewed CEO is more than anything else as, as not just the face of the company, but the salesman to investors.
Edwin Dorsey: Right.
Michael Gayed: So, so don’t all CEOs promote stock? I mean, is a certain style of promoting a certain tone or communication approach?
Edwin Dorsey: So I think it depends on how egregious it is. Yeah, obviously it’s fine to be optimistic acting your own company. I think first if you’re paying stock promoters, that’s a really big red flag. And you know, I, you see this is more in the smaller market cap ranges. But this is easy to check for if they’re paying for analyst coverage, if they’re doing anything where they’re expending company cash to be promotional. Because that’s not, that’s just promote the sock, not to promote the company. And then I also like to look at just promotional claims. So you know, one example of a company I wrote on was this company, Ageagle Aerial Systems. They claimed to be making next generation delivery drones. That, and they kept hinting at a partnership with Amazon. They never explicitly say it, but they keep hinting and dropping hints. And like, you know, I think the people connected to the company would be on message boards saying oh Amazon, partner in minute. That’s what I really hate because that’s just, it’s not doing anything for you. Not trying to build a product or service or make something useful. You’re just trying to generate retail investors enthusiasm on nothing. So it’s like this puffery where you’re making claims that aren’t really true, you know, it’s just trying to get retail investors involved, using company cash to promote. I don’t like that. If you’re a big cheerleader for your business, that’s fine. But there’s, you know, maybe a tough to define line where you go from, you’re not excited about the business, you’re excited about the stuff.
Dan Weiskopf: And Michael, I know you were asking about the CEO, and you’re right. And you know, Edwin, I guess the CEO is expected to wear pants too. Like, the CEO of AMC didn’t do. That was like, crazy.
Edwin Dorsey: Yes, that’s very.
Michael Gayed: He knew his audience. And fairness, right? It’s like. And I. I don’t mean that, like, disrespectful. You know, you’re trying to go meme friendly, right? It’s like trying to find something goes viral. I’m sure that was purposeful. Come on, are you being serious? Yeah, of course. God, at that time when everything was memes and rocket ships and, and the silliness, it’s like, yeah, fine, you’re a CEO and you know that your audience is buying up your stock. You want to cater to that, put something out there that is like, so bizarre and silly that people repost and say, I got to buy this guy’s stock. I love it.
Edwin Dorsey: The crazy thing is, though, and I criticize AMC in my newsletter, a AMC still has a $1.5 billion market cap, and I think it’s going to zero. Like, it’s not maybe as egregious to check. It just. It’s just, you know, even if you think theaters have a role, the theaters that are going to survive are the ones that are like a high quality novel experience. You go on to. You don’t know. The days of AMC are just over. No one wants to be in a 200 person theater with like, you know, not going to work.
Dan Weiskopf: Which brings. Brings me to the question that once you. Once you write your piece, do you revisit it? See, you know, every. Every other month, you update people. What. What happens once you initiate the position.
Edwin Dorsey: So typically, what I like to say is, I’m really good at the early stage of research. I’m good at the first few innings of research. I’m good. I’m less good. I don’t follow them too closely after I write on them. What typically happens is most of the times I’m one and done. And again, it’s early stage research for people who are looking offer off the beaten path. Ideas. And I’d rather say here’s 15 interesting ideas than three that I’ll follow closely. And what does happen is every year or two I’ll pick up a few ideas. I do want to follow closely. So I follow Roblox closely over time. The game that has a lot of children create content and I think has a lot of child safety issues. I followed Planet Fitness closely. Hershey’s is very, very like I’m following that extremely closely. It just, I think from a reader perspective, people would rather hear fresh ideas than me rehash the same old ideas over and over again. So I do follow them sometimes, but it’s, it’s usually just for the most egregious companies and not all of them.
Michael Gayed: Let’s do a little bit of a preview of.
Edwin Dorsey: Yeah.
Michael Gayed: What you’re writing on now. New things. Let’s give, you know, everybody should sign up to the Bear Cave on subsac. But you know, let’s, let’s do a little sort of hinting at what’s coming.
Edwin Dorsey: So I never explicitly say I’m going to write on this company at this future date, obviously, however, you know, AI is being talked about a lot. So. And the one of the most successful recent articles in the Barricade was I criticized Chegg in January and it was already down a lot on fears that I would destroy their business. But I just became convinced looking at it that they just have no like students aren’t going to continue to use Chegg when there’s a free option. You can just ask ChatGPT for homework out. And that’s been totally true. The stock’s down 75% this year to date or so. And I personally believe it’s a zero. There’s no way out of it that this is just done. So everybody’s going to be canceling this summer. None are coming back. So that’s a past name I wrote on that I think continues to be a great short but then derivative of that. I look for a lot of other things that AI is going to hurt. Coursera is another business people talk about. I haven’t written on them yet and I don’t know if I can get to that level of confidence, especially with the stock down so much. But just the way people learn. I think online paid education is tough because there’s so much great free resources online. Just these education stocks like 2U was trying to do university degrees online. That’s like just online education, I think is more. There’s too much available for free. That’s easy especially with ChatGPT, I think this could get hurt. Shutterstock is a business I’ve looked at a lot from an AI perspective. You know, the bear case is you’re going to use AI generated images generated very cheaply instead of paying Shutterstock for licenses. A bull case is that Shutterstock actually makes a lot of money going to these AI companies who want to train their AIs on Shutterstock’s database. So they license their database to train AIs. You know, the other thing with Shutterstock I’m not sure of is AI generated images. Is that going to create a new market or is it going to hurt the existing market? The problem or the opportunity for investors, I think often comes from the fact that businesses that are being hurt by AI will never just admit it to investors. None of them will say, oh, AI is going to destroy our business. What they’ll say is, AI is going to change things, but we’re going to benefit from this AI tool we’re rolling out. And then you need to figure out how legitimate is that or not. And I think even if they’re optimistic, like Jake had their AI bot homework help thing, it just, it just didn’t work in the face of competition. So, you know, I spend a lot of time looking at AI. Duolingo is another one that people talk about. The demand for learning new languages might be reduced if you speak into a phone and it’s auto translated. The ability to learn through AI could be better than through these apps. You know, I like the Duolingo CEO. I think he’s talented though. So I’m not sure I want to bet against them. You know, there’s a lot of tech and automation companies that could be hurt. There’s call centers, there’s. I’ve seen a few public companies like that that could be heard. I think we’re going to see a lot by AI and I think it’s going to take some time to play out where there might be short term losers that are long term winners, short term winners that are long term losers, businesses that are prices losers that are just going to lose more. We’re going to see a lot around AI that I’m excited to explore.
Dan Weiskopf: So, you know, I’ve often heard shorts, you know, guys who are on the short side frequently complain that the market’s very difficult for on the short side. Right. But wait, I mean, breadth’s been very narrow. So I would think that these days, you know, the conditions are pretty favorable on the short side. What are your views on the macro level? On what’s happening overall in markets right now?
Edwin Dorsey: Well, I think they’re having difficulty on the short side. They should read the bear cape and that’s it. But you know, I, I think we were very lucky two years ago where shorts had it easy because there was a lot of, there was a lot of SPACs, there was a lot of retail investor participation and I think when you have a lot of easy money flowing around that makes good people do bad things, bad people do worse things. You had a ton of unethical conduct, tons of low hanging fruit and it was such an easy environment two years ago. Now with that gone, it can be a little difficult. We’re also in times of huge change. So I don’t have a ton of sympathy for someone who says it’s impossible to find shorts. The market is rigged. I mean, we got the most change ever. There’s so many companies, not just AI, we got GLP1 drugs, we’ve got tons of technology change. I mean there should, there’s a lot of companies that are just declining 80% in a year and that’s exactly what you want for the short world. I just think the type of things that worked in the past for some of these bigger institutional shorts maybe don’t work today. This modeling focused on financials a ton that can be just all, all that can be true, but overshadowed by a really strong core business or even if something has clean financials, it can be destroyed by just, you know, competition and technology. So, you know, I’m really, I do wish there was more SPACs and retail investor participations that would make my job easier. But I’m happy that there’s so much change and so, so much going on. I could probably do every single Bear Cave edition for the rest of the year just on companies. I’ll be hurt by AI if I really want it. I do think there’s, there’s tons of potential shorts. You just get the way you find them is going to be a little new and you got to be fresh.
Michael Gayed: All right? So I gotta ask you one that’s a little near and dear to me. Planet Fitness, which the one near me had for two weeks, I couldn’t find gym pins for the machines. People were stealing the gym pins and it was actually frustrating to the point where I had to go on Amazon.com to get my own gym pin. People were putting literally pens like this right as the pin for the weight machines, which was bizarre in ourself. Very cheap price, right gets the job done. But what is wrong with Planet Fitness.
Edwin Dorsey: Great question. So I wrote on Planet Fitness two times, largely in January of last year, is when I started criticizing them publicly. The biggest problem with Planet Fitness is it’s very easy to sign up and very tough to cancel. And gyms are notorious for being a little tough to cancel. This is nothing new. The issue with Planet Fitness is I think they go overboard. So the Planet Fitness policy is you can’t cancel over the phone. You can’t cancel by email. You can’t cancel online, you can’t cancel an app. You need to go in person to the gym you signed up at. That’s their policy. And that can be even problematic if you’re a college student and you sign up and you move away for the summer or you move. It’s. It’s a kind of a mess just on its own, and I think it’s kind of antiquated. But when I start researching it, when I start going to state regulators and filing FOIA requests for consumer complaints, what I see often is consumers say, I actually did follow their policy. I go to the plan of Fitness to cancel, and they just say, I can’t cancel today. It’s a payment processing day. Come back another day. They say they did cancel it, but then they continue to get billed the $10 a month. What Planet Fitness policy is if you move out of state is that you’re supposed to send a letter to the location you’re trying to cancel. But what they do is they send a letter and then they say, we never received the letter. We never received the letter. Send another letter. There’s one woman who said she sent three letters and she called and she said that the manager said they had so many cancellation letters in a box that they couldn’t find hers and she needed to send another letter. So she sent a certified letter, and they still didn’t cancel it. So she’s reaching out to her state attorney general to try to get them to stop processing these cancellations. So you, in my view is Planet Fitness has a huge number of people who are just, you know, either don’t know they’re being billed or trying to cancel that can’t cancel. And here’s a little thing which is with businesses that are really tough to cancel and play these games, they tend to get a lot of credit card disputes. So Planet Fitness, I believe, has around 2 million members. And Michael and Dan, I got a trivia question for you, which is, of the 2 million Planet Fitness members, roughly how many credit card disputes do you think Planet Fitness got in the last year?
Dan Weiskopf: 75%.
Edwin Dorsey: 75%. Michael, you want to guess?
Michael Gayed: I mean, I don’t know. 30, 40. I don’t know.
Edwin Dorsey: So the real answer is zero. Because Planet Fitness doesn’t let you sign up with a credit card. They make you do a debit card or direct account ach. And this is something I commonly see in scamming businesses where they don’t let you do the credit card or deter you from it. They try to do derivative card and direct account ach. So you don’t have a dispute mechanism. So that’s another way in which they kind of circumvent and play games. So I wrote in my article, is, is Planet Fitness a gym company or is it an illegal billing operation with gyms on the side? And that’s a high level of it.
Dan Weiskopf: I love it. By the way, during COVID I, you know, prior to Covid, I was using Equinox.
Edwin Dorsey: Yeah.
Dan Weiskopf: And I tried to cancel because I wasn’t going to be going. Right?
Edwin Dorsey: Yeah.
Dan Weiskopf: And I did it on the phone and they took my number and they said it was canceled. And sure enough, exactly what you said was true. They just kept on billing me and I was using the American Express. And when I went back to American Express to try and, you know, reverse it. Well, we’ll try. We’ll, you know, couldn’t do it, couldn’t do it. And it was a lot of money, actually.
Edwin Dorsey: WIt’s annoying. And that, you know, another thing is this is a top priority for the Biden administration and regulators is these tough to cancel subscriptions where a lot of lawmakers say we want to make it as easy to cancel subscription as it is to sign up. And I just think, you know, whether it’s through regulators or public pressure, that’s ultimately how it’s going to be. And when that occurs, Planet Fitness is going to get in a lot of trouble. And then there’s a lot of stuff around the edges where I think Planet Fitness is oversaturated in a lot of areas. There’s one planet Fitness a 10 minute walk from another one. These are franchise based, you know, not thing units. So not only it’s like the corporation basically turns a blind eye to the franchisees continuing to illegally bill people. But oftentimes because it’s $10 a month, many of the members are like, you know, under educated, don’t know how to complain to regular, like there’s a little bit helpless. If you go to like local credit unions a lot, a lot of times the employees will say the number one reason people cancel Their planet, their credit, their checking accounts is to stop Planet Fitness from billing them and they open up an identical account that Planet Fitness isn’t able to like illegally bill that, you know, Planet Fitness, when you sign up, they put you generally in a contract where you’re paying $10 a month, but if you want to cancel, you need to pay a cancellation fee. So some people say I’m too poor to continue paying, but I’m too poor to pay the hundred dollars to get out. It’s a real mess that is really harming a lot of people. And I think if they acted ethically as a business, their franchise footprint would be a lot smaller and the business would be a lot less profitable.
Dan Weiskopf: Are there certain industries that are more prone to being on the short side in your thinking?
Edwin Dorsey: So that’s a great question. You know, the one that comes to mind is like anything mining related. Mark Twain said, you know, a mine is just a hole in the ground with a liar on top. So I don’t look at that as much as I focus a lot where I can use foia, that’s like kind of my edge. So I naturally gravitate towards consumers. The places where there might be a lot of consumer complaints. What I have found is it’s not necessarily industries, it’s demographics. Businesses catering to low income people, to undereducated people, to Spanish speakers. Those are ones where I find there’s going to be a lot of complaints. So sometimes you might want to like reverse engineer it. And it’s like I wrote about Globe Life recently, a life insurance company. They target a lot of low income, demographics, Spanish speaking populations and the like. And it’s like, okay, that’s the type of business I feel might be acting very unethically. Let me go in, see how egregious the problems are and how I think it’ll play out in the future.
Dan Weiskopf: I did my master’s thesis on pawn shops.
Edwin Dorsey: Yeah.
Dan Weiskopf: And you know, there are some arguments that they’re charging too much. But it’s highly regulated. Right. And a lot of their clients, well, can’t afford to have checking accounts. Right. Because there’s costs there too. So anyway, I, I’m not looking for you to short any pawn shops.
Edwin Dorsey: Yeah. So. So pawn shops, you know, are an interesting one. I, what I like to do is try to find these questionable or shady industries and try to see who is the worst actor. Right. So there’s a lot of payday lenders and but if you look at most payday lenders, they tend to trade at 2 times earnings. They’re very cheap. The market values them like payday lenders. There was one, however, called OPPI that went public in a multibillion dollar SPAC merger. And they were not clear that they were a payday lender. Where it’s like, we’re esg. We help people build credit. We’re a financial resources and tooling company. And you read the SPAC deck and they don’t mention payday lending. Once you think this is the most generous, nice company and you open up SEC filings and it’s like, yeah, we’re a high interest lender. The average interest rate on our loans, 124%. And then when you see this disparities where it’s like, you know, I think there’s a Warren Buffett quote you can hound like a rock concert or you can have a ballet. Just don’t advertise a ballet as a rock concert. So it’s like, I won’t criticize a payday lender or pawn shop company that says, look, we’re payday and you know, lender pawn shop companies. These are the regulatory scrutinies we face. This is our evaluations, how we generate value. It’s where you try to play games and convince investors you’re not one. Where you are one.
Michael Gayed: Where.
Edwin Dorsey: I think there’s an opportunity for me to come in.
Michael Gayed: As we wrap up, Edwin, maybe kind of final thoughts as far as if somebody wants to identify those early opportunities. Outside of looking at your stuff and the checklist get sort of how, how would you recommend somebody go about your way of thinking about things and doing that research and then give a quick pitch on the subsect.
Edwin Dorsey: So, Michael, I love that question. Always look at the people, look at the CEO, look at the cfo, look at their track record, look at the board members and all the other boards they’ve served on. If you have a history of success, I think you’ll continue to have a history of success. If you have a history of failure, I think you’re going to continue to have a history of failure. And you don’t need to be fancy. I think there’s nothing wrong with going on YouTube and seeing what people say about the business. Nothing wrong about going on Better Business Bureau or site job or trustpilot and seeing what consumer says. Just doing just research. Sometimes I like to say. What I like to do is I go to Seeking Alpha. I find the article with the most comments and I skip the article and just read the comments because there’s always going to be one smart commenter. There’s a saying on the Internet. If you want the right answer, put out the wrong answer and someone will correct you. So read all the comments, these articles, see someone saying something smart. All that is how individuals would do it. And if people want to follow me, you can Google Edwin Dorsey and got a Twitter. Just look up the Bear Cave newsletter. I’m grateful for everybody who reads the newsletter. I think it’s really useful. There’s a ton of content on the free side. In fact, the vast majority of readers are free. And then, you know, there’s a thousand or so who choose to pay for the publication. But I’m grateful for anyone who checks out the Bear Cave and I think.
Michael Gayed: It’s really special thanks to my my friend who does not wear wig, Mr. Dan Weiskopf, and of course Edwin Dorsey. Please make sure you check out the Bear Cave on substack and hopefully we’ll see you next time for another edition of Get Think Tanks product of Title Financial Group. If you ever want to watch an etf, you know where to go. It’s Title Financial Group. Thank you, Edwin. Appreciate it.
Edwin Dorsey: Thank you guys. Really enjoyed this. Michael and Dan, good night.