Wall Street’s Most Embarrassing Moments

And I'm sorry that this rogue wave capsized your boat. This is James Cordier, informing his clients that he's accidentally incinerated all of their money on one bad trade. Thank you, and be well, and good health. His clients, which includes retirees in their 80s and 90s, not only lost everything, but were hit with margin debt calls that forced them to pay interest. All because of a gas trade that's so degenerate, I wouldn't blink if I saw it on Wall Street bets. Some individual names that you like right now, and have actually been putting money in right now, include Upstart, that is one. What I'm about to show you is so good that it's hard to believe this isn't a skit. CNBC is interviewing Mark Minovini, a well-known stock trader who claims to achieve extremely high market returns. There is some doubt about his actual performance, since Mark's claims are unaudited, but he's been on Wall Street for several decades, and authored four books that lay out his strategies. During a live segment on CNBC's Power Lunch, Minovini is asked to discuss some of his investments. Yeah, so, well, Upstart's up about 25% just in four days since we bought it. We bought it on about four days ago. That's a good-looking name. Minovini strongly endorses his latest bet on Upstart Holdings, a stock that had been listed for less than a year. If you're wondering what kind of business Upstart is, don't feel too bad, because even Minovini has no clue. A very powerful, very strong earnings. These stocks are- What do they do? I don't even know them. What do they do? Uh, excuse me? What does Upstart do? Uh, well, I'm, I'm, I'm sorry. What kind of company is it? Yeah, I'm not, you're, you're breaking up. Oh. The old, you're breaking up trick. I mean, if you're gonna go on CNBC to shamelessly plug a stock, the least you could do is read a quick Wikipedia summary. But the absolute cherry on the cake is the fact that this happened on the 15th of October 2021, the very day that Upstart's stock peaked before falling 97% over the following year. Actually, it's even crazier than that. The stock price on the screen during the interview was the highest it ever reached. He then reportedly shared a video at the gun range shooting targets labelled trolls and went on a weird defensive Twitter tirade. Welcome to the wonderful world of Wall Street's most embarrassing moments. There's actually so many of these that I've had to put them into categories. Investors who are wrong so consistently, it's genuinely impressive. Hosts whose endorsements turned companies into dust, and my personal favourite, traders who fat fingered multi-million dollar transactions. But let me first get back to the infamous hedge fund apology video. James Cordier was a boutique money manager running optionsellers.com. His 290 clients were mostly retirees looking for a safe, stable return on their nest egg. Unfortunately, there was nothing safe nor stable about their strategy. Cordier's method was to sell naked call options on natural gas futures. Someone would buy his call option for a small premium, and in exchange, they'd get the right to buy natural gas contracts from Cordier if the price of gas spiked. The naked part of the strategy just means that Cordier was selling gas contracts that he didn't actually have, and so if the price spiked, he would have to go into the market and buy them, making the losses theoretically infinite. For a while, prices didn't really move all that much, and so the firm just collected their safe, stable premiums. But in late 2018, a combination of extremely low storage levels and shifting weather models created the perfect storm for a price surge. On the 14th of November, natural gas futures jumped 18% in price, the biggest one-day move in 14 years. The price smashed through the strike price of the call options that Cordier had sold, so those traders executed the option, compelling Cordier to sell them huge amounts of gas futures, which he didn't have. Buying the futures needed to meet their obligations would cost more than all of their clients' money. To make matters worse, Cordier's firm wasn't structured like a hedge fund. He was managing all of the clients' accounts individually, and so they were all personally liable for the debts accrued on the trade. Reportedly, $35.3 million owed by the 290 clients, which is more than $100,000 each, on top of already losing their entire portfolios. This rogue wave that I was unable to navigate has likely cost me my hedge fund, and the reason why I had a hedge fund is because you are clients. What he means to say is that he's lost his stream of management fees. Cordier was not personally liable for his actions, and it's unclear if his personal fortune was even impacted at all. We do know that he didn't offer to reimburse his clients, some of whom had to take out second mortgages. Instead, he thanked them for barbecue sauce? But as much as I enjoy seeing a stupid trade blow up, there's another type of Wall Street blunder that holds a special place in my heart. Fat-fingered trades. There's just something so humanizing about the enormous scale, efficiency, and complexities of markets, reduced in an instant by something as trivial as a typo. In 2005, a Japanese trader at Mitsuo Securities did just that. He typed out and submitted a trade for J.com stock, offering to sell 610,000 shares at a price of 1 yen each. He quickly realized that he had actually meant to sell one share for 610,000 yen. J.com didn't even have 610,000 shares in total, so the order obviously made no sense. But that didn't matter to the Tokyo Stock Exchange systems, which processed the order. Mitsuo Securities lost 27 billion yen for the mistake, the firm's entire first quarter profit. Funnily enough, there's a lot of fat-fingered trading stories related to Japanese markets. Presumably because each share is typically thousands of yen, and so when the number of shares being traded is small, it's basically the reverse of what traders are used to seeing. In 2001, a UBS Warburg trader tried selling 16 shares of Densu stock at 600,000 yen each. Instead, they submitted 610,000 shares at 6 yen each. Just like the other case, when a firm accidentally sells way more shares than they intended, they often don't actually have them to sell. They literally have to go and buy them at 600,000 yen just to give them away again for 6. That one was a 100 million US dollar loss. Just a couple of years ago, a Citigroup trader working out of his London home made a gigantic slip-up. He tried to sell 58 million dollars worth of shares, but entered the value in the wrong field, resulting in a 444 billion dollar sell order. Most of the order was blocked by Citigroup's system, but 189 billion dollars was picked up by an algorithm that started dumping it. Before it could be stopped, the computer had already sold 1.4 billion dollars of European stocks. And for a brief moment, it obliterated Nordic markets, with a Stockholm market index falling 8% in just 5 minutes. Then there's the classic, too many zeros, howler. A Lehman Brothers trader executed a 300 million pound order that was, quite literally, too many zeros. The UK stock market saw 30 billion dollars wiped out in an instant. But my personal favourite made a feature way back in 1998. While distracted looking at another screen, a Solomon trader unknowingly held down his computer's F12 key, which was a key binding to instantly sell French government bonds. Before he realised, his elbow had liquidated 14,500 contracts worth 1.3 billion dollars. Just a quick side note, I'm working on a super secretive project for 2026, and you can be a part of it. This isn't an ad, there's a link in the description that will take you to a poll, you'll see pairs of random stocks, and all you have to do is vote on which stock you think will do better in 2026. I don't want to reveal too much about the video just yet, but it's going to be a lot of fun, and so if you can help out by casting your predictions, it would mean the world to me. You know, there is one thing that I admire about money managers on TV. They sit in front of a camera week after week, year after year, spouting complete nonsense with unwavering confidence. And there's one that stands tall above the rest. Cathie Wood. Her funds have destroyed the most wealth in the past decade. 14.3 billion dollars. And second place isn't even close. Their flagship Ark Innovation Fund is down 50% from its peak in February 2021. A peak that came just 5 days after Cathie delivered this iconic Yahoo Finance interview. What are the arguments against this position? Clearly we're missing something. But we weren't. We weren't. Over the course of the 40 minute interview, she endorses a few stocks that she owns, and they almost all aged like milk. If you invested in an S&P 500 index on the day of that interview, you'd be up about 80% plus a bit extra in dividends. Tesla, her biggest bet, almost matches the market return, but that's just about where the good news ends. Roku is becoming the operating system of streaming TV, of connected TVs. Cathie's second biggest investment, Roku, is down about 80%. CRISPR and other gene editing technologies and gene therapy, we're going to be able to cure diseases. CRISPR therapeutics, also a disaster. Teladoc is becoming the healthcare information backbone of the United States. Teladoc Health, down 97%. Ouch. Square Incorporated, which has been renamed to Block, turned $1 into 25 cents. So her five biggest bets were all pretty bad. But my personal favorite is number six, Invitae Corp. Invitae, in the molecular diagnostic space, is probably one of the most important companies in the genomic revolution. Yeah, they went bankrupt. When you see a fund manager on CNBC, it's not because they have some incredible stock tip for you, it's because in just 60 seconds, it can make a stock go from being down 4% to up over 1%. And they'll make hundreds of millions of dollars in management fees, regardless of how much money their investors lose. All in all, I think Jim Cramer said it best. I am shocked at what she buys and how she buys. She buys like someone who just started yesterday. And speaking of Jim Cramer, he might just go down in history as having the worst ever stock call that was broadcast on national television. No, no, Bear Stearns is fine. One of the biggest banks at the center of the US housing crisis was Bear Stearns. They had huge exposure to the subprime mortgage bubble and began taking on losses in the second half of 2007. As 2008 rolled around, confidence in the bank's survival was persistently declining, and by March, billions of dollars a week were being pulled. They were on the brink of a liquidity crisis, where even just one big withdrawal could end the firm. On the 11th of March, a viewer wrote in to Jim Cramer's CNBC show to ask him if he should sell his Bear Stearns stock. Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? No, no, no. Bear Stearns is fine. Do not take your money. This is real. If there's one takeaway other than a plus 400 somewhere, Bear Stearns is not in trouble. I mean, if anything, they're more likely to be taken over. Don't move your money from Bear. That's just being silly. Don't be silly. Note, the stock price at the time was about $60. Well, two days later, and this happened. Bear Stearns today leading the tumble on Wall Street. The stock plunging 45%. The market then closed for the weekend. And when it reopened on Monday, this happened. Bear Stearns shares down 90% this morning. JP Morgan, along with the Fed, was going to be bailing out Bear Stearns for $2 a share. Endorsing a huge banking stock just six days before it drops 98% is insane. But what if he did it again? Being a banker to these immense pools of capital has always been a very good business. Stock's still cheap. He was a few weeks early with that call, but I'll still give him credit for that one. Subscribe if you enjoyed, and don't forget to become a part of an upcoming video by clicking the link in the description and casting your predictions. Thanks for watching.