The Bacon and Milkshake Trade

In late 2001, I was broke.

Not "tight month" broke. Not "skipping Disney this year" broke.

I’d gone from $15 million to almost nothing. I won't get into the full story here. Most already know it.

The short version: I made every mistake a person can make with money, and I made them all at once, and I made them fast.

I needed to do something. So I started writing.

I wrote an article for TheStreet.com about a specific kind of stock that nobody else was talking about.

Companies so beaten down, so ignored, so completely off the radar that their stock price had fallen below the cash sitting in their own bank accounts.

Think about that for a second.

You could buy the whole company for less than what they had in the vault.

TheStreet.com sent me a check for $200.

I never cashed it.

Not because I didn't need the money. I desperately needed the money.

I kept it because it meant something to me that I can't fully explain. It was the first time I ever got paid to write anything. And what I got paid to write about was the stocks nobody wanted.

Twenty years later, I still think it's the most important idea in investing.

The Bacon and Milkshake Trade

In 2007, a guy named Mike Lazerow cold-emailed me. He'd seen a company I'd built called Stockpickr.com and wanted to talk.

We met at my regular diner on 44th Street.

I ordered bacon and a vanilla milkshake. He pitched me his company—a small social media marketing platform called Buddy Media.

At the time, the whole thing was worth maybe $4 million. Nobody had heard of it. It wasn't on anyone's radar.

I invested.

My co-investors were Peter Thiel and Mark Pincus. Not because we were all so smart. Because we were looking in a place most people weren't looking yet.

In 2012, Salesforce bought Buddy Media for $745 million.

A $4 million company. Found over bacon and a milkshake. At a diner nobody would write about in a magazine.

That's how this works.

Here's the other side of the story.

Which Brings Me to Bernie

At one point in my career, I ran a fund-of-funds.

I was investing other people's money into hedge funds. And I tried to get Bernie Madoff—yes, that Bernie Madoff—to invest in my fund.

His response: "We have no idea where you put your money. And the last thing we need is to see 'Bernard Madoff Securities' on the front page of the Wall Street Journal."

Bernie Madoff thought I was too risky.

Bernie Madoff.

The man who was running the largest Ponzi scheme in American history looked at my fund and said: no thank you, too much uncertainty.

I've thought about that a lot over the years.

The most dangerous thing in the room always looks the safest. The bluest of blue chips. The most established name. The thing everyone already owns and already trusts.

And the thing that actually makes you rich—the $4 million company you learned about at a diner on 44th Street, the stock trading below its cash value—looks too small, too weird, too uncertain to bother with.

That gap between looks safe and is safe is where most people lose their money.

And that gap between looks risky and is actually the opportunity is where the real money gets made.

The Floor Nobody Checks

My entire career has been spent finding what I call basement stocks.

The name is simple.

Every great building starts underground. The foundation gets poured before anyone sees the finished floors, the view, the address people brag about at dinner.

By the time a stock becomes a household name—by the time it's on CNBC, in every portfolio, mentioned at every party—you've already missed the move that mattered.

Basement stocks are the companies nobody's talking about yet. Not on your X feed. Not in your advisor's pitch deck.

Priced like they don't matter.

But some of them have something real happening inside. A patent. A contract. A technology that's two years ahead of where the rest of the market is looking.

Here's the catch. Most are garbage. I mean that completely. A lot of them don’t matter at all.

Out of thousands of tiny companies, the overwhelming majority are promotions, science projects, or just bad businesses with good slide decks.

So what am I looking for?

A real trend. Not a headline. Something that matters whether or not it gets covered next week.

A real edge. Something a competitor would need years to replicate.

Clean financials. Some revenue, or a credible path to it. Low debt. Enough cash to survive the inevitable bad quarters.

Insiders who actually own the stock. Not options—shares. People who feel it when it goes down.

And timing. The best window is narrow. The business is working, the trend is accelerating, and most investors still haven't noticed.

Right now, I think that window is wide open for a select few of these stocks.

I've been doing this a long time.

I've seen a lot of opportunities come and go. Most of them I let pass without saying much.

This one I can't stay quiet about. I've spent over a year researching a specific corner of the market that I believe is about to move in a big way.