Episodes

Dan Ferris: All right. It's time for our interview today. And our guest is our old friend and colleague from Stansberry, Bryan Beach. Bryan, welcome to the show.

Bryan Beach: Hey, Dan. Good to be here. Thanks for having me back.

Dan Ferris: You bet. We were always going to have you back. You are – I mean, you're a value guy so it's just – like, if I want a conversation that's not going to get too crazy on me [laughs] I know I can count on you.

Corey McLaughlin: If Dan gets tired of me mentioning bitcoin, you know...

Bryan Beach: [Laughs] Yeah. Bitcoin is not my schtick. In fact, I sold my bitcoin ETF right before it tripled. I called the bottom perfectly on that. So yeah. Don't listen to me on crypto, people. That's some good advice. Listen to Corey.

Dan Ferris: Yeah, don't listen to me either [laughs]. I missed this whole – you know, this whole rally. I was in it the first time. I think we bought in April of 2020 or so and got a decent run out of it.

Bryan Beach: I remember that. Yeah.

Dan Ferris: But we missed the second run up here. But that's not what we're talking about today. Let's start with something that I realized was a value play originally... which is GameStop. And it's back in the news. It ran up again, you know, double or triple or whatever in the couple of days last week.

And of course, it's in the news again because – and it ran up because the original analyst, a guy named Keith Gill who calls himself Roaring Kitty on X, formerly Twitter, he reappeared on Sunday night by posting an odd little picture of a guy sitting upright in a chair with a video game controller in his hand. And then followed it up with a bunch of other things that kind of said, "I'm back and with a vengeance," sort of. But, you know, this was originally – like, his handle on YouTube is "deepeffingvalue." Right? This was a value play. He genuinely liked the stock. Do you remember that?

Bryan Beach: Yeah. Yeah. And it was. It was a deep value play. He thought that the market was missing some value there and gained a big following, and it became – it took on a whole other thing. You know, Dan, really this was part of a big kind of smart money versus dumb money, you know, battle that played out in 2021 that I thought was really interesting to watch. I didn't really participate in it but, you know, they made a movie out of it. I know, Corey, you just wrote about – I don't remember the name of the movie but –

Dan Ferris: Dumb Money.

Corey McLaughlin: Dumb Money. Yeah, what you just said. Yeah. And Ben Mezrich, who wrote the book, was at our conference in Vegas last year. Yeah.

Dan Ferris: Such an interesting story. And, you know, Dan, you talk about me as a value guy. And I am. But I was oddly pulling for the dumb money, so-called dumb money, as I watched this play out... for a couple of reasons, I guess. I mean, I cheer for the 15 seeds and March Madness for the same reason. You know? But, you know, going back to 2021 – I don't know how much background we need to give your viewers or listeners. But, you know, GameStop just kept going up as people kept piling in.

And the smart money, the hedge funds mainly, kept going short, kept betting against it because the fundamentals did not support the valuation. Right? So you would think, like, a guy like me as a value guy would be on the side of the people shorting it. But there was something much bigger in play here. It was – this was about market dynamics.

And I don't think the dumb money was nearly as dumb as people said. I think they understood how the market worked. I think – better than they got credit for. Some of them. I certainly think Keith Gill did. And I don't think the smart money was as smart as it was. It's really a self-nickname, by the way. I don't know if the hedge funds and the banks try to, you know – institutional investors kind of think of themselves as the smart money. I kind of find myself – I don't know how you feel, Dan.

Myself kind of in the middle. Right? I don't have hundreds of millions of dollars at my disposal like the hedge funds do. But I do a lot of fundamental research. I think most of my file, most of my subscribers, are smart people. They can afford a couple-thousand dollars for financial research so, you know, they've made a nice nest egg for themselves probably. I usually think of them as, like, retired dentists and whatnot. Right? They're just trying to learn more about businesses, learn more about how the market works.

I'm kind of in the middle of the smart money, dumb money kind of thing. But what was so funny about GameStop is watching the underdog find this one little corner of the market – this one or two stocks – where they could really punish the big guys. And that's been fascinating to watch. And of course it went away. Keith Gill had to testify and, you know, went to Washington and all that. You guys know the story. But he's back... at least for a week he was back. And it was interesting to watch.

Dan Ferris: It was. I have been very critical of people who bought GameStop and AMC– but, like, after they soared to ridiculous, you know, multi, multi tens-of-billion-dollar valuations. That's what I was critical of. You know, before that I think the guys, like – you know, it's genius. Right? You find something that's deeply undervalued that's also heavily shorted and then go on Reddit and tell the world about it. It just makes all the sense in the world. It was – it was quite brilliant. I don't think Keith Gill is an idiot at all.

Bryan Beach: No. No. And –

Dan Ferris: I think the folks who bought after that – the folks who clung on to it, they bought – at those valuations, at tens of billions of dollars of market valuation, it's like the worst garbage in the market and they're holding on to it like it's Berkshire Hathaway saying, you know, "Apes not leaving" – you know, the folks buying AMC's that call themselves Apes and they said, "We're not leaving. We're never selling the stock."

And I thought that was crazy. And I still think it's crazy. You know, that hashtag #apesnotleaving, because they're back on Twitter. So yeah. But I agree with you. It was a fascinating phenomenon. Definitely pulling for the little guy. You know, I love that aspect. I love the David and Goliath. You know?

Bryan Beach: Yeah. It's like – an analogy I just – this might be dumb. You guys can edit this out. But you think of your high school, right? Or any high school. It's like there's the geeks and the jocks. Right? And it's like there's a thousand places for the jocks to beat up the geeks, right? And, you know, thousands of lockers to be stuffed in or whatever, under a stairwell. But it's like the geeks got together and they're like, "The oak tree behind the gym. Let's all go there. Right? Let's just all go to this one spot." Right?

And they find some jocks there and they just start pummeling them. Right? And then, the jocks get scared, the jocks start calling their buddies over to the – "Look what's happening on the" – and there's so many geeks there, they're well-coordinated and they're just pummeling these guys no matter who's going to – but they're smart, right? They know there's a thousand places where we're going to get beat up. But we found this one spot and we're going to – we're going to exact revenge," or whatever.

And I thought the screenplay in the movie got into that dynamic pretty well. These people understood how the market is supposed to work a lot better than I think the super smart short sellers gave them credit. And at the risk of extending this analogy too far [laughs], in the end the jocks kind of went running to the principal with tears streaming, "You know, this isn't fair." Right?

Corey McLaughlin: Yeah, take away the buy button. Yeah.

Bryan Beach: Right. They took away the buy button and Robinhood so that the stock couldn't go up and, you know, the jocks got to dust themselves off and walk away from the tree relatively – not unscathed but–

Dan Ferris: Not at all [laughs]. They were scathed. They were scathed. They were seriously scathed.

Bryan Beach: Some of the big guys were but, you know, I think some of them made out OK. I mean, nobody – I don't think they made money but – and now we're back. Right? These guys are like, "Hey. I'm still thinking of that oak tree back there, guys. You know? Like, what do you want to do?" And, you know, like I say I kind of think of myself here in the middle. I'm not smart or dumb money. First of all. I mean, like I said I don't think smart money is that smart and I don't think dumb money is that dumb.

I mean, I showed up at the tree, just kind of crossed my arms and kind of, you know, grabbed the popcorn and watched it play out. I mean, it was fascinating market dynamics. Dan, you and I are big Ben Graham guys. We read – you know, we read Intelligent Investor every couple years – you know, Ben Graham could never have imagined something like this playing out. You know? And so, we got a real-life lesson in markets in real-time but it was interesting to watch.

Dan Ferris: Yeah. Yeah. Fama and French couldn't have imagined it either. I mean...

Bryan Beach: Yeah, literally weird times.

Corey McLaughlin: That was a great analogy, the jocks and the nerds analogy and the tree. That's – I personally have not thought of that. And so, that's a really good analogy. I'm wondering what this, quote, "return" of Keith Gill actually means. If anything. Like now. Like, what is – is it... ?

Bryan Beach: Well, I don't know. I think a lot of the people that were following him got– you know, most of them lost a lot of money and made – I think they've seen – I don't know. Corey, I think that – again, to return to the analogy these jocks are going to get rescued somehow. Right?

And, you know, I think they're a little bit concerned about that. And, you know, I think as we're recording this most of the games have come all the way back down. I haven't turned down my Bloomberg this morning but I don't – I think that the – you know, what played out last week has already kind of died down. It took days, not months – or quarters for this to play out. But I'm going to keep my eye on the oak tree behind the gym. Anyway, it's interesting and educational.

Dan Ferris: Yeah. Interesting episode. I think it's funny that – it's funny to me that, you know, the guy who calls himself Roaring Kitty probably just caused a huge dead-cat bounce in these stocks [laughs].

Bryan Beach: I see what you did there. Yeah [laughs].

Dan Ferris: He shows up and he's got all these, you know, sort of meme-like video clips about how he's back with a vengeance or whatever. And, you know, he's Roaring Kitty. And you know – like, we all know that these companies, they're not in great shape. Maybe when GameStop was a buck it was, like, deeply undervalued but not now. And same with AMC. And AMC has done a much better job of, like, exploiting the rallies. You know? I mean, their share count is up like –

Bryan Beach: Selling into like –

Dan Ferris: Yeah. It's like 10 or 11X or something. I mean, it's huge, the difference. And they've continued to do it. They made another announcement last Tuesday. I think they announced – I think they announced Tuesday that they had already issued, like, another $250 million to the stock. And then they announced Wednesday that they issued another – I want to say $160 million to swap for debt. It's like, "Yeah." What's happening there of course is that the executives are using the meme stock phenomenon to prolong their tenure. Right? I mean, essentially.

Corey McLaughlin: I mean, it's the same thing they did in 2021, right?

Dan Ferris: Yeah.

Bryan Beach: That's what I would do if I were on the board. Right? You know, if the ducks are quacking, feed them. You know? And I can't remember – this is on Twitter. I think Matt Levine wrote about this the other day. And he wrote about a couple of things. It's like, "These guys – if you've got a struggling company you need to hire Roaring Kitty to tweet about it, you know, so that he can raise the price so that you can sell new shares and raise hundreds of millions of dollars like AMC is doing."

But, you know, one smart money play – and I've heard about it. I don't know who's doing it. You know, if the stock runs up to $8 in one of these meme stocks you short it – if you've got a lot of money, if you're smart money. If you short it at 8 bucks, call the board of directors and say, "I hear you're trying to raise money. I'll pay, you know, $7." Right? So you've locked in a dollar right there. You just – however many shares you shorted you offer to buy new shares from the board of directors for a dollar less.

Again, the smart money is pretty smart. I don't know if anybody is doing that but that would work as some of these things, you know, charge higher. And Dan. You know, I talked about this I think the last two times I've been here. I talked about SPACs, which was a huge bubble in 2021. I've talked about software as a service, which is another big bubble in 2021. And kind of like Roaring Kitty. Not really but similar in one way. These stories are still playing out. Right?

They're not over. What is once over-loved often ends up over-hated. And as a value guy I end up – I'm still looking and finding SPACs in a scrap heap there. You know, and there's still an incredible stench around SPACs. Anything that came public that way. Special Purpose Acquisition Companies if you're not familiar. And software as a service was super hyped by probably some of these same people who were getting excited about NFTs and Roaring Kitties and whatever in 2021.

And those valuations are down I think too much. And so, I think I was on the show a year ago or something and talking about software as a – it's still down. You know? So these stories, whether it's the crazy story about, you know, GameStop or entire sectors, like SPACs and software as a service – you know, these things are still playing out. I haven't seen the NFT story come up. Corey, you watch the news more than I do. So maybe that one's actually dead. But a lot of these interesting things from 2021 are still playing out for sure.

Corey McLaughlin: Right. NFT is actually trying to make a little comeback here. So along with the meme stocks. So that's – you wonder what this means about just market sentiment at this point in general. You know? But it's – yeah. I mean, I wouldn't be – personally, I'm not touching NFTs with my keyboard or fingers or however you can touch them.

Bryan Beach: Yeah. Yeah. But other than that I think a lot of these crazy stories from 2021 are still kind of playing out. And yeah.

Dan Ferris: Yeah. When you talk about SPACs do you mean SPACs or de-SPACs, like post-acquisition SPACs that have emerged and been, you know, crushed?

Bryan Beach: Yeah, I talk about de-SPACs. I mean, what happened in 2021 is hilarious. Right? So we'll talk about smart money. This was smart money being smart. In fact, I was just cleaning out my desk. I found something I printed in 2020 – just this morning. So just to back up a little bit, I know you know this, Dan. And Corey, you've been writing about it.

A SPAC is a shell company goes public with nothing but cash. Right? They've got sponsors and they go public with nothing but cash. And then they go find a business to buy and merge with, and they can take that private company public just by buying the business. So "Dan Ferris Podcast Inc." or whatever. "Corey NFT World" or whatever. Right?

So you've got this shell company with cash and you go out and merge with a business. Interesting thing about SPACs is, the people that raise the money are able to redeem that money anytime kind of before the acquisition happens. And then they get some free warrants on top of that. They just need to recruit some people to buy in with them.

And that's where the retail investors, or the small-time guys... I'm not going to use the word dumb money but that's where the retail or small time – so they needed to go up and drum up interest for this. And one of the ways that they did that was by convincing people that the SPAC is a backdoor way to screw the big guy. Right? To screw the smart money. And so, that's some background.

This is something I came across [laughs] that Matt Levine wrote. I think this is around 2021. "I cannot get over how good the trend to cut banks out of IPOs has been for the banks. It is one of the great scams of modern finance. People got mad that investment banks get fees for taking companies public, so they said, 'What if we found a new way to go public, one that reduced the power of the banks?' And the banks put on trench coats and took out mustaches and went to companies and whispered, 'You should do a direct listing or go public by a SPAC. That'll show those evil banks.'"

You know? And then the context of this – right? So it's the same thing. The banks are still making money and the hedge funds who raised the money – they're still getting rich. The context of this was that – he wrote this in the middle of, like, a run where every single bank was having record earnings. Right? And meanwhile these banks are having mustaches on and trench coats and trying to convince people that they're screwing the banks.

That was a story that sold in 2021. Right? And what happened is, the smart money – they would redeem all the money out after it and the retail investors just got – and the small guy just got clobbered. Clobbered, once the de-SPAC happened. And they would overpay—Dan, as a valuation guy there was no – there were so many SPACs and so many few decent private companies.

So they were overpaying for these companies and then when the SPAC de-SPACed – that's when the merger happened, when the actual – you know, eventually reality comes in and these things go from $10 down to $4 or $5 or $2 or $3 or even lower. As a value guy I – you know, listen. People smarter than me figured out a way, you know, to try to pick which SPACs were going to go up. That was a strategy. As a value guy that was not my strategy but, if that's what you're doing, more power to you and you're a smarter guy than me.

I waited until they all fell and was trying to pick through the wreckage. That's a whole section of my micro-cap portfolio, is SPAC splats. Of course, you've got to give it a cute name... SPAC scrapheap or SPAC-splats? Anything that came public via SPAC, including stuff that happened – you know, there's still SPACs happening today in 2024. And the market just hates it. The stench is there and they're selling these things off, and there's some decent companies in the wreckage.

And again, I kind of watch from the sidelines. I recommended the first SPAC... I recommended was back in 2017, way before this was a hot topic. And so, I kind of watched from the sideline, the bubble, and have been able to try to pick apart, you know, some – it's a hated sector. And trying to pick up some decent companies out of the wreckage, just to go back to the lame analogy, that SPAC is a place where the jocks absolutely pummeled the geeks. I mean, it just – and they convinced the geeks that they were winning. You know?

Dan Ferris: It's obvious, right? It's obvious what happens here. A couple of smart guys go, "Hey, you know something? It only costs a couple of million bucks to do one of these SPACs. Let's do that and let's raise a few-hundred-million bucks and let's just buy any damn thing, then take it public and then we'll own 20% of something that's worth hundreds of millions, maybe billions even, and we'll sell our SPAC shares and that'll be that. And then by the time we're out, you know, the thing is down 80, 90% but we've made way more, multi-bagger, above what we spent to create the SPAC." Right?

Bryan Beach: It's $2 million, you know, to set up a public shell. And, you know, maybe less than that. And that's why they were overpaying, Dan. I mean, you don't mind owing 20% of an overvalued company. It's better than owning zero. Don't you think?

Dan Ferris: It's not your money. Yeah.

Bryan Beach: And if the – you know? So the little guy got hosed I think mainly in that sector. And so now, Dan, in 2024 those of us who are looking at small-caps – I know that's not really your neck of the woods but there's still some interesting stuff there. That's the best performing part of my portfolio, for sure.

Dan Ferris: Yeah. I have done a similar thing. I did it unsuccessfully. I thought the cannabis bubble had been absolutely destroyed beyond a shadow of all doubt. I think it was down 60 or 70%. Of course, you know, it went down 80 or 90 or whatever. And I tried to buy MSOS, the big ETF, and we got stopped out of it because we were – you know, if you buy something down 80% and it falls 90%, whoa, you've been crushed [laughs]. Right?

Bryan Beach: Yeah. I've got a couple of cannabis stocks too. I mean, it's an advantage I'm able to buy little, little companies that you probably can't with your file, with your letter. But I think cannabis is coming back. We're up on I think both of them. One of them is up pretty big and it's a company that makes it safe to do banking, for cannabis companies to bank. You know, there's all kinds of regulations around that.

So, you know, when cannabis got rescheduled as kind of – or is probably going to be rescheduled as a less dangerous narcotic for federal purposes, I think these – a lot of these cannabis companies are going to come back. So I don't think you missed it. You maybe just were just a little bit early. But you stopped out, huh? You're using stop losses in your portfolio all the time now or... ? I know you've gone back and forth on that a little bit.

Dan Ferris: Yeah. I mean, sometimes we do, sometimes we don't. You know, sometimes we just start out without one and then we – you know, if we don't like the way things are going but we are not ready to call it, we'll put in a hard stop at some level and say, "OK. Well, if the market says it's less than this, you know, then we're going to call it a mistake." But it's not – we're not religious about it in the Extreme Value letter. I used to never use them at all.

Bryan Beach: I remember that.

Dan Ferris: Yeah. The truth of our business is not pleasant. And that is, if people – you could be the greatest stock picker in the world, and if people subscribe to your newsletter and they get their first issue and they look on the back page of your portfolio, if they see negative 30%, 40%, whatever, they think you're stupid even though it doesn't mean anything remotely close to that. You know?

Bryan Beach: Yeah. I think you're stupid for other reasons.

Dan Ferris: Yeah, I know. That's right. [Laughs] I'm not saying I'm not stupid. I'm just –

Bryan Beach: I'm kidding.

Dan Ferris: I know. That's right. He kids because he loves, folks. But I—

Bryan Beach: You're going to edit that out, it doesn't matter.

Dan Ferris: Yeah. No, that's fine. We've just become more selective about it because, you know – and we're wrong sometimes too. Let's face it. I mean, PayPal was a disaster and we had to get out of it. So we're wrong sometimes. We have to admit that.

Bryan Beach: The thing that I like about –

Dan Ferris: Go ahead.

Bryan Beach: I was just going to say, the thing I like about stops is it takes emotion out of it. Right? You know, as value guys, Dan, you know, we – I can't remember who said it. Maybe Buffett. But I think it was Peter Lynch. "You know, if you like a stock at 20 you're going to love it at 10." Right? It's kind of baked into, you know, our DNA. That, you know, if it goes down that's a good thing. You should put more of your money in – you know?

But that's a hard way to run a business or run a – or pick stocks. And, you know, it's a good way to – stocks are a good way to take emotion out of it, you know, and just let the market tell you if you're wrong. I will say this. Some of the tiny companies we do only have a – you know, down to like $100,000 in daily trading value. Really small. So we can't tell 2,000 people to put in the stop loss at the same – you know, if 2,000 people stop out of these stocks at the same time it's going to destroy the market.

But what we started to do is to set up – and I got – we call them guideposts. So if I like a company because it's growing and it's got a strong balance sheet and it's cashflow positive, you know... whatever I like about the company, I'll set up quantitative guideposts so that, you know, it helps me take emotion out of it. Just like a stock price. Right?

I mean, so look . I'm looking for 20% growth per year. If the first year it's 12% and the second year it's trending towards 8%, I've got something wrong. I need to sell. Regardless of what the stock price is doing. I liked this company because it has strong balance sheet. If they take on a bunch of debt and buy a company, I'm out of it. You know, then things have changed.

They start losing money – this happened to me recently with Dole, which is of course a household name, but it was down there in kind of small-cap world. And they had one segment that wasn't really doing all that well but they were going to sell that segment to Chiquita, kind of another household name. And I liked that idea because I thought their other segments were making more money. They sold that one segment to Chiquita, they could use a couple-hundred-million dollars to pay off the debt.

I loved the way it was going to play out. I still like Dole but the regulators – I think it was the DOJ in this case – blocked the merger. Right? And so, I went ahead and sold. I'm like, "My thesis is no longer in play." So it's kind of like a stop loss in that you're trying to take emotion out of it. It's a quantitative thing. Like, this merger didn't happen or the cash flows are drying up or whatever.

But left to my own devices I'll just be stubborn, you know, and stay in some of these way too long. So that's one of the things – I have to play a little bit differently in the micro-cap world but that's how I've been handling it. Interesting that you've come around and started using them. I know for years you didn't.

Dan Ferris: Yeah. Yeah. I mean, of course there was a famous bit of research that people talk about where they applied religious trailing stops to the Extreme Value portfolio retroactively and they say, "Well, the performance is better than what Dan got." And what they didn't tell you was that, like, if you had never sold anything they would have been pretty damn good too.

Bryan Beach: Oh, really?

Dan Ferris: Yeah. So I'd have a ton of 10-baggers, multi-baggers, if I just had left it all alone. You know?

Bryan Beach: Have you ever looked at Amazon since '98? You know, Amazon is up – you know, whatever it's up – I don't even know. 30X, 100X.

Dan Ferris: Yeah. So that was a couple-thousand X. A couple-thousand X. Yeah.

Bryan Beach: Way more than that. Any year you want to pick, it's up 30, 100, 1,000 – but it's had 10 or 12 80% drawdowns over that time. And don't quote me on that. Right? I mean, I'm making this up. But especially when it was a smaller company it was – you would have constantly been stopping out on Amazon.

Dan Ferris: Yep. And it was – it's a huge, huge, huge multi-bagger from the dot-com peak. Right? Even though it lost 90% of its value in the bear market. So yeah. And I thought – again, don't quote me either. But I thought it was, like, at least 10, 35% or greater drawdowns. And, you know, 25, 35%, those are like typical trailing stop kind of levels. And yeah.

Bryan Beach: I wrote about this a couple years ago. And I think it was more than that. I think they fell more than that and I think it was more than 10. I was looking over the course of its whole trading history... not just, you know, since dot-com bubble or whatever.

Dan Ferris: Yeah. I looked at Costco in that respect and I was like, "Wow, negative 70%, negative 50%, minus like – "Whoa." And of course it's done great too. But yeah. You've got to know that it's – the way to hold onto those is... can only be to focus on the fundamentals of the business. Right? You can only do it that way, because if you try to gauge it by the stock price you'll say, "Well, the stock price knows something I don't and I'm down 80% so I must be wrong," rather than" –

Bryan Beach: I'm not sure a value guy ever would have bought Amazon. I mean, you know, they were always – Bezos was always kind of investing so much that there was never really cash flow. If I'm being perfectly honest, I don't know that I ever would have bought in. Maybe I would have after a big drawdown or something. But in any case I didn't. And, you know –

Dan Ferris: No, the value guys did not want –that's right. They focused too much on, you know, current profitability and stuff. And the one thing that you could have done was read that first shareholder letter. And he talks very much like all the – it's like, you know, all the things Warren Buffett wants a CEO to say. You know?

And if he reads it it's like, "You know, we're going to maximize cash flow and we're not going to work worry about gap earnings," and all that kind of stuff. I don't know if that's exactly what it says but that was the gist of it. And I thought, "Wow. I had it right there in front of me in the first letter," and I whiffed it. You know, I didn't take him at his word.

Bryan Beach: I have to look that up. I've never really seen that or read that.

Dan Ferris: Yeah. It's from 1997 if I'm not mistaken. Yeah. So there were signs but I agree. Like, you know, I looked at it a bunch of times and I thought, "I don't get it." You know, because I was just doing the normal stuff a value guy does. And I did something yesterday. I was dorking around in Bloomberg and I was looking at – I was looking for companies that reduce their share count a lot over time, because I was doing this little bit on Henry Singleton for my other newsletter that'll be out in several days here.

And I was looking at all these companies that made huge returns. I just typed in like, you know, "Billion-dollar market cap or more," "Total return of greater than 100 or greater than 500%," or something, "in 10 years." And so, I had all these 10-baggers and five-baggers and stuff. And the first seven or eight of them, their share counts, like, they soared over the period. You know? They weren't buying back shares. They were issuing shares.

They were in growth mode, right? Which actually if you study Singleton, you know, Teledyne was in growth mode issuing lots of shares in the first decade or so of its existence too. So there's that period. You know? So I was like, "Yeah. Those are the ones I should be looking for." Right? The ones that are issuing shares and growing like weeds and have good businesses maybe."

Bryan Beach: Should I throw out a name? I don't know if I'm allowed to do this.

Dan Ferris: Sure. Of course. We love names.

Bryan Beach: So I mentioned this company. And I did a presentation on this guy. So Par Technologies is a software company. As I've already kind of said, I really like Par. I bought it I think in like 2018 or 2019. It has this weird military consulting business that no one really knows what it does because it's – it has contracts with the military. [Laughs] But they also sell restaurant software and hardware.

You know, I'm not exactly – there's an origin story about how it ended up in those disparate businesses. But when we bought it, the software company was kind of hidden. And that's one of my favorite stories, is a hidden asset. And a guy named Savneet Singh bought in and ultimately became CEO. He's an investor and, I mean, Dan, if you read what this guy says– there's a podcast out there. I can give you the link. I can link it if you want. But it's from several years ago.

But he says everything you would want to say. And he and his buddies were sitting around, you know, in 2017, 2016 – I don't know when. And he said, "If Warren Buffett were our age" – you know, and at this point they're probably in their early-30's – "what would he be excited about? What business would he be excited about?" When Warren Buffett was 30 he was excited about newspapers. Right? You know?

There were things that he – "What would he be doing today," and they were convinced he would be in software. And especially subscription-based software. And the economics there, I've talked about it I think last time I was here or something. But we can drill into that if you want. But at the risk of rambling, he says, "All the things" – he's a Buffett acolyte. And now that he's running Par, he keeps buying up other businesses around restaurant software. Right? So, you know, the software that schedules the wait staff, that schedules the kitchen staff, the software that especially processes your payment, the software that takes the order that comes in from, you know, one of the external order, you know –

Dan Ferris: And Par, did they create Par Tinder? I know that is a software.

Bryan Beach: I haven't heard of that one. It's called Par Tech in the industry. I know you've got some restaurant background yourself. But these guys – Brick Software was kind of their first software company. But he says all the things they're talking about. And after every earnings call the stock falls because the cash flow – the profitability that people were finally hoping for isn't there, because he's investing.

He's reinvesting, looking for returns. And I can't wait – you know, I'm up but not a lot. I think I'm up 60% over years. I'm probably trailing the market. And of course during 2021 I was up 4X and didn't sell [laughs], so I don't have a stop loss on Par. But it's what you're talking about. I could be wrong.

Have me back on the show in 2028 and we'll see if this played out the way I think it might. But he's saying a lot of the things that you're talking about. And they're issuing shares. In 2021 when the stock went straight up, the ducks were quacking, he fed them. He sold a bunch of shares. Share count is going up. It's everything you just talked about. And this guy Savneet Singh is [laughs] a really smart guy. He's my favorite CEO in the portfolio that I'm running. And in my publication's model portfolio for sure.

Dan Ferris: OK. And the ticker is PAR, Par.

Bryan Beach: Yeah, it's easy to find. Yeah. Easy to find.

Corey McLaughlin: And I just want to say that's one of my favorite things about reading Venture Value, is these stories and interesting companies that you come up with. I mean, it's always interesting. You know? Just the origin stories of the businesses themselves are–

Bryan Beach: Yeah. Par has a crazy story. I mean, I think the guy years ago – he had a contract – I'm messing it up probably. But years ago it was a family company and the guy had a contract with the company in the Vietnam era. And then, as the war was cooling off his buddy who owned a McDonald's, you know, needed a cash register. And so, he kind of pivoted it into that as a side hustle and they ended up – every cash register in a McDonald's came from this guy. You know?

And it was – that's the hardware side of business. Right? That's not the exciting part of the business. The margins were very low and I don't know – but now they've got all this hardware out there, all these fast-food restaurants and those are potential software customers. Right? So they're not making a ton of money I don't think on the hardware side of the business but they've got this big install base of customers who know them and they can try and sell them on the software side.

Crazy story. The family sold out mainly to I think, you know, Savneet Singh's group and some others. But that family was on the tail end – they were selling out basically when I first recommended. Crazy story. All these little companies have crazy stories [laughs]. For sure. The stock picks are value and you'll get some good stories out of Venture Value for sure.

Dan Ferris: OK [laughs]. All right, Bryan. It's time for our final question. Final question is the same for every guest, every show, no matter what the topic. Even if it's a nonfinancial topic. It is the identical question every single time. And if you have already said the answer, by all means feel free to repeat it. And the question is simply, "If you could leave our listeners with a single thought today what would it be? What would you like it to be?"

Bryan Beach: Well, I mean, this is a financial podcast. There's a lot going on in the world today that scares me and, you know, that's got my attention. We're here at graduation season. I don't know when you guys are watching this. Maybe you'll watch it months later. But all these protests and all this stuff around the world happening, that's where a lot of my thoughts and prayers are, always.

And the markets just – you know, there are ways to try and – you know, it seems kind of grotesque but, I mean, we have a few picks in our portfolio that are going to do well if energy crisis happens. And, you know, given where there's some global contract conflicts right now in Eastern Europe and the Middle East right now we think that could be an interesting place to look.

I know you were talking to Cactus in the last episode about that kind of thing. I think that there's some interesting stuff there. Also, you know, sticking with the financial theme of this podcast Warren Buffett recently repeated– I know, Corey, you reminded me of this. He thinks he can double his money in small caps. I don't know if I read it right but he said that before.

And the opportunity there – I've been saying this for years [laughs] – I've been saying this for at least two years. Small caps just haven't participated in the rally the way the rest of the market has, as the Magnificent 7 has taken off and everything. And at some point I think that that's going to correct itself. I think that the gap is going to close and you're going to want some amount of small-caps in your portfolio.

I don't think I could go 50% a year like Buffett thinks he can. But even if I do half as well as Buffett, that's still pretty good. 25% a year in small caps as that valuation gap between small caps and the rest of the market closes, that would be interesting. So your listeners can check out my letter or, if you're not interested in that, figure out how to get some exposure to small and micro-caps. Because I do think Buffett is right, that there are some opportunities in that corner of the market. It's not really popular at all right now.

Dan Ferris: All right. We need to get Roaring Kitty to just recommend the Russell 2000 or something.

Bryan Beach: Yeah, or Par. I should get him on Par.

Dan Ferris: It sounds like we should get the CEO of Par on the show. That's what we should do.

Bryan Beach: Oh, yeah. That would be a really cool guest. I'll send you a link. I've never talked to him directly but I know some people. Maybe we can make that work. It would be fun.

Dan Ferris: Yep. All right, Bryan. Listen. It's been a pleasure to speak with you. Thanks for coming. You know you'll be invited back soon [laughs] as you always are.

Bryan Beach: OK.

Dan Ferris: Thanks very much.

Bryan Beach: Great. Thanks for having me and we'll see you guys soon.

Dan Ferris: Yep.

Announcer: The opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company or affiliates.