Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we talk with our colleague, Brett Eversole, editor of True Wealth.

Dan Ferris: Corey and I will talk about Dr. Doom, gold, bitcoin, and whatever else is on our minds.

 

Corey McLaughlin: And remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour.

Well, I guess we should tell the folks who Dr. Doom is before we do anything else.

Corey McLaughlin: Yeah, that would probably help, right?

Dan Ferris: Dr. Doom is Nouriel Roubini. He's an economist who had his 15 minutes of fame which stuck. He got famous for doing one thing right, and I don't know if he's done anything right since. That was an extremely bearish outlook before the 2008 global financial crisis happened. He was one of the louder voices saying, "Oh my God. It's going to be terrible, etcetera, etcetera." I can't name – I won't say I've kept up with him meticulously, but I can't find any other big calls that he made that worked out really super well. But that's who he is. He's Dr. Doom.

Corey McLaughlin: I do remember actually – to give him credit on that point, I do remember ahead of 2020 and the pandemic and the shutdowns and the stimulus checks, he actually said that the next time we have this crisis, you'll see the government sending money directly to people. So, I think that was a pretty good one. I believe he might have said that at our – he's talked at our Stansberry conference in maybe 2018 or '19 when he said that. That was a pretty good one.

Dan Ferris: Yeah, I think he did. I forgot about that. You're right.

Corey McLaughlin: But your point's taken.

Dan Ferris: Yeah, very good. I'm glad you remembered that. So yeah, that's who he is. That's what he did. Now, just recently in the past few days here, a Bloomberg article came out and said and I quote, "Nouriel Roubini, the economist known for his bearish outlook ahead of the 2008 global financial crisis, expressed optimism that the U.S. growth will remain brisk this year, though that might be a negative for stocks". Then he also said, "He sees diminishing chances of a so-called soft landing where growth and inflation cool without a downturn."

He's actually talked recently about no landing, about no recession, no problem of any kind. So overall, it's a fairly bullish picture from a guy named Dr. Doom. I sent you a link to either this article or maybe it was another one. I said – I titled the email, "The last bear is gored" because that's what happens in raging bull markets. There's always one last guy who is known as a bear and who says, "Well, I think the market's just going to keep going up. I think everything's going to be OK. We're not going to have a recession, etcetera, etcetera." I don't know if this really is a last bear is gored moment, but it's got that feel to it. I know that stocks are at mega-bubble evaluations, and that there could be some nasty stuff brewing in the banking system. We're in an election year. There's uncertainty. It has that feel to me.

Corey McLaughlin: Yeah, and in response to you saying, "Last bear gored", I think I said, "Maybe it's time to take some profits when you see something like that happen."

Dan Ferris: Yes, you did.

Corey McLaughlin: I mean if nothing else, it is a sign of how far we've come in the last year when "everybody was expecting a recession" and it didn't show up, technically speaking. There's been problems, whether you call it a recession or not. Whatever. There actually was a technical recession in the early 2022 – the first two quarters. You could argue it already happened and then the market bottomed, which would be consistent with past history before the last two years. But yeah, it just shows you how far we've come. You can't argue with what the market's doing. Last week, you got more new highs in the U.S. and in Europe. Europe and the U.S., all the central banks are talking about cutting rates around the same time in the summer now. It looks like it's – they're coordinated to say inflation's not a problem anymore, and away we go. That's what it looks like now. You're also getting the inflation protection trades back in with gold recently moving higher and you could argue –

Dan Ferris: New all-time highs.

Corey McLaughlin: New all-time highs for gold finally above 2000 which gold bulls have been waiting for – it's been pushed up there about four different times in the last couple years. This actually looks like it might be pushing higher, higher than that for good maybe. You can make an argument that part of this bitcoin rally has some inflation hedge argument to it. I don't think that's the whole thing, but it might be part of it. We're in the cutting rate period – anticipation period of this whole cycle now. Looks like.

Dan Ferris: Right. Yeah, it sure does. That's right. That explains the move in gold pretty well too. Doesn't explain why nobody still really wants gold stocks very much. I mean they've given a little pop back up here.

Corey McLaughlin: Right. The gold miners are still hurting.

Dan Ferris: Yeah. They're still unwanted. The industry seems to have learned something over the past three decades of producing – they've produced negative free cashflow through I think it was 2022 or so. Just doing a horrible job at – financially and they got some discipline and they're fixing their problems. So as businesses, mining isn't great. I'll say that all day long. It's a terrible business, but they're doing a lot better than they were, and still can't catch a break, can't get a bid. They're pretty attractive even though gold is hitting new all-time highs. It's actually closer to – as we speak, it's closer to 2200 than 2100 at around 2156. So that's really cool.

Corey McLaughlin: Next step 3000 or 10000. What do we got here?

Dan Ferris: There we go. Yeah, you know. OK so there's – Corey has just called the near-term top in gold.

Corey McLaughlin: All right, yep, there we go. If it was bitcoin, it would move $1,000 dollars a day or in an hour, but it's not.

Dan Ferris: That's right. Yeah. Speaking of which, it is making – it is ramping up toward a new all-time high, or has it hit one already? It's at 67,800 as we speak. And I forget what the exact number was back –

Corey McLaughlin: It briefly went over 69,000 last week briefly and then promptly dropped 10% right off of that. I guess you could say it made a new all-time high, but it definitely has not stuck that landing up there.

Dan Ferris: Given its volatility.

Corey McLaughlin: Volatile – a lot of – I sense more interest in it again. I feel like this whole cycle with bitcoin and cryptos is really still early yet. I mean you're getting into the mainstream financial media again with these new – getting close to new highs, but as far as individual people, I haven't been hearing a ton from people who I heard from two or three years ago when bitcoin was making new highs. "Hey, what's going on with this?" Haven't heard that yet, so if that's any indication that that story might have a lot of room there. Yeah, it's going to be volatile no matter what happens.

Dan Ferris: I was going to say considering its extreme volatility, being up above 67 after hitting 69, as far as I'm concerned, it's still just pushing up against new highs. So, it's performing really well actually.

Corey McLaughlin: Yeah, rebounded since that 10% drop, to your point.

Dan Ferris: It's pretty breathtaking. It was in the mid-teens in late 2020 – late 2022. And now, spitting distance of 70. That's pretty breathtaking stuff there. I really regret not getting back in, I have to say. I should have known. You did though, didn't you?

Corey McLaughlin: It might not be over yet. I don't think it is. Yeah, I did. I remember it was a little early on my new bitcoin highs prediction from two years ago when the sentiment was awful. A year late, but the same argument was there. It went from so hated to back higher in just so quickly with these – with ETFs being greenlit by the SEC. It's just this – it's definitely not what Satoshi Nakamoto or whoever wrote that white paper had in mind way back then what's going on now.

Dan Ferris: No, we're still in speculative territory here. Yeah. Absolutely.

Corey McLaughlin: The ETFs which then – these institutions which then are buying bitcoin, and that's its own cycle happening now that's pushing the price up and does that – that feeds on itself. It's a little – it's definitely got that speculative flavor still heavy on it. Yeah, the moves have been pretty amazing.

Dan Ferris: I'm fond of saying that if it ever does fulfill that dream and become a stable currency, store of value, whatever you want to call it, it'll be at $1 million and then that's when I'll say, "OK, it works. Now I'll buy." That's how you'll know that the big money has all been made and there's very little left to make in bitcoin when Dan finally says, "Oh this works. I think I'll buy it now for a million bucks" after missing it at 16 or 17, after getting another bite at the apple, having bought it at 10.

Corey McLaughlin: If you can buy when it's a million, then more power to you.

Dan Ferris: Yeah, that's right.

Corey McLaughlin: You'll be good no matter what you do. It is interesting just quickly on Ethereum and the other cryptos. I still think that's where the utility part gets overlooked like some of these smaller coins that are attached to actual real projects where there's value attached to the different coins depending on what they're used for. Our Eric Wade knows all about that and Crypto Capital and what not, far more than I do. I just think the potential's there for those as well.

Dan Ferris: No, I totally agree. It seems like a good mechanism for so-called smart contracts in the case with Ethereum and other specific projects that Eric has talked about. That makes sense to me. The idea of it being some kind of just generic new money to replace dollars or gold or whatever you like makes less sense right now just because of the sheer utter volatility of it, and the fact that using it as a currency, to me it's just dollars. If somebody requires bitcoin, or if for some reason that's the desired method of transacting, I'm just going from dollars to bitcoin, through the transaction, and back to dollars. If I'm the receiver, I'm going right back to dollars immediately because who knows? It could fall 20% the next day. You don't know. But it's an interesting thing.

I'll have to do more work on it so we can have a meaningful conversation. But I feel like I know gold a lot better. And the fact that gold is making new highs and hasn't been – people say, "Where's gold? Where's gold?" all through the 2022 ride up to 9.1% on the CPI in June of 2022 near-term inflation peak for now. People are like, "Gold's not doing its job." Actually, I disagree. It has been fairly steady and now it's making new all-time highs. You don't want it to be like bitcoin, right? You don't want it to be quadrupling in a year or whatever it's been or less. So yeah, I like gold a lot for that reason still. I like gold miners too for the reason we said. There's lots of stuff to do out there right now whether you're bullish or bearish or whatever. There's all kinds of stuff. Of course, we talked with Rick Rule, natural gas – dirt cheap. Awesome. He's waiting for nickel to get absolutely dirt cheap. The market is in total disarray. So, there's plenty to do right now and lots of good stuff to look out for.

So, we know somebody who we're going to talk with right now who has a very unique and effective way of looking out for these ideas. It's a three-legged stool that he always reiterates his strategy every time we talk to him and I'm glad. As I've said over the years, it's burned into my brain by him and Steve Sjuggerud and this is our colleague, Brett Eversole. He's the editor of True Wealth, which is a wonderful publication that's got lots of good ideas and as we'll find out today, an excellent trading strategy. So, let's see what's on his mind and talk to Brett Eversole. Let's do it right now.

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Brett, welcome back to the show. It's good to see you again.

Brett Eversole: Thank you Dan. Thank you Corey. I appreciate you guys having me. It's good to be here.

Dan Ferris: Yeah, I really am curious to know right now – you're not going to believe this. Right now, I'm feeling like the market's a one-way ticket until November and or sometimes slightly before – you know how people look ahead or whatever, depending on who they think is going to be elected? I want to know where you are on that one thought. Which way the S&P 500 and for how long?

Brett Eversole: Well, I tell you what, Dan. I was going to say positive things but if you're going to lead with that, maybe I'm going to be a little bit more bearish in my thoughts.

Dan Ferris: That's great.

Brett Eversole: I think in these election years, it's always a tossup. There's obviously uncertainty with elections and markets generally don't like uncertainty. So, what tends to happen a lot of times is you get a lot of volatility and chop through the year, and then you get a year-end rally once you get some certainty. I think we might get a little less of that this time around because we have two knowns running for president. First time in modern history where we've had a current president re-running and a past president running. I think what either of these two would mean in a second term is a lot less scary for the typical investor. So, we've had an incredible run in stocks for the last three or four months. I think it's pretty logical to assume that that will at least slow down, but I don't see a lot out there to expect a big downside between now and November. We'll probably get some chop along the way and get some good and get some bad, but if I had to bet, I would guess that stocks are higher come election day than they are right now.

Dan Ferris: OK, so more tempered than what I said, then but we wind up in the same place by election day, I think.

Brett Eversole: Yeah, there you go.

Dan Ferris: Are there individual sectors right now that are more attractive to you than others in the U.S. right now? Let's just stick with the U.S. right now.

Brett Eversole: Yeah, so to talk broadly, I do think stocks will do well through the rest of the year. I think the market's in a pretty healthy place, and that's why I have that opinion even more so than an election coming up. I really like to look at the fundamental underpinnings for the market. When I say fundamentals, I don't necessarily mean valuations, but more the technical breadth of the market. This is something that I looked at last January that got me really excited and really bullish in 2023. That was for the first time since the 2022 bear market had started, most socks were going up not down. Throughout 2023, it was really driven by the Magnificent Seven and these massive tech stocks soaring, but the reality is especially in the last few months, most stocks have been going up. You can see this in a handful of ways. You can look at the equal weight index which is instead of a market-cap-weighted S&P, you weight each stock individually. That is just a few percent away from hitting a new all-time high. It's hitting multi-year highs right now.

Similarly, the advanced decline line is something that I look at pretty frequently. This is just a cumulative index of how many stocks went up today minus how many stocks went down. You add that number to yesterday's total and over time, it tends to track up and down with the market. What you see in scary times is that you'll have stocks going up, the market going up, but the advanced decline line going down. What that means is you are in a situation where only a handful of the biggest stocks are driving prices higher. Right now, the advanced decline line is hitting new all-time highs. I think the general underpinnings are really, really good for the broad market. That's why – again, I saw this happening last January – last February. It made me incredibly bullish for 2023.

Here we are a year later, about a year later, and we have a similar situation. Now having said all of that, I do think that there are certain areas of the market that are more attractive than others. The bigger stocks are very expensive right now. I think if you go down in size a little bit, not necessarily individual names, or individual sectors, but I think investing based on market-cap size right now is a pretty smart move. If you look at mid-caps and small caps, they really haven't participated in the recent rally of the last – at least as aggressively in the last 12 months.

Dan Ferris: I was going to ask, yeah.

Brett Eversole: You've got great valuations there.

Dan Ferris: Yep.

Brett Eversole: So, the S&P's 600 which is the small-cap index is around a 14 PE. The mid-cap index, the S&P 400, I believe, is a similar valuation. That's compared to about a 22 on the S&P 500, the large caps. So, you really do have not all-time great valuations in these smaller companies but way better than what you're seeing in the broad markets. So, I think looking at those kind of areas. Getting away from those Magnificent Seven names is a really attractive place to look right now.

Dan Ferris: In the mid-caps, there's some really – there's some great businesses all up and down the market, but I know at least one investment manager whose name I can't think of – a Dutch guy. I don't know if he's still around – who focused solely on the mid-cap index, and I saw several presentations by him maybe three – four years in a row like a decade and a half ago or something. I was shocked. I was like, "Oh wow. There's all these mid-cap names that area really, really attractive good businesses." So, this is intriguing to me because I like –

Brett Eversole: Yeah, I think that area size wise is the sweet spot in a lot of ways because when you talk about very small-cap companies, especially like Russell 2000-type companies, $1 billion to $2 billion dollar companies, they're not necessarily at the size and scale to have the efficiencies of being a very large corporation, but they have all of the overhead and hassle of being a public company whereas mid-caps are in that sweet spot where they're big enough for all that hassle and corporate integration to make sense, but they're not yet big enough for most investors to know what is going on with them, or to have a lot of coverage.

Dan Ferris: Right, and if you're looking like it's a great place to look for those that could one day be a mega-cap or something because they've made it that far.

Brett Eversole: Yeah, exactly.

Dan Ferris: Exactly what you're saying. Yep.

Brett Eversole: Yeah, that's the hardest part in a lot of ways.

Corey McLaughlin: Brett, are you expecting the small-caps to play catchup to the rest of the market? You talk about the Mag Seven and even the equal weight index has recently started making some new highs. Is it just a matter of the small-caps catching up to the rest –?

Brett Eversole: So, I think there's two things going on. Number one, I think yes that is the case, but the reason why, number two, is that we've had a lot of economic uncertainty the last couple of years. The will we/won't we recession that's been going on. I think in the past six to 12 months in my view as these much higher interest rates have been absorbed into the economy, and we haven't gone into that recession. The jobs market is still incredibly strong. I think as every day that goes on, I think that major recession that people are worried about becomes less and less and less likely. These smaller companies tend to be more U.S.-focused, tend to be more – they rely on a strong robust U.S. economy. So, investors haven't been willing to buy them and bid up valuations because of that fear of this looming recession.

I think as we get farther from that and we get into this boring zone – we've had a wild few years of things going on geopolitically, economically, the pandemic. There's been a lot going on. I think we're probably going to enter into a more boring time. That's generally how these things go in bull markets. You have some crazy events. You come out of it and then you have these boring years. I think in that environment over the next two to three years potentially, people are going to start looking at these small-caps and realize, "OK, the U.S. economy isn't collapsing. These companies are incredibly cheap, and they have great prospects because the economy is turning over and getting better." I think that can be a catalyst. The question is what you have to realize is you're making a bet not for today or tomorrow or next month or even this year, but that's really like a 3–5-year bet that you can see that catchup in outperformance versus large-caps. But there'll be a lot of volatility along the way and of course if that strong, economic underpinning turns around, that's not going to work out at all.

Corey McLaughlin: Yeah, that's what I was thinking the other day. We've had so much – it feels like chaos the last couple years. I feel like there's a lot of market PTSD still from 2020 and expecting bad things to keep happening, but yet the market keeps going higher generally. So, it's – at what point does that fear fade away? I guess at that point, maybe we're in the euphoria end of things the way these cycles go.

Brett Eversole: I think that you strike into a really important point. If you look back through history, this is how things play out. From 2007-2008, we had the great financial crisis. We came out of that. The market delivered really strong returns in 2009 and 2010, but then we ran into this European debt crisis. Everyone was wondering in 2010 and 2011 if the U.S. was going to have a double dip recession. So, we had this three or four-year period where it was insanity. Nobody had any stability or any certainty about anything. Then 2012 – 2016 – 2017 or so, it was pretty boring. Not a lot happened economically. We realized we were past the craziness. The economy grew. Companies grew earnings. Valuations increased. Stock prices soared, but there's not a lot you can point to in that period that was exciting. You look back in history farther and you find the same thing.

In the early '80s, you had a double dip recession, crazy inflation, Volcker's 20% interest rates, but by 1983 – 1984, we were mostly past this and then you had six or seven years before 1987 where the markets boringly marched higher. It was the same thing in the early 1990s. You had the Gulf War in 1991, recession in the U.S. economy, a bear market, and then you had '92 – '93 – '94 – '95 where stocks just steadily marched higher before you got to that euphoria point. So, I think that we are early stages of a major bull market. I think it began in the bottom in 2022. I think we are a couple of years into it now. We're getting through all of the craziness that allowed it to begin. Now we're going to enter those boring years for two – three – four years where hopefully, fingers crossed, not a lot happens. Earnings grow, prices move higher. It's that healthy, uninteresting stage, but this is where you make a lot of money as an investor is sitting tight and doing nothing in those boring times.

Dan Ferris: From your lips to God's ears, boring would be very welcome to me actually.

Corey McLaughlin: Boring is beautiful. It would be great right now.

Dan Ferris: Boring is beautiful. It really is. Boring is compounding. When you start talking to people about compounding, they start dozing off. You can see them. When you're on stage at a conference, and you're talking about compounding, their heads are bobbing in the front row, and the second and the third, and the last. But that boring stuff, man. That's where the big, big money is made, right? Boring compounding over many years.

Brett Eversole: Yeah.

Dan Ferris: I hope you're right.

Brett Eversole: Yeah. Maybe I'm talking about what I want to have happen, but it's what I think will happen too. You're 100% right, Dan. I know you have that deep value investing tilt that I don't necessarily have which makes you even more attuned to that long-term compounding because you find that good company that can grow over an extended period of time. If you do that, and you buy at the right price, what happens in between is irrelevant because five – six – seven years down the road, you're going to do incredibly well. It's just finding the right company and paying the right price.

Dan Ferris: And then doing nothing, which is really, really hard for a lot of people, for human beings I would say generally. Doing nothing is really, really hard. So, let's see. Did I miss the part where I talk about sectors you like?

Brett Eversole: Yeah, we didn't necessarily do that.

Corey McLaughlin: No, I don't think we missed that.

Dan Ferris: Yeah, we were talking about cap... like mid-cap. I was talking about homebuilding or whatever.

Corey McLaughlin: Mid-cap, small-cap, yeah.

Dan Ferris: Whatever industry you like.

Brett Eversole: So, I'll evade your question again but I'll give you a more specific answer when evading it. So, one of the ETFs that I recommended a few months ago is the Cambria Shareholder Yield Fund. So, what this does. The ticker – SLYD. This is from our friend, Meb Faber who runs Cambria. He's a great guy, does great analysis, and builds these really cool ETFs based on his analysis. So, shareholder yield is a combination of buybacks, dividend yield, and debt paydown. This is just all the cash you can return to shareholders in various ways. It turns out that if you buy companies that return tons and tons of cash to shareholders, those companies tend to go up a lot over time. There's a book that we call the Bible in our office. It's James O'Shaughnessy's What Works On Wall Street. This is very much a finance nerd book where he just tested from 1928 onward hundreds of strategies and then combined various strategies together to get thousands of permutations of what works – what could have led to the best returns over the last 100 years or so in the markets. One of the absolute best strategies is buying companies with the highest shareholder yield when they're moving up. So, momentum plus shareholder yield. I think from 1928 to 2009, that strategy turned $10,000 dollars into $1.8 billion which is something to the turn of 25% a year.

Dan Ferris: That's pretty awesome.

Brett Eversole: This stuff really works. What's interesting about that strategy right now is Meb looks at the entire universe of stocks, but what it ends up buying right now are generally mid-cap and small or large-cap. Generally, two or maybe five to $15 billion market cap stocks. So, this is falling into that. It's got lots of energy and financials in there right now, which at a glance, you would say, "That doesn't make a lot of sense, but at the same time, these are the places that nobody has any interest in owning. That's why you're getting this great value. The fund in total pays out – it doesn't pay it out as a dividend, but the cumulative shareholder yield of its holdings are somewhere in the 12% to 14% range which crazy when the S&P pays a 2% dividend yield, maybe buybacks get it up to a 3.5 or 4.

So again. Again, I'm not answering your question on a sector basis, but I think looking at the right kinds of companies based on size and based on more of those immutable characteristics, if you will, like companies that treat shareholders well, I think those are the places you can go to take advantage of that right now. Shareholder yield – again, these stocks are really cheap as well. I think they trade for an 8 PE, 9 times free cash flow or something like that on the fund, which is maybe 60 or 70% less than the S&P 500. So, there's a lot of value there and a lot of opportunity over the long term.

Dan Ferris: All right, but yeah, strategy is as good as an industry. Whatever you like, I want to hear it. So that's great. I know Meb and love his work.

Corey McLaughlin: Brett, just about – we were talking strategy. The strategy you use with True Wealth, I guess having in the systems, can you explain a little bit about that and how that might mitigate some of this worrying that a lot of people constantly have in the markets in general, as far as – it's very hard for people to do nothing? Everybody feels like they need to be doing something all the time, but I know from just reading your guys' work – your work – a lot of what you do eliminates that.

Brett Eversole: Yeah, very much so. So the strategy that I use is the strategy that I got from my past boss and definite mentor were Steve Sjuggerud who launched True Wealth back in 2001. You buy stocks that are cheap, that are hated, and are in an uptrend. This is a very simple concept I think that almost any even novice investor can get a handle on. You want to buy companies at good valuations. You don't want to overpay. You want to look for things generally that most other investors are not excited about. You don't want to buy AI stocks right now. You don't want to buy NFTs in 2021. You want to look for things that people are not clamoring to overpay for. You want to buy those things when prices are moving up. I think Dan and I probably would agree when it comes to deep value investing that the cheap and hated part is generally the value investor's bible to a certain extent. But to me, the most important thing of that is the momentum is that trend.

You can just have a lot of things that are great value and that are hated by investors, but if the price is still going down, you're still taking a lot of risk. The most important thing of our strategy is using simple momentum to understand when we can take advantage of these opportunities. A lot of times, you'll have things that are cheap and hated for a long, long time. You can get just punched in the face over and over and over again waiting for prices to reverse.

Corey McLaughlin: Sometimes you keep getting more hated.

Brett Eversole: Exactly. They can get more hated. They can get cheaper. But if you wait for the prices to reverse, that's the market telling you what you are on to is finally right. Because at the end of the day, if you buy something, and it takes five years for it start going up, you weren't early. You were wrong. It's easier to just wait for prices to give you that buy signal. Again, we look for things that are cheap. We look for things that are hated, but we wait for prices to tell us that it's safe to buy right now. Then on the back end of that, we just use trailing stops for everything. We are fixed stops. Most investors, I think especially novice investors, they only think about the buy. The buy is the sacred cow. It's the most important thing to figure out, but if you don't have a plan to sell or why you'll sell, what will make you change your mind, what will be the thing that says, "I haven't changed my mind but I'm going to sell anyways", if you don't have that in place beforehand, it's really hard to figure it out in real time. Because emotions are – they can be all encompassing when things are not working out like you expected they would.

So generally speaking, we use trailing stops on everything. That's the simple way to say, "I don't agree with the market right now, but it doesn't matter. I'm going to be diligent and I'm going to sell." Again, we have our strategy for buying, but then we also have a strategy to sell, and that's what really protects yourself from the catastrophic losses that can absolutely crush a portfolio.

Corey McLaughlin: Yeah, that fits with a lot of, Dan, what we've heard from even different kinds of traders having that plan to predetermine when you're going to get out and your goal. You're managing the risk reward. So many people just never get to that point. They just get in and get burned. I'm talking about first time investor. You get in and "Aw, there's no way I can figure this out." But it's really the risk management is I think – I don't think can be said enough.

Dan Ferris: In our business, we have a unique perspective, don't we, because if we don't use trailing stops and we say, "I want that 25% a year that Brett's talking about" and if we try to go after that, you will see a massive – you will see multiple massive drawdowns during that period. It is absolutely going to happen – 40 – 50%, maybe more. People hate that. They think you're an idiot for walking them into it, even if the strategy is to hold for three decades and compound it at an ungodly high rate and just get rich by doing nothing. Also, the thing that causes people to think we're idiots is the thing that loses them a ton of money. Because at the moment they think we're idiots, they're selling everything at catastrophic losses that Brett is talking about avoiding.

We really have an extra good view on this phenomenon. We've come up, I think, the use of trailing stops throughout most of our portfolios, if not all of them just about, is I think an excellent way for us to just show people that you can get better control of this. You don't have to sell out down 60 – 70% in a panic and abandon stocks for the rest of your life. You can stay in the market in a reasonable, doable way that will still allow you to get a lot of that compounding done over time. The bad thing – the thing that Peter Lynch said is the mistake people make with stocks is getting scared out of them. You get scared out of them by living through one of those catastrophic losses, right? We avoid that. We're very good in fact at avoiding that. People don't write in and say, "You blew me the hell up" because we just don't do it for the reasons that Brett is talking about. This is a...

Brett Eversole: Well, and there definitely is. You probably know this, Dan. There is some disagreement among some of our analysts as to why their trailing stops are the right thing to do or the wrong thing to do. I understand the other side of that argument because a lot of times when you plug things in a spreadsheet, you can come up with better overall returns or better risk-adjusted returns by having some – a less explicit strategy. However, I think we – it's very easy in the world of finance, the world of personal finance, the world of anything money-related to think the spreadsheet is the best option.

Dan Ferris: No.

Brett Eversole: We don't live in spreadsheets. It's very, very hard –

Dan Ferris: Humans aren't computers.

Brett Eversole: Spreadsheets don't have emotion is the problem. Yeah, so once you take that idea out of the spreadsheet and then you actually have to execute it, unless you're this emotionless drone that can go through the world doing that, it's really, really hard not to make those major, major, major mistakes. I'm sure you know stories about this kind of thing happening where somebody really believes in the company, and they don't sell down 25% like they should have. They see it down 50, and that's the exact moment they shouldn't be selling. All of that opportunity they saw is about to take place. It's about to go up 3 or 5 or 5x over the next seven years, but they can't make it through that down 50, and they can't ever buy back in because they've been burned and have so much pain associated with this now. It just happens over, and over, and over again. In my view, if you want to try to fight that war, you can. I don't recommend it. I think the better thing is to have a strategy to avoid it.

Dan Ferris: Yeah, you're not Warren Buffett, simply put. That guy, he's bought these things and held them for decades and decades some of them. Of course, they've compounded at wonderful rates. He wrote a thing in the recent shareholder letter about how the difference between earnings and the – I guess it was operating earnings. Earnings takes out the losses – the mark to market losses and the operating earnings didn't do that. Those are the ones he wants you to see because that represents the real performance of the business. The other thing is just stock market quotations, he's not selling usually. So yeah. This is a big topic.

Brett Eversole: He's also – he's not getting a bid on any of those businesses at any point in time too. I think it was either he or Munger that said that story about if a crazy guy walks up and throws prices at your house every day, you don't have to take one. But that's what the stock market is. It's funny because historically people talk about a liquidity premium that happens in the stock market. I think in Buffett's case, he's almost getting a premium for illiquidity. He buys his businesses outright and holds them forever. He could go out and market them and sell them, but I think that there's actually value added in not having the ability to sell in a lot of cases. If you can buy really, really quality things I think there's an illiquidity premium that comes with that. It takes time for it to show up, but I think that really has been his secret.

Dan Ferris: You're not the only investor I know who's been around the block for a number of years who's arrived at that conclusion. It's true and –

Corey McLaughlin: We could all be so lucky.

Dan Ferris: The imprimatur of Buffett to the equation, it –

Corey McLaughlin: To have that problem, yeah.

Dan Ferris: It amplifies the point but that's not even necessarily required for that illiquidity premium to exist. I agree. It's an interesting phenomenon.

Brett Eversole: Yeah, so one thing for me personally, I've put a lot of my personal money into private real estate deals in the last few years. I don't get quotes on those whatsoever. I know they're probably not going to cash out and pay out for the next two to three years. I have had an incredible benefit because of the fact that I haven't seen what those are worth on a day-to-day basis. A lot of things are construction site face projects, but it's been a rough period in commercial real estate and valuations have come down a lot in a lot of cases. But I know a thing I invested in 2022, I'm not going to get a payout until 2025 or 2026. We've had this rough period for that market. I haven't had to see it or feel it or experience it. If it didn't exist at all, my payout in two years probably would be a little higher than what it will end up being because we've had this rough period, but I've had no emotional toll associated with that whatsoever, which I do. I think that that – there's a premium to illiquidity, and it's not necessarily all returns. It's also the emotional havoc that massive volatility can –

Dan Ferris: Right, and you can see there's a broader point to be made here. There's a brilliant analogy to be made just in the form of the – how shall I say the Amazon river of information that comes at you over the internet every day. It's anxiety producing. You get that same thing with endless stock market quotations and after hours and overnight and all – it's just endless. It's an endless bombardment that you are not getting from your real estate deals. So, you're sleeping a lot better than the average person who doesn't quite know how to respond to all this stock market oriented news and other types of news that tend to move things around in the market. This is – we're actually sitting here having a conversation about human nature which I think is entirely appropriate and a lot of that psychological stuff, it can get too much, but you can't ignore – you just can't ignore the element of human nature when people are investing in the stock market.

At this point in our careers, I've been at this – well, I've been at it with Porter since 2000 or so. We've seen multiple cycles up and down in not just stocks but in commodities and gold and various things. It's just amazing how human beings never stop being human. They just can't help themselves. There was that book. I remember there was that book that came out by Dan Ariely called Predictably Irrational. Some brilliant guy made a joke. He says, "I'm going to read this book, and I'm going to read it so that I'm not predictably irrational." That's an excellent point. You can't help it. You can know all about it and you're still predictably irrational. You can't stop being human when you're human. It's a very good point.

Brett Eversole: I think the point you take away from that – what do you do with that?

Dan Ferris: What do you do? Yeah.

Brett Eversole: Because like you say, this is inescapable, so what do you do? A trailing stop is a perfect example of what you do. You set up simple guard rails to protect you from yourself. A future you is going to want to do some really boneheaded stuff. If you set up some guardrails right now, you can stop that future idiot from doing those things. It's not going to work every time. It's not going to be perfect. But I think if you don't have that figured out, the rest of it is almost – maybe not entirely, but almost irrelevant. You can be the best stock picker in the world but if you don't buy at the right time and have a plan to sell if things go wrong and understand how to understand how you can be wrong, nothing else really is important.

Dan Ferris: Future you is going to be changing his underwear at a rapid pace if you don't understand that stuff before you need to. So now that we've covered the hopelessness of future you if you don't know what you're doing, and liking mid-caps and liking the shareholder yield strategy, let's – and your overall idea which is a very familiar one to us here at Stansberry Research, of the cheap, hated, and in an uptrend, what do you make of a market – and I'm just not quite picking at random but almost at random – what do you make of a market like China? If I look at a China ETF right now, I just see a big decline that doesn't appear to be stopping. I don't see that – I see hated and cheap when I look at the headline PE on a China ETF 9 times or something. It's definitely hated. It's down, down, down. There's a lot of negative narrative around China. Are you just – in that case, you're just waiting for things to tick up? Or maybe you don't agree that China's the one that's hated and cheap enough. But how do you look at a market like that right now, if indeed you are?

Brett Eversole: Sure. No, it's funny. I actually have a great answer to that and a way to take advantage of it even though I don't think it's a great buy right now. I've covered Chinese stocks for around a decade right now. I visited the country the first time in 2013, and we've had a China letter over the years. I've spent a lot of time thinking about Chinese stocks. What's interesting is that when I went to China the first time in 2013, I thought the market was hated then. Then in 2014, it was a little more hated. In 2015, a little more hated. It's just gotten worse and worse and worse. That really has gone into a fever pitch in the last few years. Between the trade war with Trump in office and then this massive regulation regime that the Chinese government put in place circa 2021-2022, we've seen these major Chinese stock fall 60 – 70 – 80 – 90% in some cases. They are incredibly cheap. A company lake Alibaba which is the Amazon of China, massive e-commerce business, traded for 30 to 40 times earnings three years ago, trades for around 10 times earnings today. Tencent, a massive gaming company, again traded for 30 to 40 times earnings a few years ago trades for around 12 times earnings today. These stocks are going to grow double digits ever year topline for the next few years. Their growth phase is not over, but they've gotten incredibly painfully cheap.

Because of this massive regulation campaign, foreign investors have mostly fled from that market. China is the least owned by foreign investors at any point in the last decade. Normally, I would look at this market and I would say "It's definitely cheap. It's definitely hated, but you really have to wait for the trend before you can even consider buying." A market like this can become a value trap for years and years and years. I honestly would not be surprised if Chinese markets are trading at similar prices to today's in two- or three-years' time. That's why you really want to wait for the trend before buying, because you could end up with this period of dead money. I also wouldn't be surprised if they fall by 15 or 20% more, even though they're down 60 or 70%. One way you can take advantage of that, which is a very unique strategy, is an ETF from our friends at KraneShares. It is a covered call strategy on their China internet ETF.

So, this is the China internet ETF is ticker KWEB, K-W-E-B. It is just Chinese tech if you will, very simply. So, they have another fund ticker KLIP, which sells covered calls against KWEB. Yeah, yeah, I talked about this at the conference last fall. Yep. Normally, a covered call strategy, you buy the stock. You sell a covered call. You collect somewhere in the realm of 10 to 12% a year is what the typical volatility on the S&P 500 would produce. Chinese tech stocks are much, much more volatile than U.S. stocks. So that 12% or so actually is in the 40% range. It'll vary dependingly, but KLIP is paying out roughly 40 to 45% in dividends. That dividend is not guaranteed. It pays out monthly. If prices go down, that dividend is going to go down. If volatility goes down, that dividend is going to go down. That is an absolutely incredible number one – safeguard if prices go lower, and then also even if prices go nowhere for two to three years, that yield is probably going to be in the 30 to 35% range consistently. So Chinese stocks could be flat for three years, and you could make 100% on KLIP.

Dan Ferris: Amazing. That's amazing.

Brett Eversole: Now I knew about this fund when it launched, but I wanted to see what it did in the wild before I thought about recommending it. So, it launched in January of 2023. It's up 7% since then. The underlying index, KWEB, is down 26%. It really – this has been a brutal year for Chinese stock since it launched 14 months. It's absolutely done its job. Not only has it saved you from those losses, but it's actually led to a positive return. In most cases, I would say, "You should avoid Chinese stocks because the trend is not there and I don't know when it's going to show up." In this case, you have a unique way to get paid to wait, and potentially make big returns even if prices go somewhat lower from here. That kind of answers your question in two ways. I think KLIP is a really, really cool idea, and it is a safer way to get exposure to that. I think long term, China is the second largest economy. It'll soon be the largest economy. It seems unlikely to me that its stock market isn't dramatically larger 10 years from now than it is today, but –

Dan Ferris: Brett, I'm looking at a Bloomberg chart of KLIP. It seems to have started trading in 2023 around $24 -- $25 bucks. It says it's $14 today and it's down and to the right.

Brett Eversole: Yep. It is, and so you can do a total return chart with all those massive dividends pumped into it.

Dan Ferris: There we go. Nice.

Brett Eversole: That's the thing. You've got to buy this, and if you don't account for those dividends, then it just goes down, down, down. That makes sense because the underlying index is going down. But what's also – here's what's interesting about KLIP to me. Let's say instead of going down, Chinese stocks go up 50% over the next year, which is entirely possible in a market like this. We've seen KLIP's dividend fall by about half over the last year. That's because volatility has gone down a little bit and the price has gone down. If the price of KWEB goes up, volatility stays similar, those dividends are going to grow. Today's 40% yield could be 60% in next year's money. So, we've had this vicious cycle could turn to a virtuous cycle.

Dan Ferris: The dividends since March of 2023 are basically 65% of the current share price. So, anything like that performance for another year and a half or so, year or two, and you're good. It's gravy from there. Very interesting.

Brett Eversole: It's not like this can't lose money, but even in a choppy down market like the last 12 months, it did pretty darn well. To me, that's a good sign.

Dan Ferris: That's really cool. That's very, very interesting to me. Of course, you did talk about this before, but I totally forgot about its existence, and it's just really, really cool looking. It's a good idea. It's – these cover call strategies have been around for – it's nothing new, but to do it right on this sector in this country around this time is a stroke of genius moment there. That's really cool. All right. All right. So mid-caps –

Brett Eversole: Yeah, that's what I think –

Dan Ferris: And all kinds of good ideas. See? This is why we like having you around. We got tickers. We got mid-caps. We got a couple of tickers. We got KLIP. What's the shareholder yield – Meb's? SYLD. So, we've got SYLD and KLIP.

Brett Eversole: That's it.

Dan Ferris: You got anything else? You're overflowing with ideas here. I don't want to stop you.

Brett Eversole: I can't give you the whole portfolio today, Dan. We've got a few, but I can't – people at True Wealth readers are going to be upset if I give it all away. So.

Dan Ferris: Well, let's see. We have been at this a little while here. Why don't we head to our final question and see what you can come up with for us? It's – you've answered it, of course, before. I hope you don't remember it because that helps it work better, but it's fine if you do. Good, excellent.

Brett Eversole: I don't remember it. I was wracking my brain. "What was the final question Dan asked me?" But I forgot what it was.

Dan Ferris: Excellent. Excellent. It works better. So, the final question is the same for every guest no matter what the topic, even if it's a nonfinancial topic. And if you have already said the answer, feel free to repeat it and take your time because we can edit. The final question is if you could leave our listeners with a single thought today, a single idea, what might that be?

Brett Eversole: I think to our conversation about behavior problems in investing, I think that broadens even out more to life. The idea of setting up guardrails for yourself. There's this thought of entropy in the universe. I think that applies to the individual as well. It's really easy to allow yourself to go down paths that you don't mean to go down because you don't have proper guardrails in your life. That is very clear and apparent in investing. But I think it happens throughout life. I have personally been in relatively not great health shape three or four months ago and it's because I hadn't had guardrails in my life. I made not major – two or three small changes to how I go about my day-to-day life. It's been a dramatic improvement in my overall health, wellness, and how I feel. I think it's really important to set up those simple guardrails in your life. That's going to be different for each individual, but if you don't do that, it's so easy to just wake up six months down the road or 12 months, and be like, "How did I get here? What's going on?"

Generally speaking, it's small little things that compound again over months, weeks or months or years, that turn into big problems. So, I think if you evaluate your life every 6 or 12 months and say what guardrails do I need to put in place? You can dramatically improve your life. You can improve your investing by doing that in those ways, but I think that expands entirely to almost every part of your life. That's something that I try to do is reevaluate myself, figure out what I can do to improve. The crazy thing is those changes are generally pretty small and pretty simple. You just put them into place one day at a time and you wake up six months later, and you'd be like, "How did I get here?" Because things are so much better.

Dan Ferris: Beautiful, excellent answer, and I totally agree. I stopped drinking soda and orange juice every day and I went from 205 to 172 in a matter of several months. It was whoa. It was dramatic. I mean really. I hear you. I believe you.

Brett Eversole: That's one of my rules. One of my rules is don't drink calories, which sounds – it's a simple thing where you just kick the habit.

Dan Ferris: All right, Brett. It's always a pleasure to talk to you, man.

Corey McLaughlin: It is. I am loving the cheapest beer now versus – no more IPAs for me. Cheap beer.

Dan Ferris: I knew you guys were thinking beer. I knew beer was on everyone's mind when he said drinking calories. It had to be. So, I'm glad you gave voice to that, Corey. I appreciate it.

Corey McLaughlin: Well, that's just me. I'm not going to speak for Brett. That's me.

Dan Ferris: All right, anyway, look. Thanks a lot, man. I'm sure we'll be talking to you soon and it's always a pleasure.

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Always a pleasure to talk to our friend, Brett Eversole. I was just thinking how long it's been. I forget when Steve Sjuggerud brought Brett into the company. He's been around for a long time though. When I met him, he was a pretty young – and he's still young, but a lot more experienced and it was just a real pleasure to sit here and see this guy who I've known for all of these years who has matured into this really thoughtful guy with lots of very good ideas, penetrating analysis. He knows who he is as an investor. Of course, like I said, ticker symbols, man. Brett's got ideas for us. Buy mid-caps, buy the SYLD, buy KLIP. It's just a real pleasure to have a guy like him on the show.

Corey McLaughlin: Yeah, as you say, he's mentored by Steve Sjuggerud. That was probably at least 10 years ago when he got brought on. Yeah, just picked up where he left off in True Wealth. That's the great thing about the system that Steve and Brett and the whole team with True Wealth has developed. You can apply it to all of these different areas. That's why a guy like him is able to give off all those tickers on China and shareholder yield and whatever else. I remember back in – remember when oil went negative in 2020?

Dan Ferris: 2020, yeah. I tried to buy it. They wouldn't let me do it.

Corey McLaughlin: Of course you did. Of course you did. Yeah, well, my point is there that eventually when the trends started going back higher and energy was still cheap and hated, I remember them recommending energy well before anybody else was. When it was a lot of money to be made in it, and it was still but waiting for the bottom to occur first, and not trying to catch it at the exact bottom. You don't need to catch exact bottoms or tops for that matter.

Dan Ferris: You can't hope to. That's right.

Corey McLaughlin: If you get the middle right on it. If you get the middle a lot of times, you're in good shape. So anyway, that's – yeah, I'm glad to give some insight as to how they go about finding stocks which I think anybody who was listening and watching could pick up on.

Dan Ferris: Yeah, thanks to those guys Steve and now Brett, the phrase cheap, hated, and in an uptrend is just burned – burned into my brain for all eternity. I'll never forget it. Every time I look at something, even if I don't have those exact words in mind, certainly cheap and hated are very important to a value guy, and because I've been around Steve and Brett so much for so many years, decades now, the uptrend part, even though I'm not a momentum guy – I don't usually worry about that. The uptrend part, it's just that voice is in my head. So, I can't help thinking about it. Every now and then, man, we do find one of those. Those are some of our best performers in extreme value, the ones when we catch them just right, and boy they take off and they don't look back. It's a beautiful thing. Wow, OK. That was a great interview. I hope it's as good for you all out there in listener land as it is for us to just have a thoughtful conversation with our friend and colleague and get a lot of good ideas. I'm writing the ticker symbols down. I hope you are too. Yeah, that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really, truly did.

We do provide a transcript for every episode. Just go to InvestorHour.com. Click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com, please. And also do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week I'm Dan Ferris. Thanks for listening.

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