Have you ever wondered what’s gone wrong for the world’s greatest investor? Every investing mistake comes with a valuable lesson. And you’ll be surprised to hear rarely publicized facts of Berkshire Hathaway and how Buffett’s mistakes of the past can make you a smarter investor today.
Editor, Chris Mayer's Focus and the Bonner Private Portfolio
Announcer:Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.
Buck Sexton: Welcome, everyone, to this edition of the Stansberry Investor Hour. I'm nationally syndicated radio host, Buck Sexton, and of course, founder of Stansberry Research, Porter Stansberry in the house.
Porter Stansberry:Hi, everybody, glad to be here. Just got back from the beach vacation in Rhode Island. Had no idea that Rhode Island even had beaches until last week, but they were very nice, had a great time. The boys wouldn't get out of the water, even though it was 68 degrees and they turned blue.
Buck Sexton: Where in Rhode Island? By the Newports? Lovely.
Porter Stansberry:Well, I didn't quite make it to Newport. We were at Watch Hill. We're not quite at the Newport level, yet, Buck. We're still on a podcast. We're Watch Hillers.
Buck Sexton: Okay, I gotcha.
Porter Stansberry:The oldest carousel in the United States is there, and my kids loved it. They were grabbing the rings all week. It was fantastic.
Buck Sexton: Fun fact. Who knew? Oldest carousel in the country. Joining us this week will be investment analyst, author, and globetrotter Chris Mayer of Bonner & Partners. Chris is the editor of Chris Mayer's Focus and the Bonner Private Portfolio, as well as the author of Invest Like a Dealmaker: Secrets from a Former Banking Insider, and his newest book, 100 Baggers: Stocks that Return 100 to 1 and How to Find Them. Intriguing.
Porter Stansberry:You know where Chris Mayer was a banker, don't you, Buck?
Buck Sexton: I do not.
Porter Stansberry:Well, do you remember the most corrupt bank in D.C.?
Buck Sexton: No.
Porter Stansberry:What was the name of that bank? Now I'm stuck.
Buck Sexton: The Export-Import Bank, ho.
Porter Stansberry:Not publicly corrupt, but privately corrupt. It was the bank where all the foreign dictators kept their money in D.C. We'll have to get into it with Chris. I can't remember the name of it right now.
Buck Sexton: I'm sure we can talk to him about that.
Porter Stansberry:He has a very interesting career in banking, and he's a fantastic stock picker. He has a ridiculous track record. I believe Chris's record is the best in all of newsletters, including, unfortunately, the guys that write for me. So someone I pay a lot of attention to, and I hope the readers will stick around for that.
Buck Sexton: By the way, if you haven't already, please subscribe to this podcast on iTunes or on Google Play – however you find and listen to podcasts – and leave us a review or a comment, and you can also get transcripts from the show, additional information about our guests, and be notified each Thursday when we publish a new episode by going to InvestorHour.com and entering your e-mail address. This will give you a free account on the Stansberry Research website so you can access everything you need to benefit from the Stansberry Investor Hour.
That brings me to Porter's mind, and what is on it.
Porter Stansberry:Well, I'll get to my mind, but I want to tell everyone you can love us, you can hate us, but you can't ignore us. And where do they send us feedback, Buck?
Buck Sexton: They send us feedback at InvestorHour.com. Or at [email protected].
Porter Stansberry:If we use their thoughts on the show, we send them some swag.
Buck Sexton: Free swag, free stuff. Even if they call in and say mean stuff. Even if they say that I'm a neocon interventionist who wants to play GI Joe all over the world, makes me sad. But you know what? Important, 'cause we take the heat here. I'll take the heat. I'm not stepping out of the kitchen.
Porter Stansberry:Let's have it. So, on my mind, there's a giant hurricane. There is a communist dictatorship revolution in Venezuela, and a lot of people suffering. What else is on my mind?
Buck Sexton: Spike in gold.
Porter Stansberry:I did see that. Gold is going up, perhaps because of the storm in Houston. I also had some interesting feedback from customers of my newsletter – had a bunch of guys write in. We've been following the collapse in used car prices. In fact, I must say, giving myself a little credit here, we predicted that the car market was gonna explode as early as 2014. We said it would be 12 or 18 months, but that they were selling too many cars to people who couldn't actually afford them, and sooner or later, that was gonna come back and bite them in the ass, which is now occurring.
Anyways, subscribers were like, "Hey, you know what? This Houston flood is gonna cause a tremendous amount of more used cars to come on the market, because all those cars are gonna be totaled." And so the insurance companies dry 'em out, they put 'em up at auction. It's probably gonna have an impact.
I don't know if anybody wants a newly flooded car, but certainly will increase the supply of used cars. I wonder what else it's gonna do, the economic consequences of the flood. You gotta expect things like timber prices, gold, oil. It's still raining down there. Most of the time, a hurricane's a day or two. This is a five-, six-, seven-, eight-day hurricane. Ever seen anything like that before, Buck?
Buck Sexton: No, it's twice the amount of water, and this was as of yesterday. Twice the amount of total water in the Great Lake and Salt Lake City was dumped on the City of Houston.
Porter Stansberry:It was probably clean now.
Buck Sexton: Also, I think Houston has six million people – fourth largest metro area in the country.
Porter Stansberry:How many gallons of water is that per person? Let's get a calculator out. That's a lot of water.
Buck Sexton: I feel like I'm in a McKinsey here or something. I have no idea.
Porter Stansberry:How do you move that mountain?
Buck Sexton: No idea. I do know also that the roadways, they have set it up so Houston is the City of Bayous, that's a name for it. Which I would have thought that the City of Bayous would be in Louisiana, because you think of Louisiana and bayous. But the bayous are these riverways that are usually where the water goes, 'cause there's nowhere – Houston's totally flat – there's nowhere for the water to go, and they've set up the roadways along with drainage systems, but they were completely overwhelmed by what happened.
Porter Stansberry:So let's ask a question about this. What's your thought about charity in this case? Do we send Houston a whole bunch of money or do we realize that Houston's where we all buy our oil and gas – they've got money.
Buck Sexton: I always think it's interesting when the federal government decides to step in and override whatever the insurance system is in place for houses, and people start getting money for the house even if they didn't have insurance because it's considered a natural disaster. Whereas if it's much smaller, and you don't have insurance, and your house is flooded, or your house burns down, or whatever it may be, you're on your own.
That's just politics deciding instead of the market. Our politics deciding instead of what contract law would be, or contracts would be. In this case, I think that people – on one hand, they just want to help, so they want to send money, and do what they can to send funds quickly. You got people like the Cajun Navy next door in Louisiana showing up with their own boats. These are just folks like you, Porter, who have private water vessels that they enjoy, but they can deploy them to pluck people out of the water.
Porter Stansberry:Two Suns is not heading for Houston. We're going to catch tuna in Boston. We wish the poor people of Houston all the best.
Buck Sexton: But I think the rescue efforts are going as well as can be expected at this point. Social media has actually been really helpful. People are tweeting out their locations and using Facebook to get the word out about what's happening.
Porter Stansberry:What about the discrepancies between the amount of fatalities in Houston versus the Katrina fatalities? Has anybody stopped to consider – I haven't seen the latest death toll, but it's not more than 10 people or something like that in Houston. No one's died because of the storm; not no one, but virtually no one has died because of the storm.
Whereas, I'm assuming the amount of water in this storm was even more than Katrina, but the flooding was more lethal in New Orleans. And I wondered, has anyone stopped to think about it? Maybe that's because we built New Orleans below sea level next to an ocean. I'm just putting it out there.
Buck Sexton: Well, if you listen to what most of the press is focused on right now – other than the standard disaster reporting about what's going on, but in terms of what could have been done to prevent this – and what needs to be done to prevent it in the future, no one's really looking at engineers and the realistic prospect of trying to deal with this better. They're saying it's climate change, and they're saying that even though hurricanes have existed forever –
Porter Stansberry:Oh –
Buck Sexton: There are "splainers," they call them out there –
Buck Sexton: This is climate change. Splainers.
Porter Stansberry:In other words, in 1516 or something like that, 1517 when the famous Spanish treasure galleons were wrecked into the coast of Florida, right there at Vero Beach, country club guy, where your family has a place. That wasn't global warming, that was just a really bad hurricane. Or the famous storm in '26 that destroyed Miami and popped the real estate bubble. Or the Keys Hurricane in '35 that totally wiped out the Keys. Or here in Ocean City, Maryland, the big storm in '46 or '48 that cut the inlet where Ocean City's inlet is now, between Assateague Island and Ocean City, that was just – that's not global warming, that's just a bad hurricane.
But now we have a flood, and no one dies really, but it's global warming. It's very interesting the way that anything can be politicized. And I wanna go back to the Google engineer's memo that we had on the podcast a couple weeks ago, urge you guys to read. Anybody remember his name, they can Google it?
Buck Sexton: James Damore.
Porter Stansberry:James Damore, he was very clever in his memo. He talked about the progressive stormtroopers, is the word that's coming to my mind. The bullies at Google who want to create opportunities for certain employees based on their race instead of their ability, or based on their sex instead of their ability.
And he's saying you can do that if you want, but it's gonna have negative consequences, because of these other issues – these economic issues – and his memo was right on point. And actually, in my mind, far more in keeping with a free and open society than anything that the progressives believe, and they're claiming to try to be an open society, but they're the people who are still pushing racism and sexism.
Anyway, in his memo, he very cleverly linked the progressive campaigns today for affirmative action – what do you call affirmative action when it's sexism? Affirmative sexism? I don't know what to call that. And climate change, the global warming stormtroopers who want to take away our ability to generate electricity or control that to save the oceans.
And what he was pointing out was these ideas, they're all part of the same thread that began with communism and began with totalitarianism, and they're all reasons and excuses for taking control of our lives and dictating to us who should have what, how, when, and where.
And I thought that was, I had never seen anybody really connect as eloquently those threads of totalitarianism, and I just really want to encourage everyone to go and actually read that memo. The guy got fired because he was bold enough to say, "We should treat everyone at Google equally, and it's a business. We should promote people based on talent."
That's the most obvious thing an employee could say, and he was fired for it. And this is the company that's basically in charge of what you see on the Internet. They watch everything, they can control what ads are served, they can control who has access to search results, and they do. They've been caught multiple times manipulating all those things. It's very scary in my mind.
And Buck, you mentioned before the show, you wanted to talk about this, it's a good lead into it. I think that leads us to what happens when an entire society is managed the way that Google is being managed, and it's called Venezuela.
Buck Sexton: This was the wealthiest country as of 2001 in South America. It is now the poorest country. Last year they had 800% inflation. The economy contracted, I believe, by a fifth. The bread lines have been getting longer and longer. In fact, the middle class in Venezuela is currently dealing with the effects of malnutrition and slow starvation. The middle class. People that are used to having a pretty high standard of living. The poor have been suffering horribly in Venezuela.
You can add on top of that, by the way, that the government is just becoming more and more repressive. This all started – call it a Bolivarian revolution, and all this flowery rhetoric around it. It all started because a group of thugs, really, promised people that they would make all their problems go away, and that they would make the society more equal.
They blamed other people for the misery of the lower classes, the working classes in Venezuela, and they took control of the economy, and they started to do things that if you don't understand economics broader, of course, makes sense. People can't afford bread? Let's just make the price of bread less. People can't afford milk? Let's just make – price controls were at the heart of the spiral into despair in Venezuela.
And the media in this country is not touching it for two reasons. One, you get people like Bernie Sanders, Elizabeth Warren. They're getting a lot of traction in the democratic party right now by talking about socialism and equality is the ultimate good in society, and two, this is where it's really bad – Venezuela, which is the country that has the largest proven oil reserves in the world – larger than Saudi Arabia – is entering the seventh circle of hell, and people were praising it in the New York Times, Washington Post, so called experts in the media as recently as 2012, saying, "See, they're doing things right over there. They know what they're doing." They're all about equality, Porter.
Porter Stansberry:It's easy to believe in socialism when oil is $150 a barrel, and you have a relatively small population. You can underwrite a lot of bad ideas. Of course, when oil goes below $100, you can't afford any of that stuff anymore, and you've got bigger problems. When oil goes below $50, you've really got a bad issue. Especially in Venezuela, because Buck, it's true that they do have the largest proven reserves, but they're very inefficient reserves. They're very high sulfur crude and it's very expensive to produce.
It's a very marginal oil economy, which means they're gonna make a lot of money when oil's high, but they're not gonna make any money when oil's low. And they've basically been going bankrupt since 2014.
And Margaret Thatcher said it all, "The problem with socialism is you eventually run out of your neighbor's money." If you go to South Florida, you'd be amazed how many people have emigrated out of Venezuela out of the last decade to South Florida. There are entire neighborhoods that they call – they call Westin, this neighborhood in Far West Fort Lauderdale, they have a name for it – I can't remember now what it is –
Buck Sexton: Little Caracas or Little Venezuela?
Porter Stansberry:Westin Veil or something like that. It's very funny. It's been good for the condo market in Florida, but it has been terrible for the Venezuelan people. I got another touch point that's gonna get people really fired up. This is a racial touch point.
Last night, we got home from being on vacation, so I was watching 60 Minutes last night, on Monday night while we were having dinner. And my son, Traveler, is 10-years-old, sitting next to me, and one of the episodes this week on 60 Minutes was of course a rerun. It had been broadcast earlier. You might have seen it earlier, or you might have seen it on Sunday night.
It was the new guy who's the head of the Cook County Jail, which is one of the largest if not the largest municipal jails in America, serving Chicago. And as you know, there's terrible, violent crime in Chicago, and there's a lot of people in jail.
The part of the story was about the role that poverty plays in the bail process, and about how many really nonviolent criminals get stuck in the Cook County Jail for even longer than their sentence would have been, because it takes a year or two for them to come to trial, and they can't afford bail.
These are people whose bail was $500. And so, there's this big issue of how you can manage this enormous population of criminals. And the other issue was the guy in charge of the prison, or the jail, says that probably half of these folks are actually mentally ill. And they just cycle in and out of the jail. One guy had been arrested 36 times.
Because he gets out, he has mental illness, he has nowhere to live, he has no family, he has no job. He's not committing a violent crime. He's stealing food to survive, and he gets sent back to jail.
And he was making the point that that's an awfully expensive way to handle that problem, and other things. So we were watching this very complex issue, and it's an important political issue. It's who's gonna get what, where, and how, but it's about freedom and it's about punishment, and it's about who we deem in society to genuinely be criminal, and who may be just actually needs our help. Who's just ill.
Those of course, are very touchy topics, very hard to understand. The Chicago approach, it was interesting what they were doing. They installed a warden who is a psychologist, and trying to get these people more help to be successful out of jail. It was an interesting show.
About 90% of the way through, Traveler, my son, was just watching it intently, and he's only 10 years old, so he doesn't get all of the concepts involved, but he was getting the gist of it. And I must say, 60 Minutes did a good job of painting an even story. It wasn't, "We should let 'em all out of jail." It was just, "This is a really dumb way to handle a bad problem that we have with poverty and mental illness."
And Traveler looked at me, and he said, "Dad, how come everyone in the jail is black?" 'Cause it had – there's tons of pictures of inmates, and virtually every person was black on the screen. And I thought it was a really interesting question to ask, and I really didn't know how to answer it. Because that is such a sensitive issue.
So, what do you say to your 10-year-old, who says, "Dad, how come all the people in the Cook County Jail are black?" And in terms of our country's centuries of racism and slavery, and all these things, my son has no concept of any of that. He was born in 2007. He goes to a private school that's integrated. And the families there that are paying $25,000 a year for fourth grade – trust me, it doesn't matter whether they're white or black. They're all very high caliber, very culturally affluent folks.
To him, he has no concept of an inner-city black person. He doesn't understand that at all, and I'm not trying to be a racist. I'm saying he doesn't get the concept that there are people whose lives and cultures have no bearing at all on ours, that have a whole different set of standards for morality and behavior. He doesn't understand it.
All he saw was, "Everyone in the jail's black. Why is that, Dad?" He's thinking, "Why do they arrest all the black people? Why didn't they arrest any of the white people?" It's a tough question to answer. I didn't really know what to say.
Buck Sexton: I can give you the actual statistic for Rikers Island, which is the main prison here in New York City, is over 90% black and Hispanic. That's the actual official statistic for New York City, and having worked for the NYPD, you become familiar with some of this.
On the left, they would say, the short hand answer to an incredibly complicated and very touchy discussion would be systemic racism, of course. On the right, you'll hear much more about the breakdown of the family, the growth of the welfare state, and cultural issues within inner city communities that contribute to all this.
Porter, I also, by the way, since we're talking about race and political correctness, are you aware – and you said your son's name is Traveler – are you aware of the controversy around that name right now?
Porter Stansberry:Oh, geez. Robert E. Lee's horse?
Buck Sexton: That's right.
Porter Stansberry:My son's name isn't spelled the same way.
Buck Sexton: That's good news.
Porter Stansberry:My son is named after travel, not after a horse.
Buck Sexton: No, I hear you, but they're trying to get the name, Traveller, is the USC mascot, and they want to get rid of the USC mascot being named Trav – it wasn't named for Robert E. Lee. It's just a name. But they want to get rid of the USC mascot's name because Robert E. Lee had a horse named Traveller. That's what we've gone to now.
We're gonna get to the point where just being named Robert is racist.
Porter Stansberry:That's like the poor ESPN guy, the Asian guy who's an announcer who got moved off of a game because his name happens to be Robert Lee.
Buck Sexton: Absolutely.
Porter Stansberry:He's a Chinese guy. Lee is a Chinese name. That stuff cracks –
Buck Sexton: They're worried about the crossover. Dixie is another one. Now, the term Dixie, and I wonder when Dixie Cups is gonna come under – the famous paper cups, because Dixie was a term used for the South because of the Mason-Dixon line. But it also is the name of the song that was performed by a group that was a minstrel group, and so there were racial slavery lyrics. There's all this stuff that goes into this song, but the term existed before the song, but now the term Dixie is being rethought of as a racist term.
It's evolving. By the way, Gone with the Wind got pulled from a theater this week.
Porter Stansberry:It's not that great of a movie, sorry. I'm a Solo cup man myself, so I can't really cry over Dixie. But I did want to ask you this question. I want to go back just for one question about Traveler asking about the Chicago jail issue. You recounted the two sides of the argument: the progressive side and the conservative side.
But I would like to know where Buck stands on this issue. Why do you think that Rikers Island is 90% black and Hispanic and that Cook County Jail probably is the same. I don't know the official statistics, but watching the 60 Minutes episode, virtually every face in every shot was brown.
Buck Sexton: I think that I – because I'm a conservative, I do, and I don't just say it because I am a conservative. I believe it. I think that the breakdown in family structure; when you have over 70% of African-Americans in this country born outside of wedlock, and a huge percentage of them not having a father of any kind, anywhere, I think that is an enormous challenge, and it plays out time and again within poor communities.
The way that people often try to analyze this now is they look at recent immigrants, and immigrants who have – and this is where you get into the discussion about Asian immigrants. Asian immigrants have intact family structure, and in fact – and this surprises a lot of people – Asian-Americans have a higher per household average income than white Americans do right now.
Porter Stansberry:Which ethnic group has the highest per capita household income in the United States? Bringing back all the conspiracy theories.
Buck Sexton: What do you mean? It's the Asian-Americans.
Porter Stansberry:No. It's the Jewish-Americans.
Buck Sexton: That's a –
Porter Stansberry:I know, because we did a whole bunch of research. We wanted to publish an investment piece about the secrets of Jewish families and how they do a great job of retaining wealth through generations, and we couldn't – the Jewish, the league –
Buck Sexton: Anti-Defamation League?
Porter Stansberry:Yeah, they got furious with us, and threatened to sue us, and it wasn't worth the trouble. We were complimenting their culture, and they got very upset with us, because they say it's a stereotype that Jewish people are wealthy –
Buck Sexton: Asian-Americans –
Porter Stansberry:But it's a fact, but it's also a fact.
Buck Sexton: Asian-Americans are Democrats, but they don't like being dragged by conservatives as a group as a means of smashing like affirmative action as a concept – 'cause that's what's happening right now. Look, the politics around all this stuff are pretty – you mentioned this in passing: the ESPN guy? This is incredible to me. Do we have time to hit this before our guest just real quick –
Porter Stansberry:No, Chris is waiting. He's on the line. We should move along. But I want to reply to the – I have a different take on the Chicago prison and the New York prison piece. You're saying it's primarily a breakdown of family; it's a cultural issue. And I really disagree. I think it's completely an economic issue.
You cannot tell someone who has nothing, and who has no real prospects of achieving any kind of financial stability, not to go steal and rob. It's going to land on deaf ears. And if you want to see violent crime statistics that are the same in Chicago, or the same as Baltimore, or the same as New York, you can go to places in the world where there are similar amounts of despair.
So you can go to places like Nairobi, you can go to places like Rio, or Sao Paolo. You can go to Acapulco. There are places where poverty is multi-generational, and it's endemic, and it's in close proximity to wealth, and you have all of the same issues with violence and crime. It's an economic issue.
And I think that when we start really dealing with that, which by the way, the people on the left don't want to handle it that way, and the people on the right don't want to handle it that way. It's just an economic issue. So if you would think about it that way, you would have some radically different solutions.
Like, for example, can you imagine if society decided it's worth it to give a guy a $10,000 check if he can graduate from high school and not be arrested? It's worth it to give a 25-year-old another $50,000 if he can prove that he held a job for the seven years after high school.
Writing a check may not be the exact solution, but the equivalent of that, helping him buy a house, helping him get integrated into society, could become very important. If their families can't do it, because they don't have any money, then expecting them to because they should obey our cultural norms is probably nonsensical.
If you start talking to them about those issues, you sound like the parents in the Charlie Brown cartoons. Womp-womp-womp. They don't understand what you're saying. It's like trying to tell my bird dog not to eat our chickens. He's not gonna get it.
I think we really, if we want to make progress in our society, and have a more peaceful society, we have to recognize that there are how many millions of Americans who have never had anything beyond $100 to their name, ever, for three and four generations.
These people are permanently poor, and as a result, they are going to participate in crime if that's the norm where they are from.
Buck Sexton: All right, Porter, you want to get to Chris?
Porter Stansberry:Let's get to Chris, and let's help people who are not poor make some more money.
Buck Sexton: All right, everyone, our guest this week on Stansberry Investor Hour is Chris Mayer. He travels the world looking for great ideas and insights for his readers. After 11 years with Agora Financial, Chris joined Bonner & Partners to develop a first-of-its-kind investment advisory, the Bonner Private Portfolio. This is the only trading service ever to be actively followed by Bill Bonner.
In fact, Bill's family trust has committed to invest $5 million in Chris' model portfolio. And his latest project, Chris Mayer's Focus, provides in-depth, hedge fund quality analysis on a select group of small cap stocks with the potential to become the next Starbucks, Wal-Mart, or Berkshire Hathaway.
He also shares his investing wisdom through books. His first is Invest Like a Dealmaker: Secrets From a Former Banking Insider. And his newest book is 100 Baggers: Stocks That Return 100 to 1 and How to Find Them. Chris Mayer –
Porter Stansberry:Hey Chris, it's Porter here. Thanks very much for joining us today. First of all, I want to get an update on your portfolio. I know that about 18 months ago, you started a big new trend in the investment newsletter space by managing a real money portfolio for the founder of Agora and my business partner, Bill Bonner. And you published what you're gonna be putting into that portfolio before you do.
So you allow folks to have the exact same investments that Bill has; how has that gone? What have your best performing ideas been?
Chris Mayer: That's gone very well. We started with about $5 million in cash, and we slowly put that money to work over the ensuing 18 months, as they say. We have about 75% invested; we have 25% cash. We're pretty much there.
And Bill's account has done pretty well. I just gave him an update for the last 12 months almost since inception; the time way to return is about 18%. I think if you just look at the numbers, they're up about 14% overall, which is pretty good, considering the cash, and considering the kind of ideas we're putting in there.
We're putting a lot of I would call them "conservative cash rich ideas." We have that companies that have super strong balance sheets, and we also run a concentrated portfolio, so we have only about 13 positions now, and we have 25% cash, the top three are about 25% of it.
But again, these are names that are pretty safe. For example, I'm not giving anything away when I say one of those names is Berkshire Hathaway, which might be the safest stock. If there is a safer stock out there, I don't know about it.
Our best performing idea is Rolls-Royce, which we bought just in January; that's up about 50% since.
Porter Stansberry:Very interesting. The time that you spent talking about allocation fascinates me. I want to get back to that in a second. I think that the number one thing that most individual investors get wrong is allocation, and they really don't understand the importance of it.
But before I get to that allocation issue, I wanted to ask you a broader question, which is: As an investor, are you investing in businesses, or are you investing in bigger, macro trends? For example, just 'cause you mentioned it, did you buy Rolls-Royce because you see the explosion of the middle class in China, and you believe that China is gonna order a heck of a lot more airplanes, and those airplanes are all gonna be built with Rolls-Royce engines?
Chris Mayer: Correct. That's a great question; I would say overwhelmingly my focus is on businesses first, and figuring out what they're worth. The reason I like Rolls-Royce is at that time they sold off a bunch on a lousy quarter. They reported a big loss, mostly because of some accounting changes about the way they're gonna treat their jet engine contracts; and in fact, they're moving to a more conservative way to do it.
And the market sold off, and we were able to get it cheap, and it's coming way back. They have a backlog that will keep them very busy for probably the next 20 years. You probably know Boeing and Airbus have huge order books, and they need engines, and there are only two places in the world to get those jet engines. One is General Electric and the other is Rolls-Royce. That's a good business, and they also lease contracts for engines, come with service agreements, so they're nice long-tailed cash-generating kind of business.
And of course, Rolls-Royce, so it's a great blue chip sort of name. Overwhelmingly we focus on business; not trying to figure out a macro trend. If we have a macro trend, then obviously that helps us, but it's not the primary determinant.
Porter Stansberry:I wanted to ask – you mentioned you have a very big position in Berkshire, and you said that your top three positions make up 25% of what's in your portfolio, which I find really surprising, and like I said, I want to talk about allocation in a second. But I want to deal with Berkshire first.
I've been working on a book; it's taken too long to write. We had some reversals in my core business I had to take care of first. But I'm back on my book research now, actually, and I anticipate being finished with it by the end of the year.
My book is called Warren's Mistakes. And I know you're here on your podcast to plug your products, not for me to plug a book that's not even finished, but we both – I know – have a passion for understanding Warren Buffett's investment style and theory. And I wanted to talk about that for a second.
What I've noticed is that Buffett's performance as an investor has been significantly downgraded since 2000. And I can show you in all kinds of different ways. But the biggest difference that I see is that Buffett went from buying companies like See's Candy, that were branded, that were very high margin, that produced lots of free cash flow, to purchasing businesses that had much worse margins, that have very little free cash flow production.
So in some cases, that's regulated industries, like MidAmerican Energy, and the railroad company. And in others, it's just sort of unexplainable decisions he made, like buying Tesco, the British grocer. I just wondered, have you noticed that same trend, and if so, why would you be invested in Berkshire now?
Chris Mayer: Yeah, I think I've noticed that trend, and part of it, when you first started talking about it, first thing that came to my mind was positions that he just has never sold, that he probably in retrospect, might have been good sales. He's owned Coca-Cola, even when in 2000, it was trading at 50-something times earnings.
A lot of these big blue chips he hasn't sold, whereas perhaps in the past, he was more opportunistic about it, and he might have sold. Part of it he hasn't sold, Berkshire would have a tax liability, and the amount of dividends they get off it is significant.
I think a big trend with Berkshire that most people don't appreciate is how it's shifted away from being primarily an investment holding company. Be more an operating company, more and more of the earnings now come from their operating companies, companies they own in their entirety.
So, that's one trend, and I also think that the degradation in the quality of ideas that they've gotten into also has something to do with the fact that they have, I guess in a way, a high class problem in that they have so much cash, and so much cash coming in that they could afford to take a lower yielding idea that contributes incrementally to what they're doing.
What I like about Berkshire is just simply, our sum of the parts, we own B-shares, which trade for I don't know, $150, $165, $160, somewhere around there. Our estimate in ________ businesses is over $200 a share. And given that strength of that balance sheet, it's nice to have a stock where you don't have to worry about them going out of business any time soon. I think it's worth owning here.
Porter Stansberry:I can't argue with your investment logic. I wouldn't say that the degradation in Buffett's investing results, in terms of common equity, has necessarily been that impactful for the company as a whole. I recognize the shift to the private wholesale ownership of businesses. And I understand why Buffett would do that as public equity became more fully valued to overvalued, it makes sense to do private equity.
I just wanted to ask you one more question about it; I'm not trying to argue with you. I see a lot of value in Berkshire as a business. I'm just very interested in Buffett's investing choices. Perhaps overly so, but some of the worst investments that Buffett ever made were those preferred stock investments that he did in the late '90s when stocks first got very expensive. There was Champion, the paper company, there was U.S. Air, the airline, and I can't remember the other one; there's a third one that I'm forgetting. Maybe you can remember it off the top of your head.
But those all ended up being okay, but just barely. He almost got killed at U.S. Airways, and he didn't do very well in Champion. Oh, the other one was Gillette, and the Gillette one ended up fine. He converted the stock and that was fine. The other two did relatively poorly.
And he admits in letters that he's written that he would have been far better off just buying better businesses, with the exception of Gillette, and not thinking he was safe because he had the preferred returns.
When 2008 rolled around, he wrote a column in the New York Times, where he said he was dancing to work again, and he felt like a young man at a cathouse, because there were so many opportunities. This was in October of 2008, and everyone else was scared of stocks, and selling stocks, and Buffett was saying, "No, now's the time where I get to do my thing. I'm a great capital allocator. This is the worst bear market we've had in 40 years, and this is great news, and you should be excited about it."
But then, as you recall, he didn't really make any big keynote investments. Yes, he put a lot of money into Goldman, yes he put a lot of money into Bank of America, but he did so through all of these convertible structures, which – it's not that they haven't been good, it's that he never went out and bought the classic kind of Buffett businesses that he could have.
He could have bought McDonald's, all of it. He could've bought Tiffany, all of it. Instead of lending Harley-Davidson $300 million, he could have bought the whole thing for $600 million. And I just wonder, do you have any idea why he missed that enormous opportunity? He could have picked up dozens of legendary, high-class, brand-name, typical Buffett businesses, and yet he didn't buy any of them.
Chris Mayer: That's right. What comes to mind first is, yeah, I agree – when I think more big picture about the mistakes he's made, the first one I always think of is Dexter Shoe because he paid for that using Berkshire stock, and when you figure out the cost is, it's many billions of dollars for businesses that really don't exist anymore.
Other mistakes I think he's made have been mistakes of omission, which is what you're getting to. Or there are some other ones that people don't talk about much. He owned Disney for a while and sold it. This was way, way early when the Disney story is being held back, and it would've been worth a lot more money.
His biggest mistakes, I think, have been mistakes of omission, things he didn't buy. I think that's probably true of almost every investor. In 2008, the only thing I might say is thinking back to investing during that period of time, it was really, really frightening. And you weren't really sure what businesses would survive.
American Express could have gone under if they didn't get help rolling over their commercial paper. It was a very difficult time, and I think probably Buffett made deals where he thought at the time his downside was practically zero. And he missed – like you say he would've been better off buying the McDonald's of the world and some of the great businesses, which he did not do.
Porter Stansberry:That's an important lesson for every investor to remember, and Chris, I know that that's the way you invest, and it's one of the reasons why I have been such a big fan of your work, and I've endorsed your newsletters so heartily, even though frankly, they compete with mine.
But I do think you're a great investor, and I think you invest in businesses first, which is I think completely the right way to do it. Outside of – and I want to get to the asset allocation thing – but one more question before we do – outside of 2008, and maybe this isn't true for you... Tell me if this is wrong, but you were saying how scary it was to invest then 'cause of the macro forces at play.
And one of the things that I found working with individual investors over 20 years now, is that investors can always find a reason not to invest, and if you go back over the decades, there's always been a reason not to invest, always. And usually, the fears that people were facing in the '50s, '60s, and '70s, or even worse than the fears that we have today.
But people are afraid of the government's debt, people are afraid of the dollar, people are afraid of North Korea this week. But is there ever a time where you pull back out of good businesses just because of macro factors or risks?
Chris Mayer: I can't think of a time that I've done that. Most of the time, when I've pulled back out of good businesses, it's mostly purely valuation or a portfolio reason would be a good reason to do it, if you just find something better, much more compelling. You have to be very careful about those switches, 'cause you can talk yourself into doing just about anything, and most of the time, you're better off sitting on your hands.
But I mean – you're absolutely right about it, – being there always is a reason not to invest. In fact, I've written to my readers several times that the most difficult time to invest is now, which I think I got from an ad somewhere that I saw, the classic ad for somebody.
But it is true, because there's always something. today, you can scare yourself out of it, because of the things going on in North Korea, because of just the valuations on the market generally. There's always, always reasons. I've also done this whole study on 100 baggers, these stocks that returned 100 to 1.
I looked at all the 100 stocks that returned 100 to 1 from 1962 through 2014, through 2015. And one of the things that pops up from doing that study is that just about every year, there's always dozens of these stocks lying around that you could have bought. And really, the macro picture didn't matter as much on a longer term, but of course, we're all human beings, and it's difficult to buy something and then see it get cut in half right away, which is what can happen if you're buying turmoil, 2008.
A lot of it's psychological, really.
Porter Stansberry:I agree. I think that's the single biggest hurdle for investors, no matter how sophisticated, or no matter how new to investing. How many times has Buffett seen his entire net worth been cut in half?
Chris Mayer: Five times.
Porter Stansberry:I know of at least three. There's probably more. You say five. I'm sure you're right. And twice happened in one ten-year span. It happened in '99, 2000 –
Chris Mayer: That's my favorite, the '99 one, because from '99, and I don't know the exact date, '99 to 2001 or 2002, whenever Berkshire was cut in half – or maybe it was from '99 to 2000. One of those points was the Nasdaq was up 260%, so as an investor, think how hard it would have been to hold onto Berkshire – something you lost half; you're losing your money on. Meanwhile, the Nasdaq is just ripping it.
Porter Stansberry:It was just because investors were rotating out of value stocks and buying crazy tech stocks, and the people who made that choice ended up getting killed. If you stuck with Berkshire, you did fine. But he lost his net worth in '99, 2000. He lost his net worth in '07, '08. Or '08, '09 time frame.
But my point is, think about how many of your readers you know, and how many of them could actually survive a 50% decline in their portfolio?
Chris Mayer: Very, very few.
Porter Stansberry:I don't know anyone who can survive that psychologically. In my book, if you want to become a great investor, you have to do three things. First and foremost, you have to understand what makes for a good business. If you don't know that, you really don't have a chance.
Second of all, of course, you have to be able to value the security, because the security you're buying is not the same necessarily as the business, so you have to really understand the capital structure, and you have to know what's a fair price to pay for the security you're buying.
And then the third thing is the hardest: You have to understand that temporary setbacks are inevitable, and it doesn't mean you're failing. Can you imagine, you put $1 million into your portfolio at, say, 50-years-old, and your plan is to invest for 25 years until you're 75. That's gonna be your retirement.
At year 54, four years later, at 54-years-old, your portfolio falls in half, so you sell. Now, you've probably got less than $700,000, and you're nowhere closer to your retirement. You have to accept that there are going to be tremendous swings in the paper value of your portfolio.
Chris Mayer: And there's gonna be a long period of time when you don't do anything. Berkshire – you probably know this, you're writing a book on him, but there was also a time for seven years where it did nothing. Seven years of owning a stock that does nothing, doesn't pay you a dividend.
Porter Stansberry:But think about it Chris, if you've got a portfolio that's down 50%, that means parts of your portfolio are down 90%.
Chris Mayer: That's right.
Porter Stansberry:And it's so hard to get people to understand that is why you earn the returns you earn in common equity. You have to be prepared for volatility. And I'm gonna say one more thing about this, and then we really gotta move on. You've been so generous with your time.
But one of the things that I find so interesting is that people are normally extremely complacent about those kinds of discrepancies and volatility in their own businesses. For example, as a publisher, if my company went on a 12-month stretch where it didn't make any money at all, zero profits, I wouldn't be the least bit worried, because I know the people in our company, I know our products, I know our ability, I understand how to drive my business forward. It wouldn't bother me at all.
Of course, it's gonna happen to every business; you're gonna have setbacks. But when that happens to a portfolio, people freak out. And they're making a big mistake.
Chris Mayer: This gets to your allocation thing.
Porter Stansberry:I want to get to that now.
Chris Mayer: I was just gonna say that for the allocation, you should only put the money away in stocks that you can afford to leave alone for a while, and then you can stomach that sort of volatility. Get your financial house in order first. Pay down your mortgage, pay off your mortgage, do whatever it takes to get you to that comfort level where you can say, "Okay, I can leave this money aside for years and not be so worried if it happens to fall."
Porter Stansberry:Let's talk about the allocation in your portfolio. You were saying that you guys are where you want to be in terms of allocation, and that you had a bunch of your portfolios, 25% in only three positions, and that you said, I believe 25% in cash still. Two questions. Why would you focus so much of your portfolio into three stocks and why would you leave so much in cash?
Chris Mayer: Some of it is they've appreciated to that point, so it's not necessarily that I started them that way, but I'm okay letting them continue to go. And I'm okay with that for a couple of reasons. One is that I wouldn't necessarily recommend everyone just goes and gets a concentrated portfolio, because a lot of our readers out there, and you know this, Porter, they're gonna wind up owning junior minors, and thinking that's something that they should load up on, and that it's somehow safe.
But mature businesses with a really fortress balance sheet, lots of cash, and aligned owners, especially when they're a little bit diversified – we have Berkshire as an example. Another one of those big positions is Fairfax, which owns a lot of different businesses, and has some $10 billion in drive power.
So these are really, when you own one of those, you're really owning two or three different businesses or more. That gives me some comfort. I wouldn't do it with just any stock. Just to be very careful about which stocks we allow to get bigger, and which ones we're gonna toss, and which ones we're gonna peel back.
And then the cash buffer provides two things: one, it does help dampen that volatility, but it also gives us flexibility to buy more of certain other names when they fall. And almost every position in the portfolio we've bought more than once. Some of them we bought three times. I don't expect to hit the bottom price right off the bat. I'll buy it and give myself a chance to buy a little more, and maybe a little more.
And that's basically how we think about it.
Porter Stansberry:Chris, listen, I hope the listeners will appreciate the wisdom that you shared with us today. Really, all you need to know in investing, pretty much we've talked about today. I appreciate your time. I have one parting thought for you, and I'll imagine you'll ignore my advice. That's okay. I'm used to it.
I just want to encourage you to create another product. One of the products that I started a couple years ago – my Credit Opportunities product – has been a lot of fun to do, and has been a big challenge for me as an analyst in understanding businesses and capital structures.
I'd love to see you take a shot at those distressed at investing. I know it'd be good for your portfolio, good for the Bonner portfolio, and I know your readers would enjoy it so hire a couple credit analysts and get in the ring. It's a lot of fun.
Chris Mayer: That's good advice, and when we're looking at Bonner's portfolio there's a component that I want to have for credit, and that's in the works, but I don't know if we'll create a product around it or not, but your advice, I hear you. Thanks for having me on your show. It's a lot of fun.
Porter Stansberry:Very good. Listen, have a great week, enjoy the rest of your summer, and we'll speak to you again soon.
Chris Mayer: You, too. Thanks again.
Porter Stansberry:All right, bye.
Buck Sexton: I was taking a lot of notes there.
Porter Stansberry:Chris is a smart guy, a very, very sound investor. We'd encourage everybody to check out his newsletters and to subscribe to them and read them carefully. He's a world-class investor, and it's amazing that you can get his advice for around about $100 a year. It's great opportunity for our listeners.
Buck Sexton: I need to grow my baby portfolio into a big boy portfolio one day. I'm trying to get all the advice I can here. If you want to hear more ideas from investment experts like Chris Mayer and our insightful guest from last week, Marty Fridson, I can tell you where you can go.
These two highly regarded professionals are speaking at the annual Stansberry Conference in Las Vegas next month. The conference itself is sold out. There are no more seats available. But podcast listeners like you can still join us and be there for every new idea by just tuning in over your computer phone or tablet on September 27 and 28.
It's easy. You'll see all the presentations from over 30 speakers, and you can rewatch all the videos, too, for up to 90 days after the conference. You're not gonna miss a thing even if you can't watch it live. You check it all out by going to StansberryVegasVideo.com. That's www.stansberryvegasvideo.com. This is where you can hear the newest ideas from Porter, Steve, Doc, Chris Mayer, Marty Fridson, and special guest investment experts like Kevin O'Leary, one of the star investors from ABC's hit show, Shark Tank.
You'll also hear P.J. O'Rourke, well-known political observer, editor of American Consequences and your sometimes guest host here on the Stansberry Investor Hour. And you'll witness inspiring presentations from experts like Kenneth Cukier, senior technology editor at the economist, Danielle DiMartino Booth, author of Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America. And cryptocurrency block chain expert and co-founder of Blockchain Capital, Brock Pierce.
Just go to www.stansberryvegasvideo.com for the full speaker lineup and all the details on how to get the live stream. That's StansberryVegasVideo.com.
Porter Stansberry:Buck, it's time for the mailbag. But before we get to what are hopefully some entertaining comments, I wanted to ask you about your investing. I have an idea. One of the things I wish I had done when I was in my 20s, before I turned 30, was to just buy one stock a year, now whether that's $1,000 or $5,000, or more, I don't have any idea what's in your budget, but it's a lot of fun, if you'll think about just buying one company a year.
If you do that for a decade. You do that – how old are you? 32?
Buck Sexton: I'm 35, Porter. I'm an old man.
Porter Stansberry:Geez, it's too late for you. Nevermind. Maybe there's some younger employees here at Stansberry Research, or maybe there's some younger listeners, or even if you did it from 35 to 45, it'd still be a very interesting experiment. Because the stocks that you buy between 35 and 45, by the time you're 65 or 75, will have become really powerful economic factors in your life, even if they're just paying dividends.
I think what we should do is we should have a show once a year, maybe we can do it in January at the start of the year, and people are making these things, and we'll talk about – I'll pitch you on a dozen different stocks, you can decide which one you want to buy – again, I don't have to know how much you're putting into it, but buy it, put it into a portfolio, and then as we go forward, we'll check up with your portfolio, see how you're doing.
Again, I don't want to invade your privacy. It's not about how much money you put into it. Maybe you just buy one share. But just do it so we'll have this model of this investment strategy. I think that if you could teach people to – you're a grandparent, and you're gonna give your grandkids a present, don't give them a present, give them a share of stock, or give them ten shares of stock each year.
You did that from the time from turning one until turning 18, you're gonna have 18 different stocks in your portfolio, by the time you're 50 years old, that's gonna be worth a lot of mine. So I want to teach people this idea that you can diversify through time.
You don't have to buy a diversified portfolio today. If you buy 10 stocks or 20 stocks over 20 years, you're gonna end up with a very diversified portfolio, and you're gonna learn a lot about business, you're gonna learn about what makes for a good investment, and of course, you're gonna learn from some mistakes, 'cause you're gonna see some things in your portfolio, gonna look back, and go, "Oh, that was a disaster. I don't want to do that again."
I think it'd make you a better investor. It'll help prepare you from that point in your life when you turn about 50 where you've really gotta start putting a lot of money away for your retirement. What do you think, Buck?
Buck Sexton: That sounds like a great idea. I think one of the biggest gaps among my peer group, and stretching down into the younger millennials, like Molly, my girlfriend, she's in her late 20s. There's no education whatsoever that we get going to all these expensive schools and all this stuff, that has anything to do with investing and wealth creation. Zero.
Porter Stansberry:Well, let's do it. We can definitely do it. We can even – maybe we do it like – I don't know how it'll evolve, but the first year or two, there's not much to talk about, but maybe by year four or five, we can talk about quarterly updates. How's Buck's generational portfolio doing, and it would be a great educational thing, and we can put all those lessons into different formats.
You can have a slide deck, and you can have various presentations. It would be a great educational thing and really get people into the Stansberry Investor Hour.
Buck Sexton: Call it the "Millennial Wealth Project," by the way. None of us can afford houses, so we might as well do something with our money.
Porter Stansberry:My goal is to turn as many millennials as I can into millionaires, and Buck's my first test case. Let's get it done.
Buck Sexton: I love it. This is a great idea, by the way. I'm in, let's do it.
Porter Stansberry:Let's get to the mailbag so we can get out of here and get back to our summer vacations.
Buck Sexton: Sounds like a plan. First up, from Tyler. "Hello Porter and Buck, I believe that I've listened to every podcast that Porter has ever done."
Porter Stansberry:You poor bastard. Sorry, Tyler.
Buck Sexton: "I love them and am very happy that you started it up again, but I have a question request for Buck." Uh oh. "My foreign policy opinion lies more with Porter than with Buck. "
Buck Sexton: No surprise here. "Buck, I would love it for you to explain when it would be advisable to blow up a truck full of terrorists in a foreign country with whom we are not at war? In other words, when is intervention merited? I'm sure your background plays a big role in your thinking. Please explain so I can understand your opinion more. Best regards, and keep up the great work – Tyler."
Porter Stansberry:That's a very nice question.
Buck Sexton: Should I take a shot at this one?
Porter Stansberry:By the way, I think that's a very cool, interesting, respectful question. I like it when people can disagree, but not be disagreeable.
Buck Sexton: Absolutely. No, I'm actually looking forward to get a chance to take a swing at this one. It's a totally fair question. I think that the prime example that comes to mind of when you'd want to fire off a missile, wherever the missile's coming from, when you want to take what we call a "kinetic action" in the business against a target in a country with which we're not at war, overwhelmingly has to do with terrorists, jihadists, people that are plotting to hit civilian targets, either in some of the countries where the U.S. has interests and presence or allies, or here in the homeland or in Europe, for example.
If you've got a bunch of guys that you believe are part of an active plot to take down airliners, for example, and you know that this is in motion – it's happening, they've even created a basic plan for how they're gonna go about this – and they're in the midst of going forward with this, and you have a chance to take them out, you might be saving hundreds, maybe even thousands of lives in the process.
And so, this is how you get strikes in countries that you're not at war with. Now, people ask questions like, "What about civilian casualties you cause? Don't those create more terrorists or more people that hate us? What about hitting the wrong truck, and now you're just killing innocent people, where's the morality of that?"
All very valid questions, and it depends on the specific circumstance of each strike, but I can tell you that there have been times where blowing up a truck full of people in a country where we are not at war has saved American lives. Bottom line. It's a tough thing, but it's a real thing.
Porter Stansberry:I always tell people, don't let the facts get in the way of my theories. When you talk about real facts in a real situation, I think that anyone's mind could be changed. It depends on what the facts are, how certain we are of them, what the collateral damage risks are, there's tons of variables.
Buck Sexton: I think this is always an interesting thought experiment, even when you just make it about torture or enhanced interrogation. Most people I know, it's like, "Absolutely not. We should never do that." I say, "Okay." You've got a guy, and sometimes you actually know that the person knows something.
Porter, if I grab you and we started waterboarding you because I wanted your ATM pin code, I know that you know your ATM pin code. There's no way you don't know your ATM pin code.
Porter Stansberry:I don't know, I forgot. I can't remember.
Buck Sexton: That's what Amnesty International would say. The point here being that when you make this about a specific set of circumstances instead of a general concept, then I think it becomes clear that there is a lack of clarity sometimes.
Tyler, you could always send us feedback at [email protected], but also, I'm at Facebook.com/BuckSexton, and you can send me a direct message there, and I can get into the foreign policy nuances a bit more.
Let's go to question number two from Jessie. "Buck and Porter, with the inevitable crisis in paper currency looming, in general, what is our thought on switching to cash or hard assets, versus holding onto shares in good dividend paying stocks, or is it too big a risk holding cash that could be inflated away? Is there a balance?" – and could I add to this, Porter? I want to add to Jessie's question. "Where do gold and silver fall into this equation?"
Porter Stansberry:I think that you have to have gold and silver in your portfolio, not because you want to maximize your return, but just for insurance. An allocation of between 5% and 10% for most people is sensible and conservative. By the way, I'm not a silver guy. I know a lot of people really love silver; I think silver is a speculation.
Certainly, sometimes you'll see it in my portfolio. It's there to make a profit, it's not there for security. For me, gold is the standard, and I think you should have gold as a form of ballast for your portfolio for security.
A lot of people say bitcoin is another alternative, and I'm not disagreeing with it; I think the programming and the software is elegant and beautiful, and it's a really neat concept, and I expect it'll continue to grow and be successful, but it's not gold.
For me, gold is what you need to own, for the absolute worst possible outcomes in life. And even if you're, let's say you're in Houston today, and there's been a catastrophe, and none of the ATMs are working, 'cause none of the power is working. How are you gonna get to your bitcoin? I don't think that takes the place of the role of gold.
I also don't think that paper gold is what you're after. This is something that a lot of people disagree with me about, it's okay. For me, gold is a physical thing that I can keep close at hand, although not in my home, to be there for me in the event of a disaster.
Why do you want gold in your home? If you have gold in your home, especially if you're on a podcast telling millions of people about it, you're inviting someone to come into your home to look for your gold, which is not a good idea. Where do you keep your gold? My best idea is self-storage units. They're 24-hour security, they've got cameras, and no one gives a crap what's in your damn unit. It's an old boat and a bunch of clothes and furniture. No one's thinking there's a bullion safe bolted to the floor in it.
And there can be. There's self storage units all over the world, so you can hold your gold in a couple of places. For example, let's say Buck, you travel regularly to Canada to go fishing. Great. You go to some self storage unit on the outside of Ontario, and you hold your gold there.
If you're in Canada and disaster strikes, you got it. Let's say you vacation every year in Florida. Fine, go to a self storage unit in Fort Lauderdale, there's thousands of them. Put your gold behind a bunch of dirty laundry. No one's gonna know. That's the beauty of it. It's completely private, and it's universally accepted.
When I say it never goes down in value, I'm not saying it doesn't go down in price. The price of course, will bounce around, but it never goes down in value. For over 2,000 years, the price of gold has been about the same amount of value, roughly the price of a high-quality men's suit, and it always has been, always will be.
Sure, it fluctuates with panics and with euphoria in the markets, but there's never a really terrible time to buy it, and it's always good to have. I'm a gold guy. I figure I always will be. But it's not how I build my wealth. I don't trade gold. It's just there for insurance.
Buck Sexton: Jessie asked specifically, Porter, about paper currency, by the way, and the risk of it being inflated away. I want you to also, if you don't mind, hit that, too. I piggybacked on Jessie's question.
Porter Stansberry:I don't think there's any risk to that at all. That's assured. There isn't a paper currency in history that's survived. There's also no paper currency in history that became too valuable. The track record of paper currencies is unblemished by success. They always are inflated to nothing. All of them, every time.
I don't think of that as a risk. Can you imagine, you tell me your plan for your generational wealth, Buck, is you're gonna bury $1 million in paper money in plastic wrap? In 50 years, it's not gonna be worth crap. It's not 'cause it gets ruined. It's just 'cause it's not gonna be worth anything. It's going to be inflated away.
The value of the dollar in terms of gold, for example, is inflated away over 90% in the last 50 years. Just during the Greenspan Fed, the personal power of the dollar declined by 50%. Inflation isn't an accident; it's the plan. So I can't call that a risk. That's certain.
But the reality is that if the economy grows faster than the inflation, which it usually does. There's usually real growth in GDP, then things like businesses and corporate bonds, and real estate, are all going to appreciate faster than gold.
A lot of subscribers make this mistake, that just because it's assured that the purchasing price of gold is going to remain steady while the dollar declines that that's a great way to invest. It's not. You're missing out on huge opportunities if all you own is gold. If you think that you're gonna get rich owning gold, you're sadly mistaken. It's not gonna happen.
Your purchasing power could be protected with gold, but it's not going to grow appreciably. The only way to grow your wealth in our economy today is by taking an interest in a business or by buying a piece of real estate, which can appreciate because of the overall growth of the economy.
Buck Sexton: We got one more in the mailbag here. This is from Pedro. "Hi Porter and Buck. Thank you both for the great podcast. I look forward to it every week." Pedro, you have great taste in podcasts. "In last week's episode, Porter asked the question, 'Who is it in the American power apparatus that benefits from a never-ending war?'
"The best answer I've come across comes from G. Edward Griffin in his book, The Creature From Jekyll Island. Who benefits? The banks who earn interest on loans out of thin air to finance war and who often support both sides of a conflict to sustain it in perpetuity?"
Mr. Griffin could be a great guest for a future episode, from our friend, Pedro.
Porter Stansberry:I've read the book. It's good. Pedro is not related to us, as far as I know; the comment, I think, is honest.
Buck Sexton: There we go. But he asks, "Qui bono? Who benefits from never-ending war?"
Porter Stansberry:That was my question. I asked you.
Buck Sexton: But for the podcast listeners, who benefits?
Porter Stansberry:I think he's right, the banks definitely benefit, but of course, the entire military apparatus benefits, and I think the politicians benefit. You notice that when Trump got really in the weeds with his idiotic comments about the trouble in Charlottesville? What's the first thing he did? He immediately went out and bombed somebody, right? That's what we do.
Buck Sexton: Announced the Afghanistan strategy soon thereafter. I should note that there's no way around this. When you're telling people even after 16 years of war that we're not gonna win this war, it's not gonna change, and anyone who tells you otherwise either doesn't know what they're talking about or just isn't being honest, you get yelled at like you're somehow rooting against America.
That's a discussion for another time, maybe we'll go back to that at some point.
Porter Stansberry:Think about it. Trump was really in trouble, so what's he do? "Hey, let's go invade a country, let's go re-invade a country, let's rally around the flag, now you can't criticize the president, 'cause we're at war."
This strategy is as old as time.
Buck Sexton: Clinton bombed a pharmaceutical factory in the Sudan the morning of the Monica Lewinsky grand jury. Just all of a sudden, we're firing cruise missiles at a pharma factory in Sudan.
Porter Stansberry:Why not? Yeah. And the economy's bad, let's invade Panama, going back to the first Bush. Going back to Ronald Reagan. "The economy's really bad, my tax cuts aren't working, let's invade Grenada." We can go on and on and on.
Buck Sexton: This is what gets scary for some of the people I know who are true China watchers, who really understand China. They say that it's just a question of having eventually too many young, unmarried males, 'cause they have a gender gap, and an imploding economy before military aggression becomes the state's only answer, and the state's only survival, and that's when things with China – now that could be in 20 years, but that's when things get really scary.
Porter Stansberry:A land war in Asia is very good for the problem of overpopulation, and lots of dictators and kings have used that strategy before. It wouldn't be that big of a surprise. It'd be more surprising if it didn't happen.
Buck Sexton: On that happy note, let's get into – just to let everyone know that if they have a question for us, they can write to [email protected]. That is [email protected]. Remember, if we use your question on the show, we'll send some Stansberry Research swag. Love us, or hate us, just don't ignore us. Isn't that right, Porter?
Porter Stansberry:Do not ignore us, and really, I appreciate the criticisms. They're gonna help us put out a better product, so if we're doing something wrong, or we could be doing something better, let us know.
Buck Sexton: And also, next week, we'll be back right after Labor Day Holiday to host Dennis Gartman. He's the editor and publisher of the famed Gartman Letter. You've seen him all over financial media discussing commodities and capital markets, so we're gonna bring him in for an exclusive interview on the Stansberry Investor Hour.
Porter Stansberry:Yeah, Dennis is a great trader, and I'm so eager to do this interview right after Chris Mayer, 'cause these two guys could not be more diametrically opposed in terms of their investment strategy and philosophy. Dennis only trades macro trends; he doesn't pay attention at all to individual businesses, and yet he's been very successful, too. There's more than one way to do it.
But it'd be great to hear the details of his strategy as compared to Chris'.
Buck Sexton: That's it for us on the Stansberry Investor Hour. Don't forget, everyone. With Vegas coming up, you just need to remember, StansberryVegasVideo.com. StansberryVegasVideo.com, you can join us virtually on the 27th and the 28th of September for that awesome conference in Vegas. And with that, Porter, I will let you get back to all things Porter.
Porter Stansberry:All right, Buck. Enjoy the rest of your summer, and we will see you soon.
Buck Sexton: You, too. After Labor Day. Take care, everybody.
Porter Stansberry:Bye, everybody.
Announcer:Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to InvestorHour.com, and enter your e-mail. Have a question for Porter and Buck? Send them an e-mail at [email protected]. If we use your question on air, we'll send you one of our studio mugs.
This broadcast is provided for entertainment purposes only, and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear.
Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.
[End of Audio]