As we start a new year, Dan is keeping up with his tradition of sharing his Top 10 Potential Surprises for 2021.
Could one of 2020’s hottest stocks take a big hit? Could we see a massive correction in the entire market soon? Could Bitcoin continue on its current pace or is a crash imminent?
Dan covers these topics and more, sharing some huge surprises that would stun the investing world.
And just like last year, Dan plans on coming back to these surprises later in the year to check and see if any of them come to fruition.
Plus, Dan brings new guest onto the show, Christopher Mack. Chris works for investment management firm, Harding Loevner, where he started in 2004. Today he works as an analyst in Information Technology, a portfolio manager, Global Small Companies (Co-Lead), and as a Global Equity & World Equity Partner.
Dan and Chris have a long in-depth discussion on opportunities they see happening in the markets in 2021. Chris also shares some helpful insights to be aware of that he’s learned in his experience working as a portfolio manager since 2004.
Chris even shares some of his favorite stocks, including two retail stocks that have niches outside of the Amazon ecosystem that could thrive in the coming years.
Listen to his discussion with Dan and more on this week’s episode.
Interested in more from Stansberry Research? Check out the American Consequences podcast here: https://podfollow.com/americanconsequences
1:21 – On Dan’s opening rant, Dan reveals his 10 Big Surprises for 2021… Could we see sharp corrections soon? Could one of 2020’s hottest stocks be in for a rude awakening? A new price projection for Bitcoin? Dan doesn’t hold back and shares some big surprises that could happen that would stun the investing world.
10:15 – Dan shares a quote from Jeremy Grantham this week… “The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble, featuring extreme over-valuations, explosive price increases, frenzied issuance, and hysterically speculative investor behavior. I believe this event will be recorded as one of the great bubbles of financial history…”
12:30 – On this week’s interview, Dan invites Christopher Mack onto the show. Chris works for investment management firm, Harding Loevner, where he started in 2004. Today he works as an analyst in Information Technology, a portfolio manager, Global Small Companies (Co-Lead), and as a Global Equity & World Equity Partner.
16:27 – Dan asks Chris about what he sees on the horizon. “So in January 2021, are you feeling overly optimistic or overly pessimistic… or somewhere in between?”
20:32 – Chris presents the name of two small retail stocks with a powerful niche outside of the Amazon ecosystem that he likes in the coming years.
25:07 – Chris reveals some of the best opportunities he sees in technology stocks in emerging markets around the globe.
29:44 – Chris explains the investment philosophy of his firm, Harding Loevner. “We want to invest in growth companies, that gives you the best opportunity to outperform, but importantly, they have to have quality… We’re much more focused on companies that have good financial strength…”
36:16 – Chris discusses how at Harding Loevner he and his fellow analysts use a collaborative effort to review and analyze their portfolios to optimize them over time.
40:15 – Dan changes topics and asks Chris something personal, “You sound like such a rational, reasonable, thoughtful guy who’s really trying to not go too far in any wrong direction, and I think my wife thinks I’m that way too and it drives her out of her mind… Are you married and if so, do you drive your wife nuts with this?”
47:42 – Chris and Dan discuss the importance of keeping your emotions in check while investing, not falling victim to the endowment effect, and other biases known to plague investors.
54:05 – As the interview draws to a close, Chris leaves the listeners with one final thought, “Develop a disciplined process of investing, that you can repeat, that you can stick to, that allows you to filter out the noise…”
57:52 – On the mailbag this week, we have a first. The listeners have finally sent Dan more emails than he could possibly read. But Dan tries his best. One listener asks if Dan is concerned about the fact that almost zero analysts in the media anywhere are predicting a fall in equities. Another asks about Dan’s opinion on ESG (Environmental, Social and Governance) also known as socially responsible investing. Plus a question about what ratio of gold/silver to hold. Listen to these and more on this week’s episode.
Intro: Broadcasting from the Investor Hour studios, and all around the world, you're listening to the Stansberry Investor Hour. Tune in, each Thursday, on iTunes, Google Play, and everywhere you find podcasts, for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive, at investorhour.com. Here's your host, Dan Ferris.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research.
Before we get into today's episode, don't forget, Trish Regan is now a part of the Stansberry family. Check out her podcast, American Consequences With Trish Regan. The link will be in the description of this episode.
In today's episode, we'll talk with Chris Mack, a portfolio manager and analyst with the firm Harding Loevner. He's a very thoughtful, very rational guy, and I can't wait to talk with him.
This week in the mailbag, you finally did it: you sent me more e-mails than I could read. The only thing I won't comment on is bitcoin, because we got way too many e-mails about that. But I'll talk about everything else. And in my opening rant, I'll give you my 10 surprises for 2021. That, and more, right now on the Stansberry Investor Hour.
Happy 2021. Let's get to it, OK? Now, I'm going to tell you what each surprise is, and I'm just going to give you a little quick bit about it, and then we're going to move on to the interview, OK? What I hope to do is revisit these, maybe in three, six, nine, 12 months, whatever – we'll definitely revisit them in 12 months, but maybe we'll revisit them before that, as they either obviously come true or obviously don't come true. [Laughs] OK? Little different than what we did last year. And I'm not going to spend near as much time telling you the surprises this year, right? We're just going to get to it.
All right, surprise No. 1: I think it would surprise the heck out of everybody if the S&P 500 dropped more than 20% in a single trading session. Anybody who knows about this knows that that's impossible, right? They close the exchange if it drops more than 20% in a single session. How can that happen? My point, here, is that I don't think these people have as much control over this as I thought they did – as everyone thinks they do.
The Fed doesn't control the market, the Fed doesn't control the bond market or the stock market, and the people running the exchanges could find themselves in a situation where the market drops faster than they can close the exchange. Yes, I do think that could happen. Overall, I don't think mankind has the kind of control over nature, including markets and societies and economies, that a lot of people believe, today. It's the great fallacy of our time.
Surprise No. 2: The S&P 500 hits new all-time highs and breaches the March 2020 low, this year. Higher highs, lower lows – that's the definition of what? Well, it's the definition of volatility, that's the point, but it's also that wider range of outcome is the definition of risk that we keep talking about. And that would surprise the heck out of everyone, right? I think it really would.
Surprise No. 3: The economy continues to recover, and stocks correct sharply. What did we have in 2020? Well, the economy got bludgeoned and the stock market corrected, and then took off like a rocket ship, even as the lockdowns continued and news from various economic sectors was dismal. I mean, you know, it improved throughout the year, but dismal. And I'm just saying, it can go the other way: the news can get better and better all this year and be really good, and, you know, the stock market can still crash.
Surprise No. 4, for 2021: Tesla falls more than 50%, and gets kicked out of the S&P 500, right? You know, Tesla's in the S&P 500, the market loved that, the thing has a $700 billion market cap – $700 billion – it doesn't even make half a million cars a year. GM and Toyota, together, make something like 17 million cars, like, 34 times Tesla's output, and their combined market cap is less than $300 billion. Tesla's, like, two-and-a-half GM, plus Toyota. It's insane. It's ridiculous. I think it would surprise the heck out of everybody if this stock, which is practically a five-bagger – it's insane, just insane. Or, actually, I'm sorry, it was more than a five-bagger – it's a huge multibagger for 2020, and it would surprise the heck out of everybody if it crashed.
Surprise No. 5: bitcoin. What the heck would surprise us, here? Well, it would probably surprise a lot of people if it didn't keep going straight up like a rocket ship. So if it went sideways or down a whole bunch, that would surprise a lot of people. So, we're at around $35,000, as I speak to you, and, you know, I think anything under about $17,000 or $18,000 would really surprise a lot of people. And it would surprise me if it was, like, $200,000 by the end of the year – it really would. I don't think that would surprise a lot of people, but it would surprise me. [Laughs] But the big surprise for everybody, in bitcoin, is falling a bunch, right, falling about in half.
Surprise No. 6: The VIX makes a new all-time high. People are in love with stocks, volatility fell, it spiked up to a new all-time high in 2020, so I think it would surprise the heck out of people if, in the very next year, it hit another new all-time high, right? Folks like Christopher Cole, who we had on the program, probably the biggest, you know, volatility expert before the public today, and another very thoughtful guy like Mike Green. They're looking at what happened in 2020, March 2020, and saying, "Oh, no, that's not the big crazy volatile event I'm talking about," OK? So, smart people are in the same camp as me, here, potentially – potentially.
Surprise No. 7: Bonds stop protecting you from losses in stocks, and just do lousy in general. As I speak to you, bonds are kind of getting whacked, Treasurys are getting whacked, as election results from Georgia come in. And, you know, the thing, over the past two decades, especially, has been, "Well, you know, when your stocks do lousy, your bonds protect you." But over the very long-term, many, many decades, that wasn't necessarily always true, and it could not be true again. That's surprise No. 7.
Surprise No. 8: 10-year U.S. Treasury yields either 0% or negative, or 5% or more, right? So, Treasurys either soar or prices get whacked and yields surge up. I think people are generally comfortable in this range between 1% and 4%. Now, certainly, with the 10-year right at 1% as I speak to you, surging quickly up to 4% would be, "Whoa," that would be a huge, huge, you know, that would – I would probably do a victory lap, at that point, even though I said 5% or more. Because any huge surge up in yields, I think, would probably surprise a lot of people, because people believe the Fed controls these things, right?
Next, surprise No. 9: The FAANG stocks rise another 30%, and then erase all of their 2020 gains. That would surprise you, wouldn't it, to see, you know, Facebook, Apple, Amazon, Netflix, Google, all this stuff, crash back to whatever it was in, say, like, 2019. I think that would surprise a lot of people.
And surprise No. 10: COVID lockdowns continue until September or longer, through the summer into the fall or longer. I just had this sneaking suspicion that – you know how I feel about government in general, right? They just, they like locking us down, they like controlling us. And I think they like it, in a pathological sort of insane way, a lot more than the average sort of, you know, person will admit. I think the average person who votes and thinks our system is great – which actually it is, compared to all the others – would say, "Oh, no, no, no, no, no, they don't hate us that much." It's not that they hate us... they just like controlling people so much, and that's why they got into the thing, you know, the government, in the first place.
So, those are my 10 surprises for 2021, 10 things that I think, if they happened, would be big surprises to investors, based on what is in the news and what is in the market right now. They're not predictions – they're things that I think would surprise the heck out of you. And I admit that, when I went over my surprises for 2020 and when I did them in the first place, I didn't make it clear why I was doing this. I'm doing this to identify stuff that's not priced in, right now, that people just really are not expecting. So, I'm not predicting it would happen, I'm just saying it would be a big surprise if it happened.
And some of these things, it's a way to identify risks that aren't being priced in, right? Nobody thinks Tesla's going to fall 50%, nobody thinks bitcoin's going to fall 50%, nobody thinks the COVID lockdowns are going to continue for most of the year. You see what I'm saying? So, these things would be surprises, that's the point. The point is to pull you outside of the box that we all live in, you know – and I live in the same box, too, right, I get comfortable just like everybody else – and to identify what the heck would surprise you.
All right, my quote of the week is kind of long, so I'll just get straight to it. It's from Jeremy Grantham of the firm GMO, and he says: "The long, long bull market since 2009 has finally matured into a fully fledged, epic bubble, featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior. I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea Bubble, 1929, and 2000. These great bubbles are where fortunes are made and lost and where investors truly prove their mettle, for positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work towards sucking investors in.
"But this bubble will burst, in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake, for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this, one more time." And that's Jeremy Grantham from a piece he put out, recently, called "Waiting for the Last Dance: The Hazards of Asset Allocation in a Late-Stage Bubble." I got nothing else to say. I'm just going to let that stand.
Let's go ahead and talk with Chris Mack, right now.
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All right, it's time for our interview, our first interview of 2021, hey. And today's guest is Christopher Mack. Christopher Mack works for Harding Loevner. He has been there since 2004, and he works as an analyst in information technology. He's also a portfolio manager in their global small companies, global equity, and world equity strategies – maybe we'll find out what he does with all those strategies – and he's also a partner.
Chris, welcome to the program, sir.
Christopher Mack: Thank you very much, appreciate you having me, and, I guess, happy New Year.
Dan Ferris: Yeah, happy new year. So, I think my first question for you has to be my first question for just about everybody in your business: How old were you when you knew that this was going to be your career direction?
Christopher Mack: Yeah, it's an interesting question. So, I guess, if you go back, you could probably get a sense of my background. My first passion, I guess, was technology. And then, so, I guess you could say I got caught up, in the '90s, with, you know, the tech bubble and whatnot, and getting very interested in markets, at that time, like a lot of tech people back in those days thought, "Oh, you know what, I'm going to be the next Bill Gates. I'm going to develop my own software, come up with my next company, and become a billionaire. It's going to be that simple," right?
And then, somewhere along the line, you realize, OK – you know, I started paying more attention to how markets work, and why suddenly, you know, tech wasn't as valuable as it was, for example. You know, why it's harder to do all these types of things... And so, just from thereon, so, I would say probably my real interest started to grow basically right out of the tech bubble, which was just trying to see where the opportunities were after that major selloff, and just going from there.
Dan Ferris: I hear that a lot, from folks who are maybe, like, you know, roughly, in their, you know, late-30s, 40s, maybe even 50s, some of them, they say, "Yeah, I got into the tech bubble, and it didn't work out, but I was hooked." Which is sort of interesting to me. [Laughs] It's interesting to me, and I don't know if you have any comment about this, but isn't it interesting that people say, "Yeah, you know, I got involved in the tech bubble, and it crashed and I lost a lot of money, but I was hooked"? [Laughs] How do you explain that? I mean, it's sort of strange, isn't it?
Christopher Mack: Yeah, to some degree, I guess you could see it's just part of the fascination with markets, right, and it draws us all in. And I think there's a bunch of behavioral aspects that get into this, whether it's, you know, like, a gambler mentality that could come into, the desire for reward that can become part of it. But overall, I think, for me, it's just, you know, just understanding why – just understanding why things are happening the way they're happening. And so, in that case, you know, going back to the bubble, it was, "OK, why did – " you know, suddenly, everything was supposed to be the game-changer, right? And then, suddenly, it wasn't.
And you know that the truth was somewhere in-between, right? It wasn't that, OK, yeah, sure, pets.com wasn't going to be the next great business, but there had to be something out there, and maybe it only took 15, 20 years or so, maybe, right? But think about the pandemic this year, and, you know, acceleration of e-commerce and everything else, you know, the groundwork came from that, right? And so, I think there's a lot of opportunity to be had, if you could harness your emotions, take advantage when people are too optimistic, or pessimistic, you know, and invest in a longer-term view. So that's the opportunity, and I think, to me, that's what excites me.
Dan Ferris: So, are you feeling, here in January 2021, [laughs] are you feeling overly optimistic, or overly pessimistic, or somewhere in-between?
Christopher Mack: So, I'd like to say it's somewhere in-between, because that would follow on what I just said, right, that I'm trying not to be too optimistic and too pessimistic. But, you know, being the new year, I think you probably feel some optimism. I think the interesting thing is, you know, there's always a reason to be optimistic, somewhere in the market. And, you know, to not just look at the market – and I think when we've seen what happened with tech, in this past year, there was obviously a lot of optimism that's in the tech segment of the market. And so, it's easy to be, probably, a little bit more pessimistic, sometimes, there.
But, you know, when you think about the longer-term potential, here, or some of the acceleration that's happened in technology, there's reason for longer-term optimism. Shorter-term, you think about, when you think about valuations, you could certainly make a case that at least segments of the market have gotten to be too optimistic. Whether it would be, you know – I think anything that had a name "cloud" in it [laughs] didn't perform very well, last year, and well, I think, be a longer-term positive. But, you know, 2021, I don't know. I think the thing that's on my mind is really, like a lot of people, just trying to figure out what does the vaccine mean, what does return to new-normal mean.
And so, one of the things that I'm thinking about, and maybe it's kind of related to, you know, 2020, 2021, you know, new-year introspection and that type of thing, which is what consumer habits formed, over the last 12 months or so, that will stay. And what will be – you know, so what are permanent changes, or what are things that we're just going to revert and go back to doing it. And so, I think that has a lot to do with, you know, where segments of the market, certain ones will do better than others depending upon your point of view there. Does that make sense?
Dan Ferris: Yeah, it does. I mean, you know, I hear what you said about not wanting to be too optimistic or pessimistic, but at this moment, you know, stocks have kind of gone – well, everything, just about, has gone ballistic. So, I'm sort of poking around to see, you know, kind of exactly where you're optimistic and where you're pessimistic. And you're telling me you're trying to figure out – it doesn't sound like you've maybe completely figured it out, or maybe you have. Have you figured out, like, what you think are the permanent habits that were established over the past year, and which ones are maybe going to go back to the way they were? Where are you, in that process that you just sort of described a little bit?
Christopher Mack: Yeah, I would say it's an ongoing one, but it's one of those things that I would say – well, at least, if you were to think about what's implied in some of the stock prices, I think it was – you know, it seems easy to say now, in retrospect, that, OK, earlier in the year, you know, that whole mean reversion kind of idea, the fact that people will go back to travel, maybe oil prices will go up, those types of things, it's not probably completely in the price. I think there's more room for that... that could still develop, throughout the course of the year. So, I think what I'm focused on is looking for the other side of things. So, for example, you know, the market jumped really quickly in November, and said, "OK, everything is suddenly going to go back to normal," right? And, you know, "The vaccine will get rolled out and no problem."
And now you look at, here, we're sitting here in the beginning of January, and the talk of the market is, "Hey, the rollout hasn't gone quite as quickly as everyone anticipated. And, oh, by the way, there's a new mutated form of the virus that's spreading like crazy in the U.K., and it's other places," and so, now the market has kind of tempered their optimism. So, for me, personally, it's being selective as to what you think. So, I think Amazon, you know, that's one that's kind of a consensus one, but I think there's certainly new customers that they acquired that they will keep. But to me, there's other opportunities in other areas that are not Amazon.
So, for example, a company like Etsy, which got put on the scene because of, you know, a lot of the homemade masks and, you know, the homemade goods that it provided, and mask sales, in particular, went up. But if we had this conversation, last year, and I'm telling you about mask sales, who would've thought, right? It just goes to show you that, you know, the 2021 predictions and, you know, what they're ultimately worth. But that's an aside. But to me, that's another one where maybe they've acquired new customers, and they show, interestingly, to me, they actually break out the data in terms of their consumer behavior. And very helpful, they break out the mask demand, they call it, you know, the pandemic, maybe one-time, you know, things that are not going to go on forever.
But they've been very successful in converting customers to be repeat in other homemade goods. And so, to me, that's interesting, because, you know, it sort of tells you about the non-Amazon online world, right? Everyone all the time thinks that Amazon and e-commerce is going to eat everything, but I think what we've seen with the pandemic is just the acceleration of, you know, more traditional retail type of shopping into online. And Etsy's one way of harnessing that, because they produce things that you would find, you know, in your local store, maybe homemade from, you know – as opposed to something that has a product skew that you find every place, Walmart, Amazon, and it's a commodity-type product, right?
And so, to me, that's just one example of that, but I'll just maybe give you one more, one that I was wrong about. Which was, you know, a company, a small retailer in the U.S., Five Below, where I thought, "OK, you know what, the acceleration of e-commerce, this has to be bad, you know, for this in-between," right? They're not a dollar store... they're somewhere in-between. But this kind of gets to consumer habits. I think, you know, when you look at what the data – consumers, as soon as the stores reopened, went right back. And that shows you that they have something differentiated, there. It's hard to do, but they have it. And so, those are just a couple ideas that I've been sorting through, and these are ones that we own.
Dan Ferris: Oh, so you do own Five Below, now?
Christopher Mack: We do, now, yes. But that's in the smaller company strategy.
Dan Ferris: OK. Yeah, so, hey, maybe tell me about these different strategies where you're a portfolio manager, global small companies, global equity, world equity, what's – actually, what's the difference between global equity and world equity? What does that mean?
Christopher Mack: So, by the definition, at least as far as MSCI is concerned, global is across the world, and world, basically, is everywhere except the emerging markets. So, world strategy will not have emerging markets involved in it. And it seems like, you know, quibbling between, you know, splitting hairs, but that's the way it's defined.
Dan Ferris: So, what's your personal – I've heard a lot of – well, not a lot – a few folks, like, you know, Jeremy Grantham and the folks at GMO, and maybe a couple others, who are thinking, like, from this point forward, the emerging probably outperform the U.S. Do you even have a view like that? Or do you not bother with it?
Christopher Mack: We won't typically take a top-down view, necessarily. I think where we try to focus on, here, is looking at the world through the lens of the companies that we own and we pay attention to, on a bottom-up basis. And what are they telling us? What's happening? And then, you know, comparing notes between all the companies, and seeing which management – you always have to be somewhat cautious about management commentary that they talk in their book. But if you compare across, you know, companies and their peers, you will get a good sense as to what's happening. And so, in the case of emerging markets, you know, if you just look at the – if you take the top-down perspective, there's some demographic opportunity, depending upon where you look.
And so, for example, one area where we do have a little bit more of a demographic focus is in financials, where we think that that's the longer-term opportunity. Banks in the emerging markets, for example, where credit is less penetrated, there's always going to be cycles that you have to worry about. It's just, you know, the economic cycle, despite the efforts of everyone in the past 10 or 15 years, they don't go away. [Laughs] They just change differently, right? So, in EM, banks are a good opportunity, but the interesting one that's very topical, these days, is technology, and technology, particularly, in China.
You know, obviously, there's been a lot made, you know, between the U.S. and China and tech and arms race and, you know, what's going on there, but without getting into all those details, you know, certainly, China has got, you know, by the population, the largest Internet-connected population in the world. And so, that brings you to, you know, some of the obvious ones like the Alibabas, Tencent, and so on. So, for us, when we look at emerging markets, it's about the banks, it's about technology, mostly, and, you know, generally speaking, there's opportunity, there – at least in banks. Banks are pretty inexpensive, compared to the rest of the market. Tech is a little bit different... it depends on what's – I think the thing in China, you worry about, now, the increased risk of regulation, there.
Not just about the trade war and everything else, or maybe the easing of the trade war – it's about what's going on in China. And you know, to what extent they're now imposing more restrictions on, say, in financial, for example, with the lending platform, online, that they've developed. And so, longer-term, I think, though, the opportunity is still there.
Dan Ferris: Right, so it sounds like you don't wring your hands about the fact that China is still a communist country, it's a command-control economy. You're just looking at what is happening in individual industries. You're more sort of bottom-up, that way. Do I have that about right?
Christopher Mack: That's right. You know, but I think you bring up a good point: you can't view everything in isolation. You have to have a perspective on the region that it's operating in. If you're a global business, say, if you're Alphabet, you know, Alphabet, Google, Facebook, all of those, if you are those companies, you're globally diversified, except for maybe having China, right? And so, you could say, OK, if the regulation in one particular market gets worse, OK, you have some benefit coming from some other area where maybe the regulation won't be so bad, or, you know, there's more diversification that can come from it.
Obviously, if you're investing in Alibaba, they've expanded their footprint into Southeast Asia quite a bit. But overall, right, you worry about what's going on in China, the rule of law, what could happen, and so on. And coming back to the idea, though, of habits, right? I think just like how right now we are very accustomed to, you know, searching through Google, right, on the Internet, that's just sort of a habit, right, it becomes a verb, all those kinds of things. You know, e-commerce or shopping, in China, for example, is a habit... Alibaba's got the dominant platform and e-commerce s a habit.
So, there may be more regulation, there, you know, what have you, but at the end of the day, it's a very powerful platform, that is – you know, consumers are not going to stop shopping because the government is worried about, maybe, Jack Ma challenging regulations, right? They're going to say, "This is convenient and this is good. This is a good service. It delivers it on time, delivers what I need." And I think, ultimately, those are the types of things, to your point, bottom-up, that we're focused on.
Dan Ferris: I see, OK. Chris, I hope you don't mind me just sort of jumping around a little bit. I want to talk about your firm, Harding Loevner, just, you know, give you a chance to tell us what you guys are about, and, you know, a little bit about your philosophy and process and stuff. But I have to tell you, this one quote on your website, where I've been looking around, it really caught my eye, because it reminds me of other firms. And it's by your director of research, Yoko Sakai. She says, "We want our clients to benefit from the healthy debates that we have amongst each other." And then, elsewhere, there's a little bit about collaboration without consensus.
So, this sounds like an interesting dynamic, and it vaguely hints of, like, you know, Ray Dalio and Bridgewater, and everybody being, you know, very openly – I forget his phrase for that, but everyone's very brutally honest with each other. [Laughs] I don't know, what's the feel around the office? How does this play out, you know, day-to-day and overall? What's it like at Harding Loevner?
Christopher Mack: Yeah, it's a good question. So, yeah, so, "collaboration without consensus," that's sort of our tagline. We are very focused – and I think the other thing you might see on the website, or we may have changed it a bit, we would post and say, "Humans aren't, by nature, meant to be good investors." And that's kind of an interesting thing, right? If you're an active manager and you're telling people that, you know, humans aren't meant to be good investors, "OK, then why am I looking at you?" But it kind of gets back to process and trying to have good habits. So, one of the things that we worry about, a lot, is just making sure – is bias: making sure that we are not missing out on something just because of our background.
And so, what we've tried to do – so just stepping back, we're focused on investing globally, building portfolios diversified across the world, and we're focused on the quality portion of growth. So, we want to make sure that we think on a longer-term basis, we want to invest in growth companies, that gives you the best opportunity to outperform. But importantly, they have to have quality. It's not just, you know, pie in the sky, eventually one day we'll make money and it'll be figured out, although we think about those things, too. But we're much more focused on companies that have got good financial strength, because, just like we saw in this past year, you never really know what can happen.
And so, for example, if you are a business that's highly indebted, not making a lot of money, the pandemic hits and you have this great idea for the future, but if your company can't get to tomorrow, it doesn't matter, right? And that's a great idea, but that's lost money for us and our clients. So, we want to make sure they have that financial strength, so that when – we know to expect the unexpected. And so then, when that happens, our companies that we invest in have got the strength that they could emerge from it stronger. And that gives us the confidence to be disciplined, that when the market is selling off, "OK, you know what, is the investment thesis of growth on track for this business?" "Yes." "OK, the share price is 20% cheaper. Let's go and buy."
So, that's the overall philosophy of what we're trying to do. The process in which we execute it is this collaboration without consensus, and as I said earlier, it's about trying to minimize bias. So, we've tried to hire a globally diversified team, with, you know, people who have lived across the world, grown up in different parts of the world, different backgrounds, people like me who have more of a tech backgrounds, others who have backgrounds in other areas. So, we're really trying to harness cognitive diversity, not just based on our own individual experiences, but also our professional backgrounds, our educational backgrounds, and so forth. With the idea that we are all requiring each other to communicate in written form. And that's one of the things that's different.
So, when I have to write about something, I am writing about my idea, and I'm sharing with all of my colleagues, and immediately, the idea is to get instantaneous feedback. And it's up to me – so I just want to maybe make a distinction, here, that we operate as a team, but we're not required to agree on everything. And that's one of the things that we think is really important, because, you know, if we all are a part of a team – let's say you and I are a part of a team, and it's my job – we have to come up with some consensus perspective as to what to do with our portfolio. And I'm trying to convince you and – so what am I going to try to do? I'm probably not going to stick my neck out too far, because I'm going to think about what it is that you like and go with that, because I know you'll agree and I know we'll do something.
But that may not always be the right thing. And so, ultimately, what we're trying to do is get the benefits of collaboration, which is, hey, I'm getting different perspective, you know, that I didn't know, that they've giving me an idea about the risks and the opportunities that maybe I didn't fully appreciate. But then, at the end of the day, it's up to me, I make that decision, and that decision gets put forth and those signals go out there. And, you know, over time, the idea is that it leads to more effective decision-making, repeatedly, over time. That's probably a bit of a longwinded explanation, but does that help understand?
Dan Ferris: Yeah. Oh, don't be afraid – it's not long-winded, at all. It's thorough, and I like that. I like to ask questions and let my guests really tell me what they're thinking. So, yeah, absolutely. So, let's talk about, you know, we talk about just the difference between the global and world strategies, and I also noticed that your list of stuff that you do at Harding Loevner says that, you know, you're a portfolio manager in some of these strategies. But you are, like, a technology, it seems like, analyst – information technology analyst. So, I guess what I'm ultimately asking, Chris [laughs], is what the heck do you do, all day? You know, does that mean that you are the information technology guy for those other strategies? Or what – how – you know, just tell me about, like, your role and all the stuff you do at Harding Loevner.
Christopher Mack: Sure, yeah, no, it sounds like a lot. As far as technology, so, all portfolio managers at our firm are also analysts. And so, for me, my specialty, if you will, is in technology, so my focus – so one of the things, just to get back to that process idea, you know, analysts are in charge of their sector. So, for me, I am looking at the ideas in technology, and I'm trying to focus on the best quality and growth opportunities within that segment of the market. And then, that research that I produce gets, in a way, consumed by me, as a global portfolio manager, but then, also, to our other portfolio managers on the strategy.
And that's a good way for, really, exercising individual accountability, because, you know, you're wearing both hats, right? So, when I interact with other analysts, you know, it's a good back-and-forth robust debate. They'll look at what I'm doing as an analyst, and then they'll look at my portfolio. For example, we publish our portfolio, and it's pretty transparent to everyone, and so, it creates good dialogue to say, "OK, if you like this in your technology sector, you know, why isn't it owned in a portfolio?" for example. And so, one of the things we're trying to always look to do is to try to find ways to identify signals, and really look for consistency when you're having insights, right?
So, if I say, "Software is a great place to be," OK, let's look at the portfolio, is it in there or not? Why or why not? And so, we have that – so, for me, what I do in my day, I focus on technology as an analyst, and then I look at the world, the rest of the world, as an opportunity set. Fortunately, for me, we narrowed down our universe pretty finely, down to about, roughly, 500 stocks that we cover across the world, that we think meet our key criteria of companies with sustainable competitive advantages, financial strength, good management, you know, durable growth, and we focus on that. And then, but we also pay attention to what we don't pay attention to, but, you know, our primary focus is on those 500 companies, so that makes it a bit easier. We're just trying to, you know, streamline things a bit, to separate the noise from signal, and just look at the things that we're really worried about.
Dan Ferris: So, how do you add to and take out of the 500 companies? There has to be a process for that, right? That's got to be constantly changing, to some degree.
Christopher Mack: Absolutely, yeah. And that's probably the thing that we worry about the most, especially when we talk about our longer-term view, you know, we're – a typical holding period is about five years, and so, over that time period, there's going to be a lot of things that happen. And so, what we're really trying to do is say, "OK, in order to look at all these stocks, you have to try to separate that signal from the noise. What's the most important thing, to the fundamentals of the business, the growth thesis that I'm laying out as an analyst?" And so, we call those mileposts, with the idea that, all right, I'm going to come up with three to five things. What are the most important things that are going to happen, here, that are critical to making my model work, right?
What has to happen? Do margins have to go up? If you're expecting margins to go up, what's the reason for that? You're trying to get to that underlying thing. So, when you do that, it's incredibly hard to do, to come up with those three to five things, and sometimes we're wrong, to be quite honest. And when we're wrong, I know those three to five, you know, those mileposts, when things are failing, things are not living up to expectation, then they'll leave the universe. The investment thesis didn't work – you know, this is still a business where, if you get anywhere near over 50% right, you're doing a good job. And we always strive for better.
We've been fortunate that, you know, our hit rate tends to be somewhere in that 56% range, over the longer-term perspective, but we're always trying to drive that higher. So, stocks that go in and out of our universe is based on our interpretation as to what's happening with the fundamentals, what are the key reasons for owning it intact, and this gets me to some of the behavioral aspects, here, that – we worry about the endowment effect. Which is, OK, we – there's been scientific studies that show if I give you something, you start to value it more than if you're looking at it owned by someone else. And so, you want to be careful that, you want to be disciplined that, "OK, if a thesis isn't working, time to sell it. Out of the portfolio. Forget that you own it. Pay attention to the key objective. They're missing their mileposts. Time to sell. Get out of the portfolio."
And then, pay attention to the opportunity cost, which is, "OK, what are the 500 stocks that we cover? What else don't we cover?" Because what you don't own can also hurt you, as well, right? You could miss opportunities that way. And so, we try to be objective in looking at the rest of the world, looking at things, like, OK, which companies have sustained profitability, which companies have sustained growth, which companies have good management teams, and so on. And so, those will filter in as we continue to do our bottom-up research.
Dan Ferris: This is going to sound crazy, Chris, but the thought in my head, right now, as you answer all these questions, you sound like such a rational, reasonable, thoughtful guy who's really trying to not go too far in any wrong direction. And I think my wife thinks I'm that way, too, and it drives her out of her mind.
Christopher Mack: [Laughs]
Dan Ferris: Are you married? And if so, do you drive your wife nuts with this?
Christopher Mack: Yeah, I think the honest answer is yes. And she'll probably listen to this and hear it, and I think that's pretty cool. So, yeah, no, I think that's true, and I don't know, I wish I could – maybe you could help me understand why you think you're the way you are. Because I try to understand it for me, too, because it just, in some ways, seems natural. And kind of getting back to my background, you know, Harding Loevner has had this process in place thinking about some of these behavioral things for a while, now. But at the time I joined, we were still building that out, and it was kind of – when I met the team, it was sort of like you didn't realize what you were looking for, at the time.
Like, this was always in me, I've always thought about decisions that way, like, whether it's, like, buying a new computer or something else, just trying to be very calm and, you know, rational about things, and so, it's been a good match. But I'll be curious to know, you know, why you are the way you are.
Dan Ferris: Well, for me, it's the other way around. I was always a sort of, I don't know – flatteringly, I'll call myself an intuitive and probably an impetuous kind of person. And I wasn't in great, you know, financial shape and career shape, like, into my mid-30s, almost. I studied music in college, right, and I was just kind of running around Baltimore, where I grew up, and playing gigs here and there – it was kind of a bohemian existence. Then I had this big seminal event in my life of a back injury that sort of had me down for the count for a whole year, and I eventually wound up having surgery. So I had this big period of time when I was doing not much else but trying to get rid of pain and thinking about my life.
And I thought, "You know what, I think I've been going about some of this all wrong." [Laughs] And I remember, after I had my surgery and I was doing better and doing therapy and stuff, I was sitting on the edge of the bed at my parents' house, where I was, you know, rehabilitating and convalescing and stuff, and I thought, "Mm, I think I need a real career, now. I think I need a real job." [Laughs] And just saying that – and I had been interested in the market, I had been interested in investing, and I had read, like, The Intelligent Investor and a couple things, so I just started down that pathway. And once I started down that, I quickly saw that my habits of impetuousness just, it had to be reversed.
And I think the thing that drives my wife nuts is that, when you fancy yourself a rational thinking person, you think about something and you look at it, and then you act. [Snaps] And you can reverse your decision in a heartbeat, and that just doesn't make any sense to her. She wants to talk about everything, and the bigger the decision, the more she wants to talk about it. And she wants to move back to – we live in Washington state – she wants to move back to Oregon. And, like, she wants to interview a bunch of real estate agents, and I'm, like, "I don't care. They're a bunch of salespeople. They're all the same. I don't care," [laughs] you know? And that drives her out of her mind, because I have this view, I made up my mind.
It's, like, the faster you make up your mind, the more your wife is going to hate it, you know? Part of it, for me, is that, you know? [Laughter]
Christopher Mack: Yeah, yeah, no, so I think for me, I think – for whatever reason, I've always been appreciative of history. So, my dad was a history major, and I've always just enjoyed history, and for me, I think it's a lot of – there's always some lesson to be learned. And one of the things, you know, if you go back into, like, just my earlier experience with investing with the tech bubble, it's just realizing, right, that the famous phrase, right, Greenspan's famous phrase... "irrational exuberance." And you start – so I think a lot of it comes back to that, which is sort of the realization that, you know, you have to – when it comes to decision-making, you could be your own worst enemy.
And I think you touched on that with what you just said, which is, you have to realize there's good instinct, your gut, right, which is, when you see something, you realize something could be big or very different, you have that initial – and your instinct could take you a good part of the way. But if you're not careful, it could dictate things and you could get too excited about things. And so, you have to just remind yourself to be grounded, which is really hard, right? Especially when, if you want to look at, like, I guess the equivalent of the tech bubble, now, is whether it's in, you know, bitcoin or some of these special purpose acquisition companies, you know, or some of the recent IPOs, no one wants to see your neighbor get rich, right?
And you bring up the conversation with your wife, no one wants to see that, right? And so, it's just kind of an interesting thing to think about, just how to harness your emotions to make good decisions, because at the end of the day, that's what this is about. It's, you know, yes, you want to get some stocks right, but to do it over and over and over again, you have to have some decision-making process that gets it right. And without that, you're just kind of throwing darts, and we know what that looks like, so.
Dan Ferris: Yeah, we actually, we talked about this with Jack Schwager, the guy who wrote all the Market Wizards books, and the weird thing, like, we're human beings: we can't get away from our emotional nature. You simply can't get outside of it – you're always in it. And yet, like all the great traders except for one, there's one exception, they all say, "You know, I try to keep my emotions at bay. I try to keep them out of the way. I try not to let my emotions influence what I'm doing." And there's only one guy, a guy named John Netto, who says his emotions are very important and he uses them, often, you know, as a contrary indicator, for example. You sound like you fall into the camp where, you know, me and all those other traders and Schwager and everybody else is, right? You're trying not to let your emotions carry you away, correct?
Christopher Mack: I think that's generally true. But you bring up an interesting point, though, about that one individual where, you know, trying to use it as a counter indicator. I think that's, when it comes to investing, everyone is different. People, in general, are all – have their own different personality traits, and so, what may work for me may not work for someone else. You could try to encode things in the process, to try to minimize the known biases that are out there, the bad behaviors. You know, the market's down a lot, I'm looking at stock prices, I'm just going to – you know, I'm giving up, like, that's it, I capitulate, like, the pain is too much. I'm going to stop. You know, those types of things, you could do your best that you can.
But at the end of the day, it's a very personal thing. It's about figuring out what works for you, what tendencies that you have that are either, you know, good and you want to replicate that, or, you know, what destructive tendencies you might have. And for us, I think, a lot of times, given our longer-term focus, it tends to be more of that endowment effect, which is, "Oh – " you know, you start telling stories about a stock that you've owned for a long time. And the more stories you tell about it, then you start to love it even more, right? Because I'm telling all these people about it, and now I've told a story, it sounds really good, and now I'm really emotionally attached and it's done so well for me over the years, it makes it even harder to part. And so, for us, I think that's what we – for me, personally, and us as a firm, that's what we struggle with, probably, the most.
Dan Ferris: Yeah, it's tough. And you've actually alluded to something else: I've been telling people a lot, over the past maybe couple of years, that investing is very personal, and you mentioned that, you know, everybody's different, right? That's got to make a business like yours kind of tough, right? I'm guessing, you know, you have clients, you have to deal with, what, hundreds of different clients? And maybe if you manage for an institution, you know, 10 or 20 people in that institution or something? I mean, that sounds hard, to me.
I think that's one of the reasons why I'm not in that business. I tried to be in it and – actually, that aspect of it didn't bother me, because I didn't deal with that many people and they all knew me. But I would think, once I got to, you know, 50 or 100 clients, all the different personalities would drive me nuts. You must have some extraordinary people [laughs] who are in charge of dealing with clients.
Christopher Mack: Absolutely, yeah. And I think a lot of it – my job is made easier by the fact that we are upfront with our clients as to what they should expect. And so, we get into interesting debates where, you know, we're focused – the way clients tend to think about things, they divide their allocation into different aspects, right? So, sometimes, we look at a regional allocation, "How much am I going to be in U.S.? How much am I going to be outside of the U.S., emerging markets?" You know, look at us that way. And then, there's other people that are looking more at growth versus value – that's another segment of the allocation question. And so, the question we're getting right now, given how well growth has done, which is, OK, now, we have two different types of conversations with clients.
One is, "Yeah, we know growth is expensive, but we're trusting you with our money, to be invested in this segment of allocation. And, you know, even if it goes down, we know this is the part of the allocation we want to go into growth. Don't deviate. Don't deviate from that style." And then we'll have another conversation with a client that says, "Well, aren't you going to try to worry about the valuation, and maybe, you know, lower that risk, now that growth is looking expensive? And maybe, you know, what will you do to manage that?" You know, when you look at more cyclical businesses, or when you look at some other things that are not growth.
So, the key thing, with anyone in this business, is to be very clear and transparent [glitch interferes with audio] the expectations and what we're trying to do. And so, we're always going to be committed – my job is made easier by being clear that we're going to be committed to quality and growth, irrespective of what the investment fashion is in style. And, you know, sometimes that means you're going to underperform. So, like, at the end of last year, the market liked more value, it liked more, you know, lower-quality businesses, businesses without as much profitability. But in a longer-term view, it's been right, but you always are worried about that.
But for me it's, if you think that this is the right way to do things on a longer-term basis, and you're transparent with your clients about that, and you're disciplined and you stick to it, that's the key, right? Getting back to, you know, behavioral stuff, the worst thing you could do is try to chase the trend and reverse at the wrong time, "OK, you know, value is up, you know, growth is up a lot. Let's chase it," and then, just in time for the style to shift. And so, what we've done, we acknowledge that we're just not good at it, just like macro, predicting macro, we're not good [glitch interferes with audio]. But we do know how to look at, analyze companies, understand what they're doing and what their strategy is, where they operate.
And so, that's our advantage, and so, someone else may have a different advantage, but for our clients, they tend to believe in that, that we have that advantage, this process and way of doing things. And so, I think that makes the conversation a much better one.
Dan Ferris: You know, Chris, a lot of stuff that you're telling me, from, you know, being really transparent and crystal-clear with client expectations to, you know, these four attributes of, you know, durable competitive advantage and financial condition and durable growth and stuff, all of this, there's a powerful, powerful whiff of Warren Buffett in all of this.
Christopher Mack: Yeah, no, I think – absolutely. I think, you know, we certainly pay attention to, you know, all the good investors out there. There's always something that you can learn from everyone, right? And so, Buffett, for sure, is an influence, at least in terms, philosophically, of what we're doing. You know, it's not just the Benjamin Graham school – it's the Buffett school, right? So, if we're looking for growth companies and realizing that, OK, it's not just fishing and things that look cheap. It's about, you know, companies that could sustain growth over time, and compound, and what that will ultimately look like over the long-term.
Because we know that I can – you know, I'm not going to be able to predict next quarter. Maybe I will, but I don't have skill, there. But if I can identify a bottom-up structural growth opportunity, in a company that's best positioned to be there, with good management, that's got the financial strength to invest around that moat, you put all those things together and it makes, you know, being five or 10% off in, if I'm lucky, my fair value estimate, it makes that look like nothing, right? Over the long-term, that's going to be a very powerful thing, and generate returns for our clients.
Dan Ferris: OK, yeah, cool. All right, Chris, we've actually been talking a long time. I've got one more question for you, and it's the final question I ask all of our guests, same final question: If you could leave our listener with just one thought, today, what would it be?
Christopher Mack: Oh – good question. I'll think about that just briefly. So, if I were to leave them one thing, it would be – and it's going to be, like, a longer, like, not just a one-word. But it would be more about, develop a disciplined process of investing, you know, just that you could repeat, that you could stick to, and that allows you to filter out the noise. And I think the reason why I bring that up now is because I feel like, with social media and, you know, political cycle and everything else, there's just a ton of noise out there. And you could easily get caught up in the bias of, you know, a political perspective.
And that matters, to a point, but at the end of the day, you know, stocks care about politics, but, you know, not – to an extent, right? It's, ultimately, about the fundamentals of these businesses. Now, they could be, obviously, impacted by, you know, regulation or what have you, but ultimately, you know, try to come up with a process that allows you to repeat it, that you could develop rules that you could stick you that allows you to stay invested, you know, when the market's down in March, and see it through. Because that will give you the best opportunity to be successful investing on a longer-term basis. But it's important to kind of come up with those things that – you know, it's a personal thing, that you could stick to, that your risk tolerance [glitch interferes with audio] find that little niche and stick to it.
That's longwinded, but the short-winded thing is, you know, develop rules and have the courage to stick to them. That's the one I would come up with.
Dan Ferris: Oh, that's great, yeah, thank you, that's great. And thanks for being here. I appreciate it. I thought we had a really good talk, and I hope – I'm sure our listeners will enjoy it – I'm sure of it.
Christopher Mack: Great, great, no, appreciate the conversation, and I'm glad we didn't go down the path of talking about our wives more, or else we'd be in trouble, so, [laughter] [crosstalk]. I appreciate it. It was a lot of fun.
Dan Ferris: Yeah, yeah, you're right. All right, so, you know, we'll definitely be giving you a call back, at some point, and inviting you back, because this was very enjoyable, so.
Christopher Mack: Sounds good. Appreciate the time, and, you know, best of luck, and hopefully a prosperous 2021.
Dan Ferris: Oh, thank you. Same to you, Chris.
All right, that was a lot of fun. I've never talked to Chris, before, and I thought he was really thoughtful and insightful and – and I hope he's right. [Laughs] I hope he and I don't get in trouble with our wives. All right, let's do it, let's take a look at the mailbag.
You know how I'm always saying that I don't want this show to be too political? Because, after all, it's a finance show, and some politics is appropriate, but, you know, it can get too much real quick, right? Well, maybe you're interested in politics, maybe you're interested in American and global economics and politics. If so, you're probably going to be pretty excited to know that Trish Regan, the famous finance and political journalist, is now part of the Stansberry team. And Trish Regan has a brand-new podcast, it's called "American Consequences." You can find it anywhere that you learn to podcasts – iTunes, Google Play, anywhere – or you can just go straight to americanconsequencespodcast.com. And she's already had some huge names on the show, like, billionaire businessman John Catsimatidis and former U.S. senate candidate Tom Del Beccaro. So, check it out. It's available anywhere you listen to podcasts, or just go to americanconsequencespodcast.com.
In the mailbag, each week, you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms to [email protected] I'm sorry to say, you've finally done it: you've sent me so many long e-mails that I can't honestly say I've read every word of every e-mail you send me. But I do read as much as I can, and I respond to as many as possible. Hopefully, one day, I won't even be able to read every single one of them, because it'll just be thousands of them, every day. But it's really great: the more you send, the more I have to work with and respond to, and the better the conversation gets. So, it's actually good that there's a little bit too much to read, so keep sending them in to [email protected] – it's really great what you're doing.
The first one, this week, is from Jonathan A. Jonathan A. says: "Dear Mr. Ferris, I observed that almost no one anywhere is predicting a decline in equity markets, in 2021. [Laughs] No one on Bloomberg Surveillance, no one in the Wall Street Journal, none of the newsletter writers on Stansberry. Sure, a few exceptions here and there, and I know that you mentioned 20% cash – not all that much more than that in standard times." I'm not sure exactly what you mean, there, but he continues: "The contrarian call seems to me to be out or even short of the market, excluding such things as commodity stocks. Your thoughts? Jonathan A."
First of all, Jonathan, Steve Sjuggerud came out, as I speak, he's recently come out with a piece about the meltdown. He's been talking about the meltup, for a couple years, now, and now he's talking about the meltdown. And you certainly are going to hear me talk about the decline in equity markets – I've been talking about it for three years [laughs], and I'm not going to let up until I get the bear market I'm looking for, man. So there's that, but you're right, by and large, you know, stocks get near all-time highs, and nobody wants to talk about being out of the market or shorting.
I think it's more important to be diversified than to try to time the whole market and get your whole portfolio out. Or maybe, if you're really that worried, you can try some put options. I've been asked about put options, and I'll talk about that at some point, but I'm not going to talk about it today, because we've got too much mail to read. But good stuff, Jonathan. Thank you.
Next is JFB, who simply says: "Hello, Mr. Ferris. In regards – " oh, this is the option guy, OK. [Laughs] So, I forgot, I'm dealing with the option question right in the mail. Yeah: "Hello, Mr. Ferris. In regards to the famous option you buy to protect the portfolio downside, could you take us through an example, what product do you use? It would be greatly appreciated. Regards, JFB."
So, JFB, I'm contractually prohibited from recommending stuff I own and owning stuff that I recommend, right, so this makes it a little difficult to talk about some of these things. And there are exceptions like gold and bitcoin and stuff. But I will tell you this, we're just talking about the big indexes, right? So, just, you know, there are big ETFs on all the big indexes, and you can buy put options on those. And what I've done is, I've got puts that are out three, six, nine,12 months, that are, you know, X% out of the money that I think is likely to, you know, occur. Some of them are way out of the money, and I just think that the volatility is going to be high enough that it will appreciate even though the option will never be in the money.
And that's really all there is to it. You know, it's not that technical. That's it. And it's not a lot of money, either. It's a small amount of money, which could appreciate greatly, if we get the kind of drawdown that I'm afraid we will. Good question. That's about all I can do for you.
Wade S. writes in and says, "Dear Dan, I'd love to hear your opinion on ESG." This is, like, environmental, social, and governance – it's sort of like socially responsible investing. He continues: "Today, I saw another article about some elites divesting in companies that don't meet their uppity standards. Swiss National Bank was the latest. Coal is the villain, this time. Maybe I'm overreacting, but my natural reaction is between annoyance and disdain. It looks like a bunch of self-righteous virtue-signaling. If Stansberry has a service called 'ESG Rejects,' where we buy profitable businesses sold by the woke, sign me up." [Laughs] That sounds pretty cool, Wade.
He continues: "It reminds me of the NYT article about the Nasdaq pushing companies to have diversity quotas for their boards. We're all supposed to admire these elites for their social change. I think their tinkering causes more harm than good. By the way, I used to work in wildland fire, including five seasons on a hotshot crew. I subsequently studied forestry, in college, where commentary on the forest fires is astute. I cringe whenever people declare climate change is the culprit. Unfortunately, at least for the federal forests, management, or the lack thereof, is driven by activist litigation, not science. Wade S."
Thank you, Wade. And you know something, that forestry thing, I'm going to keep reiterating it, every now and then. And the point is that those of us who either live in these areas and have to deal with, you know, when it snows ash on your front lawn because the fire's five miles away, or you can't see across the street, literally, because the smoke is so thick, and you've got to run the, you know, air-conditioning 24/7 because you want to be able to breathe in your own home, because you literally can't breathe outside, that kind of thing, those of us who know, know that it's not a controversial thing to say, "It's not climate change. It's the management." We all know this. But it just shows you the times we live in, that every jackass with a stupid viewpoint – and I agree with you on all of this stuff, ESG, Nasdaq pushing diversity, climate change affecting the forest fires, you're right, Wade, it's all frickin' baloney. Happy 2021 to you, sir. I'm glad you wrote in.
Next comes Bryce B., and Bryce B. says: "I love the podcast, especially the macro-oriented guests. You are a workhorse. I'd say you've earned the right to take a vacation, sometime. I guess that applies to almost all of us, after this year." Well, thank you, Bryce. And he continues with some stuff, I can't read it all, but then he says: "Since the end of the year is nearing, I've been rebalancing the weight of each category – " and he's talking about gold stocks – "and would love to hear if there is a specific ratio of bullion, ETFs, minors, juniors, royalties you would recommend to your listeners. I also have a mix of silver stocks. Is there a ratio of gold-silver you follow? Keep on strumming. Thanks, Bryce B."
Bryce sounds like a guitar player. [Laughs] Will do, Bryce. I'm determined to play every morning and every afternoon, every day, from now on. But, no, there's no specific ratio of all those things. I tend to throw around 5% to 10% of your liquid net worth in bullion, but, you know, it's just a ballpark, and, really, it's a personal thing. And as far as all this other stuff, ETFs, minors, juniors, royalties, to me, maybe except for the ETFs unless they're – if they're equity ETFs, that's one thing. If they're bullion ETFs, they're in the bullion category, as far as I'm concerned. But if they're all equities – minors, juniors, royalties, ETFs – I would consider them all the same thing, and I would lump it all together and establish that as a percentage of your overall liquid net worth. That's all I got for you.
Next comes Robin S., and Robin S. just wants to know, he's holding this stock, DDD, one of the 3D-printing stocks, and he says: "The chief legal officer sold 197,000 shares, then the stock dropped 5%. Is this an automatic signal that things are in trouble, or might he just be taking some profit?" OK, I'm going to stop you right there and answer that question. Insider selling just all by itself is not a sell signal. Insiders sell for all kinds of reasons. They generally buy in the open market for one reason: because they're bullish on the stock. But they sell for many different reasons. Maybe he is taking profits. Maybe he wants to buy a house, buy a boat, take a vacation, whatever.
And then, Robin finished up, he says: "I am panicking and tentatively put in a bid to unload most of the stock. Thoughts? Thank you. Robin S." Hey, if you've tentatively put in a bid to unload most of the stock, you've made your decision and I can't – I'm not going to comment on your decision. But I will comment that you appear to know exactly what you want to do [laughs], OK? And there's value in knowing exactly what you want to do.
Next comes Wayne B. Wayne says: "I've been a Stansberry member and listener for three years, now. I have cash on the sidelines. When should I reinvest in current investments? Should I keep my portfolio diversification at 3% to 5%, even if the stock is above the suggested buy amount? In a growing portfolio, how should I continue to invest, let alone market swings? I'm in for the long-term. I'm4 years young and have a while to go. Merry Christmas. Love the podcast." Oh, Jeff T. I'm sorry, that wasn't Wayne B., that was Jeff T.
So, Jeff, generally speaking, the part of this that I'll answer for absolute sure is that, generally speaking, you don't rebalance by buying more of something that's gone up a lot. So if, you know, it's over the suggested buy amount or something – I don't know who you're reading, but – you generally rebalance by selling what's gone up and buying what's gone down. Now, buying what's gone down can be difficult for a lot of people, because they tend to sort of buy and buy and buy all the way to the bottom. So, in the context of, like, you know, maybe using trailing stops, you could say, "Well, I'm going to, you know, use trailing stops to completely exit a position." But short of that, if I, you know, get to the end of the year and something has fallen and I'm not stopped out, maybe I'll rebalance a little bit.
Or what might work better – you have to think all this out for yourself, by the way. What might work better is you could say, "Look, I started out with a 3%-to-5% allocation," and then that's it, no rebalancing, you know? Because, for example, you know, what if you – if you took our advice, years ago, to buy Constellation brands, back in, like, 2011 or something, you know, that thing just went up and up and up, and eventually, it was, like, a 10-bagger. You don't want to sell that down and rebalance it, right? And I heard a story, one of the great all-time stories is about the coffee can portfolio, where the guy just bought $1,000 or $5,000 of every stock that was recommended to him by the firm that was managing his and his wife's, you know, that was consulting with him and his wife, basically.
And his wife followed the buy and sell advice of the firm. The husband never sold anything, and he made, like, 10 times more money. And so, he never rebalanced or sold anything – he just bought, and the stuff that went down went down, and the stuff that went up went up so much, over decades and decades, that he made tons of money. So, I'll just share that with you, and, you know, I can't really tell you what to do, because the advice, here, would be too general.
OK, so now comes Wayne B. Wayne B. says: "Hi, Dan. Long-time Stansberry client, really enjoy your podcast. Recently, you've been emphasizing the most important thing investors have in common is risk management. Can you recommend a book?"
OK, yes, it's called The Most Important Thing, by Howard Marks. And The Most Important Thing has, like, 18 chapters on all these different things, and the one topic that takes up three chapters is risk. Read those three chapters on risk, before you read anything else, Wayne. That's my advice.
Next is Al M., and, Al, I love your e-mails. I can't read it all, but I can sum this up and then get to your question, here. Or maybe I'll just go straight to the question: "Looking at the current situation in the stock market, considering the work of John Hussman, Lacey Hunt, et cetera, and all the developed nations' debt, is it really possible that this turns out well? The politicians will destroy their poorer constituency, even if their inflation plan works. This is simply amazing how society could be so foolish."
You know, it's a mixed bag, isn't it, Al? Because over time, humanity moves forward, we do well over time. But in short periods of time, we can have wars and inflation and all kinds of things. I don't think we wind up in a hellscape, you know, an apocalyptic hellscape [laughs] or anything, even economically, for very long. But, you know, we're going to see bear markets, we're going to see inflations, yeah. If you don't prepare for those things, I think you're screwed, period. It's a good question, is there any way all this, you know, enormous multitrillion-dollar deficits and Fed just printing and buying and printing and buying and printing and buying, and, you know, all of this stuff work? No, over time, it's foolish, it's wrong.
Last comes Lila J., this week, and she says: "Hi, Dan. I'm a paid-up subscriber of several Stansberry products, have been a regular listener of the Stansberry Investor Hour, for a couple years. I'm writing to let you know I've really enjoyed this last year of Stansberry Investor Hour. You have obviously put in a lot of time and research in selecting which speakers to interview. I look forward to each new episode, and absorbing different insight and perspective that your show offers. Consequently, your show has helped me develop into a more well-rounded investor." Yay, triumph. That is the mission of the Stansberry Investor Hour, to help our listeners become better investors. Thank you, Lila, for writing in.
And she finishes up: "As a result, all of my portfolios that I manage have more than doubled, during the past year." That's all on you, Lila. Good for you. She says: "I just want to thank you for the diversity that you bring to the show, each week, and I wanted you to know that your hard work is recognized and appreciated. Best regards in 2021." And to you, Lila. Thank you very much.
That's it for another mailbag, and that's it for another episode of the Stansberry Investor Hour. Hope you enjoyed it as much as I did. If you want to hear more from Stansberry Research, check out americanconsequences.com/podcast. 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. You can also follow us on Facebook and Instagram. Our handle is @investorhour. Also, follow us on Twitter, where our handle is @investor_hour. If you have a guest you want me to interview, drop me a note at [email protected]
Till next week, I'm Dan Ferris. Have a happy 2021, and thanks for listening.
Outro: Thank you for listening to this episode of 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 Dan? Send him an e-mail: [email protected]
This broadcast is 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.
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