Episodes

Recording:                  Broadcasting from the Investor Hour studios and all around the world, you are 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 is your host, Dan Ferris.

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I am also the editor of Extreme Value published by Stansberry Research. Today we'll talk with Bubba Horwitz. He's a great trader with a lot of wisdom to share from a several-decade career. Can't wait to talk with him.

In the mailbag today, we hear from Ron K. and from Neil and Sheila, who have a whole list of good stuff they've learned from listening to the podcast. And remember, you can call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my opening rant this week, let's look back at my 10 surprises for 2021 that I gave you in January and see what we can learn. That and more right now on the Stansberry Investor Hour.

Do you remember my 10 surprises? It was episode 188 – January 7 – of the podcast. If you go to investorhour.com, you can look it up and listen to it. And among other things in that episode, I gave you what I thought were 10 potential financial market surprises for 2021. And the idea was not that I was predicting that these surprises would happen, we don't do predictions here, right, predictions are bad. What I was saying is that with the conditions that prevailed at that time, if you looked around, these 10 things would really surprise investors, right? So I'll just read through them real quick. We won't go through all of them, we'll just try to see what we can learn from having done this exercise. It's an interesting lesson. I promise you there is an interesting lesson that we're going to learn but let me read the surprises first.

So, the No. 1 was that the S&P 500 would drop more than 20% in a single trading session. Most people say this can't happen but I say it can, even though it's highly unlikely. No. 2, the S&P 500 hits a new all-time high and breaches the March 2020 low, right, extreme high, extreme low. That obviously didn't happen. 2020 versus 2021, No. 3, if you take 2020 versus 2021, I said the economy would recover but the stock market would correct sharply, that would be a big surprise.

No. 4, Tesla falls more than 50% and gets kicked out of the S&P 500, that sure didn't happen. Bitcoin falling in about half, I said, among other things. The Volatility Index, the VIX, No. 6, the Volatility Index hits a new all-time high, also didn't happen. No. 7, bonds stop protecting investors from losses in stocks and do lousy in general. We'll talk more about that one. No. 8, the 10-year U.S. Treasury note either yields 0% or less or 5% or more. Didn't happen.

No. 9, the FAANG stocks, right, Facebook, Apple, Amazon, Netflix, and Google, rise 30% then erase all their gains from 2020 and 2021. No. 10, COVID-19 lockdowns continue until September or longer.

So the first thing you notice from this list is that only two of them happened. Bitcoin did fall, it peaked in April and then fell 50% to about $30,000. But then, of course, that didn't phase anyone, right, that's just normal bitcoin volatility and then it soared and hit a new high of $69,000.

The other one that came true was No. 7. I said bonds would stop protecting investors from losses in stocks and do lousy in general. So for bonds, OK, you can quibble with me on this but I'm just using the 10-year Treasury as the universal bond market benchmark, and really, there's so little data to work with. We only got one sort of decent correction of 5%, slightly more than 5% from September 2 to October the 4th and if bonds did what they're always supposed to do, the 10-year yield would have fallen during that time because bond prices and yields travel in opposite directions, right? It's just the way the arithmetic works.

So the 10-year yield rose during that period, OK, and it's not supposed to do that. Bonds are supposed to hold their value most of the time, you know, all the time, and then outperform, right, give you a positive return and hedge your equity portfolio. That's been going on during the era of an extremely accommodative central bank, you know, the last two-plus decades.

So, I got, you know, that one did happen. That was a bit of a surprise, I think, for a lot of people. But it wasn't a big surprise because it wasn't a big correction. So, you know, not a huge, big deal. So those are the two that happened, all right. And, you know, bitcoin fell in about half. And I said other things about bitcoin. I said it would surprise people if it, you know, did not finish the year at $200,000 because, you know, it just took off in 2020, right? So in January of 2021, everybody is really bullish, and people were talking about $100,000, $200,000 by the end of the year, that's clearly not going to happen. But I don't know how many folks are really surprised by it.

So, what's the big lesson? There is a big lesson, I think, here. The most important lesson is that I didn't – the No. 1 surprise in 2021 that actually happened is nowhere on the list, right? What would that be? Inflation, right? We recently had a CPI hitting a 22-year high, 6.8% in November, 22-year high, and the PPI, which just came out, you know, in the last couple of days, 9.6%, highest ever increase, and these are monthly increases over the same month of the previous year, that's how they do it, right? So in November 2021 versus November 2020 is when the PPI increased 9.6%. Same thing for the CPI, the Consumer Price Index increase of 6.8%.

So, I didn't mention this at all and this is a huge – this is a lesson in via negativa, right? This is – and if you read Fooled by Randomness by Nassim Taleb, and I recommend all of his books, they're wonderful, you can read them and read them and read them for the rest of your life and you'll learn something new every time. And via negativa in this case just means focusing on what was not said, right? So if you're a good via negativa thinker, you looked at my list of 10 potential surprises and you said, hm, what's not on this list and maybe you came up with inflation because that was the one.

And that really is the big lesson for me. It's funny, we do these exercises, and for me, this exercise starts with, you know, what are the market conditions and what are the risks, right? What risks aren't people really thinking about based on equity valuations or bond valuations, you know, price behavior and valuation, really, right? If the price of bitcoin is just going straight up, well, nobody is really worried about a correction, are they? And if the stock market is super-duper expensive compared to all of history, including the dot-com era or 1929, then it sure seems like investors are not worried about the market correcting, right? That's how I'm thinking about it.

So, again, I reiterate, it's not about making a prediction, we don't do predictions, right? And in fact, I strongly counsel against basing any part of your strategy of your investment portfolio on your ability to make predictions, right? That's not an investment strategy, that's a gambling addiction, OK, so don't do that, right? Look at my list of 10 potential surprises, and I will do another one next week, I won't do one this week, look at the list of 10 potential surprises and think, OK, these things – Dan is saying these things would surprise people. He is saying in one way that they are risks or sources of upside that people are not thinking enough about. They're unprepared for them, right?

So that is the lesson, that's what I want to leave you with, via negativa, what's not being said, what is not being anticipated, because that's what – right, that's what the list is based on so you need to evaluate the list that way. All right. Good lesson, classic lesson in investing, what is not being said, what is not being prepared for. I'm going to leave you with that.

And now, we're going to talk with Bubba Horwitz, can't wait to talk with him. He's a great old trader who's been around, been there, done that and got plenty of wisdom to share. Let's talk with him, let's do it right now.

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All right, it's time for our interview. Today's guest is Bubba Horwitz. Bubba is the founder and CEO of Bubba Trading and for nearly 40 years, he has enjoyed a successful career in the financial industry, beginning in 1980. He was one of the original market makers in the SPX trading pit at the Chicago Board Options Exchange, where he remains a member. Bubba, welcome to the program, sir.

Bubba Horwitz:          Dan, it's great to be with you and it's been a long career and been great, and obviously lots of changes in markets and things as we've gone along.

Dan Ferris:                 Yeah. What the heck was the trading pit like in 1980?

Bubba Horwitz:          It was actually unbelievable. If you can picture the movie Trading Places, the trading scene, you know, when orange juice futures were going crazy, many days were just like that. In fact, in the movie, they actually used real traders as the extras because the pits were, you know, not every day, but many days that wild and that crazy. In fact, in the OEX, when it started in about 1982, the original pit you had to sit outside, it was like trading in the aisles there were so – it was so crowded, so. And when they moved to the new floor, there was over 2,000 traders in that pit.

Dan Ferris:                 Oh, man, 2,000 guys screaming over each other.

Bubba Horwitz:          Yep.

Dan Ferris:                 That's insane.

Bubba Horwitz:          And that was just the OEX pit, that wasn't the rest of the trading floor and that didn't include all the clerks and – you know, you had to check your trades. It was wild. It was fun and people couldn't understand how you could hear but you actually learned to have selective hearing because not only were you using hand signals to – but you also were yelling to get the people's attention. So it was quite the experience and I would just about give anything to get back to that experience again. I loved the – there's nothing like the trading floor, so.

Dan Ferris:                 Yeah.

Bubba Horwitz:          Which no longer exists, so.

Dan Ferris:                 Interesting. Bubba, were you in the pits on October 19, 1987?

Bubba Horwitz:          I was in the pits on October 1997. I was in the pits in March of 2001.

Dan Ferris:                 Wow.

Bubba Horwitz:          It was kind of eerie in 1987. It was almost quiet because everybody was in such shock as the markets went down 22% on the opening and that was the first really big debacle of a market in, you know, in a one-day event in history and it was crazy. And then when the panic kicked in, retail customers were so crazy they were buying puts as if the market was below zero, which it could not go. So it was very crazy and very interesting.

Dan Ferris:                 Wow. Bubba, what do you think is the likelihood that such a thing could happen again?

Bubba Horwitz:          It cannot, impossible. Here is what has been done to change those dynamics, OK. The first thing is they now use circuit breakers. So, the first circuit breaker is I think 8% and then – and it will actually close for the day at a certain point. But the fact – the first fact of the circuit breaker, which calms the market. Remember, when everybody gets into a big yelling frenzy, suddenly, you know, if you stop them it gives people a chance to think, OK.

No. 2, the flow of information is so fast now that there isn't any real surprises. And No. 3, the fact that everybody is now a retail trader, basically. You know, there's members that trade and make markets but now you no longer can get overleveraged or overmargined so the margin-call issue does not come into play anymore either. So that can never happen again the way that it happened. Now, we could certainly go into a tailspin but these circuit breakers and other things have prevented another one-day decline like we saw in 1987.

Dan Ferris:                 I see. So I think the threshold for shutting down the market is 20% and I think the other two circuit breakers are at 7%, is it a 15-minute stop?

Bubba Horwitz:          I think it's 7 and 13 and then 20.

Dan Ferris:                 Yeah.

Bubba Horwitz:          And again, I have yet to see a 20 show up. I've seen the 7 and the 13. And usually, they'll come back, because again, what you want to remember in markets themselves, typically what happens is equilibrium will return especially among the professionals who recognize it really is more of a buying opportunity and not a reason they continue to panic.

Dan Ferris:                 Right. But it sounds like you're saying they really benefit by that 15-minute stop.

Bubba Horwitz:          Yes. Well, what it really does is – you know, I have always told all of my members, when you see a deep sell-off early, you know, it's better to take a deep breath before you panic out or as a floor trader term, before you puke out, take a deep breath and make sure that's what you want to do. Because, more often than not, you will have a much better opportunity – if you really want to exit, you will get a better opportunity if you sit back and wait and relax before jumping in and exiting out. So it has, you know, changed the dynamics.

And again, once you bring equilibrium and calm back by shutting it down, it gives those who might be panicking under normal circumstances the chance to sit back, take a deep breath, and relax before they make a dumb decision.

Dan Ferris:                 Got you, OK. And you also mentioned, we talked about October 1987, but you also mentioned, what, March 2001, did you say?

Bubba Horwitz:          March of 2001, and of course, you know, through '08 to '09. I was on the floor through all of those events and they were all similar. They were always loaded with, you know, a panic or fear. You know, we know that the markets still – the market still thrives on either greed or fear and, you know, when people are afraid, you know, when their assets start to melt down they start to panic out. And, you know, that's – that will happen again. That will always happen because any time you bring in emotions you get these crazy markets and you can get these major moves and these downtrends.

Now, you know, one of the interesting things that people don't think about in the world of trading or marketing or investing is that invariably you get gigantic rallies in a bear market anyways, and if you would be patient enough to wait, you can always get a better shot to exit because there are massive rallies that show up. And really, to understand how the markets trade is very important to everybody, whether you're investing or trading, because the worst trade that can be made is to be made out of emotion or out of panic. It's like you always use the analogy have you ever said something to someone that the minute the words came out of your mouth, you wish you could jam them back in? You know, kind of like the cartoon with the bubble above but you can't get them back you, you've already said it. So it's like making a bad trade out of emotion, you jump in too fast because you let your emotion overtake rational thought.

Dan Ferris:                 It all sounds so simple the way you say it, but it's so hard for people, isn't it. I mean it's just like –

Bubba Horwitz:          Look, let's face it, money is very hard to lose. Money is a root of all evil, as they say, but it is – you know, there's two things in life, one is always money, and you know, when it comes to your money it's hard to be rational and calm and that is basically... You know, even myself, I don't get irrational with my trading, I mean, but I have made bad trades trying to chase the market around. But you know, you have to learn, and it's the hardest lesson, is to not let your emotions overtake rational thought. And that is something that you can learn but most people can do it if they trade or invest with monies they can afford.

You know, when you start to get too overleveraged or trade bigger, remember, everybody's got a number in which they get nervous. So you have to sit back and allow yourself to trade properly within your own guidelines so that you can then not become one of the irrational, emotional few.

Dan Ferris:                 Yeah. It seems, these days, like there are a lot of irrational, emotional folks in equities and other places as well, but a lot in equities.

Bubba Horwitz:          Again, I mean equities, like everything else, they create problems and issues for people. You know, look, again, it comes – life comes down to money, OK, and when you're dealing in money, OK, you get nervous, you get crazy, you make bad decisions. And that is something that you just have to learn to deal with. It's hard, it's a hard concept to deal with, OK, but you do have to learn to deal with that. And it's something, you know, again, equities, you know, companies start going down, they start getting bad reports.

You know, too many people look at the news and the items that the news creates, and then you – again, you start to believe in it and don't realize that the news that you're hearing today is already priced in to the market but we don't think like that, we're not wired like that, which is why I tell everybody watch the price action of the market not the news, because the news has already been accounted for.

Dan Ferris:                 All right. That is a great segue into maybe you could just tell us, like if we were sitting in a bar, you and I, and I said, hey, you know, what kind of an investor are you or what kind of a trader are you, how would you describe your style and overall strategy?

Bubba Horwitz:          Well, I have a number of different strategies, and I will day trade, which I actually do every day, and I trade on a very short time frame, which I use a four-minute cycle to day trade. But I also have an algorithm that I designed that I build portfolios off of, which I don't even – the truth is, I don't even look at them. Win or lose, they trade, and when the signals change I reverse them. And I'm always involved.

For example, I'm always in, either long or short, 29 markets, OK. All of the commodities markets, all of the futures markets, and, you know, I do not look at them by the day because they have made great money over the years and it's a method that I use, that, again, there is no stops, it's either long or short and that's where we stand, those are my positions.

Now, day trading is, again, something that I use a very similar model but it's something that I have to be able to judge myself because obviously the decision has to be made in seconds, OK. And I'm also an investor in equities which I hedge my equities so I don't have to deal with the emotion of my retirement account slipping away, OK. You see, there's a –

Dan Ferris:                 I see, OK.

Bubba Horwitz:          Everything that we do as traders or investors needs to be planned and we always have to know if that, then this. And so everything that I do has an automatic exit or an automatic protection that goes with it. So my long-term investment portfolio has got a hedge around it, which is a model that we designed, that is all mechanical. It's all designed to protect using, you know, an options derivatives to create a hedging protection. And actually, at every dip or every sell-off I actually buy more equities. It actually gets done automatically but they actually buy more.

So through, you know, if you go back two years, December of 2018, the markets got clobbered, we were buying stock. Through COVID, we were buying stock. We continue to accumulate knowing that compounding is the best way to invest but you have to have that protection and the ability to do so, which is exactly the models that we work off of because we're protected and we're actually creating revenue on the pullbacks to buy more stock. Go ahead, I'm sorry.

Dan Ferris:                 No, I was just going to say, it sounds like you're mostly a longer-term equity investor but your day trading and shorter-term trading, sounds like it's focused in futures, do I have that right?

Bubba Horwitz:          Yes, because futures are – for day trading, there is no better product than the futures market because A) You get the most benefit of leverage. You have no pattern day-trading rules that go along with that. So, you know, again, when you're in equities you've got FINRA to deal with, and if you don't have 25,000 in your account, you get shut down. And besides the fact that you start giving up too much edge on the bid offer spreads and things like that. Versus, futures are clean, they're pure, and there is no effect from volatility or anything else, which is something that you have to always keep in mind as a trader, OK, is the ability to get the best out of the market and give up the least amount of edge.

Because we'll never, as a retail trader, which is what I am now, OK, we're never going to get the edge, OK. I'm buying the offer and I'm selling the bid. No matter what I think, I'm buying the ask, I'm selling the bid price, OK. So I have my edges in other places to overcome what I'm giving up. But certainly I can't give up wide bid offer spreads to day trade because you can't give up that much money on every trade. So you have to use futures, and again, because futures create much more leverage without the restrictions, plus the fact that they have better tax benefit for trading as well.

Dan Ferris:                 OK. So you're not – if you can't earn spreads, in other words, you've got to pay them, you got to look elsewhere, and where can – you know, it begs the question, doesn't it, like where does a retail investor get anything like enough of an edge to even participate?

Bubba Horwitz:          Well, if you're using, you know, solid strategies and solid models to, you know – like we use blow-off patterns, are one of the main core methods we use, which is really a pattern that shows panic on your opposing traders. Because we know that trading is a competitive business, everybody's competing to make dollars. So, you know, you can read this in the charts as you learn to read the markets, OK. You know, it's not hard, it's pretty basic, and if you learn it, then you can then actually gain the edge when there are emotional traders around you. Now, obviously, they're no longer around me but I can see them in the machine. You can see them in the chart and the patterns that are being created on whatever time frame that you're changing.

And remember one thing, that all markets are the same and all patterns repeat themselves over and over again. So, if you start to learn to read the patterns and you look for one particular pattern which is induced by either greed or fear, and it shows itself up because it creates typically much more price movement in one direction and much more volume... that is usually a great opportunity in which somebody who is willing to step in front of that is gaining the edge on the market.

Dan Ferris:                 Bubba, a typical thing that I have heard from futures traders, usually folks like yourself, who have long careers under their belt already, many of them, we have spoken to quite a few of them on the show, many of them have said the patterns have changed over the years. Have you found the same thing?

Bubba Horwitz:          No, I don't agree. The patterns are the same today as they were when I started 40 years ago. The difference is 40 years ago I wasn't trading patterns, I was trading the bid offer spread because on the floor – when you're a floor trader you have no time to look at charts, OK.

Dan Ferris:                 Right.

Bubba Horwitz:          When you become a retail trader that's all you have is the charts. So you have to – you know, there is a major difference in the two vehicles that you're using. So you have to be prepared, you know, to read this in the chart. And as far as I'm concerned, the patterns are exactly the same, and I can prove it, OK, any time you want. I'd be happy to prove it for you. But I mean I can't prove it without showing you but if you'll go back and look, all markets are the same, all patterns repeat themselves and the shortest time frame always has to resolve itself backwards into the longer time frames.

Remember, no trend can start without it starting in the one or the five minute first, and it's got to work its way backwards to turn a market in a new direction. So right now, if you say the market is in an uptrend, which obviously you're looking at today, it's probably not too much in an upturn, but it is in the general uptrend. But the downtrend has to start, you know, first in the one minute, then the five, then the 10, and so on and work its way backwards.

Dan Ferris:                 I see. So, if you're – you know, you're a successful guy, you're a successful trader, you've been around a long time, you don't even survive in that business if you're not pretty damn good at it. And then I've got these other traders who are also old guys, been around, survived, made plenty of money and you're both telling me something opposite about these patterns. It suggests to me that there is something else you're both doing that's a lot more important maybe, that you might have in common. Does that sound right?

Bubba Horwitz:          It's possible. Now, again, I don't know what that happens to be other than – you know, I don't know exactly what they're trading. But if they're trading spreads, you know, there are some deviations in spreads that you can trade. I mean many old-timers, you know, trade futures against futures and create spreads. You know, there's a lot of – and synthetic and artificial spreads you can create. They're not necessarily recognized by the general public. I mean, I personally trade the S&P futures against the DOW futures, which is a spread because they're correlated products, but typically in a bull market the S&P will far outperform the DOW and vice versa.

And of course, if you're a grain trader, you know, there are certain relationships between all the grain markets and the price they should be. So if they're spreaders, you know, or trading – you know, there are many different spreads. You know, like in the oil and distillate markets, there's what they call their crack spread, which is using oil against gas, and in grains there is the crush, using, you know, soybeans and soybean meal and soybean oil. So, there are a lot of different ways to skin a cat, that comes down to, you know, how much risk you want to take.

Dan Ferris:                 OK. You know, it's funny because you wound up exactly where I thought you would with that question. We always wind up here, Bubba. Like I've talked to I don't know how many traders, like dozens over the past few years here, and we always wind up here. We always wind up at risk management, that, you know, position sizing and cutting losses, you know, stop losses, and here we are. You got us there.

I assume, you know, the – yeah. So to me, it seems like – and I am not a day trader, I'm not a futures trader, but it seems to me like that is more important, it seems like, that whatever strategy you're using to enter trades, is how you manage that risk, you agree?

Bubba Horwitz:          I would agree 100%. You know, it's like I try to explain to my own members, and you know, I day trade with them every day for 30 minutes, and I go, you know, look, you cannot trade bigger than you can emotionally handle. If you're going to make a decision based on emotion, you're trading too big. It always – everything always comes down to risk, it comes down to money, which goes back to my original quote. Life comes down to two things, one is always money and if you are overrisking or overreaching, guess what, you're going to make a bad decision, you're going to make a bad trade and you're going to be very unhappy and that's what it comes down to. The risk is – risk, money management, proper sizing is always the difference between success and failure, OK, that's exactly what it comes down to, which is to your point.

Dan Ferris:                 Yeah. And the stories that you hear coming out of, you know, a lot of, it sounds like young, definitely new, especially equity investors today, folks who go on Robinhood and they're loading up on call options. I'm sure you know, you know, that call option volumes have exploded, especially in certain stocks like Tesla and Apple and a couple others. And it just seems like they're doing the exact opposite of what you just said is the difference between, you know, success and failure, and they're getting lucky. And I just feel like –

Bubba Horwitz:          They'll all end up broke, as always. I mean this is not new. This is – you can go back –

Dan Ferris:                 Right.

Bubba Horwitz:          You know, to the '90s when we had the Internet bubble, OK. You know, everybody made a fortune until they didn't and then it was all gone and then they were all – not only did they lose the money but then they had tax obligations for the money they made the year before. So nothing – I will say this to you, Dan, nothing changes in markets over time and it's always the same reasons for failure... it's those that believe that they are smarter than or can do better than what the market is actually telling them.

Because the market tells you what it's going to do and it's up to you to listen to it, and by listening to it, which just means that the risk that you are taking, the ability to maintain control. And, you know what, sometimes you have losers, you have to take them, and you can't let them disturb or bother you going forward. A loss is a loss, you move on and go to the next trade, OK. And that is always where problems come for those who cannot control themselves and get too wound up with trading and trading too big for their accounts and things like that. And that's always the reason for failure. I have watched thousands of floor traders come and go for those very reasons.

Dan Ferris:                 Yeah. It just – well, it never ceases to fascinate me how similar all the good traders talk. You know, you all may be pursuing different strategies, like you said more than one way to skin a cat, there's a – you know, more ways to enter trade than we could probably cover in, you know, in hours. But in the end, all the good traders talk so similarly and yet it seems really difficult. The things that they do seem really difficult for most folks. Most folks can't handle it. They can't exercise that discipline, and it is – let's face it, it's kind of an unnatural act, isn't it, to have that kind of discipline day in and day out for 40 years like you've had?

Bubba Horwitz:          Well, I have not always had it. I have made mistakes. Listen, I'm not going to stand here and say I've never made bad trades. I've made plenty of bad trades. I have made plenty of dumb trades as well.

Dan Ferris:                 Sure.

Bubba Horwitz:          But, you know, over time you have to be able to overcome it and you have to remind yourself what your No. 1 goal is, which is to earn money. And you have to remind yourself that the business itself, success comes to those who can be patient and those who can be disciplined. And, you know, it's funny but, you know, trading is very much like some mathematical games because trading is nothing more than a big game anyways, OK.

You know, if you play bridge, mathematical. The best players – they won't win every time, but they're going to win. If you play poker, the best poker players are going to win, not every time but over time. Gin, the best gin player is going to win over time. And in backgammon, all of those games are purely 100% mathematical that you can get the edge, as is trading. Because everything in trading is also mathematical.

So if you continue to put yourself in the favor of the market and get the edge, then what you've really done is you've given yourself the greatest opportunity to win. And again, if you can win, you know, 66% of the time on your trades and stay in control and not chase them when they go against you, then you are creating a successful opportunity for you as a trader. And that's the only way you can treat it, you have to treat it just as what it is, nothing more than a game.

Dan Ferris:                 Bubba, from the day you started trading, how many years would you say went by before you really understood and could demonstrate that you were, I don't know, just plain good at it? How long did that take?

Bubba Horwitz:          Well, let me put it this way, my first six months on the trading floor, I made my living playing gin, gin rummy in the morning. True story, OK. It takes time. Look, everybody recognizes it at a different time but the first thing you have to recognize is the purpose you're there and what you're trying to get accomplished. And, you know, once you can do that, you have then mastered the first part. Then it comes to being disciplined – you know, the floor is a much easier spot to lose control because of the excitement around you when things are going on.

So, but I think if you take your time, it took me... I would say I became really good at it probably nine months in, and then obviously improved from that point on and continue to improve. You know, listen, I try to learn things every day. I continue to try to, you know, work on my game either to teach it better to the members that I have or to make myself better. Because the business itself is a constant learning curve because there are so many things that change in markets, you know, from floor trading to screen trading to, you know, the way that news is reported to the flow of information.

So you just have to continue to be – observe the markets and be willing to not make a trade. You know, just because you're watching doesn't mean that there is a trade for you to make. And I'll give you one quick example. This morning, I was live trading with my members and we did not make a trade in 45 minutes. I said, well, look, I am not going to make a – look, I'm trading my own real money and I don't want to make the trade. Why would I put you in a trade that I am not going to a make? And – because I do trade live money, my own, at the same time with everybody else. So I go there is no purpose. If I can't – if I don't think it's a profitable situation why should we trade?

And that's the hardest thing to do. You know, you're sitting there and you're watching and you're saying I got to make money, I got to get in. Well, sometimes the best money you make is by not getting in and not losing money.

Dan Ferris:                 Right, that's another tough thing. You know, money just burns holes in people's pockets. But I want to –

Bubba Horwitz:          The greed burns more holes than anything else. It's the desire –

Dan Ferris:                 Right.

Bubba Horwitz:          Like if you feel that you got to get in, OK. But really, like I say, sometimes the best trade you make is the one you don't. You know, we have a saying here which is, it's always better to wish you were in a trade than to wish you were not.

Dan Ferris:                 Right. Yeah, that's right. So, but Bubba, I want to go back for a second. You know, I asked you how long before you started getting good at it, you said nine months, and I wonder if I could ask you, look, we know you've learned a ton since then, I get that right, that was a long time ago. But after that first nine months, like what was, if you remember it, I know it was a long time ago, you know, one old guy asking another old guy to remember. What was that first insight after nine months? What hit you on the side of the head and you just said, oh, OK now I get it? Do you remember what it was?

Bubba Horwitz:          Well, I actually do. It was when I learned how to trade some of the arbitrages that are available for floor traders and wholesale traders. Actually, in the options world, we would trade what they call boxes, which is creating a call spread and a put spread that created a box in – you know, in those days they didn't have all these small strikes that were $5 wide. And if you could buy a box for less than 5 or you could sell it for more than 5, but what it really did is it gave you a better feel for the market and it gave you more of a discipline to find the best.

Because basically, you're – as a floor trader, you're trying to trade the bid-offer spread because you're built-in edge on the floor was to buy the bid and sell the ask, right? There's many guys I know that did nothing else. They never took any risk. They bought the bid, sold the ask all day long, they were working – you know, trying to make $50, $60 a trade, $100 a trade, bang, bang, bang, and they'd make a few bucks and be happy, OK.

Versus, you know, taking bigger positions and doing some of the arbitrages and creating, you know, huge positions that didn't have a lot of risk but took a lot of cost to carry of these trades. But that was the beginning of learning because when you learned the direct relationship between all – for example, options and futures and all these other things, it then gave you a much keener sense on market direction as it was trading and where paper was leaning. They call it reading the tape and that's the order flow, and if you get – when you start to see that more clearly it gives you a greater opportunity to understand the market itself.

Dan Ferris:                 Do you trade a lot of options, Bubba?

Bubba Horwitz:          I do but not – I trade very – a ton of options but not on a day trading, basically. You know, I trade probably, I don't know, 2,000 a week, maybe.

Dan Ferris:                 Yeah.

Bubba Horwitz:          You know, I trade a lot of multi-leg strategies. One of my big strategies is, you know, because I create – not only do I have a futures portfolio but I create synthetic stock using three-legged option trades that create – that represent the ownership of stock which gives you much greater leverage, OK, and I use a lot of weekly options to do so because the premiums are smaller. So yeah, I trade a couple thousand options a week but it's – they're always meant for either a week, a month, or longer because those trades will carry on in the direction of the trend. And of course, my hedging stuff is all done with derivatives which is, you know, depending on what the market action is, could be lots more options. I mean I have – you know, but we'll say I average a couple thousand trades a week in options.

Dan Ferris:                 I see. So, Bubba, a typical thing that I'll ask, like, you know, a mutual fund manager or a hedge fund manager, a strict, you know, bottom-up equity guy who is focused solely on fundamentals is, you know, I'll say, hey, do you care about, you know, technical aspects, like charts or whatever, and I flip the question on a guy like you and say do you care about fundamentals at all?

Bubba Horwitz:          No. Fundamentals are worthless, except, except if I am buying for my retirement account, if I am buying for my profit-sharing account then yes, fundamentals mean a lot because I want the companies that I'm investing in, I want to be confident that they're going to be in business, OK. But I will never buy a stock on a – for a fundamental reason. I will only buy or sell on a technical reason with one exception, OK. Now, this is the key part here. If a company fundamentally changes, very much like GE, General Electric, did about two years ago, if I owned it, which I didn't, I would have sold it immediately because to me it was no longer the company that I had originally invested in, in the first point.

But I don't ever buy for fundamental reasons. I want my companies that I'm buying to know that they are strong enough to sustain and be here because in equity markets we know one thing, that the historical average for 175 years is an average gain of 8.5% year over year. No matter what happens in between, year over year the markets go up 8.5%. So I want my companies to be in business for more than 10 minutes. That's what I use fundamentals for.

Dan Ferris:                 Gotcha. And the rest is strictly technical.

Bubba Horwitz:          The rest is purely looking at a chart, and as I tell anybody, I'll trade – if it's liquid, I'll trade anything. If you give me a cockroach market, I'll trade it if it's liquid. If they make a market out of it. I mean I've traded the weather before, there is a weather pit.

Dan Ferris:                 Wow. Weather – so there's like weather futures, what is that, gas or just –

Bubba Horwitz:          Well, really what they're for is they're for insurance companies, insurance companies and farmers potentially, because they protect against – they're hedging against hurricanes, OK. You know, there are other – there's a reason behind everything, right, and you can hedge – if you have a liquid market you can hedge just about anything. So that's what many of these companies are doing, is they're using, you know, derivatives to hedge against future risk because they take in premiums from their policies.

Dan Ferris:                 I see. So what about, when you see something like meme stocks, let's say, and I know you're primarily a futures trader, but –

Bubba Horwitz:          No, no, I have no interest in them. I think they're garbage. I think all the guys that are in trading in the market are going to go bust eventually. You know, I wish I owned it. I wish I had owned –

Dan Ferris:                 Right, right.

Bubba Horwitz:          But I never did and I just – I can't – the implied volatility to trade the options is sick and way overpriced. Now, again, right now they're having a good time and God bless, but I've seen the end of that story as well and I know that the companies that are – the meme sites, they don't even make money. I mean how can they be in business, they don't even make any money so the odds of them being in business... You know, and someday it will collapse but listen, if you can be disciplined through that and get out, hey, great, good for you. I just – to me, I got too many other things to do so I don't have interest in getting involved in high-risk stuff that I know is going to collapse.

And if I had enough capital and was willing to risk it, which I'm not, OK, I would be selling those stocks short and sucking it up. Because in my opinion the biggest ones, GameStop and AMC, they're going to zero eventually, OK. This is the same issue I dealt with in the '90s when I was short on the Internet stocks and lost a fortune and had to make a decision whether I was going to continue to fight or just, you know, go back to work and do what I did best and make money.

Because – and I was right but I did not – I decided that it was more prudent to just keep making money versus trying to tell the market when it was going to collapse, and I was 100% right but I did not have the money or the mental to stay and continue to pour down cash waiting for the things to collapse, although I knew, very much like, you know, Dr. Burry in The Big Short, but, you know, waiting for that market to collapse.

Dan Ferris:                 Right. A friend of mine likes to say that, you know, a typical thing would be like AMC, it's inevitable that it's a zero, but whether or not it's eminent is a whole other issue.

Bubba Horwitz:          Right. And again, how much pressure, how much pain, how much capital do you want to put forward, when you're also, at the same time, giving up opportunity costs because you're tying up too much capital in something that, you know, you can't quantify today.

Dan Ferris:                 Right. And it's just, to me, they are somewhat similar to Tesla, which is more of an actual business than AMC, because it's not dying, it's growing. But again, there, you know, you've got like this huge multi-bag of return in a short period of time, trillion-dollar market cap, valued more than the next 10 car companies combined, and the options are like the tail wagging the dog of the stock. It's insane. But you can't get in front of it. You can't short it, right, it'd be crazy.

Bubba Horwitz:          Well, I tried a number of times and lost a lot of money. No, I won't even touch it anymore. I have tried to short it numerous times and again, it's – look, Tesla, believe it or not, is very much like what Amazon looked like 20 years ago, OK. Now, I'm not saying – I think that – listen, I think the owner, the CEO, Musk, is a genius. I think he's very smart at manipulating markets and pushing things in his direction. I do believe they'll be successful. They are overvalued as it sits today but, you know, a couple of things that could change which would make them not overvalued.

But we are certainly heading in the direction of EVs, electronic vehicles, and of course, with the administration in power now they're almost forcing it down your throat. So you know, but again, yes, they are overvalued and – but I, you know, again, I decided to quit fighting. You remember the old Tareyton smoking commercial, I'd rather fight than switch, well, I'm not fighting it anymore, I'm too old to keep fighting these guys.

Dan Ferris:                 Boy, we're really dating ourselves with that Tareyton commercial.

Bubba Horwitz:          Well, I'm old, I'm old. Listen, I've been doing this for 44 years, I got to be old.

Dan Ferris:                 Yep. All right, Bubba, we've actually been talking for a little while here, man, this is great. I'm having fun. But I do have one final question that I ask all my guests, no matter what the topic is, same question every guest. And it's simply, if you could leave our listeners with a single thought today what might that be?

Bubba Horwitz:          Well, I think that everybody should learn how to read the price action of the market, which is just watching price trade. And if you start to look at the chart you can actually see the formations building right in front of you, which means you watch a start of a shorter-term chart because you can see the same things happen much quicker. But if you combine that by being patient and disciplined and do not overleverage to the market, no matter what reason you have, overleverage is always a losing proposition.

So, my thing is, it's money management with patience and discipline and you will be a much happier investor, trader and you will survive through all markets instead of just thriving when they go crazy in your favor.

Dan Ferris:                 That is some seriously good wisdom. I expected nothing less. Thank you for that and thanks for being here today.

Bubba Horwitz:          It was great to be here. I'd love to come back again. I hope you'll have me back.

Dan Ferris:                 Yeah, we will definitely invite you back, for sure.

Bubba Horwitz:          Thank you so much.

Dan Ferris:                 Wow. You know, it's funny, we have all these traders on here and I always wind up back at the same topics and that's kind of part of the point. All these experienced guys like Bubba, they've been around forever, they've survived and thrived and succeeded in a highly competitive undertaking and the wisdom, it's like an iron law, it's like the law of gravity. There is not much in the world, you know, there is not much outside the physical world that is like the law of gravity but, you know, the wisdom from great traders is like that. You know, control your risk, don't overleverage, learn to read the market, et cetera, et cetera. It all sounds the same and that's why I'm going to keep trying to find more people like Bubba and getting them on the program because it's something that we can't hear enough of because it's unnatural. It's nothing anyone naturally does, you have to learn it. And if you want to trade you had better learn it or you're going to blow yourself up.

All right, that was great. OK, let's do the mailbag. Let's do it right now.

Here on the show, I've talked about Marc Chaikin and the Power Gauge system he developed for Wall Street's elite traders. But what I haven't told you is the reason why he is now sharing this system with everyday investors like you. You see, his wife, Sandy, suffered a catastrophic financial loss in her life. She lost nearly 50% of her life savings which she earned working at L'Oréal Cosmetics when she trusted a money manager. Marc's system helped her recover everything she lost in the market, and since then Sandy has tripled her 401(k) by simply typing stock tickers into this powerful new website. To get the full story visit www.sandymessage.com, that's S-A-N-D-Y message dot com. Again, sandymessage.com, check it out.

In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Send questions, comments, and politely worded criticisms to [email protected]. I read as many e-mails as time allows and respond to as many as possible. Also, call our listener feedback line if you like, 800-381-2357. Tell us what's on your mind and hear your voice on the show.

Now, one listener called in the listener feedback line and four or five – I guess five others wrote in and talked about transcripts. Like where are these transcripts? So it appears we may be a bit behind on them this week but most weeks you can go to investorhour.com, click on the episode you want, scroll all the way down, click on the word transcript, and enjoy a transcript of each episode. So we're always working on it. If it looks like we're not doing it, I promise we are. And we should get caught up this week.

All right, first this week – we only have two of these this week. And I understand, you're getting ready for the holidays, that's cool. First up in the mailbag this week is Ron K., and Ron K. writes in and says, "Dan, I really enjoy the podcast, especially your ongoing advice to prepare, don't predict, and mentally prepare for a terrible bear market in the future whenever it does strike. My question is related to Tesla stock, which has done exceptionally well in the past two years, yet I am not aware of any Stansberry analyst that has recommended it. Instead, there have been various articles written and comments on this podcast to stay away from it. Was there some edict by Stansberry to not recommend it? If not, I'm surprised it was missed by each of the analysts. Ron K."

Ron K., first of all, there is never any such edict, OK. We don't do that at Stansberry. What you see is what you get and it comes straight from each analyst. It's what they honestly think. So this is therefore an honest omission by all of us. It was a great bet, it soared, it was a 10-bagger fairly recently, and we just plain missed it. So you're right to point that out. You know all the reasons why I missed it and I'll – if any other Stansberry analyst wants to address why they missed it, you know, that's up to them.

But as far as I'm aware, I believe you are correct and it was just something we missed. You know, like Warren Buffett says, you can't kiss all the girls. But I'm glad you asked because that question about the edict is really important. No such thing ever happens at Stansberry. Thanks, Ron, great question.

Next and last this week is Neil and Sheila, Neil and Sheila, thank you so much for your wonderful e-mail. I'll read the entire thing right now. "Dear Mr. Ferris and Lodewijk , too." I don't know who Lodewijk is, you're going to – oh, I think you're referring to Lodewijk H., who writes in so often, so how about that, one listener saying hello to another. "Dear Mr. Ferris, my wife and I thank you from the bottom of our hearts. Thursday night is date night with Dan, the only financial podcast she allows. Sheila recalls the days of her father being conned by the PaineWebber stockbroker and then 20 year later, friendly names like financial advisor, but actually financial salesperson. All that time spent with individual stocks and bonds and the fat commissions wasted only to end up with lousy performance, all a bunch of crap," in all caps.

"In an earlier show, she held back tears when Hyman called in and expressed gratitude for your genuine financial concern for listeners and your constant crystal clear reminders about," and then he gives me a list here, "being careful with investing and staying on guard, avoiding margin, paying off credit card debt, being aware of herd mentality, and financial dangers in following the crowd, learning financial history. Your excellent recommendation of Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor. Removing emotion from financial decisions, knowing what you are doing. Final thought, if you're not a skeptic you are not an investor, credit to Fred Schwed, Jr., author of Where Are the Customers' Yachts. Thank you, Dan. Neil and Sheila."

Neil and Sheila, thank you and thank you everyone who listens regularly all year, like Neil and Sheila. You are why we're doing this. I am here to have a conversation with investing, about investing with you. As far as date night with Dan, I promise you, like I've never heard that one before. You know, hopefully the quality of date night improves when you turn the podcast off, but I appreciate it, I really do.

And that list is golden. Being careful with investing, staying on guard, but, you know, staying invested in equities over time is good too. You want to be careful not to sell when you own a great business. You want to let the compounding to work for you. But, you know, of course I say be careful, right? Have plenty of cash on hand, own some silver and gold and maybe a little bitcoin.

Avoiding margin, absolutely. I bet there are a lot of people out there who regret using margin a lot more than – there are a lot more people that regret using margin than people who are, you know, grateful that they did it, right? It tends to be a mistake and it affects your ability to sleep well. You know, you don't want to be losing sleep about your investment portfolio, it should be like watching paint dry, right? You just buy great businesses, hold onto them for the long term, and don't worry about them.

Paying off credit card debt is one that I don't repeat enough, right? If you're paying 18, 24% a year, whatever it is, it's real hard to get rich over time. It's real hard to earn – you know, if you're earning just call it 9% a year in stocks over the long term and you're paying 18 or 24% on credit card debt, do the arithmetic, you're behind, you're way behind over time on that. And the truth of the matter is, if you carry a lot of debt, credit card debt consistently, it just means you're buying a lot of stuff you can't afford.

Being aware of the herd mentality and financial dangers of following the crowd. Yeah, I've talked about that one a lot. For example, and I would – I'm sorry, Ron, I have to use the example of Tesla. Just buying Tesla because everyone else is, is a mistake even if the stock goes up tenfold, right? Sure, you made money but you have no idea what you're doing. And so when do you sell when you have no idea what you're doing? Well, that's a hard question, isn't it?

Learning financial history. You mentioned – I'm so glad you mentioned Devil Take the Hindmost. Read Devil Take the Hindmost by Edward Chancellor, it is the greatest financial history book ever. The lessons in there are – you can only learn them one way, you can only learn them one way, you must study those events and few people have seemed to have read everything about them and written about it like Chancellor.

Removing emotion from financial decisions. We've talked about this frequently. This is why you have a system for doing what you're doing. You develop a strategy and use the system and stick to it over the long term and it helps you not blow yourself up by getting emotional. That really is the point of removing emotion, is to not blow yourself up. I saw something on Twitter recently, a little bit that was sent around a couple of times about a fellow who considered himself very cautious with money, and I think he had like 400 grand, and he went all in – he bought call options on one stock and he blew himself up. Don't ever do anything like that.

And your final one here is knowing what you're doing, that's right, know what you're doing. Don't just do it because everyone else is doing it. Have a strategy, study, take your time. What did Warren Buffett say, he said getting rich in the stock market's not that hard if you're not in a great hurry, right? So you don't even need to be in a great hurry to put money to work, study, learn. If you really want to pick your own stocks, you know, study the Warren Buffett shareholder letters and read the, you know, Devil Take the Hindmost.

And you also mentioned the book, Where are the Customers' Yachts by Fred Schwed, Jr., great book, great classic Wall Street book, right? Do all that work and then start putting your money to work. Don't be in a hurry. Be invested for the long term. Thank you, Neil and Sheila, and thank you everyone, and that's another mailbag, that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did.

We really do provide a transcript for every episode, even though it takes a little time sometimes for it to get on the website. So just go to investorhour.com, click on the episode you want, scroll all the way down and sooner or later, I guarantee you, there will be a transcript there for you to enjoy. If you like this episode and know anybody who might enjoy listening to the show, tell them to check it out on their podcast app or at investorhour.com.

And do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram, our handle is @investorhour, on Twitter our handle is @investor_hour. If you have a guest you want me to interview, drop me a note at [email protected] or call the listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. Till next week, I am Dan Ferris, thanks for listening.

Recording:                  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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