Episodes

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

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we interview value investor and portfolio manager Jeff Muhlenkamp.

Dan Ferris: And today Corey and I will talk about a stock that has been around and around many times, on many episodes of the podcast: Disney.

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

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

Disney. Let's talk about Disney. Let's see. We broached this topic a few weeks ago with Porter Stansberry. We brought it up again more recently with Whitney Tilson. We may have mentioned it at another time. I don't remember all the times we've mentioned it, but I remember those two that we had a bit of discussion about it.

A little news item about it caught my eye recently, which is that one of the three – count them – three activist investors, who have gone after the company in the past couple years here, made a deal with the company. The firm that made the deal is called ValueAct. It was started by a pretty famous value guy named Jeffrey Ubben. He stepped down and handed it over to his protégé a year or two ago.

I saw several good presentations over the years at the old value-investing conference that Whitney Tilson used to run, of Jeffrey Ubben, always really a thoughtful presenter. The focus of the firm ValueAct was to work with management behind the scenes to keep from getting into nasty proxy battles.

The other two value activist investors were Trian, run by Nelson Peltz, and Third Point, run by Dan Loeb. I never saw Peltz's presentation, but I saw a few Dan Loeb presentations over the years, a really smart guy. So those two are a little more of the nasty proxy battle, writing the inflammatory letter kinds of guys, especially Loeb. He's written some hilarious letters.

So it doesn't surprise me that they made the deal with ValueAct rather than with the other two. Although they took some actions, it seems like, after the other two – when Peltz first got involved, they let thousands of people go. They let thousands of people go and they cut expenses and did a few things because Peltz's whole deal was about their poor operating performance.

So now they've made this deal with ValueAct, under which – I'm just going to quote The Wall Street Journal here, "Under which the activist would back the company's board nominees at the coming 2024 shareholder meeting, and Disney would share information and meet with ValueAct." It said, "Indeed, Disney's pact with ValueAct could help inoculate it from Peltz's demands for board seats in a contentious proxy season," it said.

Yeah. So they don't want to be contentious. They want to get ValueAct onboard and work with them.

I looked through Peltz's presentation, a bunch of slides dated January 12th, filed with the SEC. It was all these standard "The share price hasn't performed and the operating performance hasn't been good. Their streaming strategy isn't that great."

Nobody addressed what we've talked about on this show, which I feel is like the elephant in the room, which is kind of just the wokeness of the content alienating people because that's not what you go to Disney for.

Corey McLaughlin: Right. This seems like just a personality clash, too. With Peltz and his group, there's the former CFO of Disney, who got passed over to replace Bob Iger. So I think that's part of it, too. Like how should we steer this company, just from a broad view, and the political parts of it, too?

It's amazing that a company like Disney, which was long recommended before I started at Stansberry Research as a stock to buy, with all its trophy assets and its collection of copyright and

IP and the parks and everything it has going for it is in a place where activist investors are fighting over the future of it and debating the direction, and it doesn't seem like there's a clear answer.

There's a lot of issues with Disney on all kinds of fronts now, from the content itself to streaming. Nobody is making money in streaming, including Disney. They have ESPN, which is just like a big loss, not even a leader at this point. The whole cable business has been turned upside down and streaming is not working for anybody, except maybe Netflix.

Last night with my kids, they wanted to put on Mickey Mouse to watch. It's still got that brand awareness where you just kind of want to go to it. A lot of people want to watch it, from just generations of memories, and now it's – I don't know. The future of the entire company, of everything you're explaining as well as the content side, is just completely muddied.

Dan Ferris: And almost concurrent with the announcement of the deal with ValueAct is the announcement that a woman named Sharmeen Obaid-Chinoy is going to direct the next Star Wars film. She's a two-time Oscar winner and she directed Ms. Marvel, which is part of Disney's Marvel Cinematic Universe. It's a miniseries that follows the heroine, Kamala Kahn, the first Muslim superhero in the Marvel Cinematic Universe.

She's making some waves based on a comment. She's hired to do the next Star Wars movie, but she's kind of making waves based on a comment that she made like eight years ago or more, more than eight years ago, in 2015. I found the question that she was answering when she made the comment that everybody is reacting to. I want to read the question because it's insane.

She was at the Women in the World Foundation panel in 2015 and Chinoy was asked this question. "What is the balance of activating a force for change, but also trying to permeate that patriarchy, that power structure? And is that a part of the calculation of your art as well? And what's been the reaction to that?"

Chinoy replies – yeah, it's a crazy question, right. It's insane.

Corey McLaughlin: By Jon Stewart, by the way. That was Jon Stewart who asked that question, which is bizarre to me.

Dan Ferris: That is so true. Yeah. She says, "Oh, absolutely. I like to make men uncomfortable. I enjoy making men uncomfortable. It's important to be able to look into the eyes of a man and say, 'I am here and recognize that,'" and she went on from there.

My first thought, and I posted this on Twitter as soon as this stuff kind of came out – or on X, formerly known as Twitter – and my first thought was, whew, it's a good idea that men aren't the ones paying for their families to go see Disney movies because they might be really uncomfortable enough not to want to do that anymore.

Then I see this thing about ValueAct and I know Peltz has been after it, and Third Point has been after it, and this other firm called Blackwells is now getting involved. So all these investors are coming after it. I felt like their response was, "Hire this woman to do a Star Wars film." It's what's wrong with it on the one hand, and the result of all of these investors coming after it on the other. It just seemed too perfect to me.

Corey McLaughlin: Yeah. For that clip to be brought up from eight years ago – which was from a commentator online – because in response to a very recent interview she did on CNN about how it's 2024 and, "I'm glad a woman is going to be able to basically direct Star Wars," which is fine. It's fine on its own, but when people would read those other comments or hear the other comments, it very much goes to the alienating sphere very quickly when she's kind of telling you how you should think.

Listen, we're both white men here, so we're going to have an opinion on it. That's fine. Other people can have other opinions, too, on whatever else it is, but I think the point with Disney and other companies, like Whitney Tilson talked about a couple weeks ago with us, is where is the value in alienating however – half, 25%, 1% of your customers?

We're seeing it more and more and more now, and I think you're seeing the pushback from the, quote, wokeness push, whatever you want to call it, the last couple years. There's good things to being more culturally aware. There's some good things there. But when you push it down people's throats about movies or with beer or whatever it is, these are not things I think most people want to be caring about.

Then you see it in sales, like with Bud Light. I read yesterday their sales are down 25% from this time last year, and they're no longer the No. 1 beer brand in America. I would have never thought that would have happened. As much as I – [laughs] – I would never in my mind thought that that would happen, and the same thing with Disney. These are the things that – I think they're well-intentioned at some level, but they're going about it in a poor way that pisses off a lot of other people.

Dan Ferris: Yeah. There's got to be a way to do this without – you know, just at the most fundamental level of understanding, you can say, "We want to do things for women," without saying, "We want to do things against men," and this does have Bud Light written all over it.

She's won two Oscars and she's done this other action-type film in the Marvel Cinematic Universe. She's got all the talent it seems that you'd ever want to have, but it's interesting to me how one comment can overshadow all of that.

Let me ask you this. Who says this, "Gosh, I can't wait to get lectured about being a man in the next Disney film."? You're going to see Star Wars. It's in a galaxy far, far away. You want to get far, far away from this world and all of its squabbles, and you want to see an epic battle for good and evil.

Frankly, I think people have enjoyed seeing men and women in these traditional roles. Princess Leia was a great leader. She wasn't like a '50s housewife or anything. She was a strong female character, and there were others in the old Star Wars franchise. So if you want more of those characters, what's the harm in that? That's great. Bring it on. We love those characters. But you don't have to say, "I want to make men uncomfortable."

I mean I heard it and I laughed. I was like, "That statement is not going to sell tickets," or streams or whatever you're trying to sell.

Corey McLaughlin: Right. Again, this is a comment from like eight years ago. I have no idea what she would say today. I suspect something different. But I did take issue and I think other Disney–like people who are interested in Disney programming, she said, "It should make you uncomfortable because you need to change your attitude."

That's the stuff with businesses, when you're telling somebody what they should think is where I think people and the pushback comes ultimately, in terms of purchases and buying behavior. It can lead to problems for a giant formerly great company like Disney. It's like self-inflicted wounds.

I'm reminded of what Whitney said. Most CEOs would just be – the policy should just be, "Do not say anything about it," about anything other than your business really. I don't know if it's fair to say that's how it used to be, but – I don't know. With social media and just everybody having a platform now, I think it's very easy to get sucked into sharing your opinion on something for no real good reason, especially if you're – I mean who am I to say? I'm not a CEO. I've never been a CEO of Disney or Anheuser-Busch. I don't know, but the numbers are what they are.

Dan Ferris: Right. So here we are. We've got now, if you include Blackwell, which was mentioned in the ValueAct deal, four activist investor firms coming after this thing, and each one of them got some sort of a result that they like. But I'm still not there.

Normally, any one of these firms could get involved with a company and you'd say, "Oh, they're going to change it. The stock hasn't gone anywhere. They're going to change it."

Peltz has a whole case study of their involvement in Procter & Gamble. I thought, "Yeah, but Procter & Gamble wasn't saying they want to make men uncomfortable." So I'm still not there. I'll probably want to buy this thing when it's already up 30% because it is – it's 80s. It was like 80 bucks, and ValueAct said they thought the parks and the consumer products were worth 80 bucks a share. So they were willing to pay that and they thought the rest of it could be – you know, they could get involved and they could get the value of the rest of it recognized in the market.

So there's 10 bucks a share. I don't know what they think the ultimate value of all the rest of it is. But it seems to me like the problem – the Bud Light problem is still there. I don't know. Maybe now is the time to buy it though, because she came out with this statement that makes me cringe. The female director of this Star Wars film came out with this statement that makes me want to cringe, but there are four value-oriented activist investors going after this company.

So the sharks are circling. Everybody wants results, and this sort of wall of worry issue is maybe I shouldn't worry. Maybe the director issue is a distraction and I'm wrong to not want to climb the wall of worry and buy the stock.

Corey McLaughlin: Right. I think if you believe in the company still, and think that these things will resolve and the leadership will get sorted out one way or another, yes, maybe now would be a time to think about buying. The stock is essentially flat.

I was looking at it the other day. Since the March 2020 pandemic lows, in March when the market crashed, and Disney stock was up about 5% last year versus the S&P. It was over 20. So it's been lagging, the stock itself.

But if you believe in it still and if you think that things can get turned around, there's no guarantee that even if a strong leader or leadership and investors do commit to this company... that they can turn it around either. I think what Disney had decades ago and even 20 years ago, they had the advantage of their content and the distribution and being one of the few major players in the whole game.

Today there are – how many streaming services are there now? How many theme parks are there now? If you make a misstep and a mistake with a Star Wars director or whatever, something that alienates somebody, if you make a misstep, there are a million other places you can go to watch something. You can go to YouTube TV in a second. You can go to Netflix.

YouTube and Netflix did not exist when Disney started. These are relatively new developments for them as competitors. I don't think they've fully appreciated that over the years.

The same thing with ESPN. ESPN made its money being the first to figure out cable bundled subscriptions, and it's just slowly eroded away. So whoever takes over, whatever group ends up forking over the most money and winning the most board seats needs to figure out that part of it, too.

Dan Ferris: Yeah, two things. One is I've got a chart in front of me. The stock has actually gone sideways for 10 years. You're right... It's back to COVID. But even the first time it hit these levels where it is trading today, around 90, 91, was in 2014. That's gone on for 10 years.

But you make a good point about making a misstep, because all of this content is – there's nothing like it. Yes, you're right. There is competition, but I think your point there is nowadays Bud Light proved you can make a misstep that just eliminates that effect, that branding effect in people's minds where we've just got to have Bud Light. We don't even question it. We don't want anything else. This is what we've got to have. And it's possible to make a misstep really quickly to just sabotage that and destroy it.

My fear is that saying that you want to make men uncomfortable in your Star Wars films is that level, and that's going through all the content now, the wokeness. Yes, your kids will always want to see – just go back in time – Aladdin or Little Mermaid, or whatever those older films were that your kids just got to have and watch a hundred times.

It's almost unfathomable to a parent who knows there's no substitute for that thing that your kid loves, but it's possible to ruin that, and that's what we're looking at here. Have they ruined that? Have they already – are they approaching a Bud Light moment? Have they already had it? Are they in the midst of one? I don't know.

Corey McLaughlin: It's hard to please everybody. So yeah, there's Disney things that I watch now from 20 or 30 years ago that make me go, "Wow. I didn't even realize that was being said when I was watching that originally."

I don't know. This is the world we live in. It's not perfect. I think we'd do ourselves a favor by just addressing the real problems rather than trying to project these, like do it through imagery and positioning and marketing. That's not the way to – I don't think that's the way to build a long-lasting brand right now. I think we're clearly seeing that.

It also contributes to polarization and the kind of tribalism of everything we see in all walks of life. If you're OK with a certain media company or product, now it's supposed to mean something about yourself. I think we need to try to get past all of this. I think the companies would be better served to do it, too.

Dan Ferris: Yeah. Just looking at a stock chart real quick, it seems like before the stock price really kind of bottomed out and took off in 2011, it was sideways back to like 1997 from that price. So this has happened before. You go sideways for however many years it is, 10 now, and then somebody comes in and realizes how unbelievably great Disney is.

I wonder what the stock looked like when Warren Buffett – I remember Warren Buffett bought it many, many, many years ago. I think he made like 50% in a year or so because it was way down, and then he probably sold it, and he could have had this major, major multibagger, probably bigger than Apple.

So this might be that again. This might be another opportunity to get at Disney after many, many years of sideways and the thing – something is not working right. So this could be it. I don't know. I'm not willing to say, "Yeah," pound the table, "Buy it now," but I recognize I might be making a mistake in not doing that.

I don't know. That's about where I am. I can't improve on that.

Corey McLaughlin: Yeah. Personally, I'm not convinced. There's other things I would look at, but that's just personally. If you look at Disney, it's not necessarily – I mean, yes, I guess it's connected to the business cycle on their theme parks and consumer end, but its media library has stood the test of time and what it can do with that, no matter who has been in control of the company.

So if you believe in that core business and being able to generate all kinds of profits off of all things that – some of them haven't even been developed yet, right, for the next 10, 20 years. So if you believe in that, then yeah.

I'm looking at the chart, too. It looks like it's in a similar – it's almost identical to what it looked like after the dot-com bubble. So yeah, maybe it is. Maybe it is time.

Dan Ferris: All right. Well, that was fun. Now let's have some fun and talk with our guest, Jeff Muhlenkamp of Muhlenkamp & Company, a great value-investing firm. Let's talk with Jeff Muhlenkamp. Let's do it right now.

Nvidia may be America's top-performing stock after more than doubling this year alone, but if you're holding Nvidia or thinking of buying it to get a stake in the $7 trillion AI market, you're going to want to see Marc Chaikin's new AI prediction first.

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But right now, Marc is stepping forward to warn people to stay away from Nvidia. "My system has indicated that Nvidia is no longer the best stock to buy to profit from AI," Marc says. "In fact, it just flashed 'buy' on a totally different AI stock."

Today, he'd like to hand you the name and ticker symbol of his No. 1 AI stock to buy right now. For a limited time, you can get this information for free at www.AIFrenzyReport.com. Again, that's www.AIFrenzyReport.com, for a free copy of his new report.

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

Jeff Muhlenkamp: It's good to see you, Dan. Thanks for having me back on.

Dan Ferris: Jeff, it's been a little while. Last time you were on the show was August of 2022.

Jeff Muhlenkamp: Yeah, that's been a little bit.

Dan Ferris: Yeah. That was an interesting year. We've had another interesting year since then. Who could have predicted? I would have thought in August of '22, "This is a two- or three-year bear market all day long, and hold on to your hats." And 2023 just surprised the heck out of me. Did it surprise the heck out of you?

Jeff Muhlenkamp: It did. So much like you, in the fall of '22, my mindset was that the bull market that we'd seen in tech, call it a bubble if you want, I think it had a lot of aspects of a bubble, had started to pop. I thought it had started to pop in the summer of '21. I thought it had probably done about half of what it was going to do. It looked like you were running into a recession.

So what happened in late '22, in October really, when the bear market or whatever you want to call it bottomed, a couple months later I was thinking: what changed? What changed was inflation numbers started to come down.

So as inflation numbers started coming down late in '22/early in '23, you started to see things like Microsoft and Big Tech start to turn around a little bit. Then that just got kicked in the pants. It got a turbo boost.

Then come March, really when ChatGPT hit the airwaves and everybody was all excited about AI and the banking crisis, and I think it was a crisis in the regional banks, wasn't enough to derail that, which was amazing. So the banking crisis really wasn't a surprise in the fact that it came, but the form it took was a little different.

I wasn't trying to predict that. I figured we would have a problem and we did have a problem, but it didn't derail the bounds of the bull market, or whatever you want to call it, and it really didn't change what the Fed was doing, which I thought it might. So yeah, I think '23 was very surprising. So now you're saying, "Well, hmm, I didn't expect that. Where do we go from here?" That's a head-scratcher to me.

Dan Ferris: So the chatter – I spend way too much of my life on Twitter, so when I say "the chatter," I probably mean stuff I read on Twitter. The chatter is sort of among folks who I think are pretty savvy watchers of such things. The chatter is that the Fed has to do something. They have to kind of thread a needle between wanting to cut rates on the one hand because they see the headline inflation numbers falling so much, but not rekindle inflation, on the other hand, because the economic data doesn't say there's anything particularly wrong.

Labor is still tight. Housing prices are still high. With mortgages coming down off of – what was it, 8% or so, now below seven, that's looking a little better. Starts were up 18% a month or so again. There's no reason to look at it right now and say, "Oh my god. It's all falling apart. We need to cut rates."

What's your reaction to all this?

Jeff Muhlenkamp: I think there's plenty of ammunition for whatever case you want to make. So if you want to say we're still heading for a recession, you can look at manufacturing PMIs, you can look at manufacturing levels, you can look at the OEI, you can look at a broad array of data points that look very recessional, starting with the inverted yield curve. It's still inverted.

"Oh, well the Fed is going to drop rates and it won't be inverted." Well, if you look at history, normally a recession occurs once the Fed has started dropping rates, because of the lags in both. So you can make a pretty decent argument that we may still get a recession.

Then as you highlight, if you look at another set of things, the housing market is one of them, new home sales are still looking pretty good, even though the existing housing sales are still in the toilet, because nobody is interested in trading a 3% mortgage for now a 6.5% mortgage. That's still got the existing housing market in the deep freeze, if you will.

But there are a number of things out there that things aren't getting worse. The commercial real estate market isn't getting any worse. Banks are now in a better position than they were six months ago because loan rates have come down, so the value of the holdings is looking a little better. That frees them up a little bit.

So it's very much a mixed bag to me. One of the big things that is happening now that I don't think gets enough attention is the deficit spending in the federal government. We've got, what, 6, 6.5% of GDP deficit. That's a wartime level of spending.

The government doesn't borrow that money and save it. The government borrows that money and spends it. So it's all getting pushed out into the economy. So you've got extremely loose fiscal policy.

At the same time, you've got arguably reasonably tight monetary policy, but in the last month or two the whole financial system has kind of operated to loosen up financial policy. So when interest rates drop, you know, when the 10-year dropped from 5% now to 4%. That was a big loosener. When mortgage rates went from 8 to 6.5, that's a big loosener.

So it really is a mixed bag, which makes it – again, it's a head-scratcher. There's no easy prediction of, "This is what it must be. This is obvious to everybody." You can pretty much support any argument you want.

So for you and me and your listeners, the question is: what do you do with all that? So I would say for starters, don't place all your chips on one outcome. Don't say, "I think it's likely to be a recession, and so I'm going to optimize my portfolio so that it will do well in a recession," but then it won't do well in a continued expansion, or it won't do well in an inflationary environment or the other possibilities that we may have.

The way that I'm looking at it and the way I would suggest is useful to look at it is: what's the spectrum of what may happen? In your portfolio you want to say, "This part will work best in a recession, and this part will work best if we have inflation. This part will work best if we just kind of muddle along and we don't see high inflation and we don't see a recession, so just kind of have this steady and as you go kind of thing."

In that way, you're not going to be a hero. You may not be a hero, but you're not going to get killed either. Then as the year unfolds and as you start to get clarity – because I think you will get clarity this year. I think you're going to get clarity by the end of the year of whether or not we're going to have a recession because the yield curves will be on an un-invert, and that opportunity, that message that it's sending you, it's got an expire by date and it will expire, and if we don't get it, then you're not going to see it until the Fed starts retightening again, so you kind of reset the whole cycle.

So I think you are going to learn things this year, not least of which is what the voters want their government to do for them for the next four years. You're going to learn that at the end of the year, hopefully. Well, that could really be a mixed message, too. You never know.

Dan Ferris: There are no easy answers.

Jeff Muhlenkamp: No. So long answer to a short question, but that's kind of how I'm thinking about it. A lot of different things going on, and each of them can kind of drive the market for a different period of time.

So right now, I would say the feels of inflation out there in the market are really low, but I personally don't think they're that low. I think they're a little higher than the market is. So for a period of time, you may get a recession scare, you may get an inflation scare, you may get something else that's going to drive the market – [inaudible]. I can't say I know what's going to drive the market for the full year.

So I look for good values. I place my bets carefully. I try to be aware of the different outcomes. I don't want to get too hurt if I'm wrong. You never want to do that. Accepting that I won't be a hero if my most likely actually unfolds. I'll look pretty good, but I don't think I'll necessarily shoot the lights out.

What do you think, Dan?

Dan Ferris: I was just actually going to ask Corey if everything Jeff just said in response to that question sounds like anyone you know anywhere around here.

Corey McLaughlin: I don't know –

[Crosstalk]

Dan Ferris: Prepare for a variety of outcomes, good values, don't worry about shooting the lights out, all that.

Corey McLaughlin: Prepare for the possible outcomes. Before this interview, I was looking at recent things that have been out there, either published by you or about you. Business Insider tells me that you've beaten 92% of your peers in the last five years.

That was rumbling through my mind about how you're preparing for the different scenarios at any given time, even if that leaves AI gains on the table or whatever else it may be. So that's what I was thinking about there, and that seems to me like what you're saying right now.

Jeff Muhlenkamp: I joined the business in 2008. That's when I retired from the Army and came to work for the family business. So my foundational or formational experience with the markets was the crash of '08/'09. I came in in October.

I wrote a memo for my portfolio manager at the time, in probably January of '09, recommending what we ought to sell. "The market's been shut and here's the list of things we ought to sell," because I was deeply afraid the market was going to keep selling off.

Then a year later, then two years later and three years later and five years later, I looked back at that memo and said, "Oh my god." At a key time in my lifetime, when you could buy almost anything and have a good outcome, I was on the sell side.

I've to rethink how I came to say that, and how I prepare myself kind of mentally to be ready next time around, should it occur, so that I can, in fact, say the right thing, which is, "Damn, things are cheap. Let's go buy a whole bunch of stuff." Good stuff, marginal stuff, it's all a little different, but this is a buy time. This is the after-Christmas 50%-off sale. So how do you prepare yourself to do that?

But those times only come once in a very long time. So I've expected it I think more than it's actually occurred since then. I got it pretty right in 2020. I didn't get the lead up to 2020.

I frankly never thought the US would shut down. That was not a possible outcome for me, that we would tell everybody, "Go home. Stay home. We'll call you when it's over." That was amazing.

So I was not properly prepared in terms of sitting on a lot of cash waiting for this to happen. But I think I did a pretty good job in March and April when things started to look better and said, "I don't know how this is going to turn out, but that's a really cheap price, and I know what to do now about really cheap prices."

Nonsense-cheap prices are what I'm talking about, an irrational low of some things selling at 2 times free cash flow. Holy cow. You can make some pretty bearish assumptions about what's going to happen to that company. But 2 times free cash flow, that's just crazy cheap.

So do I think we're going to have one of those? I did. I did think we were going to have that period. I'm not sure we're going to get that now.

I talked a little bit before about the tech bust. I'm not sure it's going to play out like 2000 did, where you had this big bust and then you had a period of two or three years where you go pick through the wreckage.

Why do I say that? Because AI and the excitement around AI and the money that AI brought back in highlighted to me that there is still a ton of money looking to go to work in that space, and nobody has had the stars – the excitement around tech is not dead. It was in 2003 and 2004 because everybody had got burned. It's not dead right now.

So is it possible that the Fed tightens it up and things go badly enough with tech that it destroys other things? Maybe it is, but I'm not sure anymore.

So I think you need to keep some cash. We do. We've got about 10 or 15% cash right now. We're looking for an opportunity to put it to work at really good values, but you've got to take advantage of the values you see today, too. You can find them. They're out there. There are values in some things that aren't necessarily tied to the economic cycle. So if you don't quite know where we're at in the business cycle, that might be OK. You'll look for things that aren't tied to that and see if there are places to put your money to work.

If you nailed it on the tech side, if you owned Nvidia, my suggestion would be to take a little money off the table. Triples in a year are pretty unusual. If you expect that could happen again next year, you might be disappointed. My suggestion would be to take a little money off the table.

Dan, you're smiling. I'm guessing you've said the same thing.

Dan Ferris: Yeah. I might even have said that Nvidia was a terrible buy a hundred dollars ago. I'm not sure where is it. I haven't looked at it in a couple weeks actually, but yeah, I'm skeptical. I'm skeptical of big expectations like that.

I'm not saying it's not a great business or that they don't have this great position in the market. I never say any of that. In fact, I've written a bit about the Magnificent Seven recently because, hey, look, if you called it in late 2022, good on you. You got a hell of a run out of Meta and Nvidia and stuff. Great, fantastic, love it. We have folks who work with us, Whitney Tilson works with us, and he called Meta. He was all over that. So great.

It was a trade. It was a brilliant trade, but now I think it's long in the tooth, and it's certainly not a good value. So yeah, I would agree with you there. I'd also say the whole Magnificent Seven is generally in that category.

Jeff Muhlenkamp: I would agree. We own Microsoft and Apple. In late '21 it looked like the prices were rolling over and we were 25% tech at the time. I said at 30 times earnings they're great businesses, but at 30 times earnings it's above fair value. We thought fair value was 20, 30, 40% lower than that.

They sold down to approximately fair value by October of '22, and then they rebounded, which I did not expect. They never got to – at best, they got fair value, and now they're back up to 30 times earnings.

So to me, and we kind of did it – the best example I have personally is probably Baidu. It's the only Chinese company we've bought since I've been here. This is 2019, something like that, and it was selling at like 10 times earnings.

It's this great big, slow-growing cash cow, perfect. Something will happen. Sure enough, something did. So we bought it. We doubled it in six months, and it exceeded now my fair values. So, OK, I thought I was going to get a double in four or five years. What I got was a double in six months. I got what I expected and it happened a whole lot faster. I think I'm ahead, and just take that off the table and put it in my pocket.

Dan Ferris: Yeah, nice.

Jeff Muhlenkamp: When what you expected to happen happens faster than you thought it would, that doesn't mean, oh, there must be better things. There might be and you need to think that through. It also might have just been that what you expected arrived sooner. Take the present, put it in your pocket and go look for another opportunity.

Dan Ferris: Jeff, is it fair to say that the Muhlenkamp Fund reflects what you do as a firm, or is that just kind of off to the side?

Jeff Muhlenkamp: The Muhlenkamp Fund reflects what we do as a firm. There is no significant difference between what do with our individual accounts and what we do with the fund. They are run the same, the same ideas.

We don't look at somebody and say, "Well, I'll give you the second-best idea because you're in the fund," or not in the fund or whatever the case may be. They all get our best ideas unless there's something specific in an account that says, "We don't want x kind of investment.

Dan Ferris: Right. Some people run different strategies, so I'm glad we made that clear. I've got your top 20 on my screen in front of me, from your website, and the one that really made me smile the most was the SPDR S&P Regional Banking ETF. I was like, "I bet I know when they bought that."

Jeff Muhlenkamp: You know, not as good as I wish we would have.

Dan Ferris: Well, yeah, who does, but still...

Jeff Muhlenkamp: Yeah. I think there's opportunity. I cautiously think there's opportunity in the regional banks. I think the problems they're facing are real. I suspect, at best, it's going to take them a while to work through them, but I think commercial real estate and with the value of their bond portfolios, but some of the pressure on the value of the portfolio just came off, when the interest for the 10-year came down from five to four. So that helped a little bit.

Also, it was very clear to me, the message that the Fed sent back there in March and April when Silicon Valley Bank went bust. They immediately found a way to send money to the banks, immediately. There was no delay. There was no, "Gee, moral hazard."

Dan Ferris: For all depositors, too.

Jeff Muhlenkamp: Correct. They did a lot of things to help them out. So I think if you're careful, and of course, carry is a broad brush, if you will, but yeah, we're interested in that space. I think there are some opportunities in that space. That's one of the ways that we tried to take advantage, and we're looking for others is probably the best thing I would say about carry.

Dan Ferris: In keeping with your "don't worry about shooting the lights out," comment from earlier, with carry you will capture whatever happens in that space, right? You'll capture it.

Jeff Muhlenkamp: Correct.

Dan Ferris: You won't get the benefit of the best performer, but the best performer will affect the performance of that. So I think that's a great bet for that type of bet. You better be a good bank stock picker, in other words, if you're not just –

[Crosstalk]

Jeff Muhlenkamp: Banks are always tough because you never quite know what their asset quality is.

Dan Ferris: Exactly.

Jeff Muhlenkamp: You never know how good those loans are. You never know how good the underwriting was, because you don't know the details and you don't know exactly who they lent money to or what their collateral is.

Dan Ferris: Yeah, that's why I like this because you know the whole sector isn't rotten. Every bank isn't rotten. Every regional bank isn't rotten and you rely less on individual stock picking, which in that one case I think is kind of the way to go.

Is there anything that you've added recently that you want to talk about?

Jeff Muhlenkamp: I think maybe the most interesting one is Tegna. Tegna is a broadcast television and radio station company. They were going to be taken private and that deal fell through. So they got a windfall of cash from the failure of the deal. They're selling it, I don't know, 6 or 7 times earnings.

They committed to spend most of that windfall of cash right on through to the shareholders. They upped their dividend. They upped their buyback authorization, that sort of thing.

Most important, probably, is the fact that they really run on a two-year election cycle, because of the impact that political parties and political advertising has on their business. So they judge themselves on a two-year basis, while the market seems to be judging them on a "we don't have a woman" kind of basis. I don't know the whole issue.

But I think they are probably set up for a great revenue year this year. I think there's going to be more money spent in the next 12 months on political ads than there's probably ever been spent, and I think they will participate in that.

So it has nothing to do with the economic cycle. It runs on a very different cycle. It looks cheap. They seem to be doing smart things with their cash. I don't think they're going out of business. To me, that is an opportunity that is very much idiosyncratic from all the other stuff that the market is thinking and talking and doing. So to me, that's a little bit unique and probably worth talking about. So we think we'll get a decent return out of it.

[Crosstalk]

Dan Ferris: It looks to me, just glancing at the chart, it looks like the deal fell through earlier this year, like March or so, and it's gone sideways since then.

Jeff Muhlenkamp: Correct.

Dan Ferris: So it's still a bargain.

Jeff Muhlenkamp: It's still a bargain. We think that one will probably work out.

The other one that I might bring up is BGC Corp. They are a broker-dealer. They've brought out some products with automating primarily sales of assets in the fixed income industry.

They used to be a partnership. Lutnick is the CEO. I forget his first name.

Dan Ferris: Howard.

Jeff Muhlenkamp: Thank you. Howard Lutnick. They had a very limited shareholder base when they were a partnership. Howard decided – he's a majority owner – he decided they would go full c-corp so they could open that up, and they did that last summer, and that's about the time we bought them.

The other interesting thing that's happened is, if you've listened to the earnings calls the last couple of quarters, Howard has been very emphatic that what had been a no-growth business during the decade of low interest rates is now a growth business again.

So now that interest rates have come up off the floor and they're volatile and higher, he gets a lot more business as people are trading a lot more in fixed income. So his normal business is back in a growth mode, as he puts it.

He's got kind of a call option. If I remember correctly, he's standing up an automated options trade platform that's about to get approved here, probably in the next six months. So he's about to announce partners for that RSE, but that's a near-term catalyst.

So for about three different reasons – Aero, by the way, when we bought it was selling at like 7 times next year's earnings. But it's cheap, generating a lot of cash, two or three catalysts for why it ought to attract Wall Street's attention. If it did and it did – you know, if it just went up to the market multiple, you're looking at probably a double, maybe a little better.

So that looked like a good setup to us and we put money into it six months ago, and it's moved. It's moved about 50% for us since then. So some of that opportunity has been realized, but there's still a fair bit there for people who are interested in taking a look and making up their own mind about it.

Dan Ferris: Nice. That one did make it into your top 20. Did it appreciate its way in there or did you take a big stake?

Jeff Muhlenkamp: We had to work our way into that a little bit. We probably own about 3% of assets right now, something like that, which is pretty typical.

Corey McLaughlin: Hey, Jeff.

Jeff Muhlenkamp: Go ahead, Corey.

Corey McLaughlin: This may be a simple question, but how do you personally go about screening or finding these companies? There's a lot of businesses out there. How are you finding the ones that are below 10 times earnings or whichever ones you're interested in? What's your process?

Jeff Muhlenkamp: It's actually very manual. I haven't found a way of using computer screens to actually – because when they're the most interesting, they usually fail something. They usually fail some broad – you know, if you go price-to-book, that gets you to one place. If you go P/E, that gets you to another place. There are just so many different things to it. So I haven't found a screening process that works.

What we do is we run – my dad started in the business in the '70s and he became a user of the Value Line product, if you're familiar with that being –

[Crosstalk]

Corey McLaughlin: Yeah.

Jeff Muhlenkamp: They send you out an edition every week. They cover basically the whole stock universe every quarter, and so we receive those. What we do is we pull key data from that and we run it against our own model.

Ron created a model that uses inflation and return on equities, primary inputs, to just kind of rough out a value for a company. So we build that into a spreadsheet and we generate that spreadsheet every week. Then we just manually walk through that edition of Value Line with our spreadsheet, with the Value Line information in it.

I usually use the Bloomberg Terminal and I have a couple of different kinds of screening charts that I will look at. I like to look at net margin over the last 10 years. I like to look at ROE over the last 10 years, price-to-book, price-to-sales, and free cash flow to see what the trends look like.

Then you go through that and you say, "Oh, in this edition of 200 or 300 stocks, these four or five look really interesting," for whatever reason, but something stands out. That they're particularly cheap is one aspect.

If you're looking at banks, you're always looking at price-to-book. So you're looking price-to-book, below book. Usually, they all run together, but you're looking for that sort of thing, and then you start digging.

Plus, we read a lot of other newsletter writers. We read a lot of other people. When they say, "Hey, this looks kind of interesting," we say, "That kind of does. Let me give you some homework." So we cast a wide net, but we do have a systematic portion of that. We kind of have an idiosyncratic portion of that.

I'm a subscriber to Stansberry. I read what you guys write. Sometimes it looks pretty interesting, sometimes not so much. But as far as I'm concerned, it's about the cheapest way I can hire analysts that I know of. You guys are all working for me and you're generating ideas, and I get to accept or reject them at a pretty low price. So as far as I'm concerned, Stansberry is a great gig as a subscriber doing what I do.

I hope that answers your question, Corey.

Corey McLaughlin: Yeah, for sure. It makes a lot of sense.

Jeff Muhlenkamp: You have to know yourself. There's a lot of ways to make money in the market. You don't even necessarily have to have one thought process, but you have to know which one you're using for the investment you're making.

So if you're saying, "This is going up. It keeps going up. I think it's got a momentum," that's great. Invest as if it has momentum. If it looks like momentum is coming off, don't change your mind because now you're going to use some other metric.

If you say, "I'm going to play the momentum on this stock right now," then when it rolls off, sell and be done. If you're going to play value, which I tend to prefer, and you say, "OK, when it gets to fair value we're done." Be careful about changing those metrics.

Typically what we do is we buy value, and then when it reaches fair value or even over, now we start looking for momentum. Then when the momentum starts to fade, now we've got nothing to hang our hat on and we sell.

Also, think about the time frame you're interested in. A lot of what we buy and sell I would say kind of run on the business cycle. So your time frame is the business cycle. If you're going to follow a multi-cycle time horizon, that will lead you to different particularly sell decisions.

The example I would use from our experience is Rush Enterprises. Rush Enterprises we bought in the early 2000s, 2001, 2002. They're a distributor of trucks and a repairer of trucks. Rusty Rush is a hoot if you ever listen to his calls. He's great to listen to. But they are a consolidator of the industry.

So we've run them now for 22 or 23 years. Our cost basis is below a buck and it's now at 50. So what we did there is we found a company that one way to play it would just be on the business cycle, because their earnings are cyclical. It's a [inaudible] goods company. They sell trucks, so earnings come and go.

But what he did was he started making the company less cyclical and more profitable on the parts and services end of things. So what he calls his absorption ratio, the money he generates just with parts and services without selling a single truck, now covers 120 to 130% of his costs. So he calls that his absorption ratio.

So we decided it's a great company doing great things. We're going to ride it through more than one cycle, and we've been extremely happy with that. So it's a little atypical. That's where I get to we could have bought it one way, but don't shift courses. If you're going to hold it for the long term, don't sell it at the end of a cycle.

Another one for us is probably Broadcom. It just had a nice double last year. It's still a fabulous company, in my opinion. So I'm OK – now we trimmed it. We trimmed it in late '21, but I'm OK holding it through this boom/bust phase, which I think is going to appear in its price and I've had to mentally prepare for that because I think they will continue to compound their earnings going forward. You know, I can live with that. Berkshire might be the same way.

But think about what you expect the company to do. Think about the time horizon that you're interested in. Then recognize some – you will be able to recognize some of the problems you're going to see if you follow that plan, particularly if you've got a longer time horizon.

So if you're Microsoft, and if you say, "I think Microsoft," or, "I think Apple has great 10-year futures. They're huge cash generators. They're going to have new products sooner or later, I just don't know." OK. Recognize that they will not look so good at some point when their existing product cycles all kind of mature, and then there's going to be a lag. Just recognize that and don't necessarily get discouraged.

Certainly when that happens, you're going to be looking for, "OK, what's next? Is my thesis of three or four or five years ago still playing out or has something changed?" Have they changed how they run their business? Have they changed how they invest in profits? Kind of be prepared for that.

So know what game you're playing. Play it as best you may. And if you're going to change games, think about it really hard before you do that, because that's where you can really get yourself in trouble.

Dan Ferris: I love that we – we're like brothers from another mother. When you say, "Be yourself," you started saying "Be yourself and know yourself."

I've written a lot of words to our subscribers on exactly those themes. It's so important to know the kind of investor you are, and I think some people don't. They'll buy anything they heard about at a cocktail party and not know why they own it. So I love that answer.

[Crosstalk]

Dan Ferris: Yeah. When you don't know what you're doing, things don't come out right.

It's time for our final question already. You answered this once before. I hope you don't remember it. Do you remember it? It's the same question on every show.

Jeff Muhlenkamp: I'm afraid I don't. I'm sorry.

Dan Ferris: Good. It works better that way. OK. It works better that way because the final question is simple and it's the same for every guest. No matter what the topic, even if we have a nonfinancial guest on the show, I still ask them this identical final question. It is: if you could leave our listeners with a single thought today, what might that be? And take as much time as you'd like.

Jeff Muhlenkamp: OK. Yeah, I remember that question now. I'm trying to remember what I told you last time.

Enjoy your life as best you can. It's not all about money. Money is often a part of it, but money has a purpose. Don't get lost in the game, particularly the game of the – the Wall Street game and all the different players and all their different agendas. Remember what it is that you're trying to do. If you set yourself up to be able to do those things, that is a win, and rejoice in it.

Dan Ferris: That is a great answer. We're getting more of those sort of nonfinancial-specific answers. You said you don't know what you said last time. You actually started out saying, "Don't risk money you can't afford to lose," and then you expanded on that.

So I love this answer and we've gotten a few of these. We seem to be getting more of these over the past year or so. It's wise stuff. People like you, who have done as well as you have, who have been in that particular business for that long, they gain a kind of wisdom. It's Munger-esque, actually.

Jeff Muhlenkamp: Yeah. I'm going to miss him.

Dan Ferris: Yeah, talk about a wise old investor.

Jeff Muhlenkamp: I just loved the way he was straightforward in his answers. He did not prevaricate. He did not tap dance. The man told you what he thought and that is uncommon, and I always found it refreshing, and I will miss him.

Dan Ferris: Yeah. All right, Jeff, we hopefully will not miss you too long before you come back. It's always good to talk with you. Thanks for coming back to see us.

Jeff Muhlenkamp: Thanks, Dan. Thanks, Corey. I enjoyed it and I look forward to next time.

Dan Ferris: All right. We'll talk to you then.

Jeff Muhlenkamp: Bye.

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So the answer is yes, I do love it when I get a guest on the show whose investment process and thoughts and general orientation resemble my own in many ways. So if you're wondering, "Did Dan have Jeff Muhlenkamp on there because they're both value guys, and they see the world in a similar way and do a similar thing?" The answer is absolutely yes. Of course, I know more of those people than anybody else.

But I hope over time you've seen that we've gone way beyond value investors. We've had all kinds of people on the show. Also, Jeff may be a value investor, but there's no such thing – I hope you've learned on the show – as just another value investor. When he's talking, you know it's Jeff Muhlenkamp... And when somebody else is talking about value investing, you know it's them. So, value investing is this huge, broad way of thinking.

Then Jeff described the way he thinks about specific ideas from the bottom up. I'll tell you what. He got me interested in Tegna. I looked at that stock and I thought, OK, the thing is actually about 5.5 times earnings and it's gone nowhere since the deal fell through. You better believe I'll be spending time on that one. I knew Jeff would do that, that he would pull an idea out that would get me excited.

Do you have any thoughts, Corey?

Corey McLaughlin: Yeah. If you're a value investor or interested in value investing, it would be silly not to just listen to him talk. He was very open and willing to share how he goes about things.

I really loved his point about trying to find or the value in finding businesses not attached to the business cycle, like a Tegna. I'm glad he brought that up because I was going to ask about it, you know, for an example.

And what you just said, knowing yourself and knowing what you do and what you're in for, but obviously he's so aware of the business cycle. He brings up the US debt, which you wouldn't normally associate with. It might not be the first thing you think of with a value guy or gal.

So yeah, I love listening to him. I hope we have him back on in another 18 months or so or less.

Dan Ferris: Yeah, definitely he'll be getting a call from us.

I'm just looking at some of the numbers for the Muhlenkamp Fund. Holdings turnover is 15%. Basically, if they turn over the portfolio at this rate, it will take seven years to kind of sell it all and buy new stuff, approximately, something like that.

Most people like their turnover rate. Some of them, it exceeds 100%, just crazy. He's got those companies in there like Rush that he's owned for eons, for decades now, which is really cool, and Broadcom, and those are both in the top 20. I think That's really cool.

It's really cool to find somebody who is capable of that long term of a perspective, and I'm glad he shared some of the specifics about the businesses. He's a great value investor is what he is.

Corey McLaughlin: Yeah. I would say to anybody who is not aware of him already, just look him up and see. What I said about him beating his peers is true. He's consistently in the top-performing funds out there. So I'm grateful to talk to him.

Dan Ferris: Yeah. You can learn more at their website, Muhlenkamp.com. I spend some time there now and then myself because I like to look through their portfolio for ideas. And Tegna wasn't in the top 20. I didn't know about that one until today.

All right. That was great. That's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did.

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

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