Episodes

Intro:                           Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour. Tune in each Thursday, on iTunes, Google Play, and everywhere you find podcasts, for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I am also the editor of Extreme Value, published by Stansberry Research. Today, we'll talk with Ken McAtamney from William Blair. We're going to get into a lot of areas. Ken just, he's got a lot going on in that mind of his, and he's going to give us a lot of names and a lot of ideas. This week in the mailbag, thoughtful questions from regular correspondents Al M. and Lodewijk H. Listener Coach Z. wants to know if it's ever OK to use leverage. The answer is yes, and I'll tell you exactly how. In my opening rant, this week, if only there were signs of speculative excess. I'll show you the latest and perhaps most mind-boggling example of them all – it makes the GameStop fiasco look perfectly reasonable. That and more right now on the Stansberry Investor Hour.

So, what in the world could make GameStop, this deteriorating melting ice cube of a business, that went from literally, like, 100-bagger and then crashed 90%, what could make that situation look reasonable? Well, the company is called Hometown International. What is Hometown International, you ask? Hometown International is a public company, the ticker symbol is HWIN, and it's got a market cap of, lately, around $100 million. And its business [laughs] is that it owns a single delicatessen in rural New Jersey. I'm not kidding, the town is, like, I think the population is, like, 3,500.

And the hedge-fund manager David Einhorn-kind of broke this story. Somebody pointed it out to him and he included it in his latest investor letter. [Laughs] And it's a little bit insane that a company that did something like $14,000 of revenue [laughs] – I'm not kidding, in all of last year, in all of 2020, they did, like, $14,000 in revenue – is valued at $100 million. And the biggest shareholder is, like, the CEO and the CFO and the treasurer, and he's a director on the board of directors [laughs], and, like, he's a wrestling coach at the high school next door to the deli – I mean, [laughs] the situation is insane, right? It's a $100 million valuation on this, OK?

But as Matt Levine, in Bloomberg, points out, no, no, it's worse than that. It's not $100 million deli, Matt says, it's a $2 billion deli. Matt dug into the Hometown International 10-K, and he discovered all of these warrants, right? Warrants are kind of like options that are outstanding. So, he says, "The simple valuation math – " and he goes through this one paragraph where he puts it all together and – and there's, like, 7.8 million shares accounted for by some options. But then there's an absurd – he says, "But also, an absurd 155.9 million warrants." So when you put it all together, with the current, you know, outstanding shares plus the absurd 155.9 million [laughs] warrants, and multiply it by the current share price, the fully diluted equity value of this single delicatessen [laughs] in rural New Jersey is $1.9 billion.

I mean, this is insane, the stock has been around $13, I mean, I wonder if it's even worth 13 cents. [Laughs] It's just nuts. I don't know, I just, I don't know what to tell you. It's literally the single most insane example of overvalued speculative froth, it outdoes anything in cryptocurrency, it outdoes any other stock you could ever name, it makes GameStop look sensible and rational. It's crazy. We live in crazy times, oi. All right, so I'm going to shift gears from my quote of the week, and shift from insane to wonderfully rational. And if you don't read – the quote is from Jeff Bezos, from his 2020 Amazon shareholder letter. It's also his last as CEO – he's stepping down.

If you don't read Amazon shareholder letters, you're really missing a great lesson in business. He includes his original 1997 shareholder letter in every other one, so he's always measuring against that benchmark. You know, I can tell you, my experience with public companies is they don't want you to remember what they said five years ago or two years ago or last year [laughs], because they want to have to tell, you know, they want to spin a new narrative. So, this is the most brilliant example of an executive and a founder setting himself up for the market and for shareholders and everyone to create a feedback loop that he learns from and grows, you know, a good business into one of the great businesses of all time.

And here's a brief example. Here's the quote of the week: "If you want to be successful in business – in life, actually – you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn't create value for those it touches, even if it appears successful on the surface, isn't long for this world, it's on the way out." That's Jeff Bezos from his 2020 shareholder letter. And that is just one of the brilliant nuggets that you could take out of almost any Bezos shareholder letter going back to 1997.

I highly recommend that you read them. And there's a brilliant little section in here where he takes an excerpt from a book that's about biology and evolution, and then he turns it into a metaphor for companies and how they grow. It's really great.

All right, let's talk with today's guest, Ken McAtamney. Let's do it right now.

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[Music playing]

All right, it's time for our interview, now. Today's guest is Ken McAtamney. Ken McAtamney is the head of the Global Equity Team, and a portfolio manager for William Blair's International Growth, Global Leaders, and International Leaders Strategies. He was previously co-director of research and a mid- to large-cap industrials and health care analyst. Before joining William Blair in 2005, Ken was a vice president at Goldman Sachs, where he was responsible for institutional equity research coverage for both international and domestic equity. Ken, welcome to the program.

Ken McAtamney:        Thank you, Dan.

Dan Ferris:                 Really glad you could be here. You know, I just have to ask about Goldman Sachs just because, you know, ever since Matt Taibbi called it the "Vampire Squid of Wall Street" [laughs], any time I run into somebody who worked there, I just want to know what the experience was like, you know. Certainly, what you did there, too, but just the experience of working at Goldman Sachs.

Ken McAtamney:        Sure, and thanks. It's a great place to be from, I'll say that. The training that one gets, there, the quality of the institution, the quality of the people, the intensity, the commitment to excellence, it truly is world class, very, very strong culture, and one where they do spend a lot of time on people and on process, there. So, I think world-leading in many of those respects, and, you know, I owe a lot to that experience that I had there at Goldman Sachs. I did join the firm prior to them going public, and I think that that transition, for the organization, perhaps necessary for them to achieve their growth ambitions, I think did change the culture and the organization a little bit. I think that's pretty typical when you get a transition like that plus a lot of growth at the same time.

Quite pleased to be at William Blair where we're very proudly independent and privately owned by our own employees, for the last over 85 years. So hopefully a lot of that good cultural experience that we had at Goldman Sachs, we've been able to retain at William Blair in a way that makes our organization an equally compelling place to work.

Dan Ferris:                 Interesting, I didn't know that about William Blair. So, let's just kind of dive in and talk about what you're doing now. Head of global equity team, portfolio manager, and, you know, international growth, global leaders – what are global leaders and international leaders? What is "leaders"?

Ken McAtamney:        Yeah, thanks for the question. A little bit of a backdrop, we invest in companies that we think are the great value-creating companies of tomorrow. These are companies that are the innovators, they're the disruptors, they're the ones that are going to, you know, solve economic and social problems via their commercial offering, and hopefully generate a lot of returns for shareholders. You could call us quality growth investors – I think that would be an appropriate category to put us within. But what we're really trying to identify are those companies that we think truly have something intrinsically differentiated about what they do or how they're organized, such that they can create very long-term, sustainable value for their customers, for their employees, for all their stakeholders, and certainly for shareholders like us. So, within that, the leaders in that universe, I would say, are the top quintile or quartile of those value-creating companies, where we just have that much more confidence in their long-term ability to generate returns for their shareholders.

Dan Ferris:                 OK, I like the word "long term." What is "long term" to you guys?

Ken McAtamney:        We're trying to forecast the economic opportunity for a company over the next – certainly the next economic cycle, so, over the course of the next five to ten years. Beyond that, I think it gets really, really difficult, and frankly, when you're out ten years, in the pace of change that we're seeing around the world right now, you know, it's pretty fuzzy out there. But we really do force ourselves to build a practice around thinking, "How could things be different in the future? What are the preconditions that exist, such that some things will become further entrenched, but some things are more likely to be disrupted? Where do we see the R&D dollars being spent today that will lead to innovation and new value creation into the future?" So, you know, we try to use the past as much as we can, to look out there, you know, I'd say over the course of the next five to ten years.

Dan Ferris:                 Yeah, that does sound hard. [Laughs] How many people do you have doing that? When I hear somebody talk about "the next five years" and "we're trying to find the high – " it sounds like you're trying to find the highest-quality most innovative companies, most sustainable business models – frankly, a lot of people say that, right?

Ken McAtamney:        Yeah, sure.

Dan Ferris:                 You know, how many people do you have kind of just focused on that, just focused on figuring out, you know, what the best of the best of these kinds of innovative sustainable growth companies are?

Ken McAtamney:        Yeah, that's a good question, because these words are easy to say... much harder to execute upon. So, our team is structured around global industry expertise, and we have seven or eight portfolio managers that have, like myself, been doing this for quite some time. I think we average around 15 years at William Blair, and, you know, 20-some years in the industry. We have about 20 sector and industry analysts, and they're supported by another 10 or 12 research associates who are the core of our research team, and it really is the core of what we do. There's about 30 people who do that function.

We also have a quantitative and data analytics group, as well. We have seven or eight people who do that, and they really have a slightly different set of background and skills to what our sector analysts might have to offer, in that they're much more steeped in data analysis and technology skills. And that really helps us, as global investors, get our arms around the entire opportunity set. You know, there are over 10,000 companies listed around the world that are investable to us, and to try to get that down to a manageable group of companies that we can actually provide the right level of intellectual rigor to, so we can come up with investment insights. That's a difficult process.

We could use a lot of leading-edge data and information technology to help us understand what that opportunity set looks like, and I think that's a unique part of what we do. We like to say that, as fundamental analysts, we're equal parts artisans and equal parts engineers, so we try to bring all of that together, the art and the science of investing, to really help us in all parts of our investment endeavors.

Dan Ferris:                 So, let's talk about the sort of science/engineering side of that, for a second.

Ken McAtamney:        Sure.

Dan Ferris:                 This team of people that you describe, I mean, these sound like your quants. I assume that when you talk about their expertise in data analysis, that, you know, they're not analyzing IT companies – they're looking at price data and fundamental data and processing it in a way that gives you some insight about who's really the best, you know, in some particular industry.

Ken McAtamney:        Yeah, that's fair, in that they're not analyzing the companies themselves so much as the fundamental attributes of a company in a highly objective way, and doing it at scale. They can compare, you know, thousands of thousands of companies across millions of data points. What they're not doing is making investment decisions for us. They're just helping us, helping to point us in a direction, helping us assess risk-reward, things like that. But they don't make the actual investment decisions for us. They help us organize our information, and try to do it in a highly objective way. And most importantly, very consistently with our fundamental approach. So they don't sit outside of our team – they're very much embedded with our research analysts and portfolio managers, and basically helping us try to solve the fundamental investment problems that we're trying to solve for and answer.

Dan Ferris:                 Right, so when you said the fundamental investment problems, can we make an example, here? Can you give me an example of this interaction? I'm just fascinated by the interaction between, you know, what I perceive as, like, quants on the one side and fundamental analysts on the other. And it fascinates me to just ask about and learn about how those people can possibly interact.

Ken McAtamney:        Well, I think all investors, certainly fundamental investors like us, are trying to identify mispriced assets, and when we are looking for companies that are growing more than their peers and solving future problems and innovating, what we're trying to assess is the magnitude of growth, how can that be different, perhaps, than what the market generally expects, and is that appreciated in the stock price. Or more importantly, more frequently, it's the durability, the duration of that growth, have they built something around their business practices that's going to allow for them to keep that competitive advantage for longer than what the market expects. That's really where the inefficiencies in the market exist today, and that's what we're trying to exploit. The market's fairly efficient in the short-term... the longer-term you get, the more inefficient it is.

Now, that tends to lend itself to that creative thinking, the investment acumen that we've accumulated, collectively, through the years. That being said, there are a number of assessments that we can make, where we're trying to understand better, you know, what is the likelihood of a certain outcome. So, one thing that our data analytics team helps us do is understand base rate analysis, you know, what is the outside view. It's common that a fundamental investor, you know, will become very familiar with a company, with the management team, and have a very deep insight into the dynamics within that company and within an industry, sometimes an outside view of, "Well, what is actually the likelihood for a company to be able to extend this competitive advantage period for a period of time?

"How many other companies have done this? Under what circumstances have we seen companies be able to extend their competitive advantage for a certain period of time?" And they help us with that level of, I guess, introduce some objectivity into our analysis. That would be one example of how we integrate that work.

Dan Ferris:                 I see, base rates, outside view, got it, [laughs] that is something all fundamental analysts could probably use, because we're so focused on looking for a business, right, a great business, and we don't ask, you know, "Is this maybe an industry in which one should expect to find such a business?" And maybe the answer is no [laughs] and we're kind of fishing in the wrong pond. So it sounds like they help you fish in the right pond.

Ken McAtamney:        That's a good expression.

Dan Ferris:                 Yeah. So, how much money are you managing in, you know, international growth, global leaders, international leaders, how much is under management in all this?

Ken McAtamney:        We have a few more strategies within this investment platform, and it is very integrated. So that team that I described, they help manage the three strategies that I participate in, but we have oversight over five or six additional strategies, including some that are dedicated in international small-cap arena, as well as dedicated emerging-market strategies. And if you add all of those up in our platform, the assets under management would be around $40 to $45 billion.

Dan Ferris:                 Wow, that's a lot of money. How much of that could possibly be in a small-cap strategy?

Ken McAtamney:        Yeah, small-cap strategies, obviously more constrained in terms of the capacity, and we've been very disciplined through the years, to not make that – to be very wary of the tradeoff between size and performance. So William Blair has always had a discipline of closing our small-cap strategies or any strategy that might have capacity constraints, very early in their life, if you will, or in their size. So, our small-cap strategies would have a maximum capacity of, I'd say, $3 or $4 billion.

Dan Ferris:                 Right, that's good. So, I'm guessing that with all of the froth of, you know, basically, since the bottom of the COVID one-month bear market, that you're not putting [laughs] any more money into small-cap, right now.

Ken McAtamney:        Well, it's interesting, if you look at the nature of – if we step away from the market, for a second, and look at the nature of the economic activity, globally, we're seeing what we expect to be – the phrase we're using is the mother of all economic recoveries, you know, something we have not seen in decades. The experience that we've all been through where the economies have been more or less forced to close by government imposition, while warranted, has truly created a lot of pent-up potential demand. And we're starting to see that in the form of the spending, both on the consumer side but also on the industrial activity side. And we think that this resurgence of growth and the reopening and normalization of economic activity, plus the stimulus that's been added to the economies globally, will actually provide for a pretty broad backdrop of growth.

And small-cap companies, many of whom are more domestically oriented, that have been, you know, really penalized during this period, we think are poised for relatively good growth, too. So, you know, we're not trying to grow our assets in the small-cap space, but we are, you know, always looking for new ideas within small-cap investing, and we think now is actually a very good backdrop for that.

Dan Ferris:                 So you sound bullish, man, you do not sound like a guy who's worried about exorbitant valuations, or speculative froth, or any of those things.

Ken McAtamney:        Yeah, I think there are signs of some speculative activity in the sea of liquidity that we've had in the market. Those areas are generally not areas that we're going to be investing in. And I do think what we have felt is underappreciated, from an equity investment standpoint, would be the cyclical side of the economy, in particular, those where the spending activity's been constrained. If you think about travel and leisure as an obvious one, and everything in that ecosystem, we think it's really a fundamental and an inexorable trend to travel, to have experiences, to be with friends and families. And this has been the case for several decades.

We're going through a bit of a difficult period where we've not been able to do that. We're already seeing signs, though, that as soon as people feel safe and healthy, they're going to return to that. So, the cyclical side of the economy around the services, and even on the industrial side, is what we think is mispriced or undervalued. I think a lot of the COVID beneficiary industries and companies, I don't know if I'd call that speculative froth, but I think those areas have been well bid. A lot of them have had demand pulled forward, and in some cases two or three years of demand. I think those are probably due for a bit of underperformance while they kind of grow into these larger multiples. But I think the more cyclical areas of the economy are poised for good performance, both from an economic growth and corporate profit standpoint, but importantly, from a market standpoint, as well.

Dan Ferris:                 So maybe, as you and I sit here talking, Netflix has reported and kind of disappointed everyone here, just slightly – well, just call it one year after the lockdowns pretty much began. You know, that's one of the classic lockdown "sitting at home with nothing to do but everybody getting on Netflix" kind of play. And you think there's more of that to come, then, maybe, in other businesses that benefited from the lockdown?

Ken McAtamney:        Without commenting on the specifics of that, I think thematically that's exactly right. I think there are companies that were truly beneficiaries of changes in consumption, forced changes in consumption. And I think there's a whole class of those companies that probably are going to have a difficult time surprising to the upside, which is what drives, in the short-term, what drives some stock prices. I will say that there are other industries that we do like that had demand brought forward, perhaps, during the pandemic, but we think are going to be experiencing not just a pull forward but an increased level of growth and adoption. And if you think everything around payments, digital wallets, and the like, I think that has certainly been a beneficiary of this environment we've been in, but one where it's really worked well and it's been fairly seamless.

Adoption rates have gone up, consumer habits have changed probably for good, and I think everything around electronic and digital payments is going to be an area. While it's benefited from this environment, probably still has a great deal of runway for growth. And appreciation by the market.

Dan Ferris:                 Yeah, you guys sound like you, I mean, you have a lot of money under management. You're doing a lot of things. On one hand, you're telling us about kind of a huge buyable dip in these economically sensitive areas like travel and leisure. And then, on the other hand, you're telling us, no, there's a secular change, here, in payments, among other things, maybe. You're doing a lot of stuff, Ken. [Laughs] You sound like a busy guy.

Ken McAtamney:        Well, secular change is what we're focused on, first and foremost. That's where we spend our time and our energy, trying to understand that, because those create long-lasting investable opportunities for us, either thematically within an industry, as I mentioned, but most importantly, at the company level. And when you get the intersection between special company with those intrinsic characteristics that we referenced earlier, and a backdrop of secular growth, that really makes for a compelling investment opportunity for us. We actually took some time, in the middle of 2020, to rebase as a team and think out toward the future, if we had a 10-year view, what would be some compelling investable themes or things that we want to pay attention to. Because they could lead to investment opportunities as we see shifts in the landscape, be it scientific, be it policy, be it consumer trends, and the like.

And we came up with five growth themes that we think are going to shape the future and certainly going to be on our radar screen for investment. And if you're interested, I'd be happy to share those with you.

Dan Ferris:                 Absolutely, lay them on us.

Ken McAtamney:        OK, rise of the machines – think about future factory automation. No. 2: connected commerce, which is, you know, this merging of different forms of consumption. No. 3: conservation capitalism – that's this notion around sustainability and resource management. Fourth: edit genetics – that's the merging of science and technology. And No. 5, we call digital reality, which is the morphing of the physical world and the digital world. And they all have subthemes within those, but we think each of those represent a convergence between a traditional industry or set of business practices, and more directly apply digitalization data and technology around their businesses.

Dan Ferris:                 So I think "Rise of the Machines" is the subtitle of an Arnold Schwarzenegger movie, is it not?

Ken McAtamney:        [Laughs] [Crosstalk] fun with that, yeah.

Dan Ferris:                 [Laughs] You know, I have to ask, what specifically are we talking about, there? That one intrigues me.

Ken McAtamney:        If you think about the – people reference the period that we've been in, or are in, as Industry 4.0. And that, you think about classic factory automation and robotics in the manufacturing environment I think is all, you know, fairly well-adopted and understand. And what we're really talking about now is, if you add in, you know, increasingly complex tasks, technology sensors, vision, etc., 5G connectivity, artificial intelligence, all of which are not future concepts, these are all being deployed to varying degrees, it really morphs the kind of Industry 4.0 into the next industrial age, if you will. So we're calling that Productivity 5.0, and that is really replacing, you know, much more complex tasks that have maybe been human endeavors, into things that robotics, CNC machines, and the like can do.

And we really think that this is going to, you know, continue apace. This has been a trend for decades... we just don't think that that's slowing down, in the least.

Dan Ferris:                 So, Ken, I know you work for a big company, here – will your chief compliance officer let you give me a name in each of these categories?

Ken McAtamney:        [Laughs] We can probably do that. If you think about factory automation, one thing I mentioned was the importance of sensors. And we're seeing that, whether it's in consumer appliances and electronics that we have at home that talk to us, or we talk to them to instruct them to do things, whether it's the car which, you know, computer on wheels, essentially, now, or industrial B2B applications, the importance of sensors is really driving that. So you think about the raw material for that, semiconductors enabling this type of activity, and one of our favorite companies that's been a holding in our portfolios for, you know, 10-plus years is Keyence of Japan. And it's one of the world-leading manufacturers and distributors of these leading-edge sensor technologies across all applications.

And we're really on, you know, what we would consider an S-curve of adoption, there. So that's one where this company is truly a special company, tremendous culture, shows as one of the leading employers in all of the surveys in Japan, and now, increasingly, globally, including here in the U.S. And we really think this company is truly special.

Dan Ferris:                 Sounds great. I'm assuming – you know, connected commerce was the next one that I wrote down, so, you know, that's obviously gotten a huge secular kind of kick in the pants from the whole COVID situation. What's the trend, there? You know, tell me about the trend and how you think of it, and give us a name for that one.

Ken McAtamney:        Well, I think, again, the enablers, here. Why do we expect this to not just continue to be what we've experienced thus far, but to pick up its pace of adoption and growth, are enabling technologies like artificial intelligence and increased computing power. We've talked about robotics and automation, connectivity, and in this case, you know, even blockchain for transaction support. So you put all of those together, and the themes that we get out of that are where products discover you as a consumer versus the other way around. You think about transactions being increasingly friction-free and cashless, or more immediate settlement, you could see, in 10 years, that some sort of digital currency will take some share of those transactions.

And supply chains that, increasingly, are integrated and, you know, closer to real-time. So, more personalized products delivered more or less instantly to people. And again, we've seen this across the board, thus far, and you get companies that are leading-edge in this, conventional companies that are leading-edge in this. Like Nike, in the U.S., obviously has seen a massive shift in their direct-to-consumer business that they had been investing in well ahead of the pandemic in a step-change function, in a positive way. Or a company like MercadoLibre of South America. MercadoLibre is, you know, very much a dominant e-commerce provider in that continent, much like we see the combination of Amazon and eBay in the U.S. And so, you know, these would be good examples of, we think, leading-edge practitioners there.

Dan Ferris:                 Oh, this is good stuff, Ken. Next is conservation capitalism, what do you see there?

Ken McAtamney:        Well, you know, everything around sustainability is very much in vogue. I think that there's become a generational shift, there, in the importance of understanding long-term sustainability, what that means for our environment, what that means for future generations. And what we really see, now, we believe, is a tipping of the balance where both the supply and demand side of that equation are now much more aligned. So we're undergoing, at the very least, a bit of an energy transition, which would be a part of this. You think about the number of countries that have targeted carbon neutrality by 2050, net-zero policies, and the thing. So we think the energy transition is underway.

And whether it's by virtue of government policy, which is support of, I think, public policy, or by the availability of technologies to be enablers of this transition, that's the supply side of the equation now catching up with that demand. So, we mentioned sensors as one of the ways to integrate more connectivity between machines. That's certainly going to be a beneficiary. If you also think about enabling technology, so companies that help do things more efficiently would be an example of that. So, companies that make electric motors, much more efficient energy consumption on the industrial side, Halma of the U.K. is a company that we invest in there that's quite interesting.

Or companies that are leading the way in terms of enabling technologies around, you know, different forms of more efficient fuels, be it biofuels and the like. So, a company from Scandinavia, Orsted, is one that we like in that realm, as well. So there's a lot of companies beyond kind of the obvious, you know, solar or wind energy companies, that are really helping enable this transition.

Dan Ferris:                 Oh, nice, OK. And edit genetics – I have to say [laughs], edit genetics, there's another sort of creepy sci-fi connotation, there. As soon as I hear that, you know, I think of, you know, creating some genetically weird human who's stronger and smarter and faster and going to kill the rest of us or something. [Laughs] But what does it mean to you?

Ken McAtamney:        If you think about the merging of science and technology, now, in a way that we're going to get step change in some medical and health care practices, that's what this means to us. So, on one hand, you've got humans that have, increasingly, the ability to monitor their own health with the help of technology. And the ability to do things in the lab that we couldn't do before. You know, started with genome sequencing, CRISPR, liquid biopsies on the horizon, all of those things together, we think, we're going to be moving into a new era of health care. And one that, ultimately, we'd like to believe leads to more prevention, rather than just treating the acute nature of any illness or disease.

That's the holy grail of medicines, and obviously governments are very much aligned around this outcome, and if we can do more early detection, change more consumer habits, get treatments earlier so that we can prevent risks, those are areas that are very interesting to us. So, by extension, we've seen a great development around companies that not just do the science and the research themselves, but are the enablers of all of that. And they, to many degrees, have built very complex systems to do the outsourced research for the companies, or to do the outsourced manufacturing. Increasingly complex to manufacture, if you think about biologics in particular, and that's become a group of specialized industries.

So, to us, it's really difficult to assess the outcome of a particular drug that's in development. I don't know many people that can do that with consistency and regularity. So, what we're very focused on is, you know, what companies are enabling those companies to be successful. Think about, you know, selling the picks and the shovels rather than the gold miners themselves. And so, we have a lot of investments in companies that help those companies do just that. So, think about Charles River Laboratories in the U.S., an outsource research company, or Lonza Group of Switzerland, who's an outsource manufacturing company, really leading the way from a technological capability, to do things that virtually no other health care company can provide.

Dan Ferris:                 I have to say, Ken, we're getting more names out of you than, like, any previous four guests or something – you're doing great. [Laughs] We appreciate it. So one more category: digital reality, what does that mean?

Ken McAtamney:        [Laughs] People have referred to this, you know, as the metaverse or something else. It seems like you're a science fiction fan, so maybe you'll know that phrase. But it's really the merging of the virtual and the physical worlds, and if you think about that, you know, what we're consuming, increasingly, is beyond just buying goods and services, but having digital experiences, if you will, or having a digital representation or a copy of something. And, you know, that is where we think we're going to see a great deal of growth. If you think about, say, the music industry or media, that's pretty well established, the digital delivery and consumption of that.

If you think about education, maybe that's slightly penetrated, but that's probably got a lot of growth in terms of, you know, virtual or technologically enabled education. And then we like to think about even luxury or lifestyle as a service, if you will, that really has not been understood or exploited, yet. You know, this big boom in NFTs, non-fungible tokens, in the last few months, has been pretty interesting. While that might be speculative, I have no idea, I think the concept between, say, digital collectable goods as a show of style or value, just the same way that someone consumes a physical good, be it a piece of art or a luxury handbag, will our digital representations of us in the future be kind of proxies for that physical representation of status and taste and things like that.

So this is really an interesting space. I don't know how investable it is right now, but we think this is going to be, increasingly, something that we'll all be experiencing and consuming in a dozen years.

Dan Ferris:                 Right, the NFT craze – things get started that way, a lot, in the world. You know, something sort of crazy and frivolous happens, but it turns out as a proof of concept of something much more substantial. And it looks – I agree, it makes all the sense in the world that you represent art and collectables and things with NFTs.

Ken McAtamney:        I agree, it'll be interesting to see where it goes, and you're right, it is on the early-stage adopters, but I think this will become mainstream and probably happen sooner than we think.

Dan Ferris:                 While we're on a topic like that, you did mention, when we were talking about payments, digital payments and things, it sounded like you were almost going to express an opinion about cryptocurrencies.

Ken McAtamney:        Yeah, I was not, because we don't have any investments directly in that. I do think everything around electronic payments is going to, ultimately, give way to some form of digital currencies in the – you know, there are benefits to that, and, you know, the blockchain benefits of the ability to track the history of something and to provide that level of very secure authentication, I think there's a great deal of value in that. I don't know about adoption of any cryptocurrency, at least not in the near-term, widespread. But I do think there are applications that we will see. And again, I think in 10 years' time, this will be very, very much more well-developed than it is today. So let's just say that we have a lot of eyeballs on this space, but not really investing in anything right now.

Dan Ferris:                 OK, fair enough. Well, we've been talking for quite a while, Ken, and it's been absolutely wonderful. I mean, you've really taken us to a lot of different places, you gave us more than your share of names, which we appreciate, and I hope that you will come back and talk with us again, sometime. But I do have my final question, same final question for every guest: if you could leave us with a single thought, today, if you could leave our listener with a single thought, today, what would it be?

Ken McAtamney:        The single thought is: Change is constant, and evolution is a constant. And so, as investors, to be very much focused on how things are likely to evolve in the future, what challenges we can make to our own current assumptions or the status quo, I think, is essential. I think growth is an imperative, and I think as investors, I think having an eye toward the future where we can see opportunities, and, frankly, where we can see the disruption and the risks that introduce to us, that's where we're laser-focused. And I think having curiosity combined with discipline is the best approach any investor can take.

Dan Ferris:                 Nicely done. Thank you for that. All right, Ken, listen, thanks for being here. I got a lot out of this. I'm taking notes, I'm going to be looking up these names, just, thanks a lot for being here.

Ken McAtamney:        Thank you, Dan, appreciate the time.

Dan Ferris:                 Wow, I hope that you were taking good notes during that, and that you wrote down all those names. You know, and if you didn't get them all, go back and listen and write them down and look them up. Like I said, Ken gave us [laughs] – he gave us more names than any, you know, three or four guests usually give us, so that alone was really awesome. And also, those five areas that he named that they're looking at, that is really cool. I got a lot out of this, I really got a lot out of this. I hope you did, too. Man, Ken's a great guy, I like hearing from him. And we'll hear from him again, probably in the next six or 12 months we'll invite him back, but for now, I just want to look at the mailbag. Let's do that right now.

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In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms to [email protected]. I read as many e-mails as time allows, and I respond to as many as possible. Or you can give us a call at our listener feedback line: 800-381-2357. That's 800-381-2357. Tell us what's on your mind. We love hearing from you. We love feedback, I can't stress it enough.

Feedback makes the world go round, it really does. If you're operating in a vacuum in this world and you're not getting plenty of feedback, you can't grow. So, I want to grow, you want to grow, we want to grow: [email protected], listener feedback line: 800-381-2357. It's really important.

OK, our first bit of feedback comes from Anthony H., this week, and he says: "The Fed seems to never say anything hawkish, only accommodating to free money. It seems like they have nowhere to go since they are the only ones supplying leverage and buying Treasurys bonds. So, does this just continue until another collapse? Just the other day, Powell – " Federal Reserve chairman Jerome Powell – "Just the other day, Powell said this is not the time to worry about the deficit, despite the strong recovery and forecasted growth they keep talking about. Do you think we would ever have a sovereign debt crisis similar to what people like Jim Rickards and Peter Schiff talk about? Interested in your opinion. Thanks again, Anthony H."

I wouldn't take a sovereign debt crisis off the table, but for me, the crisis would have to be the value of the U.S. dollar, right? The U.S. dollar is something like 80% of the world's transactions, 59% or 60% of foreign exchange reserves around the world, you know, it's hard to sell anything without buying U.S. dollars. So, it would be natural to think that the world's reserve currency just can't be dented, because the demand for it is forever and massive. But I'm an old-school guy, is till think you can print too many of them, and you can cause real inflation in doing it. And I'll tell you, I saw a number, the other day, I forget who published it, of, like, 12 trillion worth of liquidity, as a result of all the extraordinary measures during COVID by the government and central bank. [Laughs] Like, wow, 12 trillion sounds like an awful lot. If that doesn't start to cause inflation, maybe the – maybe the MMTers are right, you know, the modern monetary theorists. [Laughs] But it's a good question. I thank you for asking it, Anthony.

Next comes Al M. Al is one of our very frequent correspondents, and I don't always get to answer Al M.'s question, but, Al, thanks for writing in once again. Very thoughtful guy, he's got a lot to say, here. I can't read the whole thing, but I'll pick out what I think are the good parts. I think you'll get the gist.

He says: "I didn't really understand your reasoning on this idea of gold as a bauble." I said that, I don't know, maybe a couple of months ago, here and in the Stansberry Digest that I do each week. He continues, he says: "I collect Anasazi Indian pottery, and I really enjoy my collection. The pots just seem beautiful to me. That seems very human, that appreciation of perfection done by hand or the human eye. In the case of pottery, I have no expectation that it will hold the value of my work and saving discipline.

"I so far do not really see the connection you described in gold. It seems to me that my objective in holding gold would be to preserve my savings, rather than as an enjoyable bauble. Money is needed in this damn society," Al says, "and everyone is trying to take everyone else's money away from them, especially the government. It seems gold is a way to hold value, at times, if one is patient enough to wait till it comes around to its original value. That would be my hope in holding gold. Now that I have tried to describe my feelings on this, I suspect it is different for everyone. After having discussed this with my wife, I can see that it's different for everyone, because she would like more Tiffany jewelry. [Laughs] Al M."

Thank you, Al. Yeah, so gold is a bauble. What I intended, there – maybe I didn't spell it out right, but – it just seems to me that, you know, 5,000 or 6,000 years ago, or sometime before that, whenever mankind sort of discovered gold and first got fascinated with it. I'm kind of guessing that it was, you know, just the sort of fascination of a child and the appreciation for something of beauty, rather than immediately saying, "Oh, this is gold. We can use this to store value and it'll be good for the next 6,000 years." [Laughs] You know, and it really – I don't know if there's a lot more to it than that. To me, it just seems that – and I also remember talking about Warren Buffett's view on this. You know, we dig it out of the ground, and then we turn it into a bar, and then we put it in the ground, basically, in a vault, you know. And after 100 years, it's just the same as it ever was.

And of course, that's the point. He thinks that's a criticism of gold, and I think that is a feature, not a bug. That's what you want it to do: you want it to be the same, you throw it in the ocean, it's impervious to seawater – it's inert, it's an inert substance, so it doesn't change. And that's the idea, that's what makes it a great store of value, and it's shiny and it's heavy and it's malleable, and that's what makes it a bauble. So, hopefully, Al, there's more explanation there for you. [Laughs] That's about all I can do.

Next is Lodewijk H., another frequent correspondent. Lodewijk , I appreciate all your e-mails. Keep them coming. I know I don't always get to respond to you – I'm trying to give everybody a chance. But this week Lodewijk says, "Who's the best author of investment books and why? I'm more interested in the motivation than the name."

OK, Lodewijk, I think I know what you're going for, here, and I'm going to give you one very specific answer, and that is Joel Greenblatt, the former hedge-fund manager, investor, author. The way he writes, it's just, it's the perfect combination of a conversation with a very intelligent person, but it's not overly technical, at all. It's just this perfect sort of conversational explanation of some pretty, in some cases, some pretty sophisticated material. Any book by Joel Greenblatt, any one, I think they're all excellent. I think the writing is excellent, the thinking is excellent, and they're must-reads. Joel Greenblatt. Good question.

Next comes Coach Z. Coach Z. says: "Great podcast. I never miss it. Dan is fantastic." Thank you, Coach, I appreciate that. "He brings on knowledgeable guests, guides them with poignant questions, and lets them answer. Dan always talks of leverage. My question is, does leverage ever make sense in a trading or investing scenario? If so, under what circumstances? Coach Z."

Good question, Coach. Excellent question, in fact. And sure, it's not whether or not you use leverage, it's how you do it. For example, I am currently holding some out of the money put options on various large equity indexes, because that's just something I think you should do, when the market gets really frothy and other things, you know, happen in the market. And that's an inherently levered instrument: I can take a very small position, and if the market really goes nuts and drops really fast, the inherent leverage will turn a very small stake into possibly an enormous return. So, you know, you can take a little half percent of your portfolio, or less, and it could bring you double-digit returns on the overall portfolio, if it performs as I suggest.

And, you know, other forms of leverage, like Warren Buffett, I've seen it estimated that he's got, you know, 1.6 to 1, like, 60% leveraged, there, by using float. And, you know, he uses insurance float to make investments. And that, of course, has gone on for, you know, half a century with him. [Laughs] It's gone on for a very, very long time. And it's a really cool use of leverage because he's not going to have it called away, really, you know, he's not going to have a broker just sell him out because the position is deteriorating, you know, there's never going to be a margin call. And, you know, the balance sheet is such a tank, it's such a fortress, that, you know, he's just never going to get in big trouble. He's never gotten in real big trouble with it – it's brilliant.

So, yeah, it makes sense, but you've got to know how to do it, so that you don't blow yourself up, I think is the simple answer. Good question.

Finally, this week, Elsa G. says: "When you want to have gold, it's usually also good to have some gold miners. They are leveraged compared to gold price. So do you think it is the same with bitcoin stocks? For example, Hive, there is a miner, and Galaxy, there is a kind of crypto financial bank. Elsa G."

Sure, this is not a bad way to think about things. What I believe I have to offer for you, Elsa, is just remember that a – for example, let's take the simpler example you put of a gold mining stock, you say it's leveraged compared to the gold price. You know, that may be true, but gold mining is a business, right? It's not just a machine for levering up the gold price, right? So, things can affect the performance of that stock, that really don't have anything to do with the gold price. You know, you could wake up one morning and the mine's flooded, or the workforce walked out the door, or, you know, all kinds of stuff.

So, just be careful in thinking that, "Well, I own gold, but I also own the leverage to gold in gold stocks." It's not an unsound thing, but just make sure as you truly appreciate what it is that you own. If you own, you know, whether it's gold mining companies or, you know, the crypto financial bank that you describe here or, you know, a crypto miner, whatever it is, make sure you understand that it's not just leveraged to the price of the commodity, it's also a business that has its own unique characteristics. But good question, thank you for asking.

That's another mailbag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did.

We put out a transcript for every episode, but sometimes it does take a little while for it to show up on the website. Just go to www.investorhour.com, click on the episode you want and scroll all the way down, and then click on the word "Transcript."

If you like this episode, send somebody else a link to the podcast so we can continue to grow. Anybody you know who might enjoy the show, just tell them to check it out on their podcast app or at investorhour.com. And do me a favor, would you? Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. You can follow us on Facebook and Instagram – our handle is @investorhour. You can follow us on Twitter – our handle there is @investor_hour. You have a guest you want me to interview, drop me a note at [email protected], or give me a call at the new listener feedback line, 800-381-2357. Tell me what's on your mind.

Till next week, I'm Dan Ferris. Thanks for listening.

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Outro:                         Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail: [email protected].

This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear.

Stansberry Investor Hour is produced by Stansberry Research, and is copyrighted by the Stansberry Radio Network.

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