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Announcer: Broadcasting from Baltimore, Maryland all around the world, you're listening to the Stansberry Investor Hour.

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Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here is your host, Dan Ferris.

Dan Ferris: OK everybody. Welcome to another episode of the Stansberry Investor Hour. I am your host, Dan Ferris. I'm also the editor of Extreme Value. That's a value investing service published by Stansberry Research. We got a great show. I'm going to get right to the rant because it's a special one today. OK, this is something I have been wanting to do for quite a while and I thought after last week's rant this kind of was the perfect time to do it. Now, last week – by the way, I'm happy to report that last week's rant was very well-received, which means a lot to me because it was kind of a personal plea. So if you haven't listened to last week's episode, I hope you'll download it and give it a listen. I was just trying to implore, beg, plead with investors to take control of their own portfolios and to only partner with people they really trust – brokers and advisors and things.

And I got one heartfelt e-mail from a listener who said, "Am I doing something wrong? I found an advisor," and then he goes on to describe this great relationship that he has with this advisor in this e-mail. And of course I can't give personal advice. All I'm going to say is: he described what sounded like a very good personal relationship to me. And that's a way to make your investments really personal: you partner up with people you really trust. So that's definitely part of what I was describing, just so you know.

So this week, I'm going to continue a little bit based on the theme from last week. But I just want to give you some practical things to do – actually, some books to read. They're all pretty short, they're all extremely well-written, and you'll breeze through them, and the ideas are absolutely fantastic. And these are things that, if you don't quite know what I was getting at last week and don't quite understand how to make investing really personal, how to take control of it, I think these books, in the order that I'm giving them to you – it's almost practically a step-by-step for doing that, practically speaking. You may have to read between the lines a little bit but it's really all there. And I think it's pretty plain to see.

Now, the first book I'm going to recommend today is not just the first book I'm going to recommend today. It is absolutely the first book any investor should read once they decide, "I got some capital – I want to invest it somehow. I want to get in the stock market. I want to buy bonds. I want to buy real estate." Whatever it is. This is absolutely the first book any investor should read if you're 15 or 95 or anywhere in between. This is your first stop. It is called The Elements of Investing by Burton Malkiel and Charles Ellis. And a couple of podcasts ago, I said – two or three podcasts ago. I think it was Episode 91 with James Grant. I said that saving money is the master skill for investors, right? And that's what this book starts with. And it just treats – and it says things about saving that I didn't say, really wise, wise things. So I highly recommend it and it gives you some practical tips on saving in a small way and saving in a big way.

And then it's a very short book – it's not even 200 pages, and it's small pages. And very well-written. These guys have written plenty of books in their time, both of them. And both of them have written other excellent books that are mentioned actually right on the cover here. So, after saving, they talk about indexing, diversifying, avoiding blunders. Remember one week we talked about negative advice: what not to do? They have a chapter on that in there. Then there's a chapter on keeping it simple, and they've got some other stuff in the end about taxes and so forth. Simple things that everybody should know. Highly recommend this. The Elements of Investing by Malkiel and Ellis. You want to really take charge of your investments? Read every word of this – take it to heart and practice it. OK? Numero uno. That's the one.

The second one is a book that I'll probably mention a million times because I'm a value investor. But value or not, no matter what you are, I think you need to read Chapters 8 and 20 of The Intelligent Investor, by Benjamin Graham. Again, the guy writes in a slightly older style than the other book I just mentioned, Elements of Investing. But he's really good. And I actually have a little alert on my computer – and it comes up on my phone too – once a month to read Chapter 20 of this book. It's called "'Margin of Safety' as the Central Concept of Investment." And it will teach you a lot. And Chapter 8 will teach you how to deal with the fluctuations in the stock market. Gee, you'd like to know that, wouldn't you? You better know it before you buy one single share of anything. So Chapters 8 and 20 of The Intelligent Investor.

Warren Buffett says, "By far the best book on investing ever written." I mean, that's a pretty good recommendation from a guy who's made tens of billions of dollars investing. So we got The Elements of Investing and The Intelligent Investor. And all these books are written by investment geniuses, all of them. Malkiel, Ellis, Benjamin Graham – all these people spent their entire careers in the investment industry.

The next one is around here somewhere. Here it is. It's The Most Important Thing, by Howard Marks. And the funny thing about the title is that, as Marks tells you in the front of the book, he came up with the title because he would find himself sitting down with investors, with his clients and potential clients, and he'd say, "The most important thing is this. The most important thing is that. The most important thing is" – and it was a different most important thing every time. And so there are 18 most important things in the book. And it just kind of shows you that investing is complicated – there's a lot to think about. And this guy, more than anyone else, even more than Warren Buffett on these particular topics, makes them very simple and very easy to understand. And all of these things you will want to go back – these are your reference sources for these topics, OK?

So: The Most Important Thing by Howard Marks. He's got three chapters on risk in there. Gee, that's a big hint, isn't it? You should know something about risk. He's got a chapter on cycles. He's got a chapter on second-level thinking. First-level thinking is when you say, "Gee, the economy's bad and stocks are going down and I shouldn't buy anything." Second-level thinking says, "Stock prices are low because everybody's trying to sour on the economy but they're getting pretty cheap and I found a few good companies that I think are really great buys right now." That's second-level thinking versus – the first-level thinking is when most people do that. Knee-jerk reaction is your first level. All kinds of other great topics in there. And they're essential.

You can't do – I would say that all of the things I'm having you read here – every chapter in Elements of Investing, Chapters 8 and 20 of The Intelligent Investor, every chapter in The Most Important Thing – and, again, it's maybe a couple hundred pages. Every single chapter is absolutely essentially. Can't live without it.

Now, the next book I'm going to recommend, the fourth one – and I'm only going to recommend five altogether – it's one of the classic investment works. It's by Peter Lynch. It's called One Up on Wall Street. It contains one of my favorite quotes ever, which I will read to you right now. He says, "Then again" – this is right at the end of Chapter 1 in the book. Or maybe is it Chapter 2? Looks like Chapter 1. Anyway. He says, "Then again, maybe you shouldn't have anything to do with the stock market ever. That's an issue worth discussing in some detail." And here's the good part: "Because the stock market demands conviction as surely as it victimizes the unconvinced." I love that: "demands conviction as surely as it victimizes the unconvinced." How many times have you sold at the bottom? How many times has your conviction wavered and you've made a bad exit, or even a decent exit, and then the stock turns around and flies up and it soars without you on board? I've done it myself too many times.

And there's lots of other really good stuff. My copy of this thing has several of those good quotes just sort of underlined and underlined and underlined to the point where the pen's almost going through the page. Again, just essential kinds of reading. So these are essential reading but there's another point here, which is that all of these people are investment wizards. They're investment geniuses. And you should read – if you really want to take control of your investments, you should make these people your partners. You should read all of Warren Buffett's shareholder letters right on BerkshireHathaway.com. You should read books like the ones that I'm recommending here.

And here's one more I'll recommend. I looked on Amazon and there's like seven copies left. I think if you guys all buy those seven they'll get more. Because it's not out of print. And it's called The Money Masters by John Train. Now, there's one called The New Money Masters, which is harder to get, and I'm not recommending that one. But if you want to get that one too, great. But I definitely think The Money Masters is a good source for just learning about some great investors that you may not've heard of. Now, there are people in here like Warren Buffett, Benjamin Graham. There's chapters on each of them. But there's also chapters on people like Paul Cabot, Philip Fisher, Stanley Kroll, T. Rowe Price, John Templeton, Larry Tisch, Robert Wilson.

You never heard of – maybe you've heard of Templeton or something, or T. Rowe Price. Or Phil Fisher even. But Cabot, Wilson, Kroll – probably never heard of those guys. And they're definitely worth sort of learning something about. And the point of that is: definitely learn something as much as you can from great investors. And I have a bunch of books around here that are basically the same thing. Each chapter's devoted to a great investor. But I sort of thought this was the best one to recommend on this very short list of books designed to help you take control of your investments.

There's another thing I wanted to talk about, OK? This book, Elements of Investing, is really basic stuff. And that's not by accident, OK? And I told you this before when I talked about saving as the master skill. I learned something by studying music. I studied music in college. I was a music performance major. That's what my degree was in. I played classical guitar. I still play. And I was born and raised in Baltimore. I studied guitar at Towson University in the suburbs of Baltimore with a guy named Michael Decker who was the protégé of a guy at Peabody. Peabody is in Baltimore, the Peabody Conservatory, one of the great music schools on the planet Earth.

And at Peabody, when my teacher, Michael was there, was a guy named Manuel Barrueco, one of a handful of the greatest guitarists ever to play the instrument, period, full stop. And just a really nice guy. I went to several of his masterclasses where he'll be on stage with a student and there'll be an audience and he'll give a class for the student that we can all watch. And I went to several of those, went to several of his performances.

And one time I drove up to Philly from Baltimore and I was standing out front of the venue and Manuel pulls up and gets out of his car and says, "Hey, how you doing?" He recognized me from going to all his performances and masterclasses. He said, "Do you have a ticket yet?" And I said, "No, I was going to go in and get one in a minute." He said, "Well, if they run out by the time you get there, get me a message and I'll make sure you get in." Just really good, down-to-earth guy, and a musical genius on the guitar.

And he taught me something just by watching him in these classes. He kept giving the same advice over and over and over. And it wasn't some complicated, hard-to-figure-out thing. It was – he would ask every player on every piece – he said, "Did you use a metronome? Did you play this with a metronome? Did you metronome this piece?" Every single time. And then they'd say, sheepishly, "No, I didn't." And he'd say, "You have to use the metronome." And Manuel has this very insistent way of telling people: "You have to do it. You have to do it." And he's right. And I play some pretty advanced stuff these days myself and you have to use a metronome on every piece Because you just do. It's one of the basic things. You have to master the rhythm. It has to be extremely solid for the piece to really sound great.

And it occurred to me that there's really no advanced class – there's an advanced class in the technique of contorting your fingers on a given instrument, on the guitar or violin or whatever your instrument is. There's an advanced class for the technique. But for the music, not really. There's not really an advanced class. You're mastering the basics over and over and over and over with every single piece you play. You revisit the basics. "I got to get the rhythm right. I got to get the tempo right. Not too fast, not too slow. Got to push it here. Got to pull it back there." Every single piece.

Every single investment you make, the master skill of saving will help you. And the negative advice you get from reading things like Chapter 20 of The Intelligent Investor or the chapter in The Elements of Investing or the work of Nassim Taleb, for that matter, the negative advice helps you on every single investment. The skill of saving helps you in every single investment. You're just revisiting the basics every time. There is no necessity of taking the advanced class, which in investing would probably be learning all the option Greeks or something like that. And we don't even need to go into what that means if you don't know what it means Because you'll never need to learn it in your life. Just revisit the basics. Start with these five books. And maybe I'll try to list them on the website once we get the podcast up here.

But that's my rant for today. If you want to take what I said last week – if last week charged you up – and the feedback that we got suggests that it really charged a lot of people up and got them excited about taking control – I would say take a breather, don't buy or sell anything, read these five books. Read every word of them. Read every word of them three times. I had a teacher in college who said, "You got to read everything three times." Then I read a book by a guy named Mortimer Adler, philosopher, and he said, "A great book should be read three times. Once, you get the sweep of it. The second time you dig in and get the nitty-gritty and underline things and figure out things you don't understand. The third time you tie it all together."

These books deserve three readings apiece at least, and even after that, you will go back and refer to them. They will become sources of timeless wisdom for you. In fact, your first five sources of that. And then there's lots of other good books to read. But, by all means, you want to take charge? Start with these five. That's the rant. Let's talk about what's new now.

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OK, everybody. Here's what's new. First thing I want to talk about is a little report that I read about on PIOnline, Pension & Investments is the website. And they put out a little report maybe a week or two ago and it said – the headline is buy a research firm, an alternative investment consultant research firm called Cliffwater – is what this report is based on on Pension & Investments. And it says: Cliffwater says the U.S. state pension fund returns badly trail the aggregate assumed rate of return.

So that's a lot of gobbledygook. What it means is this: the U.S. – state pension funds throughout the U.S., in the aggregate, altogether, assumed that – you have to assume a return. Because a pension is: people contribute to the pension and one day they need to take outta the pension and live off of it, right? So you have to kind of estimate what you're going to be able to give them in 20 years when they retire. So the pension fund invests the assets and they estimate an annualized rate of return that they'll be able to get over a certain period. Now, the insight here that I want to share is that pension funds are kind of notoriously bad at a couple of things. One of them is estimating future returns. And another one is: they're always calling the top of whatever investment is the big fad. It's horrible actually.

But Cliffwater found that the weighted average return that they estimated back in June of 2000 through June of 2018 was 7.75%. That's what they thought they were going to make over that period of time. What they actually made was 5.87%. Doesn't sound like a lot, but it is over a long period of time. It's thousands and thousands of dollars' difference to a pensioner. So it's rather typical. And if you have a pension, you kind of want to know what they're assuming. If it's the year 2000 or the year 2007, or I would say right now, 2019, well, if they've got a lot of money in stocks, they're going to underperform whatever they're telling you they're going to make. They really are.

And the report went on to say: this almost-two-percentage-point shortfall contributed greatly to a decline in pension funding ratios from close to 100% in 2000 to 73% as of June 30, 2018, according to the Cliffwater report. What that means is: they were 100% funded. They assumed that they were 100% funded back in 2000. Well, now they're only 73% funded. So if they had to pay everybody out today, everybody would get 27% less than they thought. Something like that. So, yeah, careful – be careful on the pension funds, OK?

Another thing in the news: Uber. Uber's kind of an interesting animal. Uber says it's going to seal a $3.1-billion deal to buy Careem this week. So it's $3 billion. This is Careem Networks, a Dubai-based rival company that does the same thing as Uber: you know, these ride-sharing things. So, $3.1 billion in cash and shares. Actually $1.4 billion in cash, $1.7 billion in convertible notes. And the notes will convert into Uber shares at a price equal to $55 a share. Uber is expected to publicly file for an IPO in April. And this could value – I thought the value was lower than that. Maybe I should've checked on that. But the point is that it values the company as much as $120 billion. And they lose money. It's this giant thing that's kind of a great idea. I use it all the time. But it loses money and has a giant valuation. That's kind of a sign of the top. It's a typical sign of the times.

And I got another sign of the times. Earlier this week in the Digest, Bryan Beach of Stansberry published a piece and he discussed a company called WeWork. And you know WeWork, right? They basically buy office buildings – or they lease office buildings and then they cut them up and lease smaller pieces of them at higher rates for the smaller piece, and they collect the difference. And they have a massive valuation of like $47 billion. Now, there's another company that's been doing this since like the 1980s called IWG, has a valuation of like $2 billion, and has thousands of properties, versus hundreds for WeWork. And it's just another sign.

And WeWork is this – it's insane. The valuation is insane. I think the CEO is off his rocker. In the New York Times in early 2018 he says, "To assess WeWork by conventional metrics is to miss the point. WeWork isn't really a real estate company. It's a state of consciousness." He said that in public in print with a straight face, OK? And it is just a real estate company but they try to sell themselves as a tech company. So they have kind of an industrial style in all their buildings. And they have free beer, apparently. I'm not kidding. They have free beer.

And then they have all these other ventures that they're starting, WeLive, which is a residential version of WeWork. Still just real estate, right? Then European-style hotel concept with shared bathrooms called WeSleep. And something called WeBank. We have no details about that. WeSail is Caribbean boat charters. And WeGrow, which is like a for-profit computer coding academy for preschool children, like three-year-olds and up, promising a curriculum that emphasizes socializing and entrepreneurship for three-year-olds on up. And there's other weird stuff. So it's a weird company. The valuation is way too high.

Part of the problem with the valuation is that Masayoshi Son from SoftBank has jacked up the valuation just by putting lots of money into it. It's a private company. So he invested at one valuation. Then he put a whole bunch more into it, assigning it a still higher valuation. So the valuation that SoftBank is recording their stake in, which is the valuation we're all going off of, is kind of a made-up thing. It's pure BS.

And beyond that, of course when you get something like WeWork, then you also get shenanigans, right? So the CEO of WeWork, Adam Neumann – he's personally buying buildings and selling them to the company, an obvious conflict of interest, right? I mean, if WeWork is a real estate company, they know what they're doing and they're not overpaying, et cetera, then why shouldn't they just buy them? Why do they have to buy them from Neumann? Well, I guess he wants to make money selling them to his own company. And when the board protested this, he responded by creating a super-voting class of shares and giving himself enough votes to kind of override the board's objections.

And the accounting is a little odd, to say the least. They take non-GAAP accounting to a new level. They use something call community-adjusted EBITDA. That's earnings before interest, tax, depreciation, and amortization, kind of a standard cash flow metric. Community-adjusted EBITDA deducts employee salaries, marketing, costs for fixing up the buildings, pretty much everything except the lease costs for leasing the buildings. Bryan Beach sent me an e-mail about some of this and he said, "I've seen a lot of funny non-GAAP stuff, but backing out the employee salaries, like that's not a legitimate expense? Wow," he says, and "Wow" I say, and "Wow" you should say. Bizarre-world stuff. Just bizarre.

That's what happens at the end of the cycle: stuff like that. Stuff like Uber taking out probably an unprofitable competitor for $3 billion and WeWork being valued at 47 and doing all this shenanigan crazy stuff.

All right, just a couple more things. The Elon Musk circus continues. An SEC judge – I'm sorry: SEC urges a judge to act, accusing Musk of kind of muddying up the contempt-of-court case against him. He tweeted a Tesla production forecast for the year in February, corrected himself within a few hours. That was like the 500,000, 400,000 escapade I think, prompting the SEC to ask that he be held in contempt of court. And of course I told you Whitney Tilson, who has now made a deal with Stansberry – he's now saying this is it and the stock is going to finish under $100 this year. Still well over $100. I think it's still well over $200.

And the thing has just levitated. I mean, there's no reason why this brand-new company should be valued roughly the same as GM. GM actually makes money and it sells a bunch of cars, millions of cars all over the world. Not millions, but it sells a lot of cars all over the world. And it has the same valuation roughly as Tesla, which lights money on fire, has a crazy CEO, and it apparently, according to all the Tesla bears, is just playing all kinds of games to report things in the best possible light. And they come out with a new model and then you kind of look closer and it's not really that model – it's kind of a previous model jazzed up to look like a new one. This is the kind of stuff that you see – maybe I'm guilty of confirmation bias but that's what you see at the top of long bull markets.

So be careful out there with this stuff. Be careful with these giant IPOs like an Uber or a WeWork or something, if they IPO. Be very careful.

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All right. It's time for our interview today. And we have Tom Carroll, one of the newest folks here at Stansberry. And Tom has the impressive resume, folks. Tom's been a regular on networks like CBNC and Fox Business over the past two decades. His work has been featured in the Wall Street Journal, Bloomberg, the Financial Times, Kiplinger, CBS, USA Today, just to name a few. He earned a master's degree from the Department of Healthcare Finance at Johns Hopkins Bloomberg School of Public Health. Tom spent 17 years as an analyst and managing director for Legg Mason and Stifel Financial. At that time Fortune ranked him as the No. 1 health care analyst in America. He received the All-Star Analyst Award for excellence in stock-picking twice.

Four years ago, Tom took a risk. He became an angel investor in what is now a major player in the medical cannabis space, and that experience changed his life. So today, he's waved goodbye to his old job on Wall Street. He wants to take his 20 years of experience in health care, where he won award after award for finding some of the most profitable investments, and begin a new legacy finding the same kind of opportunities in cannabis stocks. Now, the kind of opportunities Tom uncovers are not like the cannabis investments you'll likely hear about in the mainstream media. A lot of that stuff is garbage, by the way. These are opportunities that Tom has personally vetted and hand-picked because he thinks they're positioned to soar hundreds if not thousands of percent as cannabis legislation and legalization continues to sweep across the globe. Tom Carroll, welcome to the program.

Tom Carroll: Thank you so much. Glad to be here, all around.

Dan Ferris: Yeah. I mean, after that introduction, I'd be glad to be here too.

Tom Carroll: At the end of the day, like I said, I'm just a knucklehead. You put it all together, it looks good.

Dan Ferris: All right. Well, we don't think you're a knucklehead, Tom. So, before we get into all this cannabis stuff, it seemed like you were dedicated to health finance just from school days, from the time of your master's studies. So you decided health care was going to be big and you were going to get involved in finance way back then.

Tom Carroll: I did. I grew up in a health care family. And I can remember my mother very clearly saying, "You need to get into health care, and I don't mean as a doctor. I mean on the money side of things." And she was spot on with that advice. And she reminds me of it to this day.

Dan Ferris: Wow. So this is the opposite of what everybody else – everybody else says, "When my mother tells me to do something, it's the top of the market." But your mother actually steered you right [laughs].

Tom Carroll: Yeah. And I guess at that point in time I'd had enough experiences with my parents that I knew they kind of knew what they were talking about. And I try to explain that to my kids too but they're not there yet.

Dan Ferris: They'll get there. You keep pounding it into them. So, just tell us a little bit about your time before Stansberry, just maybe an experience or two that kind of helped you get where you are today.

Tom Carroll: So, an experience or two that helped me get to where I am today.

Dan Ferris: Or just your impression of the corporate world. Just how your thinking developed maybe before you got into all this cannabis stuff.

Tom Carroll: Sure. Like we just mentioned, I knew I wanted to be in health care. I knew I wanted to be on the dollars side of things. It felt like a recession-proof business to me, as it has proven to be. And it's something that was only going to get bigger and was complicated and was full of emotion. And as I mentioned, and I think it's worth mentioning again, it's full of money. And I think you put all that stuff together and it creates an environment or an ecosystem that is very well-suited to investment. And I worked in a number of places kind of in and around the health care world prior to getting into kind of the Wall Street job I had.

And those experiences in really being part of it, sitting in the basement of a hospital doing a Medicare cost report or being in a physician's office who's trying to run his small business and we're trying to do his books for him, or working on reserve calculations for a managed care company – all of that stuff turned out to be a really great base of knowledge as I, somewhat accidentally, fell into my Wall Street job. And, again, once I got into that role as an analyst, initially with Legg Mason – we were bought by Stifel a number of years later, and I continued my career there. But all of those experiences really laid a great groundwork for stepping in and analyzing companies from a higher level and then translating that into stock picks. And I ended up being there about 18 years. So I guess it worked out.

Dan Ferris: Yeah. That is some nitty-gritty stuff you describe before getting into sort of the Wall Street career.

Tom Carroll: Yeah. And I think the nitty-gritty stuff is really what makes investing in health care so great. Because it's hard, right? People don't get it. I've had a number of institutional investors say, "Look, we just haven't been involved in health care because we don't get it. We don't get what the big risks are and what the governmental focus could be, and does that create winners or losers?" And in my view, it's great to understand that to some degree. I don't know that I'll ever fully understand it in health care. I don't know if anybody will. But to dive into that and really create a differentiated view that can turn into what have been some really decent investment opportunities over the years.

Dan Ferris: Yeah. So how does a guy like you – how did you navigate, for example, Obamacare? That changed a lot of things. I know it changed my life. I'm paying a lot of money for health care these days [laughing]. What did that look like to a guy with your experience and knowledge?

Tom Carroll: Great question. Into kind of the end of 2007 and early 2008, that's really when the chatter began that ultimately led to the health care reform debate in the United States, that ultimately led to the signing of the Affordable Care Act, AKA Obamacare. And investors didn't know what to make of it, you know? It was like this brand-new sweeping push for legislation that was also going to be quite sweeping in nature. And the first question is: well, there's going to be winners and losers, so who are they going to be? And no one really had a good idea. So it was a lot of kind of sitting back and working on various scenarios: "If this happens, then the managed care companies are going to be better. If this happens, then the hospitals are going to be set." And on and on.

So it was a lot of kind of keeping track, almost on a daily basis, especially as we got towards the implementation of the ACA in 2014. But it was a constant battle. And, quite frankly, I think it was a world of trading back then. So we were doing a number of trading calls, which is kind of opposite of my investment process longer term. But the overall environment really required that at the time. So we maybe "buy" rated on one thing at one time and changed our minds three or four months later, as opposed to three or four years later, which was really the goal of my investment opinions on stocks.

So, yeah, it was a crazy period of time. I had investors look at me and say: why don't I short all of these things right to zero? You know, question mark. And not a rhetorical question. And I was having to come up with discussions around things like that. So it wasn't an easy time. But I'll tell you: it was a lot of fun. And there was a lot of demand for opinion and my time as well as others in the market at the time. So I was quite busy. So it was good job security as well. So I'm actually looking forward to 2020. I think health care is going to be another front-burner issue as we head into the next presidential election. And that's going to create probably some similar tidal waves out there in the world.

Dan Ferris: You think just generally, or are there specific issues that you think are going to be more important in 2020? Or you're just in general counting on it being an overall factor?

Tom Carroll: Well, health care legislation and the push as a big health care – either from a "Get everybody covered," or make it more of a free market system – that tends to come around every other presidential election. If you look through the history of different elections and the different health care topics, it tends to skip an administration. And so this one, it's gearing up I think again to be another primary issue for the election. And you're already hearing about it with calls for Medicare for All or Medicare for America. There's a number of different proposals that're out there. So right now it's really hard to say who are going to be winners or losers. It's also hard to say what ultimately the final issue is going to be.

I don't believe a Medicare for All will work in the United States. Certainly not at this point in time. But it sounds like the push towards some type of – I don't want to say single-payer system, but some type of universal coverage system, private/public partnership program is probably going to be crafted and put out there to be voted on. So that, again, will absolutely have ripples across the entire health care ecosystem, which, as you know, is approach 20% of the total economy.

Dan Ferris: Wow. Yeah. I'm going to indulge – I have these pet-peeve questions about every industry. And I've gotten to indulge my banker questions the last few weeks. But my pet peeve in health care is just: from my own perspective as a consumer, it feels wrong to me to have – I don't even know how many at this point. I've seen estimates of between six and 16 or so administrative people involved in virtually every transaction between me and my doctor. And I feel like: well, if we're going to have a system like that where everybody's got this insurance – most people do, now especially – of course the cost is going to be high. Am I right? Am I way off mark here with this?

Tom Carroll: I think that's an easy argument to point out. But at the end of the day, the administrative part of the system is actually very small. The primary driver of U.S. health care costs are the price that we pay for products and services at the hospital and the price we pay for products and services at the doctor's office. Those two things encompass over 50% of the total medical spend that's out there today. And, again, you have your belief – this is my belief. If doctors and hospitals were allowed to administrate on their own, health care would be a lot more costly than it even is today [laughs]. Maybe I'm a cynic. But I truly believe that would be the case.

So I think a lot of what we call administrators and middle men – again, not all of them, but they're trying to create a system of checks and balances in the system that our country has decided: that's the way we want to do it. Other countries have decided that the checks and balances are going to be done at a single-payer level. So, for example, in the U.K., there's an agency called NICE – N-I-C-E – the National Institute of Comparative Effectiveness. And this is the group within the NHS that basically says, "Yes, we'll pay for that expensive drug treatment," or, "No, we're not going to pay for it. And if you want it you're going to have to pay on your own."

Those decisions aren't really made in the United States right now, or they're made kind of under the radar screen by the administrators that you refer to and the various checks and balances that're out there. And, as you mentioned, they're across all different parts of the system. They're at Medicare. They're at Medicaid. They're at commercial insurance companies. They're within the hospitals that're taking medical risk. They're within big physician groups that're taking medical risk. And so on and so forth. So I guess that's a long-winded answer to your question. But while the administration can seem annoying and, certainly if you look at it in the aggregate, it's big dollars. But at the end of the day, it's really a very small component of the overall spending in the United States.

Dan Ferris: I see. And specifically I was addressing the fact that I pay a lot for insurance just for my wife and I, and it seems to me like – maybe I'm hung up on the word "insurance." Because insurance to me doesn't mean this.

Tom Carroll: Yeah. I actually agree.

[Crosstalk]

Dan Ferris: It doesn't mean – yeah. I mean, that's where I thought: if they're calling this insurance but it's involved in every single transaction, that's not really insurance. And of course that's going to jack the cost up. But you're saying: no, not really. It's actually the cost of paying physicians and buying medical equipment and doing the stuff that they do.

Tom Carroll: Yeah. In fact, my grad school advisor, Dr. Gerry Anderson, at Hopkins – he just republished a study he did about 15 years ago, and the title of it is called, "It's the Prices, Stupid." And the new study is called, "It's Still the Prices, Stupid." And he basically looks at the price per unit of thing, right, the price per unit of service or product in the United States, and compares it to OECD nations out there. And what he found I guess 18 years ago now, and what he found just a few months ago, is that in the United States, the price per unit of a service is anywhere between three and ten times what it is in other places, adjusted for all kinds of things. And so, again, take administrative out of it – you still have all of that. And, in fact, I would argue that all of that would even be higher without some of the checks and balances that're out there.

Again, there's always the example to point to: "Well, this pharmacy benefit manager is not giving rebates back to this particular organization." There's always that stuff out there. The drug-pricing stuff that's out there in the media right now – again, very easy to point at that stuff and say, "This is what's wrong." But, again, even the drug-pricing stuff – if we were to cut drug prices across the board in half, it would influence about 7% of total medical spending. Meds are only about 15% of the total medical dollar.

But it's a great place to start. Because everybody has a good sense of what that is and what that means. Everybody has a good sense of medication and how they get them. And you pay your copayment or whatever and you take your meds. "Hey, I got better." So we have a good tangible understanding. So if we're going to fight the fight for health care costs and make them better, I think in the sense of either flat or lower, pointing the finger at drug cost is a perfect place to start.

Dan Ferris: I see. Speaking of drugs –

Tom Carroll: Right [laughs]. How was that segue? I didn't even mean to do it but it just worked.

Dan Ferris: Yeah. Speaking of drugs, I have to say I've been doing this 21 years and if you'd told me, even four or five years ago, "Stansberry Research will soon offer a product called the Cannabis Capitalist," I would've said, "No." It's totally devoted to investing in companies that I assume either grow or produce marijuana-based products. You know, I just never would've believed it. And that is your primary – right now it's your sole focus at Stansberry, is it not?

Tom Carroll: That's correct. That is absolutely correct.

Dan Ferris: Amazing.

Tom Carroll: It's a place that there's been a missing component there. And I think it's going to be a absolutely enormous industry in the next five years.

Dan Ferris: OK. So, you and I talked about this a little previously. But I wonder if you can just flesh it out a little bit for us. Of course marijuana's still – it's like a schedule I drug. It's still illegal at the federal level.

Tom Carroll: Yup.

Dan Ferris: And yet we have – I live in the state of Washington. There are marijuana dispensaries all over the place with every kind of product you can imagine. You know? Flowers and vapes and shatter and all this weird – and edibles and all this stuff. Drinks. So every now and then somebody says, "Well, the feds are going to come down. They're getting ready to come down on some of these people." But it never seems to quite happen. What is your view on this tension between state and federal in the United States?

Tom Carroll: I guess if we go back, the Obama administration basically set the tone and said, "Look, we at the federal level – we know it's still illegal – it's still a Schedule I drug, equivalent to heroin. But that being said, we are a nation of states and we are going to let states kind of experiment and do their own thing, while kind of keeping an active eye on things to make sure stuff doesn't get out of hand." Again, that's kind of my interpretation of things. And the world under that kind of environment did very well. You've seen obviously, as you just mentioned, Washington state, Oregon, Colorado, California, the state of Maryland now, where I live, begin to create and think about laws and eventually enact them and implement systems and programs and companies and dispensaries to start working on it.

That environment somewhat changed a bit when Trump took over and put Attorney General Jeff Sessions in place, who is notoriously anti-cannabis. And so there was a fear of – wave of uncertainty that kind of went across the country. It almost felt like he had to have a public face. But kind of behind the scenes he was saying, "Yeah, well, we're really not going to do much." But I don't think anybody really believed him. Anyway, Sessions is gone now and his successor, William Barr, is known to be much more open and much more allowing states to kind of continue the regime that they had under the Obama administration. So I think the conflict between the way cannabis is scheduled at the federal level and what states are doing now – it still exists but it's kind of existing again in a less scary way than it did even just over the last couple years.

Dan Ferris: I see. So I'm inferring from all this, and obviously your very bullish stance on some of these investments, that you think maybe we'll see more states that go recreational, and maybe this thing will just keep – and I noticed in the intro that I read that we talked about it sweeping across the globe. So beyond the United States even. That's your view, that even just around the world, this is in motion, the momentum is forward – it's not going backward? Do I have that right?

Tom Carroll: Yup. You absolutely have that right. I think one of the great ways to describe kind of the globe and looking across the world is looking at Germany. Germany is essentially a medicinal country for cannabis. And the national health system in Germany – it's actually a reimbursable benefit. So you can go to your doctor, and if your doctor decides that having a 10% THC – whatever it is, whether it's a cigarette or an edible – if that's going to potentially help your ailment, you can go to the pharmacy and get it and the government'll pay for it. Almost like you go here in the United States and having your insurance company pay for your meds at the pharmacy.

So I think that's just a great data point out there from a global perspective. But you're seeing similar stuff obviously in the Netherlands, Australia, Poland, South America, Uruguay, a number of places. So, yeah, it's not just a U.S. states thing. In fact, I would argue the United States is behind the curve relative to all those other places. But the traction is there.

In fact, one other thing I'm just thinking about now since you mentioned kind of the conflict between federal government and the states: I think there's also conflict within the federal government itself. And there's kind of two things I'd point to that happened last year that I think are very interesting. We had the FDA approve a drug called Epidiolex. And Epidiolex is a very effective treatment for two rare forms of epilepsy. Epidiolex is a cannabis-derived medication. Now, why's that important? Well, the FDA is a federal agency that's approving a drug derived from cannabis.

But the federal government also says that cannabis is illegal – it's a Schedule I narcotic. That there is some significant policy conflict. And I think that that conflict is driving the discussion at the federal level to rethink cannabis. Or at least get to the point where the states that've already done so start to make policy and move in that direction. So I thought the approval of Epidiolex was a really critical data point to consider not just for the company that makes it or the biotech industry but for really much of broader implications than that.

I mean, the other thing I'd point to which I think is equally as important is the 2018 Farm Bill. Now, the Farm Bill is a piece of federal legislation that gets updated every three or four years, and it basically is the government's kind of policy stance towards the nation's agricultural industry. And the Farm Bill in 2018 basically kicked the door wide open for the cultivation of hemp. And hemp is a cannabis plant. Up until now, there was a handful of states that were experimenting with growing hemp. But now hemp versus marijuana – it's like flip-flopped. At the federal level hemp is legal now, and some states actually have more stringent regulations. Versus marijuana, which is illegal at the federal level but states are legalizing and coming up with new things for it.

So that to me also – the Farm Bill legalizing hemp cultivation again is significant policy conflict at the federal level, which to me suggests the discussion is moving forward where the United States is eventually going to loosen restrictions on how it classifies cannabis.

Dan Ferris: That's pretty cool.

Tom Carroll: I think so.

Dan Ferris: So, yeah. Let's talk about this new research service that you guys are starting up here. And it's called Cannabis Capitalist. Is that right?

Tom Carroll: Correct. It just rolls off the tongue, right?

[Crosstalk]

Dan Ferris: Good name. It certainly does. So, how often are you going to publish this thing?

Tom Carroll: So, we are going to publish on the second Thursday of each month. And we hosted a really successful webinar last night that was quite fun to do. And we will be looking to, in terms of kind of some of the goals of this, provide probably another six to eight actual stock recommendations with full analysis over the next year. But I also have the flexibility to not offer a recommendation if it doesn't seem appropriate at the time, based on valuation or milestones that are upcoming. In lieu of that, we will be putting reports out on some type of industry trend or data points or something that's interesting that will help the audience to better understand this industry and to make as good of investment decision as they can, should they be looking at buying and/or selling some cannabis stocks that're out there, or cannabis-related companies as well.

Dan Ferris: I see. And so you guys sent me some info on this deal. You're starting the portfolio with three stocks, three buys, and you've got 10 stocks on a watch list with buy prices that you're kind of looking at. That's where you're starting out?

Tom Carroll: Yep. So the watch list we have – just a small clarification there – that's going to be a list of companies that we have interest in that we think investors need to look at and know something about if they're going to be investing in this space. They are not recommendations to buy right now. But sometime in the future that is going to be kind of our primary source as to where we come up with new recommendations.

Dan Ferris: I hear you loud and clear. I have done that in the past in my own newsletter. It's a good idea. And anybody who signs up for this thing is going to get three reports. Let me just read the titles so everybody knows what they are. The "Cannabis Capitalist Portfolio" foundation. So these are the three companies you need to own today that you're starting the portfolio with. The second report is "Ten Cannabis Stocks to Buy Over the Next Ten Months." There's your watch list, right?

Tom Carroll: Yep.

Dan Ferris: And then "The Cannabis IPO You Don't Want to Miss," which sounds really interesting. I'll have to ask you what that is once we shut the recording off here [laughs]. And we have a deal for everybody who's listening now on the Stansberry Investor Hour. Normally this thing is $4,000 a year. Good for you, man. That's a stout price. But then can get it for almost 40% off, $2,500 for a one-year subscription, by going to www.StansberryCannabisEvent.com. So there's your deal. You pay zippo for the podcast and you get 40% off of this new service that we got.

So we did talk yesterday – I guess we got about five minutes to go here – we talked yesterday. There was one particular company that you felt comfortable kind of releasing into the world for free, as it were. You want to say a few words about that?

Tom Carroll: Yeah, sure. Absolutely. We talked about it on the webinar. It's a company called Green Thumb Industries. It is a United States-based and United States-focused company that is I think positioning itself in places that already offer very good regulatory visibility. So various states around the country. The management team is spot-on I think with its strategy. They've met with us. Which, by the way, is one of the things that we're trying to do here, at least in my franchise: meet with as many companies as possible that we're going to be recommending. That's an institutional-investor, institutional-research type of process, and I think it's always good to meet a management team. Because those are the people that're going to make your investment successful. So it's good to know them.

Anyway, so: U.S.-based company I think that is going to be positioned very well as we continue to see more states legalize cannabis for either recreational or medicinal use. The company I think is – one of the characteristics we've identified here that we like in any stock is: these guys are a really good allocator of capital. They seem to be making, again, what I call a lot of good common-sense kind of decisions. In my years on Wall Street, it's amazing the number of non-common-sense decisions that seem to be out there being made by who I thought were really smart people.

Dan Ferris: Yeah. That's the norm.

Tom Carroll: I don't know about that. But these guys are making decisions like: "Look, it doesn't make sense for us to go in and spend a bunch of money building a grow facility in California when there's 10,000-plus licenses to do that already. We don't want to be one of 10,000 – we want to be one of eight." So they'll spend the money and they'll actually go through the work to bid, follow the state regulations to fill out an application and bid for the business. And they're winning. That itself suggests a very good management team.

Think about going to get your driver's license, and the motor vehicle association or the DMV or whatever it's called in your state – there's hurdles with that, right? It's a pain. It's not easy. It should be. Now imagine trying to go get a license for a schedule I narcotic drug at the federal level that your state says you can sell now and trying to negotiate those hurdles. And these guys are doing it. So I think that is a big positive flag for us as well.

And then the financials are strong. They're looking at hitting what I call "triple-digit millions" this year and then likely doubling that in 2020. Got plenty of cash in the bank and essentially no debt. So, all in all, it seems to be a really good story that I think has a good bit of legs in the coming years, either as a standalone story and stock all by itself or as a potential takeout for one of the larger companies to come in. Because at the end of the day, I think you're going to see a ton of companies – you're already seeing it flood into this business. And then you're going to see a handful of them be the consolidators and start buying them up. And this is one that potentially could go either route: either on its own or as a takeout candidate. So at this point in time I think it's very interesting.

The other thing I'll mention in terms of valuation – because everything comes back to valuation at some point – the U.S.-focused stocks are less expensive. And they're less expensive because there's an overhang in the United States, right? Cannabis is still illegal here at the federal level. There's uncertainty. And uncertainty drives lower valuations. But if we're reading the writing on the wall correctly, that's when we want to be buying stocks, right? You want to buy a stock when the story's got a little hair on it. And as the hair clears up and the story clears up, the stock can work. The Canadian-based companies are much more expensive, as you'll see in the report we put out. But that's another reason we like these guys.

And I guess the last thing I'll say about it is: other smart people in the business, including competitors of Green Thumb, have made very favorable comments about the business. So when your competitors are saying good things about you, I think that rings very true.

Dan Ferris: Yes. That's a very good Phil Fisher and Warren Buffett technique: go ask everybody else about this company and see what they say, and you get a really nice picture. If it's a good business, the other competitors generally paint a really nice picture for you. All right, Tom. Well, we've come to the end of our time. I want to thank you very much. I think this new thing you're doing is going to be a huge hit. I can't wait to read it myself. And good luck. I'm sure this is going to be a hit. I'm sure people are going to buy your service. I mean, I'm going to eat it up. Put it that way [laughs]. And maybe after a while, after you get some more recommendations out there, well have you back on the program and we'll find out where cannabis is at that point maybe several months in the future.

Tom Carroll: Yeah. Thank you very much. Glad to be here. Happy to do it. This is a lot of fun.

Dan Ferris: All right. Thanks, Tom. And we'll talk to you soon hopefully.

Tom Carroll: Very good.

[Music plays]

Dan Ferris: OK, folks, one more time, that was Tom Carroll. And I want you to go to StansberryCannabisEvent.com. That's where you can get almost 40% off, $2,500 for a one-year subscription. The thing is normally $4,000. And it's a brand-new service. So when you get it, if you sign up, you're going to get the very first reports. And it comes with three special reports, the "Cannabis Capitalist Portfolio," "Ten Cannabis Stocks to Buy Over the Next Ten Months," and "The Cannabis IPO You Don't Want to Miss." I don't even know what that is yet. I got to ask Tom. So, you know, you're finding out about this stuff almost at the same rate of speed as I am.

And if cannabis is something you're interested in, I promise you this research is going to be kind of a cut above all the stuff that you're hearing on TV. There's a lot of sketchy companies in the cannabis space. And Tom has a huge long track record as a very careful, effective stock picker. So I'm really looking forward to finding out what the good businesses in cannabis are, and Tom is going to tell us. StansberryCannabisEvent.com.

It's time for the mailbag. Remember: your feedback is important to the success of our show. And you can just e-mail with a question or comment to [email protected]. And I read every one of them and I try to respond to as many as I can. So, this week I've got a few of them here. This week I've got a few really nice ones to read here.

First one is from James H. And he says, "Hi, Dan. I have some nervousness about the market being near a long-term top. I believe it could run some more but I'm interested in diversification outside the market." And he's got three questions here: "One, can you share what your portfolio allocation looks like in terms of stock, cash, gold, real estate, other? I realize there are equity options for some of those categories." And he sites GLD is the ticker symbol for the – it's like a gold bullion trust that you can buy. And he says, "I also realize that's a personal question but hearing from you on this and why you've chosen your allocation would be a big help."

Well., I'll answer that one before I get to the other two. And basically I'm cashed up right now and the only equities I own are gold stocks. I also have a portfolio of options, most of which are puts. And all I'll say is that you have to understand what position I'm in, OK? My contract forbids me from buying the stocks that I recommend in my newsletter. And imagine if there's some horrendous market crash and something should happen and people should cancel their subscriptions to Extreme Value and Porter calls me up and says, "Nobody wants you anymore and neither do we." So my portfolio tends to be kind of an alternative. But it includes as much of what I can get that resembles my own recommendations as possible. So, for example, I do have – I recommend precious metal, or really mining royalty companies, and I own a very small one myself. So I hope that gives you some insight. But biggest asset right now is cash, by far.

No. 2, he says, "What are your thoughts on real estate as an investment such as residential income properties and/or tradable commercial REITs? Is now a good time for either?" I mean, in general right now it depends on where you go. The froth has come off and is probably going to continue to come off high-end New York real estate, for example. I know the froth has come off higher-end houses here in Southern Washington, and in general kind of around the country. So it's on a company-by-company basis. We do have one commercial REIT in the Extreme Valueportfolio. But their biggest asset is cash. They're selling property. So I'm real cautious there. And as far as residential income goes, if you're talking about your local area, you know more about it than I do. But I would really run the numbers and make sure that you're coming out ahead if you go that way.

Final question. "With regards to trading stocks, is there a good rule or analysis on using trailing stops versus buy and hold when considering dividend stocks?" Boy, that's a tough one. That really is a very personal thing, and I don't think there's a rule of thumb. In general, most people: if they use trailing stops, they use it on all or most of their portfolio. We had Richard Smith from TradeStops, who sells trailing stop software, on the program, and he said I think it was like 10% or 20% of his own portfolio doesn't use trailing stops, and he experiments with positions there. And then the rest of it does. So maybe you might consider something like that. But if you think you have a really good long-term hold on a stock that's going to pay rising dividends – it's a really good question and I'm sorry I don't have a pat answer for you.

Says, "I really appreciate your thoughtful analysis. I'm an Extreme Value subscriber and do not hesitate to recommend your newsletter." You know, James, I thought you sounded like a really smart guy. OK [laughs]. Mailbag No. 2: "Dan, you've made me a real fan of Stansberry Investor Hour." And he says a bunch of other stuff. I just want to get to his question. He says, "So here's my question. With boomers downsizing and millennials showing a profound lack of interest in the traditional three-bedroom, two-bath home with two or more cars in the driveway, not to mention millions of people squeezed out of home ownership during the great housing crash, could we be in the midst of a massive shift in home ownership?" That's by Mike C.

Mike, I'll direct you to an article in the Wall Street Journal recently called "A Growing Problem in Real Estate: Too Many Too Big Houses." And you could be onto something there. I'm not going to say yes or no at this point. But it sure makes a lot of sense and there's some data in that article that you might want to check out.

One more question. This one is from Jack E. Jack E. says, "Love your show and your newsletter, Extreme Value. Your rant this week," that is to say last week, "regarding how investing is very personal and different for every person hit home for me. I'm a Stansberry lifetime Alliance member and have been saving and investing for many decades, at least since my preteen paper-route days." Good for you, man. That's awesome.

"After listening to the latest podcast and hearing the phrase 'quantitative easing' for the thousandth time, I realize I still don't really know what it means. I am not dumb and have been investing successfully for many decades. But my head seems very hard on this concept. When googling the word 'quantitative,' one gets this," and he just gives a definition of quantitative data. Then he googles "quantitative easing." He says, "One gets the introduction of new money into the money supply by a central bank." He says, "It seems the term means that a central bank is creating some quantities of money and credit from nothing? Is there a way to describe this in layman's terms that is very easy to grasp? If they're creating money from a vacuum, who gets it first? Big banks, U.S. federal government, the military?"

This is a great question. There's actually a great article on Wikipedia and I encourage you to go look up "quantitative easing" on Wikipedia. But, yeah, you've got the basic idea. Quantitative easing means a set program, usually some monthly amount, by a central bank, dedicated to buying securities, usually bonds, of that country. So the Federal Reserve will say, "We're going to spend," whatever it is, "$10 billion a month or something buying long-dated U.S. Treasury bonds." So the first person who gets the money are whoever owned those Treasury bonds or the Treasury, if they're just buying them from the Treasury. They're probably buying them from Goldman Sachs. So that would be the first use of that money.

But that's basically the answer. And then go on Wikipedia and it'll give you more detail than you ever would want to see in your life. But you do have the basic idea correct. All right?

So, that's it, folks. That is another episode of the Stansberry Investor Hour. I hope you enjoyed this one because I really loved talking with Tom Carroll. And if you're into cannabis investing and you think there might be a real business here – and I think there're probably a lot of good ones – Tom's job is to find that out. So go to StansberryCannabisEvent.com and we got a special deal for you, all right?

So, you can check out all of our episodes at the revamped website and you can see transcripts of all the shows. We get e-mails about that. And you can just enter your e-mail there and get all the latest updates. Just go to that same address, www.InvestorHour.com. All right? That's it for this week. Thanks for listening and I will talk to you next week. Bye-bye.

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

This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.

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