Episodes

Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research. Today, we'll talk with my friend Vitaliy Katsenelson. He is the chief investment officer of Denver-based IMA, a small money management firm that's been around for decades. In the mailbag today, not one but two calls on our listener feedback line... plus, questions about 401(k)s, free cash flow, and oil. And remember, you can call our listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show.

My opening rant this week... Oh, not much on my mind, just the end of the world as we have known it, but you know, that's not much, right? That and more, right now, on the Stansberry Investor Hour.

Before I get to the end of the world, as we have known it, I want to talk a little bit about bitcoin, just to say that I did recommend selling it in Extreme Value – the newsletter that I write for Stansberry – in, well, last month. So it's been just about two months and, you know, it was like 28 or 29 at that time. And it spiked up into the low 30s, and then lately it's gone below 20. And it went from 20, like right to 17, and bounced off at 17. And my point there is I thought 20 was an important level, and I thought as soon as it got there, it would kind of spike down. I thought it would spike down harder, frankly. I'm surprised that it didn't do worse, which I guess is good if you're still holding it. I still think it's going to crash. I still think the bottom is somewhere between three and 12, just because there's a lot of noise in general between those levels on a longer-term chart. Anyway, just wanted to throw that out to thump my chest. Let me get near the microphone and give it a little thump. There you go. "Dan was right about bitcoin in the short term, at least."

All right, now what do I mean when I say "the end of the world as we knew it"? Well, we've just been through this period of some decades. You could call it 20, 30 years – certainly the last 23 or four years since just before the turn of the millennium. And this period has been characterized by hyper-accommodative central banks and what we have come to call "the financialization of life." I was going to say "of the economy," but of life. So in 1950, the financial sector was something like 2.8% of GDP? And now it's like 8% and I saw one statistic – I didn't run this one down, though. And it said that corporate profits, the financial-sector share of corporate profits is like 25%, but it only has 4% of all the employees of the corporate sector in the United States. Boy, those are some rich employees, huh? And they are, by and large, some very wealthy employees, generally speaking.

And what we are witnessing, we had George Gilder on the program in the past and it was a really great discussion. And he's written about this... and he's written about financialization. He calls it the "hypertrophy of finance," the excessive growth and accumulation of finance in our lives with trillions upon trillions of dollars of currencies trading every day, right? And other aspects of financialization are just sort of, you know, the increase in corporate debt, corporate buybacks, I think, belong in that. Just the extent of corporate buybacks today – not buybacks, specifically, but the extent of it nowadays. And the things like stagnant wages and the attention that central banks seem to pay to prop keeping the financial sector propped up, come what may, no matter what it seems, they say, we must keep the financial sector propped up, it seems.

And that has all created, you know, it's created income inequality, right? And stagnant wages were a feature of the last several decades really since the '70s. And even the separation of gold from the dollar in 1971, that's part of it too, right? Because if gold is tethered to anything, it's harder to play with games with it and financialize it. Anyway, this is a big sort of you know, nebulous idea, right? But generally speaking, you can certainly understand this. Like we've been in a bond bull market since 1980 – that's historically unusual. You know, we've been in this period where you could buy any dip, even if the stock market was down 50% for decades now. And we've been in this time too, when, when your bonds would protect you when your stocks were falling, I think this is all over and done with. I think this historically unusual time of stocks and correlating negatively is over. And I think they go back to doing what they've done for a couple hundred years... which is to correlate positively to go up and down, generally speaking, together as they have done this year, right? They've been doing that.

Now it's a short period of time. So you say, "Well, it's only been six months, Dan what the heck is six months?" In terms of a really actually I said since 1980, it's been a 5,000-year bond bull market, hasn't it? Because interest rates were literally at 5,000-year lows a couple years ago. So this period I believe is over and I think things are going to get difficult. It's going to be harder to own financial assets and it's going to be harder to remain a U.S.-centric financial asset investor, particularly. And I've talked about these three big trends.

U.S. stocks versus foreign stocks, commodities versus stocks in general and value stocks versus growth stocks. They all overlap to a degree. But I think that we're at a huge inflection point and I've been shy about trying to trade all three of them. I haven't recommended a specific, what I would call a medium- or long-term trade on all three of them. Although we do have specific names that generally conform to one or more of the three. But you know, commodities value and ex-U.S., I think maybe I've made a mistake here in trying to pick my spots too much. Maybe in seeing the commodities index surge – I haven't looked recently. It was like 40%, you know, just way, way up the Goldman Sachs S&P commodities index, but all the commodities indexes, right? They all have, because they're all like oil-centric as they should be, right? That's the father commodity. Or the mother commodity... I'm not sure which you should call it.

So maybe I've made a mistake in not just sort of going into all three of those trades and not trying to be cute. Maybe I'm trying to be too cute because I think they're still all in early days. If you look at the longer-term charts, commodities are still really cheap compared to stocks, which is amazing. Because commodities are way up, stocks are way down. And the other three, they're all still attractive. Yeah. I'm sorry. The other two... value in ex-U.S... they're still attractive from a historical perspective. So trying to get cute and time them perfectly has been a mistake, I think.

And I think that's where we are. We're at a place where everything that you've gotten used to – and I think that's an important factor right now, psychologically. You've gotten used to buying every dip for the last 13 years, back to 2009. Psychologically, you've gotten used to the fact that your bonds protect you from the drawdowns in your stocks. And it's really hard to shake these, right? We still have people saying, oh, the best thing you can do is just buy an index fund and you know, hold it for the long term. And Warren Buffett says to do it. So, you know, it's really good, but Warren Buffett is a beneficiary of this status quo. He is a great beneficiary. He's worth tens of billions of dollars because of this financialization because stocks have been one of the main beneficiaries and he owns this stock that's highly valuable.

So it's sort of weird to listen to somebody like that at this moment. Nobody's right all the time, and nobody's right forever. And what looks like wisdom... long-term wisdom of the ages can sometimes look really bad for a while. And I think we're right now, we're learning that just buying an index fund and hanging onto it might not be the greatest thing in the world. And this might not be a great moment, I don't think, to double down. I think we're going to get the same type of action from this bear market that we're in, that we got from previous ones. And another thing, where we are right now with 8.6% CPI, like historically speaking, when the CPI inflation gets to 5% or more, it doesn't come down until the fed-funds rate gets above inflation. That would put the fed-fund rate close to 9%. And it's like, you know, we'll just call it 1.5 now. And the futures markets are discounting more 75-basis-point cuts, and other people are starting to talk about that now too. So all of our expectations, just around inflation, that's a microcosm of what we've learned over the last couple decades, right?

The past year about inflation, what's happened? "Oh, it'll be OK. It's transitory. Oh, OK. So it'll be around a little longer, but you know, eventually it'll peak and it'll be OK. It's higher than we thought. It's really higher than we thought. And we think it's going to be around longer." Do you hear how this has gone for a whole year now? Inflation is sticky. Inflation is not an increase in prices. It is the decline in the value of the currency. And that happens because they brought a lot of currency into existence because they shut down the global economy and that's screwed everybody financially. And they had to try to fix that. So what do you do? The only thing you got: money printing. Which, in our case, our money is debt. Our money is government debt. So the government borrowed a bunch of money and put it in people's pockets and did other things with it. And so we are where we are, and it's the end of the world as we have known it, in my opinion.

What do you do? You do those three trades? You hold plenty of cash. I know it sounds crazy because I'm saying inflation is here to stay, but I promise you, when the bear market is over, having plenty of cash will feel wonderful. Hold plenty of cash. Do the three trades, hold gold and silver, physical gold and silver, and get ready, man. Be prepared, right? Jamie Dimon said he's preparing JPMorgan Chase for a hurricane. People thought it was a rainstorm. And, but he says, it's a hurricane coming. And I actually do think he's right. I mostly never agree with these people, but I think he's right.

Well, on that sunny note, once again I'm leaving you on another sunny note. Let's talk with my friend Vitaliy Katsenelson. Let's do it right now.

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Vitaliy, Welcome back to the show. Good to see you again.

Vitaliy Katsenelson: Dan. It's my pleasure. Thank you so much for having me.

Dan Ferris: So it's actually a rare thing that I respond to a guest who says, "Hey, let's talk. I have something on my mind." I think this is only the second time it's happened because most people who reach out to me and say, "I want to be on your podcast," like I don't give them the time of day because I know they're trying to sell that. I don't want to sell. But I've known you for many years and you are certainly one of the most informed and knowledgeable investors that I know. And when you reach out to me and say you want to talk, I'm all ears. And I want our listeners to be all ears as well. So I'm very curious to know, do you have something special in your mind? I know it's been a while. Maybe it's just that.

Vitaliy Katsenelson: Well, I have a few things, so what I suggest we do. We can talk about the economy in the markets and then we can talk about something I deeply care about, which is the book that's coming out on the day this podcast is coming out as well. And you read the book. Many people have, so you're qualified to talk about this, so that's why I want to talk to you because you know...

Dan Ferris: I did and I enjoyed it very much. It was very personal and of course, very well-written. You're a very good writer. Yeah, enjoyed it a lot. Before we do get to that, though... obviously, since we last spoke, to say "the world has changed a lot" is perhaps an understatement unlike any other. And I've been talking with people like traders, futures traders and stock traders and option traders and long-term fundamental-oriented investors and value investors as well. We just spoke with Chris Pavese last week. And I'm most curious in every case to know: Do crisis times, like we've had since the pandemic began, does this change anything for you? Do you do anything different at those times that you don't do at other times?

Vitaliy Katsenelson: Well, I think what the crisis has done, it changed the macroeconomic picture of the economy. You know, it changed I think it is going to have a significant impact on what economy is going to look like for a long time. Because if you look the last 10-plus years, we kind of lived on borrowed time and the borrowed time was we were borrowing basically from the future, right? The government was issuing debt. It was driving, you know, the interest rates were at multi-multi-all-time lows and, in some cases, negative. And that has changed a lot of things about the economy. We borrowed a lot from the future. We levered the economy. And let me give you a couple interesting statistics...

I was speaking at an investment conference and one of the speakers said, "Well, the housing price, the interest rates went up, but look at the absolute level." And he says, "Well, in 1980s, I bought a house and I had a mortgage at 10%." And he said, "Now, mortgage rate is only 6%." And I think that is a dangerous statement. And let me tell you why. So let me give you a couple numbers. And let's look at the kind of big round numbers that, you know, those numbers are not exact, but in 1980s, housing prices to income were about 3.5 times. So in other words, if you made, I don't know, if you made $10,000, the average housing price probably was about $35,000. So the ratio of house price to income was about 3.5. In the late '90s, the number was 4, you know, kind of high 4s, like in the mid-4s. And maybe, you know, before the pandemic, we were pushing 5... 4.9. Today, we are pushing 5.9.

So in other words, if you're making $150,000 a year, average house price today is you know, you would be living in a $900,000-or-so house. Why this is important? Because when interest rates go up to semi-normal level, you know, when mortgage rates go up to 5% or 6%, the impact on the housing market is tremendous because people can't buy houses. Not because they don't want to... because the banks will not lend the money. So the demand for houses will decline and what's going to have to happen? The housing price will have to decline. But what's also important is that a lot of the demand for goods and services came from consumers feeling wealthy and that wealth, a lot of that wealth came from financial assets. As the housing prices decline, that consumer will stop feeling wealthy. And that's actually going to have a significant impact on a demand for – think about it, just like, they'll give you another framework.

Somebody asked me how should we look at today's environment when you have high inflation? Should we go to the '70s and '80s? I said you can do that. Or there is one thing you can do something you can relate to. Just whatever happened to you over the last 20 years inverted. Just invert.

Dan Ferris: No, that's right. Yeah.

Vitaliy Katsenelson: Just think about it, right? Your interest rates were declining. Housing prices were going up. Yeah. Interest rates were declining. Price earnings were going up. Economy was growing at a faster rate than it should have grown. So just invert everything and you realize just all the good things were happening in the past. That it's payback time. So I'm looking at this inflation and I see that it's coming actually from multiple directions. Even before the war in Ukraine, we had this enormous, you know, the government sent a huge amount of money to people and stuffed the checking accounts. So you had huge amount of liquidity from federal government and from Uncle Sam and from the uncle of the Federal Reserve. But then you had supply-chain issues. You have shortage of labor. So all those things kind of caused inflation.

But then the war added a lot more fuel to this fire. How did it add fuel to the fire? Well, let's look at food prices... Russia, Ukraine, and Belarus are large exporters of wheat – especially Russia and Ukraine. So, that has been disrupted, but we looked at that and those numbers did not worry us as much. Here's why: Because they accounted for about 7% of global exports of wheat. And if you look historically at the volatility from drought, etc., it was about as much. So when supply declined by about 7%, wheat prices went up by a few percentage points.

That's not what scares me. What scares me is that Russia and Belarus are the second- and third-largest exporters of fertilizer of potash. And Canada's the largest. And if you think about fertilizer, that is like a common denominator in anything food related, from corn to cows to avocados... everything. So that's potash. But then if you look at another fertilizer, nitrogen, well that's that one is derived from gas and nature. Gas prices have double or tripled.

Yeah. So, but the interesting part is I don't think we have felt the impact of it yet because right now, we are still eating food that's been produced and grown a while back. So I think that is the story about to play out. That's the future inflation. Obviously you have high gasoline prices, higher heating bills because initial gas prices are up. So if you look at the consumer, consumer has been pushed from different directions... more, you know, high interest rates, higher food prices, high gasoline prices. I'm sure I'm missing a few other things that are higher, but I am extremely, extremely concerned about consumer kind of in the short, medium term, but also, you asked me, how does it impact me as an investor? Well, Seth Klarman said, worry macro and invest micro.

So if you look at any company, its present value of cash flows, you know, it depends on if the company's going to be tied to economy, more or less. If you own a company that's very tied to the health of the economy and the economy is going to start growing at a slower speed, then the company's business will get impacted. So what we have done in our portfolios and we've been doing it even before this war, we basically tried to position ourselves owning companies that are not tied to the health of the economy. And I wrote a lot about this. Unlike the natural gas or oil pipelines, we own tobacco stocks, we own defense companies. So that's like most of our companies are not really tied to the health of the economy and that's what we've done deliberately.

Dan Ferris: Right. And so when those kind of stocks tend to get attractive, it's sort of at the end of a period, when, you know, nobody really wanted them because they didn't see what is now happening. You know, they don't see how the world can change. So I understand that, you know, the worrying top down and investing bottom up and they kind of come together. Oftentimes, if you're focused on what people don't want, nobody's thinking about it, nobody sees how the world can change. It's wise actually is what it is. It's very wise.

Vitaliy Katsenelson: You know, it's when interest rates are incredibly low, whoever has the richest imagination makes the most amount of money, right? Because you just look at this company that has a top-line revenue growth, and you say, "I think the total addressable market is this much." And if this company only gets this much, my God, this company will go up 500-fold, even though it's already traded in 50 times revenues. And when interest rates go up and the credit markets start to freak, you know, it's like actually when the people lend you money, they actually want to look at your cash flows, suddenly investors, start to pay attention to the dollar sheets, to cash flows, and suddenly, dividends start... like not just dividend- ability to stay in business becomes important. So I think that's what we've been going through the last six months.

Dan Ferris: Yeah. And sales of The Intelligent Investor by Ben Graham go up too. [Laughs]

Vitaliy Katsenelson: That's right. Yes.

Dan Ferris: It's proportional to the level of interest rates, you know.

Vitaliy Katsenelson: So I saw this meme, which was and I think that meme was like year, like couple years old, like two years ago. The meme was somebody breaks into a car and there was a broken window and there's a book in the car of Intelligent Investor and then meme says, "You know, I saw you had a book in the car of Intelligent Investor, so I want to give you mine." So the guy broke into the car to give his book of Intelligent Investor.

Dan Ferris: Yeah. That's about the size of it. So I'm glad that we talked about investing, but let's talk about your book because there's a lot of wisdom in there. And much of it is not directly applicable to finance, but I find that in general, the topics generally enhance an investor's viewpoint. Maybe what we should do for our listener is you should just tell me, you know, just sum it up. What's the book about and why did you want to write it?

Vitaliy Katsenelson: So the name of the book is Soul in the Game: The Art of a Meaningful Life. And I would argue it's about the most important investment you can make: investment in your life. So it's an investment book... but in a different way. So I started writing in 2004 and when I started writing, I mostly wrote about the beginning, just about investing. And if you read my articles, if you were so unlucky to read my articles, then they were incredibly boring. Because I had extremely little self-confidence as a writer... because I was new to that. And I just didn't want to get embarrassed. And how do you not get embarrassed? By being very proper? And my soul had a perfect structure and they were incredibly boring.

And then something interesting happened maybe six months into writing. I wrote about my experience with a TiVo device and something didn't work. I called the customer support. And then remember, this was 2004 so the automated attendant was not very good and your voice recognition was not very good. And as the listeners can tell, I have an accent. So, that attendant did not understand me. Well, you know, the machine. So my son Jonah at the time was three years old and he had this beautiful "Disney" accent. So basically, I would tell Jonah what to say into the phone. And he would talk to the attendant and then the machine would understand him. So anyway, I wrote this article, then –

Dan Ferris: A Disney accent?

Vitaliy Katsenelson: Yeah. Disney. Yes. Yes. And I wrote this little article which had 500 or 600 words. That was it. That was the whole article and it was published. And then I got a flood of e-mails. People absolutely loved that little story. And the irony of this, this story did not have as many insights as my other articles, but it was funny. It was personal, it was authentic. And this was probably one of the most important articles I ever wrote because it changed me as a writer. I realized I just need to be myself, and it took me a little bit more time to let my guard down a bit more. So over time, I started writing about, like, personal stuff. I started to write about my trips, you know, with my kids, to my father to Santa Fe, or about classical music, or about travails of parenting or classical music composers. So over time as my readership has grown, people would e-mail me and say, Vitaliy. I actually started reading articles because of investing, but actually, I keep coming back because your story is about life. And that was at first, that was shocking to me because, you know, I'm a professional investor, but I'm not a professional "person who writes about life," I guess, but I never look at it.

Dan Ferris: Right. Storyteller, I don't know.

Vitaliy Katsenelson: Yeah, exactly. Yes. I'm not a novelist. And so what happened was kind of interesting. Then people would tell me, "Oh, I wish he took the articles and put them into book," and I always dismissed it. And then in August 2020, in the middle of the pandemic, I was writing about Tchaikovsky and I was writing about the struggles he was having with writing one of his pieces for violin. And what shocked me about this is that when we listen to classical – Tchaikovsky's music – it's beautiful. And we kind of take it for granted that it was an incredible amount of struggle and personal pain it took Tchaikovsky to write it. And when I realized that creative process – either that writing about classical music, let me put it this way, writing classical music or writing about classical music, composers of classical music – writing about it is very similar because there is a lot of pain and anxiety and self-doubt.

And so after I finished that article, I realized, "Oh my God, somebody who is actually about to start writing, wanted to write, could actually learn a lot from this." And I realized that actually, they could actually learn from a lot of articles I wrote in the past. So what I did, I took all these articles from my previous 18 years, you know, about life. And I put them into book and then I ended up rewriting two-thirds of them and writing another 40% of the book while I was kind of editing the book. So that's how the book came about. I can just give you kind of the main topics.

It's about parenting classical music, self-improvement... there's a huge section – like probably one-third of the book – about stoic philosophy. I spent a lot of time talking about meaning of life, creativity. And that's kind of the weirdest book in the world, but it works.

Dan Ferris: It does, let's just take a couple of these. We won't be able to get to everything, obviously, but why write about classical music? What could you possibly – I mean, I know because I've read some of the book and quite a bit of the book and your pieces, you know, when you publish them originally, but tell us why classical music. Because this topic is never treated in any book by any financial person.

Vitaliy Katsenelson: Well, let's start with this. First of all, I love classical music, right? So any opportunity I get to write about it, I get to learn about it, right? Because it's something for me to write about... I have to spend a lot of time reading and researching it. So that's why I wrote it. So original intent was just kind of very selfish, just for me to learn. But as I wrote more about this, I mean, as I learned more and more about classical music composers, I learned there are so many lessons. Like we just talked about Tchaikovsky's pain in his piece for violins. So that's one example. Let me give you a few examples and let me actually draw a parallel with that, between that example and value investing. How's that?

So let me take you back to early 19th century in Vienna, like 1800s. And at that time, Beethoven was the most famous composer in the world. He was like Michael Jackson or Frank Sinatra, who are not composers, but artists on steroids. He was known everywhere around the world. And if you lived in Vienna and you were composing music, you would've had a very miserable existence because everything you write would be compared to Beethoven, OK? And just imagine that. So there was this composer who lived there, Franz Schubert, who lived like a few blocks away from Beethoven. Imagine being Franz Schubert because, like everything he composes, people say, "Well, Beethoven did it better." Or, you know, or you get accused of trying to copy Beethoven and etc.

So for that reason, Franz Schubert, who wrote almost 6,000 pieces of music, published almost nothing. He was supported by his friends and died at a very early age, like early 30s, destitute. And a lot of the irony of this, when we listen to Franz Schubert or we listen to Beethoven, we don't say Beethoven is better as Franz Schubert... Franz Schubert has incredible music. That, by the way, personally, I can relate to more... more Schubert's music than to Beethoven's... but that's me, and they're beautiful in different ways. But I also wanted to think about a couple other things when Beethoven wrote his ninth symphony, somebody said like "this is the day the music died" because you can't write anything better than this. The perfect symphony has been composed... Beethoven's ninth.

So No. 1, I'm so glad Tchaikovsky wrote enough, and others who lived, who was born after, you know, Beethoven did not get the message because we would've missed out on a lot of other beautiful music. But also think about, actually, we will never know the impact Beethoven had on classical music, because of how many composers like Franz Schubert who actually wrote beautiful music, but never published it. So why am I telling you this?

Here's why... If you are in any profession, there will always going to be somebody considered to be the "greatest" whatever. Like in our case, we have the greatest investor of all time, Warren Buffett. And it's so easy for us to just copy Warren Buffett. Instead, what we should be doing is we should be looking at how Warren Buffett is thinking. Also, we should not be afraid to think on our own. Because we may actually be impacted and constrained by Warren Buffett's thinking. I'll give you an example.

For a long time, Warren Buffett was saying that "I don't invest into technology companies because I don't understand them." And I would argue it's OK for Warren Buffett to say this when he was 70, 80, or 90 years old. Because, you know, he did not understand most that well. Well there's several lessons. No. 1, what you should learn is not as an investor, not that you should not invest in technology companies, that what you should learn is you need to be in a circle of competence and your circle of competence may be very different than Warren Buffett's circle of competence. That's No. 1.

No. 2 is that even Warren Buffett pushed his competence and invested billions of dollars into Apple which is a technology company. And by the way, as I understand, this has been the most successful trade investment ever based on the billions of dollars Berkshire made. But also, you could look at the way Buffett invests and you could actually build your own path.

Dan Ferris: Right. That's the important part, isn't it?

Vitaliy Katsenelson: That's right. No, that's exactly right. There was another composer, Berlioz, and this is a beautiful story. I absolutely love this story. So he started to take music classes relatively late when he was 12 or 13 years old. So he did not receive as much traditional training as many other composers. And so when he wrote his "Symphonie fantastique," he broke all the rules. Not because he was breaking because he did not know them, right? And therefore he created almost a brand-new type of music that he wrote. What's called a program symphony.

So there is two types of music... there's program music and non-program. Non-program music, if you listen to almost any piano concerto, etc., there is no theme behind it. Think about the most typical program music would be an opera, which is a play, which has a theme, right? And like, think about Macbeth opera. It's based on Shakespearean Macbeth, plus singing plus music, right? So well, Berlioz wrote "Symphonie fantastique" which had its own, you know, story underneath. And he broke all the rules and that became one of the most successful pieces of late 1800s, you know, early 1900s because he was not constrained by traditional thinking.

Dan Ferris: Gorgeous piece, too. So this tells me a lot about why one ought to explore the history and listen to classical music. But why do you torture your kids with it?

Vitaliy Katsenelson: So there are different ways you can torture So let me give you my guide to torture the kids with classic music. So there are two ways you can torture them. So my older brothers were sent to take piano lessons and they both hated taking piano lessons. And I think my parents kind of took him out of music school after my oldest brother literally pulled the keys out of the piano. So he literally had to break the piano so he would not be playing on this anymore. And I would argue that my parents, if we looked at it now, if they could do redo – which you can't as a parent – they would probably not do that. They would not force him to take piano lessons.

And by doing that, I think my brother lost interest in classical music. My oldest brother lost interest in classical music completely. My middle brother has some interest but he doesn't have the passion I have. I was spared because my parents, I think, learned the lessons of my older brothers. I didn't have a talent. And also what happened was my mom died when I was very young. So I took a few piano lessons and my father saw that I just like, you know, I don't have the drive and my father just did not have the willpower... he just couldn't fight it. So he did not push me.

So, that's one type of torture. But another thing is that my parents always took me to classical music concerts, and they listened to classical music at home. When they took me to classical music concert, I enjoyed them as much as any eight or nine-year-old would enjoy classical music concert. Not very much, but what they did during the break, they would buy me dessert. So I would go to the musical concerts because of that. And you know what? But here is what happens. Classical music is very complex. When you listen to pop music – this is not me trying to dunk on a pop music, but like, you listen to most of the pop music, you get it right away because it's very simple. A lot of it is, right? That's why it's popular. Classical music has a lot of layers and not all of it, but I'm generalizing right now. But a lot of like symphonies, for instance, they usually have a lot of layers and you get to appreciate the bottom layer after listening to it five or 10 times.

And the first time, in fact, the first time you listen to almost any symphony, you probably won't even like it. And this is at least right now, when I say this, I'm talking about myself. And so the classical music requires work – and quotes in the first – in a sense that in the beginning, you have to listen to it several times before it starts clicking with you. So by exposing myself to this music, when I was little, my parents basically took up the first couple of top layers. So like I'll give an example, Rachmaninoff's second piano and concerto... I listened to it so many times when I was a young age that when I was an adult and I heard it, it clicked with me right away. If my parents did not expose me at a young age, it probably, it probably would not have clicked with me right away.

And so today I learned my lesson... my older kids, we tried taking them into piano lessons. They did not want to take piano lessons. And we did not push them. Well, we pushed them a little bit, but when we realized they really don't want to do it, so we stopped pushing them. My youngest one, we took her to piano lessons and she didn't care for it. And then maybe six months later, she started – you know, she's eight now – she started to just sit down next to piano, start playing. And my job as a parent to notice that. And now we took her to music teacher and she's taking piano lessons and she loves it. So anyway, so there, you know, and I listen to classical music in the car all the time. I listen to it at home and that's the kind of torture I'm talking about. All my job is not to tell them you should listen to it and you should love it. Just listen to it and expose them to that. Take him to the concerts and buy him Sprite or buy him a cookie, whatever the dessert, after the concert.

So like, by the way, like food is my kind of my weapon of choice when it comes to getting my, you know, doing anything, my kids, you know. Like we go to concert and we go to Dairy Queen, you know? So it's we go to sushi. So that's how I bribe my kids basically.

Dan Ferris: So, you know, I mean, doesn't sound so bad for the kids. They do get something out of it, even if they don't want to listen to music. And I'm sure it's, like you say, there's that familiarity effect from listening, you know, early in your life. That's what the whole, what, the Suzuki kids, you know? The little five-year-olds who are violin virtuosos. By the time they play the piece on the violin, they've heard it 100 times because they emphasize the repeated listening. And I can vouch for that in my own musical experiences as well. The pieces that I play the best on the guitar are ones that I've listened to like for years before I even attempted to play them. So it's just a learning process. You learn and your soul learns to appreciate it, whether you there's a whole process going on that you don't even know about that, if you just let it go into your ears. It's wonderful.

Vitaliy Katsenelson: I remember you sent me an e-mail with a box, I forget which it was a piano called –

Dan Ferris: "Goldberg Variations."

Vitaliy Katsenelson: Yes, yes. And you said you have to listen to it until you get it. And you're right. And I think you're absolutely right. I had to listen 20 times to get it.

Dan Ferris: Yeah. I remember I I've done this with other things too. I've done it with films. I remember I sat down and I went into a theater. I was by myself and I went to see Pulp Fiction because somebody recommended it and I thought, "God, this is kind of boring." And I walked out on it and somebody said, "Just go see it again." And I said, "OK, OK." And the second time, somehow like the music and the costumes and the whole sort of '70s-esque shtick of it got me. And I became quite a fan of it. So, you know, it's a funny –

Vitaliy Katsenelson: We explore this for a second because –

Dan Ferris: Sure. I was just going to say, it's funny to me that people view, like you know, basically consuming art and music as this thing that either immediately clicks or immediately doesn't, and both of us are kind of saying, "Well, not really." If it's something really great, it might not click right away and you should kind of try it again, because it really is worth it when it does click. It's a much deeper and more satisfying experience than when you hear like a pop song that clicks with you right away.

Vitaliy Katsenelson: So I would take this and I would also relate it to books. And yeah, because there are two things there's a couple things. So when you read the book the first time, sometimes what happens, you may be reading faster because of your curiosity and therefore, you may be missing details. So when you read them for the second or third time, you may notice things that you missed the first time. Also, and this is important, when you read the book two or three years later or five years later or 10 years later, it's a different person who is reading the book because it's not like you and I can stay constant. We mature. We have new experiences.

In the book, I talk about how I read Dale Carnegie's book when I was 18 in Russia. And I read this book and I really hated it because I felt this was so superficial and so fake. And then I read this book when I was, I think my late 30s, maybe early 40s. And I was shocked how important that book is, how great the book is. And like a lot of books, I'll give you an example. Like Nassim Taleb's books, you have to read them multiple times because there is so much insight and they're so dense that you get those insights in the second, a third or fourth read. So like you can relate to music again, right? So the less complex things are, the more likely you're going to get it in the first time. The more complex it is, now we can relate it to books as well, right? The more likely that you need to read it, you know, kind of expose yourself to its multiple times to actually get the full volume out of it.

Dan Ferris: Right. Right. And it's interesting too, because something can be a very compelling read and can be written in a way that tells a great story, ticks all the right emotional boxes. And yet there's so much more to it. And Taleb's books are kind of a good example of that because he, you know, he tells these stories about, I don't know, Fat Tony, and he makes up these characters and stuff to describe parts of his own personality, really, we find out. And so, you know, it's fun to read about that, but then there's always this much deeper level of insight that you might not get the first time around. And I think a lot of great literature and great ideas and things worth doing, and life is like that. Things worth doing take time, right? Nothing great happens overnight, whether it appears to or not,

Vitaliy Katsenelson: Ah, you're 100% right.

Dan Ferris: And you know, your, your book didn't happen overnight. Did it?

Vitaliy Katsenelson: Well, so it's kind of interesting. There was no way I could, so you're making a good point. I could not have written this book if I had to write it from start to finish as a book. So like, you can fault me for, you know, going back and taking the articles I've written the past and put them together. And I'm not hiding that fact, but every single time I wrote that article, I was consumed by certain emotions that I could only write at that point in time. So a lot of the book is that, you know, me, that I'm an emotional person. So a lot of the emotions actually what probably brings flavor, you know, to my book, to my writing. This book is – basically, think about it. It's my articles that I've read in the last 18 years that been rewritten and edited, etc. But it's me, like a lot of them is it's kind of me 18 years ago at that point in time writing that or me three years ago or me six months ago.

Dan Ferris: So I want you to do something for me real quick. We just mentioned Nassim Taleb, and he of course has a book called Skin in the Game and your book is called Soul in the Game. So what's the difference? Why call, what is Soul in the Game versus Skin in the Game?

Vitaliy Katsenelson: OK. So I read Skin in the Game and there was this one chapter – which probably was probably one of the least colorful chapters for most people – in which was something called soul in the game. And when I read the chapter, I was completely mesmerized by that chapter, by this concept of having soul in the game. Because to me, it's almost like a next level of, you know, above skin in the game. So let's talk about what skin in the game means. To summarize, it's basically when you deal with somebody, you want to make sure that the person enjoys not just the upside of the relationship is you, but the downside as well. The easiest example is when somebody manages your money, you don't want them just to charge you a management fee. You want them also to own the same stocks you do, because, if they're buying a stock for you and it, you know, and it goes down, you want them to experience a similar type of pain you do. The reason it's important because when they will not be buying you anything that would be – would just make them rich, but not make you rich.

Like the reason it's important because in Wall Street, Wall Street would create any product people desire but not necessarily products that, you know, like they'll make soup for you to, for eat, but they won't be in that soup. Like if you look right now, all these financial instruments that are blowing up, those financial instruments were created by Wall Street for the customers to consume, but they will not be consuming it. So that's kind of the concept of Skin in the Game. So in the game, it's a basically take the skin in the game and add the way I look at it. Can you break it up into two things?

First, we have to choose the game. And second of all, there was this concept of soul. We'll do with that. A second. Let's talk about the game first. So when you choose activities, that's going to consume a very large part of your life, your career, your hobbies even your interactions with other people. You want to ask yourself question: Is this the game I want to play? And when you figure out, is that the game you want to play, you ask yourself a question: Does this game give me good problems? What is a good problem?

Good problem will have its own pains. If you do anything creative, you're going to go through periods of times where you struggle, where you suffer. You know, we experience pain. Investing could be painful. A lot of investors will tell you right now, you know, investing, yes, is painful... could be painful. But so is doing anything creative... writing, music, writing. Anything you create, has its own amount of pain. So even training for marathon is painful, right? But the question is, if that's the pain you're willing to suffer through, then it's a good problem for you.

Let me give you this example. I work out twice a week with a trainer and I absolutely hate working out. The only reason I do this, because I know it's good for my health. And the reason I have a trainer – because I have this Ukrainian guy who used to be a world champion in a deadlift telling me, pushing me to work out twice a week. I have no soul in the game, zero when I work out. And that is not a good problem for me. I don't love this problem, but the only reason I do this, because I know I have to, OK? If my life was just me working out, I would have a one miserable life. It's a good thing to only subject myself to doing this twice a week.

So you see how I have no soul in the game when it comes to this, because this is not a good problem for me. Now, when it comes to writing, when it comes to investing, I know that when I do this, I'm going to experience pain. And this is the most important part. When if then if you told me, "Vitaliy, here's the pill, you take this, and two, and you don't have to work out ever again." I would've said, "Thank you, Dan. I'll take the pill and I would stop working out." So that's not a good problem for me. Now, if you tell me, "Vitaliy, just hire a ghostwriter, he'll write a book for you. You stamp your name on it." That would not, I would never do this. And the reason I don't do this, I would not do this because the process of writing the book, it's very painful, frustrating process... is what gives me meaning. It's a good problem for me. So when you choose problems in your life, you know, good problems, they usually have a meaning – "soul in the game," the game has meaning to you.

Dan Ferris: Skin in the Game and Soul in the Game, both are defined by downside. Aren't they downside participation in both cases?

Vitaliy Katsenelson: Yes. Well, yes, that's right. But then the Soul in the Game is it's your soul basically is your attitude toward what you're doing. Let's talk about the attitude. And some of that is defined by Talib, some are defined by me. So No. 1, money is usually secondary consideration when you have a soul in the game. In other words, I don't write like "I don't care, I wrote this book" or "I come to work every day," which is ironic because I do investing which is money related. But I would do it even if I didn't get paid, No. 1. No. 2, I would not do anything that would give me financial benefit but would hurt my clients... or give a message to somebody in the book that I thought was a flawed message but it would make me more money. So money is always secondary consideration for me. Or somebody has soul in the game, you know, you also have skin in the game.

There is a certain amount of art in – when you have a soul in the game, there's all certain amount of art. And so I have this concept, which is "art or craft." Any activity you do, there is a certain amount of craft mixture of art or craft. And this is a very important concept. Actually, my brother and my son and I were in Venice. And we went to a Murano factory where they make Murano glass. And we saw this guy make a horse out of bulb of glass. And it literally took him in 30 seconds. And suddenly this horse shows up in front of us. And my brother and I, and my son, we walked around Murano and we were discussing if that what this guy was doing was art or craft. And we kind of were debating this. And we looked in all the stores, they sell these horses that look identical, just the same horse that we so born in front of us. There's thousands of these horses. So we kind of agreed that, OK, this must be a craft.

But then I realized, it's the wrong way of looking at. This the way we should be looking at this: any activity, when we start, has a lot of creativity in it. In the beginning, it's mostly going to be art. And the reason it's art because there is a lot of uncertainty... because you don't know exactly what's going to come out at the end. But after you do this many, many times, the art element goes away. Some of that becomes a craft. You play guitar, right? When you were starting chords in the beginning, it was all art. After six months, you knew all the chords and it was mostly craft. I'm just talking about the chords part, even though there's still some art left in them, right? Because you knew if you going to push this and you know exactly how to push the strings, if you put your fingers in the right way, you knew the sound you going to make, right? So in any activity you do, the longer you do it, the less art left, just, you know, it's a question of how much.

Let me tell you, by the way, somebody who doesn't have any art in the activity. If you work an assembly line on Fiats, there is zero art, all craft. If you write, especially if you write about the same subject all the time, over time there is a little bit less art left, a lot more craft. So it's a continuum. When you have soul in the game, you're going to have the right balance. You're going to have the right balance of art and craft, because if you only have craft, you're going to be, have a very miserable existence, very boring, miserable existence. And there is a lot more other concepts because I know we are limited on time. So there's a lot more items, that I describe in the book that describe what soul in the game is, but those are the highlights.

Dan Ferris: And we are out of time, but we've barely scratched at the surface. There's a lot more in the book than what we've discussed today. So, but I do need to, I need to run my final question by you as I do for every guest on the podcast. And that is simply if you could leave our listener with a single thought today, what would it be?

Vitaliy Katsenelson: Aside from quote by my book?

Dan Ferris: Besides that.

Vitaliy Katsenelson: So I think "be kind." I mean, just, I think that over the years, that became part of my identity. So whenever I try to interact with other people and that, by the way, it didn't come naturally to me, it's something I had to train in myself. I always ask myself, "Have I been a net positive in this interaction or net negative?" So I always try to be net positive. I'll give you this example. When I get a telemarketer's call, I actually force myself to be kind to the person, even though it's extremely annoying, etc. And the reason I do this, because kindness is, at least for me, it's a muscle. It's something that you have to train yourself to behave in, and over time, it becomes, if you do this long enough, it becomes part of your identity and it's going to become part of you. But I think if we just keep doing this, then I think the world can be a little bit better. Like, you know, if how people interact is kind, then just the world will be better.

One of my core values is just to be net positive to society. So, and that's, in all honesty – people won't believe me, you know, when I say this because it's coming from this capitalistic pig who was born in Russia and etc. But this book... if somebody reads this book and it has a net positive impact on them, if it teaches them something, it makes their life a little bit brighter, I'm done. So it doesn't matter how much it sells. I just really want this book to touch people. And that's why I wrote it. But anyway, be kind. That's my answer to the question.

Dan Ferris: It will. It will touch them if they read it. So, listen, it's always great to talk with you and I'm really glad that you that you e-mailed and gave us a chance to, to talk some more, you know, thanks so much. Thanks for being here, man.

Vitaliy Katsenelson: My pleasure. Let me just say one last thing. So this book has a website, SoulintheGame.net. Why it's important because after I wrote the book, I wrote five new chapters. So if somebody buys the book and goes to this website, there's instructions on how they can get five new chapters absolutely free. So if just, if they go to SoulintheGame.net.

Dan Ferris: SoulintheGame.net. Sounds good. I didn't know about that. I'm going to go there right away. Yeah. Thanks a lot Vitaliy.

Vitaliy Katsenelson: Thank you, Dan.

Dan Ferris: All right. It's always good to reconnect with Vitaliy. I mean, we talk several times a year. We see each other once or twice a year. Like I said, one of the most informed, insightful, thoughtful investors I know of. And, you know, as we discovered today also I don't know, a great philosopher of life. And there's much more in the book, like there's this huge section on stoic philosophy. And we didn't get into that today. I avoided it on purpose because it could take over and we'd be here for two hours, but maybe we'll have Vitaliy back. And we'll talk about that a little bit. We'll talk about stoic philosophy and a few other topics. We didn't get to. Great stuff. I mean, I hope you by the book and enjoyed it as much as I did, he sent me a copy before he published it, just to get some ideas. And I really liked it. I mean, I had some ideas for him, but I was impressed. As I knew, I would be, have a lot of respect for the guy.

All right, let's take a look at the mailbag. Let's do it right now.

Look, I think, you know, by now, I'm always trying to tell you the really hard truths, even when, especially when, what I have to say is unpopular today, the hard truth is that your wealth is in danger. Everything you may have made in the bull market of the last decade could disappear very quickly. Some of it's probably gone already. This process has already started. And even if the financial market somehow avoided a devastating crash from here, inflation is still eating 8% of your money every year. I've spent 20 years helping people prepare for extreme market shifts, just like the one we're going through right now in my role at Stansberry Research, I've recommended 24 triple-digit winners. And I called the collapse of Lehman Brothers with near-perfect timing.

Well, today I'm issuing my biggest warning ever. If you want to preserve your retirement and your lifestyle in the coming years, you need to act. I recently went on camera to lay out a simple one-step plan for what to do. You can set yourself up in minutes and likely forget about inflation, rising prices or the worst effects of a market crash for years to come. This plan does not involve options, shorting crypto, or anything complicated, and it doesn't require perfect timing. The perfect time to act is right now, and you could see triple-digit upside in the coming years. To watch my full interview with the brilliant financial journalist and hard asset expert, Daniela Cambone, simply go to CrashProtection2022.com. Again, that's CrashProtection2022.com to watch our full interview for free

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

First up this week is Josh C. and Josh C. says, "Hello, Starbucks went 'sell.'" He's talking about my recommendation to sell Starbucks in the Extreme Value newsletter. And very briefly, Josh says, "Starbucks went 'sell at $71' since the May issue of Extreme Value, but that wasn't shown in the June issue. Is Starbucks still 'in play'? Thank you, Josh C., lifetime Extreme Value subscriber."

Thank you so much, Josh. Glad to have you on board for a lifetime. No. Starbucks is not in play. What we do, Josh, is we make the sell recommendation and then we remove the stock from the model portfolio. So you won't see it again until we recommend buying it again, which I expect to do at some point. But that's why you haven't seen it again and you won't, all right? And it's really too bad. It's a great business, but you know, there's problems in China, and they're just a victim of the bear market, too. Let's face it. Good question, though.

Next comes Andy S. Andy S. called in to our listener feedback line and he has a difference of opinion with me on my decision to sell bitcoin a couple of months ago. Here's Andy S.

Andy S.: Hey Dan, this is Andy S., a longtime listener. Love the show, been an Extreme Value describer for quite a while. I now an Alliance member, but yeah, I just have been, I'm a traveling sales rep and I listen to all your podcasts as well as a lot of other financial podcasts. And I know you recommended an Extreme Value, a couple, oh, I don't know, three weeks ago or four weeks ago to sell bitcoin. And I just wanted to throw a few comments on that. I realize your frustrations. I have the same with the technology as well. It is not an inflation hedge. It is not anything of real currency at this point, but I think it's really, you're focusing a little bit too much on price span. It's a very highly speculative technology that only has 200, 300 million users out of a global population of almost 8 billion.

I just think that those things will come if the technology continues to grow and we have more network effect, those things will come true over time. And it does tie in with your comment about a loss of trust in institutions like the church government. I mean, it's going to cause more people to be looking at something that's an algorithmic thing that's decentralized that nobody can in essence mess with. Anyway, I just have a difference of opinion there. Dan, I personally have stayed in there. It's a small-enough position that it's not going to affect my, you know, standard of living. And I just believe in it. And I think that it just needs more time to go through. I've actually, since it's top down to 23, actually, it's 22, as I'm talking to you now, I bought a little bit this morning. I'm just going to stand in it for the long haul.

Dan Ferris: Andy, I don't know if I really disagree with a lot of what you said. The only thing I might take issue with is when you tell me that I'm focusing too much on price. I understand where you're coming from and by the way, just mad respect for your decision to hold and buy more. I mean, you got the courage of your convictions. Even Ben Graham said you should have the courage of your convictions. If you know the situation you should do, what you think is right and buy more. But I have learned over time to have a healthy respect for price action. Also, there are a couple of fundamentals that sort of are bothering me a little bit. One of them is the scarcity of bitcoin... which I mentioned George Gilder in my rant today. George Gilder also talked about bitcoin. He said one of the problems with it is that it doesn't grow with demand. So that's one of the ways you know it's not a good currency. It's not money, because money grows with the demand. That's how it maintains its stable value.

So bitcoin's huge volatility is a sign that it's not money. And that bugs me because I either want it to be money or some kind of a store of value. And it behaves like neither. It behaves like a risky technology speculation. And you even sort of acknowledged that, Andy, in, in your question that it's a risky kind of a long shot. And I get having a small position. I think you know what you're doing – everything you're saying and doing sounds right to me. I have no issue with it. I just think that I thought it was going to crash. Still think it's going to crash horribly because it's like a low capitalization, you know, a small-cap tech stock that's closely held by the founders, right? So maybe there's 100 million shares outstanding and 10 million of them trade. And so it's very volatile anyway. You know, respect, and we'll have to agree to disagree on that one.

Next is Charles from Boston and Charles says, "Hi, Dan, I love your show. You and your guests have great insight. Please, could you or a guest such as Steve Sjuggerud address the Melt Up? Do you see a Melt Up coming or is the Melt Up a foregone issue? If you do see a Melt Up, how does inflation play into this? Thank you. Charles from Boston."

Charles, I won't answer for Steve, but as for me, yes, absolutely. The Melt Up is in the past. We melt it up and now we are melting down. Inflation plays into it because inflation is bad for business. It's bad for the currency. It's bad for stocks. It's bad for bonds. It's bad for you and me. It's good for some asset prices. I guess some assets tend to do well in inflation, but frankly, you know, without inflation, I'd still own those assets and they'd probably do OK over the long term, inflation's just a bad thing and it makes investing more difficult. I'm glad you asked, because I think a lot of people are wondering, "OK, now where's the Melt Up? There's going to be a Melt Up now that we had a Melt Down, right?" Mm, no, not necessarily.

Next is another yet. Another question on the feedback line. Love it. This one is from Big Jim and Big Jim has a question about a possible trade. Let's listen,

Big Jim: Dan, Big Jim. Hey, a few weeks ago, you left a warning with us about leveraged ETFs. So say you want to short the Nasdaq rather than buying an inverse ETF, maybe something that's leveraged. Why not just short a leveraged ETF, say one of those two- or three-times-leveraged Nasdaq ETFs, and just short it?

Dan Ferris: Big Jim, I hear you all day long. And I think this way too, I think, well, why don't we just short them if I hate the leveraged ETFs that much, and I think they're garbage and they can fall apart? Why don't I just short them? Well, because the leverage can whipsaw you really hard. That's why. I just don't want to stand in front of that train no matter, you know, which direction it goes. I don't want to get involved. I don't want to jump onto it and ride it wherever it's going, nor do I want to stand in front of it and oppose it. I just want to let it be, and there are other things I can do. And as for shorting, if you want to be short, you can just short the big equity ETFs or maybe buy puts as I've done on them.

But yeah, I think it's tough if you do it. You could potentially make a lot of money, but two things... I think you could really get whipsawed, meaning you'll be short at just the moment you should be long and then you'll go long. Just a moment – you should go short and you could also incur a huge, huge loss, because if you're short, obviously you can lose more than you bet, right? Because the gains can be a lot more than 100%, but the losses can't be more than 100%. That's just how shorting works. So be very careful, Big Jim. I kind of hope you don't do it. But good question. I'm glad you asked. I think the same way. And it's a mistake, I think.

Next, I'm so glad to hear from Al M. haven't heard from you in a while, Al. Al wrote in twice his other e-mail. It was so long. And I know he didn't mean for me to read it, but it was a very interesting e-mail, Al, and thank you for that, but I'll read this one.

It says, "Dan, great show. I thought the discussion with Chris Pavese was simply superb. I especially liked his comments at the end about things having changed and things occurring faster than prior. It will take time to flush out the excesses of the last few years. I liked his idea of three phases of the bear market. Very interesting views: junk goes first, then leaders follow, and finally capitulation. I will definitely keep that in mind if I can. The whole conversation was exceptional. Not speaking of advice, I can't think of anyone who was given more specific and better advice than you. Starting more than a year ago, you started talking about what a top feels like, and your comments have gotten more specific over time. I'm extremely pleased with my lifetime membership and Extreme Value. Just couldn't be better. If anything, I need to be a bit worried about now, following your advice too, specifically, after your accuracy on this sequence of events. It has all turned out exceptionally well for me, I'm down maybe 2% in total sitting in cash in gold and silver and your favorite company. Thanks so much Al M."

Yes. And I think Al my favorite company will continue to just gush cash given that their expenses and capital requirements are just tiny. But thank you, Al. Thank you very much. Of course, I'm reading that because I'm only human and I have an ego like everyone else, but thank you. And I agree with you about the conversation with Chris, just a really thoughtful guy, really smart too.

Next comes Rich S., and Rich S. says, "I listen to your podcast weekly and enjoy it. My challenge is that nearly all my retirement is in a company 401(k). I'm not allowed to hold individual stocks. How do you recommend responding to the market volatility with the limits of a 401(k)? Rich S."

Rich, I have to tread carefully because I am contractually forbidden to give individual investment advice. I can only tell you what I've done with my 401(k). I'm about 60/40. I think. I don't know the number exactly because I'd never look at it. but it's mostly a value fund and the rest is gold stocks. And I just kind of forget about it. I haven't contributed to it in some time it's kind of from a previous life, but it just sits there in value in gold. And I don't look at it. But you can do a lot of things with a 401(k). Like if you wanted to be all in cash, they have these like money market funds that you can do. And if you wanted to, you know, you could be all in gold by going into gold stocks, you could be all in value funds. You could be all in whatever you want to be or any – I'm not recommending any of that by the way.

Or you could chop it up and slice it up and be in, you know, like a foreign stock fund or a commodity fund or a regular S&P 500 or a value fund, growth, whatever you want. You can think about where you'd like to be for the next five or 10 years or however long you have before you retire and then tailor the fund, you know, your 401(k)that way based on the fund offerings, which are usually just like barely adequate for that purpose. I agree. That's about all I can say.

Next, what do we have? One or two more here? Couple more. Lodewijk H. says, "I'm considering entering the real estate market." I'm sorry. Hold on. Let me start again.

Next comes Lodewijk H., and he says, "I'm considering entering the real estate market. I'm thinking about buying some cheap rural real estate in Bulgaria or Eastern Europe. The idea is to buy something that needs some work. Do that work, learn it, YouTube to the rescue. Lodewijk H."

I get what you're saying. Yeah, go on YouTube. Learn how to do all the things you got to do to make the property more valuable. I mean, this is, I don't know anything about Bulgarian real estate or Eastern European real estate, but this idea is certainly, you know, time tested. I remember Steve Sjuggerud when he moved to Baltimore very briefly, many years ago – must be 20 or 15 or 20 years ago. He bought like the worst house that, excuse me.

I remember when Steve Sjuggerud moved to Baltimore many years ago, 15, 20 years ago, long time. He told me, he said, "I bought the worst house in the best neighborhood." And then he fixed it up. He painted and he fixed things up and it looked a lot nicer when he left there. Not too long after that, because he didn't like Baltimore then, when he got there. And in general, I think a lot of people know that when they buy a house or real estate property, leaving it better than you found it is generally a good idea and enhances the value. So, great idea. Love it all day long. I leave you to the particulars.

Next comes Tom S. and Tom says, "Love the show. When Porter quit doing the Investor Hour podcast, I was very disappointed initially, but now that you've been doing it for the last few years, I like your podcast as well, if not better. Question, you mentioned frequently how important free cash flow is. But I have a question about that free cash flow in relation to what $100 million free cash flow for Apple would be less good than some company worth much less than Apple. Perhaps I'm answering my own question, but I'm wondering what the best comparator is to determine good versus lousy free cash flow. Thanks, Tom S."

Two things, Tom. One is free cash flow margin. So free cash flow. As a percentage of revenue, higher is better. Consistently higher is better and consistent period is very good, better than inconsistent. The other one is just maybe a multiple of free cash flow or the discounted cash flow value of the business. And that's a complicated thing. We won't get into it, but you know, something that's trading a 10 times free cash flow is more attractive than something a 20 times free cash flow, other things being equal. Good question.

Last, finally... this week, lots of good mailbag stuff. And here we are, last, but certainly not least... Larry B. from southwest Florida says, "Dan, longtime listener and subscriber. I've been thinking a lot about the oil and gas situation. And I have a question that may seem naive. My dilemma is that I see the world demand at roughly 100 million barrels a day and supply close to that."

And then I won't read all the rest, but he goes through this whole thing that says, you know, basically with the demand just coming from different places and the supply being about the same, is the uptick in price justified, right? And then he comes to the end and he says, "Is this warranted or is there really profiteering going on? I haven't really seen a good explanation since oil is somewhat fungible. And if Asia is picking up the Russian oil, it would seem like they'll take less from elsewhere. What say you? Thanks, Larry from southwest Florida. P.S., please continue book suggestions from time to time."

Well I'm reading George Gilder's The Scandal of Money right now and enjoying it, Larry. But as for your question, I don't know and I don't care. Let me tell you what I do care about. I care less about the specifics of the supply and demand of oil, which I promise you are extremely complicated. People make their living trying to figure out just one or the other. What does the supply look like a year out? What does the demand look like a year out? It's complicated, but I don't think- I think as much as anything higher oil prices are about the decline in the value of the currency. I don't think people are understanding this at all. They still are talking about inflation like it's caused by a supply-demand imbalance.

Yeah. Supply-demand imbalance because there's too much money running after the same or fewer goods. So, you know, I hate to sort of just push your whole question aside, but that's how I see that.

Well, that's the mailbag and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com. And do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. If you have a guest you want me to interview, drop me a note at [email protected] or call the listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show. Till next week, I'm Dan Ferris. Thanks for listening.

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