In This Episode

Dan starts out this week by continuing his discussion of share repurchases.  He’ll show you the man who put share repurchases on the map, investing legend Henry Singleton (1916-1999). 

Singleton was an MIT-trained PhD engineer who liked to play chess without looking at the board, preferring to keep it all in his head. 

Dan talks about the two things Singleton did to secure his reputation as a bona fide business genius. 

Dan also goes through some of the more interesting recent stories, including Uber losing its license to operate in London (its largest European market), the biggest luxury goods company acquisition of all time, as well as the shady side of discount brokerage giant Schwab’s acquisition of its rival, TDAmeritrade.

Dan finishes up with two questions from the mailbag, including one about the possibility of “a catastrophic weakness” in bitcoin. 


Featured Guests

Dan Ferris
Dan Ferris
Editor, Extreme Value
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Episode Extras

NOTES & LINKS

  • To follow Dan’s most recent work at Extreme Value, click here.

SHOW HIGHLIGHTS

0:34:  Dan starts by asking listeners to write in with suggestions of books, ideas, podcast topics, interesting companies… anything you think would make the podcast more enjoyable. 

5:22: Dan dives into serious financial matters with a talk he calls, “Share Repurchases Part Three (or so)”.  Dan discusses data that provides ample evidence that, indeed, share repurchases are an overall bullish force in the stock market. 

09:25: Dan starts his discussion of the man who made share repurchases look like an easy way to make good returns.

10:26: The first of the two things Henry Singleton did to secure his reputation as a bona fide business genius, using “Chinese paper,” to grow a company from $0 to $1.3 billion in sales.

11:29: The second genius move that made Singleton a business legend: buying back 90% (!!) of his company’s shares when they were dirt cheap.    

13:55: Why most corporate managers fail when they try to imitate Singleton’s genius.

16:55: Don’t ask Dan what bitcoin’s crash below $7,000 means… but you’ll want to hear his thoughts about how much money you should (or maybe shouldn’t) have in bitcoin.

19:56: Learn why you should really listen to Bridgewater Associates founder Ray Dalio when he says he has no net short position in stocks… unlike the misguided story that appeared recently in the Wall Street Journal.

26:10: Most corporate acquisitions destroy value… but there’s one type of acquisition that tends to work out very well. 

27:03: Learn why mergers & acquisitions is such a hugely important topic for investors, and what it can tell you about the companies being acquired.  “These people are basically telling you what these businesses are worth.”

29:20: “We’re in a five-year mergers & acquisitions boom showing no signs of letting up.”

29:42: Why Charles Schwab really announced on Oct. 1 it would stop charging commissions on equity trades. 

34:43: April in Seattle asks about how much trend followers’ strategies change over certain periods of time


Transcript

Audio Intro:   Broadcasting from Baltimore, Maryland, and all around the world, you're listening to the Stansberry Investor Hour. 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: Hello, and welcome to another episode of The Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, a value-investing service published by Stansberry Research. Now before we get going today, I have a favor to ask of you. So about a week or so ago, my Stansberry colleague, Austin Root, sent me a note with a Wall Street Journal article attached, and he said, "Hey, I think you'd do a great job writing about this in the [Stansberry Digest]. That's our daily e-mail that goes out to every paying Stansberry subscriber every day of the week. And I had seen the article before. It was about Elizabeth Warren's wealth tax, which in some cases means investors wind up paying like more than 100% of their investment income on certain investments – you know, in taxes. Just crazy. And I saw the article, but I was like, "Eh." You know, I just kind of passed it by. And I didn't think of it again until Austin sent me his note, and I thought, "Well, he thinks I can do a good job with this, so I'm going to take a crack at it."

And you know, I think I struck a non-partisan tone on the topic, and our readers wrote in to say that they really enjoyed it. So, you know, they're the ones who know if I've done something good, right? If they enjoy it, then it's good. And here's the thing, right? I had dismissed the thing previously, but Austin made this specific point of saying that he thought I would do a good job with it, so I went ahead and did it. I trusted him. And the readers did enjoy it. Apparently I did a good job and folks wrote in. And the point is, it never ceases to amaze me how bad I am at knowing who I am, what I'm good at, what my strengths and weaknesses are, and so many other things about myself. In fact, I even – I know that I have a book – I have a couple hundred books in my Amazon cart at all times. You know, I just kind of obsessively put them in there. And I know that there's one in there about how we don't know ourselves at all. And maybe I should read that, because that's what's happening here.

So here's what I'd like to do. I'd like to ask you a favor, and my reading has fallen a little behind and I'm not sure where to pick it back up, so I thought I'd ask you for a suggestion. Is there one book out there that you think I'd really enjoy based on what you know about me from the podcast and all of the stuff I've said on here? Maybe something that you remember from a previous podcast that kind of struck your interest? And if there is, if there's something you think I should be reading, based on what you know about me from the podcast, I would love to hear about it. So write in with your suggestions to [email protected] And I'm going to – I sent a similar note around internally to Stansberry for ideas on what to read and what to write in the digest and things, because I thought, "Well, you know, if it happened once, it could happen again." Because people have a certain idea about you, me, whoever, and sometimes that idea contains quite a bit of insight. So it's valuable to know what people think you're good at. And in general, if you ever see something – a news article, a book, an idea, a company you think I'd find interesting, I'd be really grateful if you sent me a quick note about it at [email protected] So thanks in advance for that.

And before we move on to serious financial matters, I need to warn you, I'm kind of in the holiday spirit. I love the holidays. I come from a huge family – seven kids. My parents had seven kids and they have something like 20 grandchildren and a handful of great-grandchildren. You know, it was always a big scene at the holidays. And so I don't know what that's going to mean. I don't know if I'm going to be, you know, having a little hot toddy here, maybe, on the podcast, but I'm in the holiday spirit, so I could get a little loony, and I just thought I should warn you.

Now in a recent episode I mentioned my 92-year-old mother had broken her wrist and elbow and pelvis and stuff, and we talked about life and what you should do, since life is short, and folks wrote in. I was very touched by all of the e-mails. And it wasn't looking great for dear old mom, but for now, she has rallied, and I'd love to think all your well-wishes had something to do with that. I'd love to think the world worked that way. But you know, she broke her pelvis, and she's like 92 and she broke her pelvis, but they got her out of the hospital, into a rehab facility. She does therapy every day. She's standing up and walking. So, wow. I won't say, "Who knew she had it in her," because I knew. I grew up with her. But you know, again, thanks for all of the well-wishes.

Okay, now, to serious financial matters. I do have one particular topic on my mind today. Then we'll take a look at several news items and then take a peak inside the mailbag and then we'll go and spend time with our loved ones for the Thanksgiving holiday. So let's just call this Share Repurchases, Part III or so, okay? So you know, just let me finish up with this topic for now, the topic of share repurchases, which I talked about on the last two episodes. So overall, I think you could argue that share repurchases are a bullish phenomenon in the stock market. As the market has risen, the supply of stock has fallen, due largely to share repurchases. A company called TrimTabs monitors these changes in the amount of stock available in the market, and what they call the float, the amount of stock available. And in a recent Market Watch article, a guy named Mark Hulbert, who's been around the newsletter business for a long time, he published some TrimTabs data showing that in each of the last five years, plus halfway through this year, the supply of stock has fallen. So you know, the float is shrinking. So given the same demand, a smaller supply means, hey, bullish, right? The price goes up.

So they measure it by the market value of the change of outstanding stock. So last year, for example, U.S. companies bought back more than a trillion in stock, net of all the stock that was issued, according to TrimTabs. This year, through the month of June, there was like 700 million less outstanding. Now that doesn't mean the stock market lost that much value. It means that much stock was, well, mostly repurchased or acquired or otherwise taken out of the market. Now in Monday's Stansberry Digest, I mentioned some data that I looked up on FactSet. FactSet is like Bloomberg light. It's just a system that finance people use to look up data. And the data showed the top 10 share re-purchasers of the S&P 500 had, as a group, underperformed the S&P 500 over the previous year. So the biggest share re-purchasers, on average, were beaten by the market during the last four quarters. Okay?

So I thought, "Wow, jeez, that was unexpected." But I'd be remiss if I didn't also point out that the performance of the TrimTabs All Cap U.S. Free-Cash-Flow ETF, ticker symbol TTAC, which invests in companies with the biggest reduction in float did better. It has beaten the S&P 500 by 1.9% annualized since it started up in September 2016. Not a long track record, but I think it could be instructive. I think they're kind of on to something here. As much as I criticized various aspects of share repurchases and basically said, you know, if the company isn't doing great, share repurchases are not going to save them – overall, the continued repurchase – I think people do have a point – that it's part of what holds up the stock market. And you might remember I mentioned my colleague – Scott Garliss – mentioned share repurchases as one of the big reasons why he expects the market to continue to rise.

Makes a lot of sense. Okay? I'm just saying, there's data that I've looked at that makes a lot of sense. And I don't like to just agree with something that sounds good unless I have looked at some – you know, some real data, some real reasons to suspect that it's true. Of course share repurchases have become popular over the past many decades for a reason, and as I believe I showed last week, they're not all necessarily good reasons. And also, if you read Monday's Stansberry Digest, I think I showed it's not always good reasons, right? But the man who made share repurchases look like an easy way to generate big returns was a guy named Henry Singleton. I think that really is where this all started. Singleton was a genius. He was an MIT-trained Ph.D. engineer who liked to play chess without looking at the pieces, right? Like basically blindfolded. You know, he kept the moves in his head and he could play chess without looking at the board, right? Kind of a smart guy.

He founded a company called Teledyne in 1960, started it with $225,000 in cash. And he did two things. I'm not going to tell the whole story. You can Google "Henry Singleton" and find all kinds of stuff about him – and I encourage you to do so. Like he's one of Warren Buffett's favorite people of all time in the business world, and you should know about him. But I'm going to keep it short here. First of all, like, he did two things that basically forever secured his reputation as a bona fide corporate genius. The first thing he did was, whenever the price of his company Teledyne's stock – when it was souring in the 1960s, he used the stock to make, by some counts, approximately 130 acquisitions, right? They used to call it Chinese paper, when you used really expensive stock to make an acquisition. You know, you're – you know, I mean, you're basically printing money at that point, right? And during the '60s, you know, based on all of these acquisitions and growing this company from nothing, the sales grew from basically zero to 1.3 billion and net income also from essentially zero to 58 million. So, you know, he knew what he was doing. He knew how to acquire his way to a big company.

Lots of people have done that, but he was actually very good. He built an incredible business that scored huge returns on capital. I mean, it was – like I said, it was like Warren Buffett's dream. Okay, that was the first thing he did – he used the expensive stock to make acquisitions. The second thing he did to cement his reputation as a bona fide genius – when the stock tanked, when Teledyne stock fell along with the whole rest of the stock market in the early '70s, he bought the shares back hand over fist. Over a 12-year period, like 1972 to 1984, he reduced Teledyne's share count by around 90%. Bought back 90% of the stock. And when he started buying the stock in 1972, it was just under $17 a share. It hit like $300 in 1984. And I saw an old price chart published by Omega Advisors, but it was an old price chart, really old, and it was kind of foggy looking, but it was from – it looked like it was from Teledyne's IPO into like the 1990s, the early 1990s. And it was really faded, but it looked to me like a split-adjusted price chart, because it starts out at like $0.03 a share and ends up at like $70 or $80 over on the right. I mean, just huge. And circled on the chart are like four spots right around the 1974 bottom where he bought back shares.

So, you know, ever since Henry Singleton bought back Teledyne's shares and created this huge, huge multi-bagger return doing it, folks in corporate America think, "Oh, well, it's easy to make the stock price go way the heck up by buying back shares," but it's not. Singleton was a singular genius. He was good at everything he did. He knew how to make acquisitions, he knew how to manage businesses, he knew how to buy back stock. And in fact, the company went through these very specific periods of time – you know, the acquisition-to-build-it phase, the intense-management phase, the buying-back-the-shares phase. And you know, you never find somebody who's good at all those things, and his timing was legendary. I mean, he did all these share repurchases right at the bottom in like '73/'74 timeframe. I mean, you just don't see this. You know, it's very, very rare. So thinking that Singleton is an example to follow is right, but you've got to know exactly what you're following. You're not just blindly buying back shares. You're brilliantly timing share repurchases. And people, they sort of ignore that and, "Oh, I'll just buy back the stock, just like Henry Singleton. Yay." And you know, on top of all of this, he was like the most upright, decent, honest guy in the room. You know, he never took stock option grants, he never sold one of his own shares, according to Leon Cooperman of Omega Advisors, where I saw that chart that I just mentioned.

So Singleton was a very, very, very unusual guy. You just don't find people like him in corporate America anymore. He died in 1999. I think he was 82 years old. You know, just stellar career, one of a kind. Late in his career he looked at all of the shares that corporations were repurchasing and he said, "Well if everyone's doing them, there must be something wrong with it." Right? And that's kind of part of the point that I've tried to make. Sure, everybody's doing it, and sure, overall we reduce the float in the market, so it's overall bullish, but most corporate managers are really bad at it. They're not Henry Singleton, okay? So you know, I wonder what he'd say today if he were alive. He'd probably say the same thing. I'm hoping he'd say something like that I'm saying. You know, "Everybody's doing it. There must be something wrong with most of it."

And I think there is… Bullish as it is. It's weird, isn't it? I have to admit that it's an overall bullish thing, but bottom-up, one at a time? The example suggests that these people just don't know what they're doing, buying back all of this stock. And in the end, I believe you must do that. You must analyze each company, including its share repurchase activity, on a one-at-a-time, bottom-up basis. Right? So my advice is to approach share repurchases with a healthy suspicion, but with the knowledge that, done right, you know, maybe you will find another Singleton-like performance out there somewhere. And of course, you know, you'll never have any idea which – you know, whether it's suspicious share repurchase activity or the next Henry Singleton unless you get in, dig in, roll up your sleeves, do substantial homework.

Okay, I think that may be all I have to say about share repurchases for a while. I'm not sure why this topic grabbed me, but it did. There's so many people on Twitter talking about it, there's so many opinions, such extremes – you know, some people think they should be banned, some people think they're great, some people are in-between – whatever. So last three episodes – you know, this episode and the last two, you know what I think. Right?

All right, let's look at what's new in the world. Well, the first thing that's new that I just want to mention briefly is that Bitcoin crashed below $7,000 earlier this week. As you're listening to this I don't know where it'll be, but you know, probably in the same ballpark. Don't ask me what it means. Don't ask me what it means that Bitcoin is below $7,000. But I have to mention it, because I know a lot of people will be thinking about it right now. My view is that if you have a position in Bitcoin that's big enough to cause you to notice and really care that the price has fallen, you have too much money in Bitcoin. I'm sorry, I know it's a – we've had very smart people on this program talking about crypto and Bitcoin. We had Mark Yusko on a while ago, hedge fund manager and value-oriented, cyclically-aware guy who really likes Bitcoin as a portfolio diversifier, among other things. And lots of other folks. You know, we had the crypto doctor, Eric Wade, on last week. Lots of folks talking about Bitcoin. I continue to think that you can't be all in on this kind of thing. It's difficult even to know exactly what it is. I mean, I bought like a thousand bucks worth of it a couple months ago, and sometimes, even if I'm reading about it, I forget that I own it. That strikes me as the right position size in Bitcoin. "Oh yeah, I remember, I own a little bit of that." So, be careful. You're not all in on Bitcoin, I hope.

Now speaking of position sizes, let's talk about Bridgewater Associates, biggest hedge fund in the world, run by the famous billionaire Ray Dalio, $150 billion in assets. The Wall Street Journal published an article last week that said Bridgewater had placed a one and a half billion dollar bet on a falling market. It said that Bridgewater bought one and a half billion dollars of put options on the S&P 500, and the Euro Stock's 50 equity indexes. So if either one of those falls, they'll make money. And the puts expire in March, so it's a fairly short-term kind of a bet. Now, Bridgewater founder, Ray Dalio, took to the Internet, posted a rebuttal of the article on LinkedIn. And he basically said, "Hey, um, we told the author of this piece that we have no net short position in stocks." Right? So it's not a net bet that the market is going to fall. It's a hedge, protection, in case the market does fall. They have 150 billion assets under management. This is a 1% position in put options. I'm sure – you know, I don't know for sure, but I'll bet you anything that they've got tens and tens of billions in stocks, and they've got this little bitty thing in put options.

Now, one and a half billion is a big bet, but you know, you've got to look at the context. And if you think about it, Dalio's statement that they have no net short bet makes sense. Bridgewater is known for using a strategy called risk parity. That's where you balance your assets based on volatility, right? So just say stocks are more volatile than bonds, so you have more bonds than stocks, and you buy bonds until the volatility of the bonds is equal to the volatility of stocks in your portfolio. And you know, you balance all of your assets that way, under risk parity. So you buy more of the less-volatile assets, less of the more-volatile assets. Lately volatility in the stock market has fallen. The VIX is below twelve as I speak to you today. So it's likely that Bridgewater bought a bunch of stocks, right? Risk parity, right? Stocks – volatility goes down, they buy more. And their hedging the position, I'm guessing, with put options.

So I believe Dalio and I think the – Dalio accused The Wall Street Journal of going for a sensationalistic headline over journalistic accuracy. I think he's probably right. Right? Given the emphasis on risk parity at Bridgewater, if they wanted to be short stocks, they'd probably do it by being long something else, like bonds, cash, gold, whatever they think would perform well if stocks fell, right? It's hard for me to imagine like a $150 billion hedge-fund actually being net-short stocks. I think it would be difficult to pull off. So I believe Dalio and I think The Wall Street Journal – you know, silly headline. Not true.

Okay, got that out of my system. Other thing I noticed was that Uber lost its license to operate in London. And here's why – I'm going to quote from The Wall Street Journal here. Quote, "Transport For London, or TFL, the city's main transportation regulator, said it had found 14,000 instances in late 2018 and early 2019 in which unauthorized drivers swapped their own photos with those of authorized drivers on Uber's platform, allowing them to pick up riders themselves. A TFL spokesman said in some cases, it believed drivers were using the loophole to allow people they knew to use their own accounts to pick up riders," end quote. So there's basically this backdoor into Uber's software, which they claim to have fixed, okay? They didn't say like how widespread it was, but they said that they rolled out a fix for this operationally and technologically in the software. So Uber says it has three and a half million riders and 45,000 drivers in London. So it's one of the company's largest markets globally, its largest one in Europe. Five markets make up about 24% of Uber's gross bookings, around $10 billion. The other four, New York, San Francisco, Los Angeles ,and Sao Paulo, Brazil.

So this is pretty big news. And the stock fell how much on the news? Five, ten, fifteen percent? No, no, one and a half percent. And maybe that makes sense. Because when your business has this like 50 billion-ish valuation and you're lighting money on fire, well, the fact that you may earn less in the future – you know, earn more negative – I'm not sure how you would say it – yeah, earn more negative in the future, because your sales are down, maybe that shouldn't impact the share price more than 1.5%. I thought that was the insane part of this. Because, you know, I know they said they fixed it, but if there's one backdoor into the software, maybe there's another. I don't know. I never even thought that, "hey, you can hack Uber and swap your photo in and use the program and not pay Uber anything and just kind of be a pirate Uber driver." I thought that was very weird, and I think the stock only falling 1.5% is very weird too.

Okay, next. You probably heard, if you have been anywhere near a financial news source, that the luxury goods company LVMH is buying Tiffany for $135 a share. It's close to $17 billion once you figure in all of the stock options and debt and everything. But I think just for the stock it's like a little over $16 billion. Now they bid on this thing a month ago for about $14 and a half billion – you know, now they're bidding $16 billion and it looks like it's going to happen. If it does happen, and we have no reason to suspect it won't, it'll be the biggest luxury goods acquisition in history. The first time around LVMH was bidding around 26 times earnings. Now they're bidding around 29 times earnings. The price sounds steep, but it makes sense to me. I believe I've indicted this before, right? My three sort of big-brand comp deals – you know, big deals with really solid brands are Mars buying Wrigley for 32 times, InBev buying Anheuser-Busch for 28 times, and Proctor & Gamble buying Gillette for 30 times.

And if you look at Tiffany's five-year price to free cash flow, it's around 26 times, actually. So just up in that high 20s ballpark is what you pay for a brand that's been around for like 180-some years. Which is really solid. So activists got involved in Tiffany a couple of years ago, the CEO resigned and now LVMH is buying it and hoping to kind of revitalize it. They're going to redesign stores, launch new products and try to make the brand more appealing to millennial-age customers – good luck with that. Generally speaking, of course, most corporate acquisitions don't create value. Many destroy value. But also generally speaking, one great business buying another, like the three examples I named a moment ago, that usually works out pretty well. And that's how I'd characterize this deal – one great business buying another. Luxury goods is a great business. Because all of the stuff you use to make luxury goods is all the same stuff you use to make everything else. You know? But you just slap your little logo on it and say it's the finest "whatever" in the world and you can charge exorbitant amounts and make huge margins. You know, I think Ferrari is a good example of that, right?

Okay, so that's LVMH. And I'm going to talk more right now about some other acquisitions, or really, one other – one in particular. But it strikes me that, hey, maybe you don't know why I'm talking about acquisitions all of the time. It's a real good topic for investors. What happens here, especially in deals like this – and I mentioned those other three, right? So we've got LVMH buying Tiffany, Mars buying Wrigley, InBev buying Anheuser-Busch and Proctor & Gamble buying Gillette. So these are the most knowledgeable buyers in the industry buying one of the, if not the best, businesses in the industry. You see that? So if these people don't know what the business is worth, no one does. And they do know. They know exactly what it's worth. And they know what they can do with it when they buy it, and how much earnings power they can wring out of it.

So what they're doing – and why this is important for you as an investor… Learning about acquisitions, reading about acquisitions, understanding them is one of the more important topics for you as an investor, because these people are basically telling you what these businesses are worth. If you're a long-term, fundamental bottom-up type investor who buys stocks – you know, not as momentum trades, but because you want to be involved in that business, right? You think it's a good business – you know, you like Amazon or Google or whatever it is and you think it's going to be a good business for a long time, you're a long-term fundamental investor at that point, and you want to know what these things are worth. So that's why you read about and study acquisitions. And I just wanted to say that. You know, maybe it's obvious to you, but if it's not, there it is. And so on Monday, my Stansberry colleague Scott Garliss and the Stansberry NewsWire team noted a flurry of acquisitions. Besides LVHM/Tiffany's, there was a mining deal – Kirkland Lake, a mining company buying a Canadian gold miner called Detour Gold. That was about $3.7 billion. A big pharma deal, Novartis buying Medicines Company for $9.7 billion. Bloomberg published a piece that said $56 billion in deals were announced on Monday, and they also noted, you know, basically we're in a five-year mergers and acquisitions boom [that is] showing no signs of letting up.

But the deal that really catches my eye these days, which I think is just incredible – the circumstances of it are incredible, anyway – is discount broker Charles Schwab buying its rival TD Ameritrade for $26 billion. Now this is interesting because on October 1, Schwab announced to the whole world that it would stop charging commissions on equity trades – free equity trades, right? So from the day before, from September 30 to a couple days later, October the 3, Schwab's stock was down 16%. Over that same period of time, TD Ameritrade's stock fell 30%. Okay, why the big difference? Well, because as – and I have to give Matt Levine of Bloomberg props for covering this story first – because commissions only made up about seven% of Schwab's revenues, but they made up like 36% of TD Ameritrade's revenues. And as soon as Schwab announces that it's going to eliminate commissions, TD Ameritrade and everybody else who hadn't already done so had to do the same thing or they'd lose all their customers to Schwab.

So you see what happened here, right? Schwab eliminates commissions, TD Ameritrade's stock tanks, now Schwab is buying TD Ameritrade. It's almost like they planned it that way. In fact, it all happened so quickly, within like five or six weeks, I can't even believe – I don't believe for a minute that they hadn't already decided to bid for TD Ameritrade when they announced they were eliminating commissions on October 1. The first bid came last week and then the deal was – I think the deal was accepted and now it just has to go through the usual processes – antitrust and all that, business approvals, this week. So you know, probably not illegal, but man, sure looks shady. I mean, I guess that's business, right?

Anyway, that's sort of what's on my mind and in the news and stuff. But let's just take some time now and look through the mail bag, and then let's take a few days and spend some time with the family on Thanksgiving, all right? Hey guys, real quick, I just want to tell you something. As host of the Stansberry Investor Hour podcast, I also enjoy listening to other podcasts. It helps me figure out ways to make the Stansberry Investor Hour a better experience for you. One podcast I really like is called We Study Billionaires, hosted by Preston Pysh and Stig Brodersen of the TheInvestorsPodcast.com. It's the biggest investor podcast on the planet, enjoyed by thousands of listeners every week. Preston and Stig interview legendary billionaires like Jack Dorsey, founder and CEO of Twitter and payments company Square, and billionaire investor Howard Marks, whose book The Most Important Thing I've recommended dozens of times.

Sometimes Preston and Stig spend a whole episode reviewing lessons learned from billionaires they've studied, like Dell computer-founder Michael Dell, tech-industry maverick, Peter Thiel and macro-trader, Druckenmiller. Before starting the We Study Billionaires podcast, Preston went to West Point and Johns Hopkins, founded an investment company and his finance videos have been viewed by millions. Stig went to Harvard and worked for a leading European energy-trading firm. They're smart, experienced investors who know the wealth building secrets of billionaires better than anyone, and their listeners love it, and I'm one of those listeners. Head over to TheInvestorsPodcast.com and check out We Study Billionaires, with Preston Pysh and Stig Brodersen. TheInvestorsPodcast.com, check it out.

Time for the mailbag. This is where you and I get to have a frank conversation about investing. You write in to [email protected] with comments, questions, politely-worded criticisms and from now on, book suggestions and ideas and companies you think I should look at. All kinds of stuff, whatever's on your mind. [email protected] And I read every single one of them. The only thing I don't read nowadays is the Russian spam, but I read every single feedback e-mail you guys send in. So, this week we actually didn't have a whole lot of it, but we had some good ones. We had a couple of really good ones. Now, the first one is from April – didn't give a last name, so I'll just call her April in Seattle. Now, April, you wrote a nice, long e-mail and I really appreciate it, but obviously we can't read the whole thing. So I'm going to just read a couple parts of it.

So you said, "It's understandable for Covel" – that's previous podcast trend following expert Michael Covel – April says, "It's understandable for Covel and Jim Simons to keep their strategies close to the vest. Otherwise their techniques will be exploited by market participants and lose its edge. However, I am curious if their strategy significantly changes over certain periods of time? Mainly because the trader I am trading with has been using his trading techniques for several decades with great success. Not to say he has not adjusted or perfected his technique over his career." I'm going to answer that part first, April, and then I'll just read your nice comments at the end for everyone to hear.

So, yeah, how much does this stuff change? Well, I've only heard little bits of things here and there, so I can't really claim to know, but the basic idea – if you just think about it, say you found a – they're always looking for price patterns, right? So say they found this price pattern that looks really good and you buy at a certain time, sell at a certain time and you make money hand over fist and you can do it over and over again, and then all of a sudden it stops working. Well, if it stops working, you have to assume everybody else knows about it. And if everybody else knows about it, then if it stops working, then I would think that the tweaks you could make would be fairly obvious to everyone as well, so you know, you live and die by your ability to say, "This doesn't work anymore," stop doing it, and move on.

Now you say you're working with a trader who's been using trading techniques for several decades with great success. Hey, whatever works. Whatever works for you. I'm not the trend following trading expert here at all – nothing like it. That's why we have folks like Michael Covel on the show. But I will say that I am – I've spoken with some quantitative people and interacted with some of them on Twitter – by the way, Twitter is a wonderful resource. You can really build up a really great Twitter feed and learn a lot and interact with some smart people that you might not interact with otherwise. And I've just interacted with some people and spoken with some quant traders and stuff and some of them, actually most of them, seem to be saying, you know, the techniques and things that worked like gangbusters, the classic trend following techniques that worked gangbusters in the '80s and '90s, they don't work so great anymore. And you know, when I say that to some people, they go, "Oh, that's ridiculous. I'm a classical chartist and I still use the same techniques that I've been using for decades," like this person you're talking about.

And that's poppycock. The trouble is, nobody ever shows you their results, right? So you don't really know who's telling the truth here. You know, and everybody always over exaggerates, right? But I would suspect that – that's my suspicion, that when something stops working, part of your success – your success is based on your discipline of abandoning it and moving on and looking for something else. And so if you're using the same thing for decades – anyway, I'm suspicious of anyone who says they use the same thing for decades. I'm not calling anybody a liar, April, okay? Not at all. But I just think intellectually it's my job to be suspicious of that. I'll put it that way. And April also says, "Finally, I just wanted to say I really, really appreciate all of your hard work that you put into your podcast. Your podcasts are seriously the highlight of my week. I hope that does not sound too sad. Ha, ha. Let's just say the world of finance can be a lonely world. It's very freeing and educational to have a conversation about money and what we do. Please tell Porter that we love you and that you have very, very loyal fans. If your podcast were a paid subscription, I would pay for your podcast. "Well, April, just for you, from now on it's $1,000 a week. Just kidding. Then she says, "That is how much I like your podcast. Please have a Happy Thanksgiving with your family. Warm regards, April." Thank you so much. I really appreciate the kudos and I really just have one more of these, because we didn't get many this week.

And this one is from Lyle, whose name I mispronounced as Lisle, because that's how it's spelled. Lisle P. Lisle P says, "Thanks for another informative interview, this time with Eric Wade. One question has always concerned me about Bitcoin that maybe you could respond to. I understand why Bitcoin cannot be inflationary, but it also seems to me that it has to be deflationary – let me explain. Since there will only ever be a fixed maximum number of Bitcoin produced, what about all of the Bitcoins that are taken out of circulation because the owner has lost, forgotten, abandoned, died without telling anyone about them, etc.? Over a long enough time, the number of Bitcoins available for transacting business could theoretically decrease to zero. Isn't that a catastrophic weakness in the system? If this is a naïve question, don't feel you have to respond to it."

I don't think it's naïve. I think it is logical. But I want to tell you, I wouldn't be afraid of that. Because the truth of the matter is, I think it would take much longer for that to happen, or much longer for there to even be a hugely meaningful dent in the supply by people forgetting their keys and dying and all that stuff that you mentioned. So I think this is nothing you ever need to worry about during your lifetime or probably the lifetime of your children and maybe even your children's children, and so on and so on for generations to come. But you say, "If this is a naïve question," and it is a very simple kind of a question, but it's the kind of thing you have to ask, isn't it? Because Bitcoin may as well be like the currency on Mars. We don't even – we haven't been here before. We don't know what to expect. So the reason why I read this question is because yes, ask questions like this, ask absolutely everything you can think of, because we have no idea. You must ask everything. So I like the way you're thinking. I don't think it's naïve. I think it's, you know, one of a long list of questions that you must ask. You must always ask, "What the heck is this? What can I expect? Who made this? How does it work? What's going to happen?" Always, always, always, because you know, we're in weird territory. We've never done this before.

Okay, that is another episode of The Stansberry Investor Hour. Thank you so much for listening. It's my privilege to come to you this week and every week, and be sure to visit the website, www.InvestorHour.com. And write in to us at [email protected] If you go to InvestorHour.com, we have a transcript for absolutely every single episode we've ever done. Just click on the episode, scroll all the way down and the transcript is at the bottom. If it's not there yet, I promise it will be there soon. Okay? So a transcript for every episode, and you can listen to and read a transcript – we still have every single episode we've ever done available on the website. Pretty cool, huh? So do that, and enter your e-mail so that you can get updates about all of the future episodes. Very cool.

And of course, write in, write in, write in. I want to hear from you – [email protected] I can't even say it enough. I really, really enjoy hearing from you. I get – some of the questions are great, and the rationale behind them and the thought behind them, it really is great. So please write in. Another thing you want to do is go to iTunes. Go to iTunes, subscribe to the podcast and hit Like. If you hit Like, it pushes us up in the rankings and more people find out about the podcast, and then we get more wonderful feedback and the program improves and you'll like it better and you'll have more fun. And you'll be happy forever. Won't that be wonderful? So go to iTunes, subscribe to the podcast, hit Like, and I thank you in advance for doing that.

Okay, that's another episode. Thank you so much. Have a Happy Thanksgiving. Enjoy life, enjoy your family, I'll talk to you next time, thank you. Bye-bye.

Audio Outro:  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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