Episodes

Announcer:                 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, that’s a value-investing service published by Stansberry Research. We have a really cool show lined up for today, so let’s just dive on in. I’m going to start out with the rant.

Now the rant this week: I’ve got a couple of things on my mind. Sometimes I’m just not a quick study and I can’t mush it all together into one long narrative, but I want to tell you the couple of things that are on my mind because I’m pretty sure they’re related. The first thing is a short piece by a guy named Michael Harris who I follow on Twitter. Mike is a quantitative investor. He’s a pretty smart guy, @mikeharrisNY on Twitter, and he put out a little piece recently on his website where he was talking about this idea of the stock market is like a currency market.

He said it’s "forex-ized." The foreign exchange markets are called forex markets. He says it’s "forex-ized," like "currency-ized" markets, and what he’s talking about is just this sort of whipsaw action that you see where the market seems to respond really severely to one bit of often kind of political news or another, right? The most recent thing we saw – the market just rally on Monday when President Trump announced he was going to kind of delay some of the Chinese tariffs that have been worrying traders and investors lately, and boom, makes the announcement and boom, the market shoots straight up after a huge down day preceding it on Friday.

The next day, it opened up down 1.5%. It’s just a really crazy action that seems to respond to all kinds of these sort of macro-political announcements. Of course, the biggest one of these is the Federal Reserve. All they have to do is say – the market falls, or actually, we can go back farther. I was going to go to December of 2018, but you can go back to 2008, right?

Everybody is talking about the world coming to an end, then the Fed steps in with – basically takes interest rates to zero from, what was it, 2008 to about 2015? And essentially prints money to buy bonds. That’s what quantitative easing essentially was about. Suppresses interest rates. The stock market has tripled, and then here we are. And then they start raising rates, and then they get really serious about raising rates, and the stock market loses almost 20%, 19% in three months last fall, boom.

And then Jay Powell the chairman of the Federal Reserve, then he just kind of caves in and says, “Uncle, uncle, uncle. I’m not going to do this anymore. We’re not raising rates anymore.” And then he kind of telegraphed a rate cut, and off of that Christmas Eve bottom (the market was down like 19% as of Christmas Eve last year), the market rallies 28% pretty quickly off of that bottom when the Fed says, “OK, OK, uncle. We’re going to stop hiking and start cutting.”

Trump announces tariffs, the market drops 6% in a few days. He delays the tariffs, the market rises 2% in one day. It’s a little crazy, and so I understand where Michael Harris is talking about the market has become like a currency market that responds to political announcements. That’s the first thing on my mind.

The second thing on my mind is something I’ve discussed before, and it’s this idea of the speculative episodes, just from reading about most of the speculative episodes of the last, say, 100 years or so, starting in 1929. But even really before that in the 19th century and before, there seems to be this trend of losing the old conservative ways. In each speculative episode, there seems to be one vehicle, one investment, one security sometimes, where going into the boom it was a conservative thing.

Coming out of the boom it was turned into toxic waste and ruined lots of people’s lives by just losing them a lot of money. I think the prime example of this – no pun intended – is the U.S. 30-year fixed-rate mortgage, mostly the prime mortgages. But really, the U.S. 30-year mortgage is like one of the glories of modern finance. Investors get three decades of steady income at a fixed rate secured by real property in one of the richest countries in the world where there’s adequate rule of law, there’s property rights, and I’ll tell you something, property rights are lesson common than you might imagine.

You can read a book called The Mystery of Capital by a guy named Hernando de Soto if you want to learn more about that. So property rights, rule of law, good income, and many U.S. mortgages – the better ones – carry this implicit government guarantee by conforming to the Federal Housing Finance Agency loan limits, and they meet the funding criteria for Freddie Mac and Fannie Mae, and so those are like the really high-quality mortgages.

Maybe best of all, 30-year mortgage provides a yield higher than similar-dated Treasury bonds, right? So with the 30-year bond just over 2% today, which seems crazy, 30 years... 2%... it ought to be like six or seven or eight or 10 or something. The Spider-Bloomberg-Barclay’s mortgage-backed bond ETF has a current yield around 3.35%, and they invest in those higherquality Fannie and Freddie conforming loans that I mentioned.

So these mortgage-backed securities, they’ve been around a while. I think they really got cooking in the '80s and they were mostly a boring thing that rich people bought to get a little more yield safely. They were about preserving your capital and doing something a little more remunerative than buying Treasurys. Until Wall Street saw an opportunity to turn them into toxic waste. How’d they do that?

I’ll tell you how they did it: By changing virtually every feature of the 30-year fixed rate prime mortgage that we just named, and then slicing them and dicing them and adding leverage and convincing the world that these new securities that they made up out of all this crap were still AAA-rated. Still had the veneer of a conservative investment, but it was really toxic waste inside, right? Instead of fixed rates, we got adjustable rates, which would rise and fall with the benchmark interest rate. Instead of prime loans, – well, all of a sudden, to high-quality borrowers that gave way to subprime loans to low-quality borrowers, some of whom had no income, no job, no assets – so-called ninja loans, right?

They say the devil’s best trick is convincing you he doesn’t exist. The bankers did a similar trick, right? They lent money to people who couldn’t pay it back and charged this variable rate of interest, and they got the ratings agencies to kind of bless it all with their highest rating, and then they convinced investors that it was all really safe because it was all predicated on this idea that housing prices would never fall again.

There was plenty of demand because the Fed had pushed interest rates down during the tech bubble meltdown of 2000 to 2002. Investors were starved for yields. So it kind of set up this perfect storm for this stuff, and the U.S. financial machine issued more than $17.7 trillion – with a “t” – mortgage-related securities from 2002 to 2008. Wall Street sliced them and diced them, put them into these weird instruments called CDOs and CDOs-squared. Don’t bother asking what’s in them.

To understand a typical CDO, an investor would’ve had to read 15,000 pages of documentation, but that’s nothing because they had the CDO-squared – CDO times CDO. You would’ve had to read 750,000 pages. I said that – I did say that, and it’s not a mistake – 750,000 pages. Warren Buffett told – I think it was Market Watch or CNBC or somebody – back in a 2010 interview, “It can’t be done.” In other words, nobody knows what they own here if they’re buying this stuff.

You know what happened, right? Housing prices did fall and these leveraged mortgage funds at Bear Stearns blew up and that kind of started the whole thing going, and it all collapsed like a house of wet cards. Lehman Brothers failed – 150-year-old institution. Washington Mutual failed – 119-year-old institution. 89-year-old AIG failed and got bailed out, etc. More than 300 bank failures over the next couple years, the great recession, etc.

And I think mostly because Wall Street turned the 30-year mortgage into toxic waste. You have to appreciate – and I’ve made this point before, too – they couldn’t have done this with mining stocks or futures or biotech or tech IPOs. They couldn’t have done this with anything else. It had to be something that was a large enough market that was seen by everyone as being highly desirable because it was conservative and safe and worth owning because there was a little more yield to it, right?

So you've got to pick just the right thing to turn into toxic waste if you really want to do some serious financial damage. The same thing happened back in the 1920s with investment trusts. The investment trust was a conservative vehicle. I mean, it was invented in Scotland for god’s sake. The Scots, the ultimate conservative financial people, and – I don’t know if it was invented there, but it kind of got going there in the 1870s, a guy named Robert Fleming and some other investors formed the first Scottish trust in 1873, and these were very good investors and they brought a sense of professionalism.

Fleming built up a good track record. He got into railroad bonds and he made like 64 trips to the U.S. from Scotland back-and-forth. And the roundtrip took like a month, right? He spent 64 months of his life on boats to do research in the U.S. for his investors and did really well. But then the '20s was a highly speculative era and there were very few trusts in the United States before the '20s. By the beginning of 1927 there were 160.

Another 140 trusts came into being that year, 186 in 1928. I think it was like 250-some, roughly one per business day, in 1929. For the first part of that year it was one new trust per day, and they were all these levered instruments. They weren’t the old conservative thing. They used leverage and they bought other leveraged trusts. It was insane and it blew up horribly.

Like the Goldman Sachs trust, which was one of the bigger ones – I think the peak share price was $222.00 a share, and I think it was $1.25 at the bottom or something like that. Just got obliterated because of the leverage. Everybody sold. They were all "levered-up." That was basically the 1929 crash, people buying on leverage in all different forms. But you see the commonality, right? There was this conservative thing and Wall Street got a hold of it, turning it into toxic waste.

I think something worse is happening today with negative interest rates. These people are meddling with the primal forces of nature. They have corrupted the time value of money because all the negative yielding bonds in the world, most of them, not all of them but most of them, are sovereign debt of Western countries like Switzerland and Sweden and – well, Japan is not a Western country, but it’s a developed country – and Germany.

This is the stuff that, again, this is the stuff you buy if you’ve got a lot of money and you just want to get a little bit of yield and you just want to put it someplace safe, but now they’ve turned it into toxic waste by meddling with the primal forces of nature and forcing the yields to go negative. So now you’re guaranteed to lose money with this stuff if you hold it to maturity. So how this all comes out, I don’t know, but I know that the time value of money has been corrupted here, and that can’t end well.

People use benchmark interest rates to value everything that produces cash flow: businesses, buildings, bonds – you name it – stocks, everything. Anything that produces cash flow – to value it properly, you must choose some rate of interest, usually based on some prevailing rate of interest. Well, the prevailing rate – $15 trillion worth of debt in the world – is negative and then the 10-year Treasurys and so forth are being pushed down farther and farther.

The yields are being pushed down farther and farther because, well, at this point people are kind of scared and they’re buying bonds. Of course, they’ve got the Federal Reserve behind them wanting to push rates lower. It just all smells terrible to me. Like I said, I don’t know how it ends, but I don’t think it ends well. It makes investors’ job really, really difficult. I’m going to leave it there.

They’ve meddled with the primal forces of nature. The stock market has become like a currency that responds to political announcements: up, down, 1.5, 2%, 3% in a day, and you’ve got this horrible corruption of what used to be just about one of the safest places in the bond market.

I don’t know where it ends. I don’t know how it all ends. I don’t think it ends well, though. So that’s the rant for this week. Write in. Help me out here. Connect the dots for me. Write in to [email protected]. Let’s check out some news right now.

What’s new in the world? Well, what’s new in the world is all this negative-yield Fed stuff. The headlines are full of this, right? So right now, the big sort of question mark – and I don’t know, by the time we put this thing out, put this podcast live on the Internet, I don’t know where things will be – but it looks like the two- and 10-yield curve is going to invert. Meaning that under normal circumstances, the 10-year yield would be higher than the two-year yield because it’s riskier to lend somebody money for 10 years than it is to lend for two years, because of that, you have to pay more. You have to pay more to borrow for 10 years than for two.

But right now as I speak to you – I hate to do this and give away the secret sauce, but we’re recording this thing on Tuesday and right now we’re getting really close. As I speak to you, I’m just going to get a quick quote here. The two-year is at, just call it "1.57% yield," and the 10 is at, just call it "1.59%." So within roughly 200 – or I guess that’s 20 basis points, no, two. Holy moly, that is ridiculous.

These things are almost the exact same instrument at this point. You realize what that means? This is why people say this is a harbinger of recession, by the way, because why would you ever lend money for 10 years if you get paid the exact same amount as you do lending it for two years, right? It does you no good to take that extra eight years of risk.

We’re a couple of basis points away from this happening as I speak to you, as we record this. That’s one of the reasons why the stock market has been weak lately because people who think they know something are worried about this stuff. They’re worried that this means we’re headed for a recession, recessions are bad for stocks, etc. I don’t know what else to tell you about that. Just sit and wait and see what happens.

Personally, I think at this point you can’t own enough of the short end of the yield curve. Well, I should preface that: If the Fed are really beginning a rate cut cycle and it wasn’t just one and done, and I think that is likely that it was not one and done, if this is a rate-cut cycle that has begun, you probably can’t own enough of the short end of the yield curve, right? Because the Fed funds rate – the one the Fed messes with when they’re fooling with the primal forces of nature – is an overnight rate.

So you would think that the short end of the curve would come down. Since the short end and the long end are exactly the same right now, you’d think the short end would get pulled down, meaning the price would get pulled up more sharply over the next, I don’t know, year, two years, 18 months, whatever. Not two years – probably a year to 18 months, something like that.

So I’ve been telling people to hold cash, and I know one of my friends, Jeff Ross who runs Vailshire Capital – he was a guest on the show a while back – his biggest position that he’s ever had in his fund is the short end of the curve. I think he’s got like 24% in it, because it’s basically cash, and we’re probably looking at a rate-cut cycle and if that’s the case then I think the short end is going to come down harder, meaning yields go down, prices go up, right? They travel in opposite directions.

So what’s the other primal force of nature I was talking about was, well, negative interest rates. So I’m going to read you a headline. “Danish bank launches world’s first negative interest rate mortgage. Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan.” As far as I can tell – this is on the Guardian – as far as I can tell, this is not a parody. This is not The Onion. This is real.

Denmark’s third largest bank has begun offering borrowers a 10-mortgage at -0.5%, and it says it’s going to do – no, another Danish bank called Nordea says it’s going to offer 20-year fixed rate deals at zero percent, and a 30-year mortgage at 0.5% (so positive 0.5). You won’t have to pay to borrow at 20 years, and you’ll get paid to borrow at 10 years, and at 30 years you’ll have to pay just a little something for the bank to take 30-year risk.

This is weird. How does this end up? How do banks make money? I don’t know. You tell me. I sure as heck wouldn’t want to own shares in a European bank right now unless you believe this is the bottom. This is unsustainable. It’s got to turn around, but I don’t know what kind of a bet that would be and the world is just a frickin’ weird place right now.

There’s an article in the Financial Times that says only 3% of the global bond market now yields more than 5%, the lowest on record. 3% of every bond on earth yields more than 5%. So if you’re looking for yield, you aren't going to find it in the bond market, and that’s part of the point. That’s part of why I say they’re messing with the primal forces of nature because you can’t get yield anywhere, and it pushes people into more speculative investments.

It’s insane, and then they’ve got this chart in this Financial Times article basically showing you that Switzerland, Denmark, Sweden, Japan – huge parts of their yield curve is all under water, all negative-yielding. How does it end? I don’t know.

All right, I can’t take much more of the news, I’m sorry. I just can’t do it. I do want to mention one last thing, which is kind of weird and sort of off the topic of messing with the primal forces. So WeWork is this company that basically rents out office space, and they’re going public. They’ve accelerated their IPO filing. So the CEO is this guy Adam Newman, I think his name is, and the board of directors – let me just read you the filing... the thing from the filing.

There’s a little note on personal loans here in one of the public filings by WeWork, and it says, “Adam currently has a line of credit up to $500 million of which approximately $380 million principle amount was outstanding at July 31, 2019.” The guy has borrowed $380 million, OK? You got that?

“The line of credit is secured by the pledge of approximately” – and they don’t have the number, but “x number of shares of Class B common stock beneficially owned by Adam. The extended credit to Adam totaled $97.5 million across a variety of lending products including mortgages secured by personal property.” So this guy is borrowing, I don’t know, almost $500 million based on his ownership of WeWork stock, and then they’ve also leant him some of that based on the personal property that he used the money to buy.

That sounds insane to me. He’s frontrunning the IPO here, right? The company is not public yet and he’s frontrunning the IPO by borrowing against his holdings. Good timing, guys. Good timing, WeWork. The market is falling apart, and you guys want to go public because this guy has borrowed $500 million. That struck me as insane and worth noting.

All right, we’ve got a great interview. Let’s get to that right now. Time for our interview. Been really looking forward to this. Today’s guest is Tobias Carlisle. Tobias Carlisle is the founder and managing director of Acquirer’s Funds, LLC. He serves as portfolio manager of the firm’s deep value strategy. Tobias is the creator of the Acquirer’s Multiple. He’s also the author of the books The Acquirer’s Multiple, Concentrated Investing, Deep Value, and Quantitative Value.

Tobias has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Welcome to the program, Tobias. So nice of you to come and spend time with us.

Tobias Carlisle:          Hey, Dan. Thanks for such a kind introduction.

Dan Ferris:                 You bet. Now, Tobias, I usually start out – with folks in your profession who handle other people’s money – by asking them at what point in your life, how young were you, what was the earliest inkling you had that this was your career path?

Tobias Carlisle:          I came to it really late. I was 30-something before it happened. I was a lawyer for a decade before I started working in finance, and I graduated from law school in the early 2000s, and my first day of work was the very top of the dot com boom. I started in April, and I thought that I was going in to do VC-type stuff, and IPOs, and listings, and that kind of stuff... and all of that just disappeared. The first stuff that we started working on was mergers and acquisitions because that still goes on when the market gets beaten up.

Then there was this emergence of these – they were kind of the corporate raiders from the '80s who came back. We didn’t really know what they were called. They’ve subsequently been called "activist investors," but they were all older guys, much older guys who had been around for a long time. I was a very young guy, then. I just couldn’t understand what they were doing. I’d read some Buffett. I’d read some Security Analysis, not really understanding it, and they’d go after these businesses that were losing money.

They were the dot-coms that had raised a lot of money – had no real business plan, were just burning cash – and these guys were trying to get control and I could not understand what they wanted because I had this idea that you only wanted to buy businesses that made a lot of money. I went back and read Security Analysis, realized what they were doing was trying to get access to the cash.

You don’t have to keep on running a terrible business. You can stop that terrible business. You can liquidate that company, or you can use the cash to go and buy other companies – which is what these guys were doing on a very small scale.

And then there was that reemergence of private equity. It had been leveraged buyouts in the '80s and it came back as rebranded as private equity, and so that was what I did, a lot of activist defense because we had bigger clients so we tended to be on the other side, and a lot of leveraged buyouts take private-type transactions where you have a company listed on the stock exchange, you take it private, you lever it up. That was how I got my start.

As I was going through that, I watched what these guys were doing, and it’s an enormous amount of effort to take a company private. There’s a lot of contracting. It’s very illiquid once you get it there. You can’t shift it, but you get very good returns. I could see what these guys were doing and I could see equivalent companies on the stock exchange. You don’t have to pay a takeover premium to get control of them. You can open up your brokerage account and you can buy them. And if you make a mistake, you can tip it out the next day.

So I sort of had this very deep value approach without really knowing what it was, just having read Graham, having read the old Graham security analysis right at the very back – chapter 28 or whatever it is – where he talks about the role of the relationship between managers and shareholders, and the liquidation value. So I started doing that and I got some good results, and that was what interested me.

Dan Ferris:                 You are speaking my language, Tobias, you really are. I mean, all this value stuff... Ben Graham... I love it. I really want to talk about The Acquirer’s Multiple which I mean, to me, The Acquirer’s Multiple is like a movement. It’s a website and a book and an idea and an actual multiple that you spend substantial time in your book spelling out what it means and what it is and why it’s good.

Let’s start with the core idea here. In your book The Acquirer’s Multiple, you point out that this one metric, enterprise value over operating earnings, turns out to be a wonderfully lucrative way to screen stocks, essentially. Would you say that’s an accurate representation?

Tobias Carlisle:          Right. The way that it came about, as I mentioned earlier, I was working as a lawyer doing these mergers and acquisitions, also investing on my own behalf and doing a lot of the liquidation value investing which is the old net current asset value that Graham writes about. I didn’t appreciate, because this was the very early-2000... 2002... there were a lot of these companies around.

I didn’t appreciate that that was an unusual occurrence in the market. The modern markets are much more expensive. Most companies... it’s very rare for a company to trade as cheaply as that. The only time that it happens, they’re kind of like cicadas. They only come out like every seven years or so.

Dan Ferris:                 Tobias, hold on a second. We've got to tell people what we’re talking about here. What is the Ben Graham "net-net" idea that you’re talking about?

Tobias Carlisle:          Sure. So a "net-net" is if you take the most liquid part of the balance sheet which is the cash fee, receivables, and the inventory, and you deduct all of the other liabilities of the company, so you basically – not many companies actually have any residue left over after you do that step, but there are some that have that, and then you try to buy it – a market capitalization that is two-thirds or less of that number. So they’re very, very cheap companies. There are very few of them around, and they always have terrible businesses when you buy those companies.

They’re unusual. They just don’t come around that often. And I thought in 2002 as I was buying them, next time this happens I’m going to go and buy a whole lot of these. So I invested, but not a great deal, until the 2007, 2008, 2009, and I’d been working as an attorney in mergers and acquisitions. I went in-house. I worked in the States for a little while in San Francisco as a tech doing tech acquisitions, bolt-ons for a bigger company, and then went back to Australia to work as a general counselor for this telecommunications company that was laying op-fiber and a sub-C cable.

Basically, that got bought. The market crashed. All of a sudden, these things were around again. So I started buying them and I wrote a little blog called "Greenbacked" where I just described tracking these things down. I wanted to have an activist in place. And then the market recovered, and I realized as the market recovered that it wasn’t a great strategy that you could only employ it once every seven – it’s been much longer than seven years now. It’s been 10 years. What can you do in the interim that still has that same deep-value Grahamite approach where you’re looking for balance sheet value but then also looking for some very undervalued business attached to it, so you can employ that through the entire cycle.

So the answer to that, I went back and I looked at what the private equity guys do, I looked at what the activists were hunting for, and what they were hunting for was that undervalued balance sheet or lazy balance sheet attached to a business that’s throwing off some free cash flow or the accounting equivalent of that which is the operating income. I did some research and I found that that’s a very good strategy, and I hooked up with Wes Gray who was a PhD student at Booth, the old Chicago School of Business, which is a great quant school.

So we went and tested every single bit of academic or industry research on fundamental investment to find out what worked, what had stopped working. There were these from the _____, these little ratios and metrics that still worked, and we put that together into a book called Quantitative Value. What fell out of that was that this Acquirer’s Multiple was actually the best-performed individual metric over the full data set that you can – the Compustat CRSP data set that runs back to about ’63, and that was the genesis of that multiple. That’s when I started using it.

But one of the unusual things that I noticed as we were doing the testing was that once you get into the very undervalued stocks, there’s this really unusual behavior that occurs. You step through the looking glass a little bit when you get into the deeply undervalued stocks because they do these very counterintuitive things, and sometimes what you want is a worse business. This is a well-owned bit of research from Henry Oppenheimer about net-nets, and he says, “If you’re looking at two different net-nets, one is profitable and one is unprofitable. The unprofitable one will perform better than the profitable one.”

If we look in the profitable ones, the dividend-paying profitable one does worse than the one that doesn’t pay a dividend. So it’s all these things that don’t really make a great deal of sense, but that philosophy extends through the whole of these deep value stocks. I became very interested in what drives the returns to these things, and I wrote Deep Value in 2014 to kind of describe what it is. It’s this very powerful force, mean reversion, and it’s also the influence of activists and private equity firms.

Dan Ferris:                 So mean reversion, I’m glad you mentioned that. Because of course as we sit here after 10 years of bull run that’s tripled the stock market, and as we sit here with corporate profit margins still much thicker than average, I feel like we are awaiting a massive mean reversion that is stubbornly not happening. People start to doubt themselves. You start to hear people say things like, “Well, maybe these tech companies, these virtual monopolies or near monopolies, this is a whole different world we live in and things have changed.”

Essentially, Tobias, it’s different this time. You even have somebody like Jeremy Grantham saying, “Oh, well, maybe it is different this time.” I mean, I think I know where you stand. You don’t think it’s different this time, do you?

Tobias Carlisle:          I hate it to sound as arrogant as I’m about to say this, because I think it is really the central question if you’re a value investor or if you’re an investor, is it in fact different this time? The thing is, that is the question we always ask at the top of every single bull market, and the case for why it is different this time is always very compelling, which is why it’s asked and it’s entertained by very serious people.

I’m a data-driven investor. Even though I’ve only been in the markets really for – I think it’s 17 years, something like that – I look regularly, I run back-tests, I look at very long-term data and I’ve looked at these periods where value has underperformed and the market has been very frothy as it is now. They always look the same. There’s always very high margins, unusually high margins, unsustainable margins.

You would know Grantham has got a great line about that, even though maybe he’s trying to walk it back now, but he says that if margins stay too high then something has gone very wrong with capitalism. Warren Buffet has a similar line where he says, “If margins are much above 6%, then it’s not sustainable.” I forget his exact words. I might be muddling the two quotes together.

What tends to happen is you set interest rates too low, you’re going to see very frothy high margins. Marginal businesses survive for much longer. They can borrow money at a rate that’s not real, even though if you pin the interest rates low enough that tends to be what happens, so you get silly businesses like WeWork coming to market that basically probably wouldn’t survive in a more normal-rate environment and may not survive in any case after listing.

My view is that these things cycle where at the very type of the cycle it looks like it’ll never mean revert, but it always looks that way right before it does. So I think that what will happen is margins will compress. We’ll go back to more normal multiples. I don’t think it really is going to matter what the Fed does. Maybe we’ll see negative rates. I don’t think it’s going to matter.

I think that the reason that value – lots of people know this, value hasn’t done very well over this last cycle, this 10 years. Value did well out of the bottom of the 2007 to 2009 bust. It did well until about mid-2010, but it struggled, and it’s a very long period of time, nine years, to sort of underperform the market. That’s unprecedented in the data. You can look at Fama and French data, Compustat data, lots of different data sources and see that this is the longest and deepest underperformance of value stocks relative to the market and relative to glamour stocks or growth stocks or the more expensive part of the market.

That has led a lot of people including value investors to feel that sort of deep value style or value investing itself is broken, and they would point out, they would say look back over the last 30 years. Didn’t do very well in the '90s because we had the dot-com bubble. It did OK through the first part of the 2000s, but then it’s struggled again since then. So over the last 30 years it’s really only outperformed for about five, and so therefore, that means it’s dead.

I think if you look underneath the hood and you can devolve the returns to it, you can see what has happened is a lot of that is just the strength in the market which is unusual. The market on many metrics is more expensive than it’s ever been before, but value has still done what it should do. Value has still had pretty good returns over the last decade. It’s 13%-plus, and as a result, value itself is a little bit rich to its long-run mean. It’s just that the expensive part of the market, and the market itself, are multiples of where they have been before.

So I think what happens, we’re going to go through a bust, it’s going to hurt value, and I think people will write off value then, but I think growth and the market are going to get crushed. So I think if you’re investing through a period like this it helps to be long short, or I would say be in value stocks because value stocks are going to be hurt less than the rest of the market.

Dan Ferris:                 you sound like me. I’ve said almost all the same exact stuff.

Tobias Carlisle:          It’s right.

Dan Ferris:                 Tobias, I want to walk you back though because earlier you talked about the Ben Graham net-nets and you can only do this every seven to 10 years. But there’s an example that worries me, that sits in the back of my mind and worries me, and it is Japan. As you know, in any given moment you can go to the Japanese market and find a couple of hundred net-nets. I have my view on this, but I want to know what you think the likelihood is that the U.S. sort of goes the way of Japan, whose stock market of course struggled for a long, long time.

Tobias Carlisle:          And it’s still struggling. 10 years ago I would’ve said the difference between the U.S. and Japan is that Japan interfered in its economy so much, they’ve got all of the cross shareholdings between all of the companies, and they prop up the banks and they set interest rates way too low, and that creates these zombie companies that just struggle along.

I said the difference between Japan and the U.S. is that the U.S. would never let that happen because the U.S. has got this bright-red, capital-streak-red, and tooth-and-claw – they love to let the rip-and-tear merchants go in and pull these companies apart. So it doesn’t happen. It doesn’t stagnate. Somebody is going in and making the whole thing start working again.

Now I’m not so sure and I’m a little bit worried that probably we do look like Japan. The only saving grace is there’s research out of Japan looking at the performance of value stocks in Japan. So value has been a great performer in Japan, funnily enough. It’s the only thing really that has worked, and the reason that it works is the way that a value strategy or a value fund or a value investor makes their money, is they buy these things at a big discount to the market, and in the mean reversion – causes those companies to go up a little bit faster than the market because they’re trying to get back to the average valuation.

People can see that they are a little bit cheaper, and then you sell out of those companies that are now a little bit more expensive and go and buy the cheaper ones, and that ratchet effect does sort of generate returns. It’s the only thing that works in a market that’s declining or flat or getting beaten up, and so it has worked really well in Japan. My sort of ideal scenario is we probably do go into something like that and then value is the only thing that works. I think that value has worked globally.

You can look at basically every stock market except for the U.S. I think value has worked pretty well. I don’t think it’s worked so well on an MSCI-global-basis, but it’s worked in individual countries. Most countries are trading at a big discount or are only just back to where they were in 2007. The U.S. is unusual in recovering so quickly and pushing beyond that peak in 2007. Most of the rest of the world has traded down below. Most of the rest of the world looks like Japan did. Japan topped out in the early 1990s, and the last time I looked, it was sort of 25% below still.

I don’t mind a little bit of stagnation because I think that’ll work for a value strategy. I think it’ll be very tough for anybody else. If you’re in an index fund, if you’re paying your three basis points, I think you’re going to get three basis points of value for at least the next decade and possibly two.

Dan Ferris:                 Yeah. I’m glad you started out by saying you’re a little worried that the U.S. is starting to look like Japan because that was sort of my thought. As you began describing the government interfered in the economy, they kept rates too low, there’s too many zombie companies, I thought you’re still talking about Japan, right? You’re not talking about the U.S.

Tobias Carlisle:          It’s a shame.

Dan Ferris:                 Here’s what I think, there’s a big cultural difference too, and you alluded to that, right? We have this cultural thing where when companies sit in that zombielike state for too long, we have the legal framework where somebody can just come in, take control usually, and rip the thing apart and put it back together or whatever they have to do. Whereas in Japan that’s kind of a less common thing.

Tobias Carlisle:          I hope that America recognizes what a powerful force for good that is, because any time that starts happening there will be a lot of media. There will be a lot of politicians who come out and say, “This is a terrible thing that this is occurring” but it is the thing that keeps America evergreen.

Dan Ferris:                 Yeah, one of them for sure in terms of businesses and things and capital, the constant recycling of capital. I totally agree. Let’s talk about one of the more interesting details in your book, The Acquirer’s Multiple, and when I read this, I have to tell you, it just blew me the heck away. You alluded to this earlier, but I wanted to get more into it because it just blew me away. You back-tested this Acquirer’s Multiple against, of all things, Joel Greenblatt’s Magic Formula. It beat the heck out of the Magic Formula, and I was like, "Whoa."

I mean, the chart that you put in your book is like, "whoa, it beats the heck out of this thing." It made me wonder, in your acquirer’s funds, these effects like Magic Formula or acquirer’s or even like the small cap effect or value effects, the way it tends to work is you wind up having to buy 500 or 1,000 securities and the return tends to be concentrated in a very small number of those, but it’s really hard to pick which ones they’re going to be. So it made me wonder how do you personally use the Acquirer's Multiple in your day-to-day research and security selection?

Tobias Carlisle:          That’s a great question. Let me just back up a little bit and talk about the Acquirer's Multiple and the Magic Formula. So the Acquirer's Multiple is one part of the Magic Formula. I should make that very clear that the reason that I compare it to the Magic Formula is the Magic Formula uses Joel Greenblatt calls it enterprise yield or, sorry, earnings yield, and that’s basically the inverse of the multiple. It’s just the operating income on enterprise value.

And then he combines that with return on invested capital, which is the more profitable a company is based on the invested capital in it. You would think that what that is trying to get at, and he’s explicit about this, it’s a Buffett-like strategy where he’s trying to buy good businesses at fair prices. The logic of it is very compelling. But when you test it, you find that – and that does beat the market. I’ve tested that in quantitative value, deep value, all of the books, when we’ve thrown everything out at the academic gold standard of back-testing.

We’ve _____ all of these things that you would do to really find out if it works, and it does work, it does beat the market. It’s a great strategy, but the Acquirer's Multiple, which is one part of it, just by eliminating that quality component, that high return on invested capital component, if you just focus on the cheapest stocks you do better again and you do better on a risk-adjusted basis. It doesn’t really make any sense until you realize that what these companies, often what it’s trying to buy are cyclical companies.

What the Magic Formula tends to do is it buys these cyclical companies at the top of their cycle because that’s when they look most profitable, even though they’re cheap, and as they cycle down then they become less profitable. And so, what the Acquirer's Multiple does, it sort of randomizes that error. It’s just trying to buy things that are really, really cheap and that leads to better performance. But you’re right, if you’re constructing one of these portfolios what they tend to have is a very long tail of returns, so the returns, it’s hard to know which company in it is going to generate the performance.

When I first started back-testing all of this stuff about 10 years ago, I found that when I would run these screens the output of them was sort of nonsense. I’d look at these companies and I’d say no sensible investor would buy these companies other than in a portfolio that’s 500 or 1,000 securities, and I don’t want to do that, because I think of myself still as a sort of more traditional Grahamite value investor, and there’s no reason to run a portfolio of more than 30 securities.

So I’ve written a book called Concentrated Investing where we looked at portfolio management because I realized pretty early on that stock selection is about half the battle and managing the portfolio is the other half of the battle. That’s hard to understand if you haven’t run a portfolio, but there’s a lot of return in just getting the rebalancing and the size of the portfolio, getting those things right. Sizing positions is very important.

And so, what I do is we use that as the very first cut. We look at the Acquirer's Multiple and what comes out of that is a list of names, and then we go through the names and we do a full valuation. We want cash flow the matches the accounting earnings. That’s very, very important, because that gets you out of a lot of the more fraud type things, which are sort of more accounting shenanigans, financial engineering. And then I want to make sure that they’re buying back stock. If you’re buying back stock, that tells me several things.

One, the free cash flow is real. It’s actually money that’s being thrown off that they can do something with. It also tells me that management recognizes that the company is undervalued and they’re doing something about it. That’s very powerful. That’s a very good management team. So I want cheap on an Acquirer's Multiple basis, throwing off cash, buying back stock, or alternatively, paying down debt. That’s a good signal as well on the long side.

If you have those companies, the list of names that comes out of that, I could show that to a discretionary value investor and say you could go through and do a discounted cash flow valuation on all those companies, and we do that as well, and you will find that they’re all deeply undervalued, genuinely deeply undervalued. They’re good businesses, it’s just that at the moment they’re at a bad part of their cycle. They’ve had some scare. Something else has gone on which is why they’re too cheap.

There’s no question about the fact that they’re too cheap. Most of the time their response is how do they get back to fair value? Graham was asked that question in a commission in the '30s after the great crash, and he said it’s one of the mysteries of the business, and I agree, it is one of the mysteries of the business. Why does mean reversion work? I don’t really know. It’s the actions of investors, fundamental investors, private equity firms, activists, deep value guys like me fighting these things that are too undervalued and buying them and each incremental purchase pushes it back to fair value.

And the underlying businesses also have mean reversion in them. When they’re doing badly, management is typically not just sitting on their hands. If they’re buying back stock, they’re doing other things as well, and the businesses that aren’t as well capitalized tend to move out.

So you see that, quite frequently, that when an industry is struggling – when a business is struggling – the rest of the industry is struggling. Some of them will leave and that business will get a little bit better. Over a period of time, that business will start earning supernormal returns, and that’s when all of these guys come back into the industry, and that’s when typically we’re selling at that stage.

Dan Ferris:                 OK, Tobias. I have to address a particular topic here. Obviously, you’ve demonstrated that this Acquirer's Multiple is really powerful. You’re a deep value guy. I love everything I’m hearing, but you and I both know that, to really do these strategies, value strategies, really almost any decent long-term strategy but value in particular, you've got to have an iron discipline. You've got to be able to hold through some bad times.

How do you handle that? How do you handle the down-times? Value has underperformed. You’re still around. You’ve been around for 20 years or so. You have to be able to deal with this. How do you deal with it? How do you deal with those down periods?

Tobias Carlisle:          It’s not easy, but the thing that makes it easier is to look back at the full data set and see these periods of underperformance. If you had asked me five years ago – probably more than five – I’ve probably been saying this for more than five years, but it had already been such a long period of underperformance by that stage I said this is probably getting to the point where this is a little bit silly and it’s going to turn around. I didn’t foresee that this would be the longest and worst underperformance of value, and I have to say, there aren’t very many guys now who believe that it can turn around.

I have these conversations on a regular basis. Even value guys have sort of tended to become a little bit more growthy because that has been something that has worked over the last five years. That is ahistorical. That is not usually the case. Usually the more growth you have in your portfolio – when I say more growth, I mean the higher the prices that you pay. If you’re seeking the better businesses, the compounded-type business, typically the returns haven’t been as good in those businesses over the full data set as they have been for the deep value stuff, but we’re in a period now where it has been better, which happens on a regular basis.

I think there are about seven or eight instances running back to about 1951 where we’ve seen these periods of three or four years of underperformance, and then typically what happens is value goes on to have a very strong run and everybody remembers that they were value investors and comes back into it.

I believe in the very long-run data. I believe that it’s still representative of what will occur in the future. I don’t think we’ve suspended the laws of supply and demand, the business cycle. I think that all still exists, and I think that the moment that you start questioning that, it’s time to double down on your value strategy. So I would much rather now be a deep value guy than any other strategy because I think value is about to have a monster run.

Dan Ferris:                 That is bold, I have to tell you. So we’re just about out of time here. I always like to ask guys like you who have really got their money with their mouth is, if you could leave our reader with just – I’m sorry, I always say our reader. They are our readers, but they’re also our listeners. If you could leave our listener with just one thought, what would that be today?

Tobias Carlisle:          That’s a great question. I don’t want to double up on what I have just said. This is what I would say. I would say basically just to reiterate what I just said, the laws of supply and demand and the business cycle have not been suspended. It feels that way because we’re right at the very top of the cycle, but when we go back down the other side, and we may already be right now going back down the other side, everybody is going to get religion again.

When they realize that those laws have not been suspended, they’re going to rush back into these kind of stocks. You can test this stuff yourself. Go and look at the very long returns to value. Look at the periods where it hasn’t worked, which is the late 1990s and currently, and then early periods. Pick a famous boom, the electronics boom, the dot com boom, the more recent dot-com 2.0.

Those are times when value doesn’t work because the market becomes enamored of these growthy glamourous companies, and you’ll see that after every one of those booms there follows a period of terrible losses for those types of businesses and very good returns for value. It’s not me saying that, that’s just what the data says. It’s a compelling argument.

Dan Ferris:                 Well done. That’s a great message. All right, Tobias, thanks a lot. Really glad you could join us and I really hope you’ll – maybe you can come back and next time, the mean reversion will have begun.

Tobias Carlisle:          Thanks so much for having me, Dan. It’s great talking to a fellow traveler. I really appreciate the questions.

Dan Ferris:                 All right. Thanks a lot. Bye-bye. Always good to talk to a fellow value traveler. Look, I don’t hide that I’m a value guy through and through. If all this makes sense to you and you say, “Yeah, I’m a value investor too, man. Give me more. Give me more.” Well, I got a lot more to give you. If you go to extremevalueoffer.com, you can find out how to get my newsletter Extreme Value. I’m pretty sure we live up to the title.

We’re good value investors, myself and Mike Barrett. I call him my chief research officer. We’ve found some pretty good stuff lately, and I’ve got three gold-oriented picks which are excellent businesses trading at pretty dirt-cheap. Two of them right now are pretty darn dirt-cheap and they’re generating lots of cash flow.

As a matter of fact, one of them is almost like those companies that Tobias was talking about during the interview. We’ve got lots of other good stuff in there too, which I think will tend to do a lot better even in a downturn as Tobias described, and I agreed with him, than all the "growthy" sort of tech stocks that people are in love with these days. So yeah, that’s extremevalueoffer.com and I’d love to have you aboard.

Time for the mailbag. You know the mailbag, man. It’s really important to me. It’s where you and I get to have a conversation and, I don’t know, it’s kind of the most fun we can have together on the Internet you and I and still talk about investing. Just e-mail with questions, comments, and politely worded criticisms to [email protected]. I read every single one of them. I even read the Russian spam, and I respond to as many as possible.

This week I have to thank you all. I was overwhelmed. There was tons of feedback, and I was going to do a whole big long extra feedback segment because I had like eight e-mails that I wanted to read, but I thought, "OK, we can’t let this get too out of control." We’ll be doing an hour of feedback. But I’ve got a few. I’ve got three or four of them here. What I did was, if you don’t hear your entire e-mail, it’s because I just pulled the question out for everyone to hear so that we could do as many of these as possible, all right?

So we’re going to start with number one here by Matthew S., and Matthew S., says, “Could you please talk a little bit about what we may expect when managing our trailing stops during a really bad week? I was not an investing entity during 2008 and I got to thinking that even if my stops hit and I place a sell order, I may not be able to sell.”

Now, I’m not going to read the whole e-mail, but I’m going to stop you right there. The idea that you have here, Matthew, is that – well, I’ll just go on and I’ll read your question down here.

It says, “I’ve heard that during a crisis there can be periods of very poor liquidity, so even if I have trailing stops, what do you figure the chances are of selling everything near 25% dip? And if you miss selling on your trialing stop due to poor liquidity and are now looking at a 40 to 50% loss in a position, is it worth considering cancelling your sell order and riding it out, assuming the fundamentals on that position are good and you have the nerve to wait it out maybe even for years?”

OK, Matthew S., thank you. Matthew, you need to make a decision. You need to understand what trailing stops are about. You’re either going to use them or you’re not. The point of a trailing stop is this, for me. This is what I think it is: You sell when you’re down 20 or 25%, whatever trailing stop percentage you use, to avoid a catastrophic loss at a much, much lower level. And you might say, “Well, yeah, but if the trailing stop is hitting 25% and then all of a sudden the stock is down 40 before I can sell, what do I do?”

I can’t answer that question because it gets into offering individual advice, but I will tell you this: It sounds to me like you need to decide what kind of investor you are, and I would caution you against forgetting something that Nassim Taleb, the guy who wrote Black Swan and a few other really fantastic books, something he calls "uncle points." People talk about holding long-term and all these strategies and things, and they never talk about uncle points.

What is an uncle point? It’s the point at which the pain is so bad, you just can’t take it anymore. You can’t think, you can’t sleep, you can’t eat, and you've got to sell, and that’s usually when you get your 60, 70, 80% losses, your catastrophic loss. So selling at 25%, we use these levels because we’re trying to avoid much, much worse losses. If your stop is hitting and the thing opens down 10 or 15 or 20% more the next day, do you have an uncle point?

If you have no uncle point and you’re convinced that you can hold this thing through anything, that leads to one decision, doesn’t it? If you recognize that you are indeed a human being and you have an uncle point, it’s probably going to lead to a catastrophic loss that leads you to another decision, I would presume. These are your decisions. I can’t make them for you, but I want you to think about why you’re using trailing stops in the first place, OK? Good question, very good question. It’s on a lot of people’s minds. That’s why I read your e-mail. Thank you, Matthew S.

Next one is from Terry I., and Terry, I just pulled out your question. You had a longer e-mail than this. “First I thought it was interesting that you actually hold more silver bullion coins than gold, listening to the rant.” I did say that in a recent rant. “So that being the case, I was curious why that is and also, what is your thoughts on junk silver, older silver coins? And last, as a value investor, what are your thoughts on the companies listed in the America 2020 Portfolio – values, metrics, and long-term?”

I don’t know the companies in the America 2020 Portfolio. I’m sorry, I haven’t looked at them, so I can’t say anything about them. I just made an allocation decision. I said why do I have so much gold? And I thought that whether I was willing to acknowledge it or not that I was – some of this capital could’ve been used better elsewhere. In fact, what I did was I sold a few gold coins and I bought gold stocks with that. It was just an allocation decision based on my own percentage of holdings.

I wanted to have a little bit less bullion and a little bit more – I still wanted to have gold but I wanted exposure to businesses that would benefit from a higher gold price because I thought, "Well, look, if we’re near the bottom of the cycle, it looks stupid to sell gold coins but it looks stupider not to use that money to buy deeply undervalued gold stocks." That was my thinking.

That’s why I wound up with more silver than gold. Also, I like the torque behind silver. Silver can really take off. When gold goes up 10%, silver can just fly 20, 30, 40%.

All right, good questions. No. 3 is from Bruce C. Once again here I don’t think I got your whole e-mail. Maybe I did. “Dan, I enjoy listening every week. Although I’ve been an Alliance member for several years and an investor for many more, I still gain valuable insights from your show. The guest this week dissed CNBC.” This was Mark Cohodes. We got lots of fantastic feedback about him last week.

“Your guest dissed CNBC and his disdain is such that he never tunes in to CNBC. I find the news feed to be informative, and I’ve learned to see through the agenda that permeates the broadcast”, and I’m going to skip ahead here. “Having said that, is there a better source of market news available, and what do you use to stay as well-informed as you clearly are every week? Bloomberg, in my view, is worse than CNBC, especially now that they dropped the sidebar newsfeed. That was the best part of the broadcast. Thanks, Dan, Bruce C.”

Thank you, Bruce C. I actually do see that sidebar feed on Bloomberg, sometimes, on Bloomberg TV. It’s not there all the time, though. It’s only there sometimes. Thank you for saying I’m well-informed, but I just get it from all-over. I think I’ve curated a pretty decent Twitter feed, and I look at that, and I look at Financial Times, Wall Street Journal, Bloomberg. I get things from all over, but I think your point is that it doesn’t matter where you get it from, and I agree with you here. You’re suggesting it doesn’t matter that you watch CNBC, it matters how you watch it, and I totally agree with you, Bruce, totally

1. Got two more of these. This one is from Courtney H. This is a long e-mail, so I’m going to cut into where you say, “I have been preparing to dip my toes in the global financial markets through lots of education, through things like this podcast, the DailyWealth e-mails, and different perspectives of smart money individuals, Ray Dalio, the geniuses at Berkshire, etc. and other random people on YouTube. I tried technical analysis and options but lost all my money so decided to go back to the drawing board.

"More recently I have decided to have a crack at the CFA certification. I’ve already started studying and my plan is to do the first exam in December. My question to you is this: Do you think that it is worth doing this exam? Is it overkill or would it not be sufficient? I’m not sure how familiar you are with the certification or if you know anyone who is certified, who you can point to as someone who used it as a way to equip themselves for the work.

"I ask you because you are not from a financial background like me. I am a programmer/software developer. Do you know if there are any transferable skills I may have that could be used in my investing? I hope what I’m asking makes sense. I know that you read all the e-mails and thanks for reading this. Hope you answer. Keep up the good work and take care, regards, Courtney H.”

Thank you, Courtney. OK, I don’t have a CFA, so I can’t speak to the experience of having one or going through the process of studying for one, but I asked this question, I asked a couple of my friends who have them, and without a doubt they all said yeah it was worth doing, but they have careers in finance. I assume you’re talking about switching from programming and software developing to finance, and I think especially like for a mid-career shift like that getting a CFA certification or something like it, some people get masters degrees or whatever, it makes a lot of sense and people will look at it. I’ve been told by people who have the CFA that it helped them get a job when they were brand new to finance, and that’s all I can really tell you, so good luck.

Last one from Andrew. I didn’t get his last initial. Sorry, Andrew, but you’ll recognize your question. “Dan, good day. You’re great and I love your show. The shows are so good I want to send you feedback each week, but the days have gone so quick this summer, I missed the chance to send you a note. I have a good problem and question to ask your thoughts on. I’ve learned a tremendous amount from being a Stansberry subscriber.

"I have a few memberships and recently joined Credit Opportunities” – that’s Stansberry Credit Opportunities – “as another weapon against the interesting market dynamics we face today. Why is this a good problem? Well, I’ve received far more good stock ideas than cash to put to work. Nearly all my positions are gains. Those that are down have not yet hit trailing stops to cash out. How do you think about when companies have reached the time to sell?

"A recent podcast spoke of the merits of creating a decision journal to improve quality of choices. I’m afraid I do not know the catalysts, nor have the skills to value companies in order to map that systematic approach. Also, Richard Smith” – the guy from TradeStops who we had on as a guest several episodes ago – “would say to let winners run and cut the losers. Any words of wisdom would be great. Keep up the fantastic work, Andrew.”

Thank you, Andrew. So you’re asking me, you’re saying you have more good stock ideas than cash to put to work. I can’t give you specific advice, but I have to wonder what this means because you can buy one share. I don’t know how much money you have versus how much each share costs, right? If you have $500.00 it could be a problem, but if you have several thousand dollars you can take small positions if you think something is really worth owning but you don’t want to shrink another position. That’s just one thought, and you asked specifically how do you think about when companies have reached the time to sell?

It sounds to me like you’re using trailing stops because you mentioned that you have stocks that haven’t hit their stops yet. You’ve already got sell discipline in place and you’ve said here, “I am afraid I do not know the catalyst or have the skills to value companies to map that systematic approach” meaning you didn’t want to use a decision journal to try to improve the quality of your choices including the quality of selling because you didn’t feel that it would be worth your time to do it. It sounds like you’ve already said you know when to sell because you’re using trailing stops. If you have more good ideas than cash, that is a good problem, and you could use smaller position sizes to do that if you don’t want to shrink other positions.

Also, there’s no shame in rebalancing. I agree with Richard – we want to let winners run and we want to cut losers. There’s no shame in rebalancing, in giving up – say, if something is 10 or 20 or 30% of your portfolio, maybe you only want it to be 15 or 20% and you want to take the rest and put it into one of those new ideas. There are different ways to do this is what I’m saying. If you really do have more good ideas than cash, boy, you’re a better man than I because I’m not finding enough to do.

Thank you, Andrew. Great question. Lots of great questions. That’s it for the mailbag, and that includes another episode of Stansberry Investor Hour, darn it. It’s over. It’s over that quick. Be sure to check out our website where you can listen to every episode and see a transcript of every episode, and you can enter your e-mail to get updates for every episode when they come out. Isn’t that cool?

Just go to that same e-mail address, www.investorhour.com. I’m Dan Ferris. I’m your host and it is my privilege to come to you once again this week as it is every week, and I look forward to doing so again next week. That’s it for now. Thank you. Bye-bye.

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