Episodes

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

[Music plays]

 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. Okay. We have a really cool show, really good fun interview today. We're gonna get into a lot of  topics. So we're gonna get to that real soon. And I also have a lot of good mailbag stuff for you today. Everybody liked it when I did a lot of mailbag last week. So I'm gonna do a lot again this week. So let's get to it here.

Real quick, before we get to the interview, I listened to last week's episode and I thought to myself, "Daniel Ferris, what did you just say?" Because here's the thing. I was skeptical at the beginning of the year; I thought we were going to have a rough year in the stock market and said so. And of course it turned out we were making new highs [laughs] and I admitted that last week, right? But I came away from the end of that episode thinking that I had just said, "Well, the market was bad in 2018 so I thought it was gonna be bad again in 2019. Then the market turned out good in 2019 so now I think it's gonna be good from here on out maybe and into 2020."

And I thought to myself, "Wait a minute. What kind of a contrarian are you? Does this make sense?" So I just wanted you to know: if you took it that way, that's not where I am. I really have not changed my tune a great deal going back to 2017. In the May 2017 issue of Extreme Value I was telling people, "Hey, this market's frothy. I'm getting concerned." Et cetera. "And stocks are expensive." And, yes, you could've said the same thing in 1996. And a lot of people did say the same in 1996. In fact, Alan Greenspan's original irrational exuberance comment is not from 1999 or 2000; it's from 1996. So, yeah, this can go on.

My point from last week is not that I'm bullish now. It's just that I'm recognizing: this stuff can go on for much longer than a cautious guy like me would ever expect. So if you hear me say, "Stocks are expensive. Hold cash. Hold gold. Be careful about what you buy," which is what I've consistently said. I also am just trying to put it out there that I know this can go on for longer than a fundamental investor like me would ever expect. It can get crazy. And, yes, I have to acknowledge that my colleague, Steve Sjuggerud, could be right on the money, and we could be looking at – he calls it a melt-up, where things go from too expensive to really crazy too expensive.

Okay? So I'm just trying to frame my intensions here. I'm trying to frame my commentary so that you don't take it the wrong way. Because I want to be consistent. But we're talking about a complex thing, an insanely complex thing, right? I'm talking about the direction of the overall stock market. I probably shouldn't even be talking about it because it's so insanely complex. But I can't not have a view on it considering what I do with my time, right?

So I hope that sort of, kind of fills in the cracks and shows you that, no, I didn't suddenly go from being bearish to being bullish because I was wrong all year [laughs]. I'm still cautious but I wanted to acknowledge: yes, I was saying the market could really have problems in 2019 the way it did at the end of last year, and so far, no problemo. And we'll see what the future holds. But I'm not gonna change my tune until I see something really different in the market. Okay?

All right. Having said that, let's get on with our interview. It's gonna be a really good one.

[Music plays]

All right, folks. Time for our interview. My guest today is Michael Covel. Michael is the author of five – count 'em: one, two, three, four, five – books. His specialty is quant investing. And titles include Trend Following and TurtleTrader. You get the picture. His podcast is 800-plus episodes. Wow. Approaching ten million listens. Far beyond merely investing topics. These days he spends most of his time in Asia but he keeps a keen eye on the nonstop political chaos of America. Ladies and gentlemen, please welcome Michael Covel. Michael, thank you for being here.

Michael Covel:           Hey. Thanks for having me on.

Dan Ferris:                 All right. So, I'm really glad that we're gonna talk to you today because your topics – your big topics, trend following and quant investing and TurtleTrader and all that stuff – that was the first thing that I ever learned about in finance. And I think it's really interesting that most of the people I talk to are kind of like me. I think there's an availability bias where we all – the first thing we know about a stock or a bond or a market or something is the price. So we set about trying to predict what the price is going to be by looking at charts. And of course, what you do is a lot more scientific, is truly scientific. But I think what novices like me do is not. So I guess my questions first for you, Michael, is: how did you start out in finance? Did you start by trying to do trend following and look at charts and predict prices?

Michael Covel:           No. I was completely outside the system, not with a brokerage firm, not with a bank. I was just a curious guy in the 1990s, and I heard about trend following, this style of non-predictive quant trading. In its simplest form, if the market's going up, you're long; if the market's going down, you're either out of the market or short. And that just intrigued me. Because I thought, "Well, gosh, hold on, Warren Buffett doesn't do that. I can't beat Warren Buffett. He's got too much of a head start on me. But this quant stuff where I don't have to think like Warren Buffett, where I can just literally follow the price, I can get on the rocket and go which way the rocket is going, and if I don't know why Apple is going straight up, if I don't know why Google's going straight up, if I don't know why Netflix and Tesla are going straight up, so what?"

If I'm on, at the end of the day, do any of us really care where we make money from? Right? We really don't care. I mean, does anyone really care about the companies? No. We care about our accounts.

Dan Ferris:                 That is certainly true enough. And I suppose that's sort of like one of my questions for quants in general and trend followers in particular: does it ever – it doesn't sound like it ever bothered you for one split second that all you knew about was the price action. Not knowing what the company necessarily even does or who the CEO is or what industry they're in – it sounds like that never bothered you for a second, from what you just said. Is that true?

Michael Covel:           Well, there was a time back in the day where I was attempting to work for Salomon Brothers, one of the big investment banks back a few years ago that people will recognize the name. And I went down the path like everyone else of hearing about the fundamentals and hearing about efficient markets and saying, "Gosh, I have to know everything about these damn balance sheets." But then once I saw there was this kind of under-the-radar group of traders, this group of people that were not in The Wall Street Journal headlines, not in the Financial Times headlines, and I said, "Wow, who are these people?" And then they were just making huge fortunes. And I was like, "Wow, this is motivating to someone who doesn't have" – again, to use the name: doesn't have a Buffett and Munger's pedigree." And I just thought, to me, that was fascinating.

So, look, like anybody, I originally thought, "Gosh, I'm gonna have to know all this balance sheet and P/E ratios and all this other kind of stuff." And then all of a sudden, a new opportunity opened up, a new way to look at the world, and that changed my life.

Dan Ferris:                 So, the first thing I assume you did was just trade your own account. These days you're the trend-following guy; you're the guru. But in the beginning, you're just trading your own account and working a day job?

Michael Covel:           Yeah. But I was lucky to start off right around when the dot-com webpage boom was happening. So, yes, it was trading my own account but then, in parallel, putting up a website, 1996, and having people start to flock to that website, because at the same time I was progressing on my own personal path. I was sharing with other people. And that was just a tremendous feedback loop. And that's gone on now since 1996. So it's been an amazing ride, kind of a mini version of Stansberry, shall I say? Something like that.

Dan Ferris:                 Yeah. And you've been around longer than Stansberry too, since 1996. It's pretty impressive. So, 1996 is not a bad moment to start being a trend follower.

Michael Covel:           Well, yeah. It was an interesting time. And, look, markets went – at least equity markets went up. And then of course in 2000 they came down and then they went back up starting in 2002. And then in 2008 they came back down and they went back up. I think the thing to think about for the audience with trend-following trading is: we are agnostic to the market. So it could be corn; it could be soybeans; it could be gold; it could be Apple. We really don't care. And that's a really critical thought process. Because once you look at markets in terms of price, you could put a chart on the wall and not have it labeled and you're kinda like, "Okay, I see how to trade that." You just don't need the other information. Including the name of the market.

And that's a real mind blower for a lot of people. "Hold on. You don't have to know –?" No. You don't. You're trading the price. And that's just a really great way to look at the world.

Dan Ferris:                 Why is it such a great way to look at the world? I mean, because what you're telling me is there are all these things that you don't need to know. So I understand the efficiency of it. But what more is there to it if anything? Why is it a great way to look at the world?

Michael Covel:           Let's go political for a second. How many people in the United States of America are completely overwhelmed listening to political back and forth for the last three, four years, maybe going back longer than that? We are inundated. We're inundated with information. Information overload. Information doesn't make us happy. Information doesn't improve our lives. We've all become, like, masters of Trivial Pursuit. We're masters of being the know-it-all, the first one to put a tweet out, the first one to say – oh, we're so smart; we figured that out. And there's a million other people looking at the same information. It's just so much information.

But, again, what's the real point here? What we all want is time, right? Beause until they figure out this life-extension stuff, we're all gonna die, right? So all we want is time. We really don't wanna be in front of a computer every day day-trading currencies. That's really not the goal of anyone. Any sane person does not want to be looking at currencies on a tick-by-tick basis. I mean, that's literally putting some kind of anxiety on top of you, that's a mental disease. It's crazy. So what we want is time. So when you look at the world in terms of price, think about how many things you eliminate. All the things we were talking about in the beginning: the fundamental perspective.

Now, look, I'm not trying to say that going down the fundamental perspective is bad. Clearly Warren Buffett has proven that it is a very viable way to go. But this world that I'm in is viable as well. And that's what I think can be really useful for investors. Because once you put the hat on and say, "Okay, we got Buffett over here; we have something like trend following over here. Huh. Maybe we can do a little bit of both. And maybe they make money at different points in time. And that's a good thing. Maybe they have different return streams. They're not so correlated." Which is true.

And when you have a trend-following strategy it's often like a hedge for equity downturns. The times in the last 25 years when stocks have cratered – August of '98 or 2000 to 2002 or 2008 – I mean, trend-following strategies, the type of stuff in my world, made a bloody fortune.

Dan Ferris:                 Yeah. They sure did. So I interact with and talk with some quantitative investors and some of them – at least one of them I know, who I think would probably prefer to remain anonymous, because he's a little bit famous – would say these trend-following strategies that work gangbusters in maybe even '70s, '80s, '90s, whenever – they don't work so great anymore. How do you feel about that? What do you tell people if you hear them say such a thing?

Michael Covel:           Well, there's one particular trader – and I'm just using this as an example, not to say this is everybody. But one particular trend-following trader that I know who's been at this for 25 years, a continuous track record - he made 30% in the month of August. That was one of his biggest months ever. Now, that's just me cherry-picking a little bit. But it's to really address the larger issue: is it still valid? I don't know. If somebody can pull 30%out – now, of course, he's gonna have ups and downs. This can be a volatile strategy.

I do think it's a fair point though. And one thing to consider for the audience, when you do a few Google searches and you find some trend-following criticism: you can also find plenty of trend-following not-criticism. I do think some of the criticism has come from very large funds. So if you are managing a certain amount of money and then all of a sudden you're managing $50 billion, well, $50 billion can't trade the corn market or the soybean market the same as a much smaller account. So some of this is largess, where the larger funds are kind of crowded out to trading those great markets that is the backbone of trend following. Having those commodity markets to trade, whether you're doing it through something like futures or ETFs, is terribly important. Because those types of markets trend regularly and they're not correlated to stocks and it's a great alternative investment stream.

So, look, any trading strategy, there's always going to be a critic; there's always going to be somebody that says, "Oh my god. That guy, Covel, he's crazy." Hey, everyone's got to do their homework. Everyone's got to  do their reading. Everyone's got to look at the data. Everyone's got to make their call.

Dan Ferris:                 Right. And, to your point about the 30% guy; look, if you're down 1% a month and then you have one 30% month, that's not a bad year, right? If you're down 1% all the other months even.

Michael Covel:           Yeah. I mean, you raise a fair point though. It's a fair point for discussion. But I think sometimes we're all caught up today in headline – headline porn I like to call it, you know? So you’ve got to dig a little deeper sometimes.

Dan Ferris:                 Well, are you saying if we dig deeper we'll find that the strategies that worked in the – you know, the core TurtleTrader trend-following strategies are still working? Is that what you're saying? If I do the digging, I'll find out that they're still working just fine?

Michael Covel:           Here's the thing: for them to stop working, markets would have to go flatline. Markets would just continue to go flat. And that's just not the case. I mean, look, we all know there's no shortage of trends. And so what are we really debating? We're saying, "Gosh, does trend following work or does buy and hold work?" So that's kind of what it feels like when this kind of question comes up. Because when buy and hold is at its zenith, when stocks are at all-time highs, that's when a lot of the time people will start to say, "Well, these other strategies aren't needed. Just stick with buy and hold." And that's kind of what people were saying in early 2000, kind of what people were saying mid-2008 too. And then you had huge meltdowns.

I think the real question people need to ask themselves: do they expect stocks to go straight up and a buy-and-hold strategy to be the best thing for the next 10 years, the next 20 years? Does anyone really believe that? Or is there the possibility, the probability, that things could go south from a buy-and-hold perspective?

Dan Ferris:                 Well, and south could – for buy-and-hold investors, basically indexers, or trend followers, a sideways market could be a problem, right? If we go sideways for five or 10 years.

Michael Covel:           Well, sure. Sideways markets are a problem for everybody. I think the trick though is always: can you manage your downside? Whatever their trading strategy is, can you put yourself in a position to make sure that when you've got a loss – when you need to take that loss, when your stop is hit, are you going to get out? And you’ve got to do that religiously. And if you can get out consistently when things are not going your way, you put yourself in a position to be on that rocket ship when it does take off. And that's kind of this mentality, or it's almost like being an experimentation philosophy, what trend following is. You're really just saying, "Let me dip my toe in the water. Oh man, it's too hot. Let me dip my toe in the water. Oh man, it's too hot. Let me dip my toe in the water. Oh, this is just perfect. Let me jump in." And that's the market taking off.

That mentality of cut your losses and let your winners run – that's trend following. I think it's absolutely open for debate: is the notion of cutting your losses and letting your winners run – is that archaic? Is that dead? And if it is, what's in its place? These are the kinds of questions that people really need to consider. Now, I don't think for a second that the notion of cutting your losses and letting your winners run is dead. But, as you point out, folks can say, "Well, maybe we've reached some new zenith, some new plateau in a government-managed stock market where governments around the world are owning hug swaths of equities in all kinds of exchanges. This is a new normal, Mike. Trend following can't work in this world." We just have to wait and see, huh?

Dan Ferris:                 Sure. So let's dig a little deeper here. What do we actually mean by trend? How do you define a trend? How do you know when, "Okay, this is it, it's on, this is a trend, I'm in"?

Michael Covel:           That's a great question. And I would answer it, to start with, with five points or questions that one needs to have figured out before they trade in the way that I'm talking about. You’ve got to know what you're going to trade. You’ve got to know how much you're going to bet. You have to know: when are you going to enter? When are you going to exit with a loss? And when are you going to exit with a gain? So if you just imagine a chart on the wall and whatever the market is, XYZ market – we'll call it Tesla. Tesla's at – pick a price, whatever. Let's just say $100, a round number. So Tesla's trading at $100. You're flat. You're not in the market.

Boom. All of a sudden Tesla jumps up. Say it goes to $110. Either through something as simple as a momentum indicator or a moving average, that momentum is the entry into the Tesla. You're taking a position. Now, you're going to taka position based on your capital. So you're not going to bet 100% of your capital. You're not going to bet 10%. You're going to bet some small reasonable number because we don't know what's going to happen next. We don't know if Tesla's going to keep rocketing straight up. So we take the small bet. Right? Now, if it goes against us, if we get in at $110 and all of a sudden it goes back to $90 and we lose 5% or 10%– and of course, this needs to be predefined; I'm just giving an example so people can understand the mentality – you get out. You get out and you take your loss. Then you're sitting there waiting again.

Now, of course you're looking to do this over a portfolio, right? It's an assortment of markets you're looking at, not just one. But I use this as an example. The market starts to go back up again. It crosses that $110 threshold again. Now you get on board and now it starts to really rocket up. It goes to $200. Now you're sitting there. You've just made – basically doubled your money. Now what do you do? You do nothing. You wait. Because you don't know why the market went up. You don't know what stage it's at or anything. You're just waiting for one of your exits to get hit.

Now, the first exit would be the exit where you exit with a small loss. That one didn't get hit this time. This time, in our hypothetical, the market's run up, doubled your money. Now you're looking for the market to retreat from that high. And you're looking for some kind of downside movement. It could be 10% off the high, something like that, just for sake of argument. Then you get out. So then what you're left with is: you never get in at the bottom of a move; you never get out at the top of a move. You're getting in late and you're getting out late, and what you're looking for is the middle meat of a trend. That's your trend.

So you really can't – people say – trend following's a little bit of a misnomer. Because, yes, you're following a trend, but you really don't know it's a trend till it's over. Because if you take a position and you get stopped out, well, that wasn't a trend. But if you take a position and it doubles your money, well, that was a trend when you get out. Hope that sheds some perspective on it.

Dan Ferris:                 Well, right. And to your last point, it's just a name. It's trend prospecting, trend finding, trend searching. I've seen various things that say, "Markets trend X% of the time," and it's usually some number like 10% or 15% or something like that. So most of the time you're in and out with a quick loss and you're moving on, right?

Michael Covel:           We're all looking for the same thing. It doesn't make a difference of the strategy, right? We are all looking for a big move. So the question becomes: how do we get ahold of that big move? We’ve got to take chances. We got to take risks. You can't just sit on the sidelines. So how do we get ahold of that big move while staying solvent? That's the game. I don't care what the strategy is, right? Now, the debate becomes: what's the best strategy or what's the best grouping of strategies to possibly achieve that goal? But that's what we're all looking for. We're looking for a big damn move and a way to stay solvent while we try to look for that move.

Dan Ferris:                 Right. But in practice – see, when I think of trend-following traders, I go back to all the stuff I read when I first got interested in finance, which was basically like the Market Wizards books. And those people, to me – they're not even looking for the big move, although they know they'll find it. They're just like craftsmen. They're endlessly pursuing this craft. And eventually – I mean, just randomness is going to  run you straight into a big move if you keep at it. But it seemed like practicing the craft and the discipline of always cutting your losses and always using like a 1% position and all this stuff – it seemed like that was more important than finding a big move. It was all about this monk-like discipline, practicing this craft. No?

Michael Covel:           Absolutely. And I really don't think there's any incongruity with what I'm saying. I think what we're both saying is kind of different sides of the coin that're all needed to achieve this. So what you're kind of talking about is the risk management, the discipline to stick with it. That's all part of the process. You're 100% right. You can't do what I'm talking about without doing what you're talking about. And when I rattled off those five points, I went straight to the example of: when do you enter and when do you exit? But the first two points were: what are you trading and how much do you bet? Because if you bet too much and you go broke then you're just sitting at home watching cable TV and you're done. So you’ve got to stay solvent. You cannot – you go broke, there's no more game to play.

Dan Ferris:                 So, I remember in some of the earlier literature I read people were trading – I think it was like a 21-day breakout. Is that still the state of things? I don't mean 21 days. But people are still defining breakouts and going after them with their 1% position sizes – is that still the basic model of how this is done?

Michael Covel:           I think that today most things have lengthened out. So people are looking for momentum indicators like breakouts and moving averages on a much longer time horizon, perhaps even 10 times longer than 20 days. It could be 200 days. So instead of trying to sit there and fight amongst everybody that is looking for a short-term in and out, it's to really lengthen the time horizon. And when you lengthen the time horizon, it also potentially makes for life a little bit nicer as well too, right? You're not just sitting there glued to a screen, stressed out about whether or not some couple-week momentum indicator happened. That's a difficult way. But I would definitely say that things have lengthened out.

You probably have – on the trend-following side, things have lengthened out, and then on the high-frequency side, they're trading at the speed of light. I mean, I was at a guy's office in Singapore not too long ago and we were laughing about how different our strategies were. And he is literally at the speed of light. Insane.

Dan Ferris:                 Right. Yeah. They are. But to me that's a whole different thing. As is what little we know of people like Renaissance, Jim Simons' firm, which beats Soros and Buffett and everybody. You know, there's a book about Jim Simons coming out by Jeffrey Zucker who I think writes for The Wall Street Journal. And I can't wait to get my hands on that. I doubt he's gonna tell us anything really good. But that's a pretty incredible story.

Michael Covel:           Yeah. I'm actually holding that book in my hands and I'm interviewing the author this week. You're right. I don't think there is anything that really lays out much, and that's not any fault of the author. That's just that Simons has just kept that stuff under lock and key. And I do know that there has been, at various points in time in his world, for sure, a trend-following perspective. Because he is a price guy. That's what he does. Now, it looks like the best that we can ascertain today: he's probably in every market that he could possibly be in around the world, and probably trading at an assortment of very tight windows, very short time frames. And that is – I mean, this guy – they said he's pulled $150 billion worth of profit out of the market, $23 billion for himself? That's just something that is so behind the scenes and so off the radar for all of us. I mean, he's made 66% a year for 30 years before fees. That's insane.

Dan Ferris:                 Yeah. And after fees it cuts it down to 39% because he's taking these enormous fees [laughs].

Michael Covel:           Right.

Dan Ferris:                 It's crazy.

Michael Covel:           And who's unhappy about the 39% ? Probably not the people involved, right?

Dan Ferris:                 Right. That's right [laughs].

Michael Covel:           It's an amazing story. And I do think though that, as we've talked about quant perspectives today, he's much closer in his mentality to the trend-following space than he is to the Buffett space. He is a guy that basically sat down in Long Island starting in the 80s and then into the 90s and he basically said, "I've got all this data. I know there's something in this data that is showing structure that I can make money from. It's not just the random walk. It's not just efficient markets. There's something here. There's a pattern or there's a trend that I can pull from."  Whatever time frame he's possibly working on.

But that's also an inspirational – even if that's all we know about Simons, that's inspirational: that he's not doing it like Buffett. That opens up the can of worms to where it's like – and someone buttressing my perspective, where it's like: "Hey, hold on. There is a whole different other world over here beyond the way that we were all taught balance sheets, P/E, and Cramer screaming on CNBC."

Dan Ferris:                 Right. And it's funny. You look at the examples of Simons and a handful of other people even, if you wanna include them, and then Buffett on the fundamental side, and it's like Charlie Munger says: either way, technical or fundamental, if you think it's easy, you're stupid. And it's both – these people devoted their lives. Like Simons didn't even get going until 1990. He started in 1978 but his strategies didn't really start working until 1990. So if you're willing to put in 12 years, maybe you'll make a ton of money in the market – put in 12 years before you even do anything.

Michael Covel:           He did have some crazy stories though where I think in the late '70s, early '80s, he did some business venture and made many millions there. Then one his first trades before the system was really mature, they made $6 million there. And so I think he had a little bit of a cushion to sit still while he was waiting to master his strategy.

Dan Ferris:                 There was an article that was excerpted from the book that we're talking about – I forget the title. What is the title of that thing?

Michael Covel:           The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution, Gregory Zuckerman.

Dan Ferris:                 In both of our businesses, yours and mine, the folks who read our stuff – they want to be told that it's easy. And that's why I offered the Munger quote, "If you think it's easy, you're stupid." Because no one can make this easy for anyone. It's simply impossible. That's another reason why I cited the impression that I got from the TurtleTrader when I learned about them way back in the day by reading the Market Wizards books: to me, the image of a monk sitting there with charts and having discipline and sort of walled off from society – I think that's a more realistic picture than somebody who's making $1 million a week in their spare time and living a life of ease. That's where I'm headed. That's the point that I was trying to sort of remember and get across. And it's not one that our listeners really, necessarily want to hear, is it? But it's one that they need to hear [laughs], I think.

Michael Covel:           But, you know, I tell you: I sometimes – and I get where you're coming from. And I hear the word easy. And if we think about anything in life that's worth a damn, that's worth achievement – I mean, we all know deep down: everything takes effort. And we can all have a debate about what the word easy is. But if you wanto to be good, it's going to take time. It's going to take some deliberate practice. You're going to be stuck doing it for a while. You're not going to be able to hang out at the beach. If you really want it.

Now, if you don't really want it, okay. There's a job at Starbucks and you'll eventually get Social Security and maybe that's easy to somebody else too. To me, that seems harder. Because that seems like a hard life. I'd rather spend the time making something that is hard understandable and easy in my own life than go the so-called easy path. Because if we go that easy path, the Starbucks barista and Social Security, man, that looks really brutal as we all age, right?

Dan Ferris:                 It does. Look, if there're any Starbucks baristas out there, please forgive us.

Michael Covel:           [Laughs]. No, I'm not trying to pick on Starbucks baristas. But I mean I don't really think any Starbucks barista wants to do that any more than I wanted to work in an electronics warehouse when I was 19. We do certain things in our life to take the next step to the next plateau, that's what we do. But we don't wanna plateau at my old warehouse job or Starbucks. That's not the point.

Dan Ferris:                 Right. In other words, find a challenge. Find a worthy challenge in life. And for some people, managing a restaurant or something – that's a great challenge. But I agree: it wouldn't be worth doing if it were easy, I guess, is the simple way of making this point.

Michael Covel:           It's fun, right? Isn't it?

Dan Ferris:                 Yeah.

Michael Covel:           It's fun to learn. It's fun to figure out the puzzle.

Dan Ferris:                 Yup.

Michael Covel:           We get a thrill from figuring out the puzzle.

Dan Ferris:                 We do. We get a big thrill from it. And we come back to it every single day. And what we're doing right now is a lot of fun. And we'll read the reader mail at the end of the show and that'll be fun. And then I'll get to do something else during the week, research stocks, and that'll be fun. It's true. You’ve got to do something that is a challenge, that's fun, that you want to do. And that's different for everybody. But still, the reason why I made that point is because the business that you and I are in, right? We sell our ideas to people and our research to people. And you don't sell anything in this world if you don't make it exciting. I mean, I do that: I try to make what I do as exciting as possible because that's how I view it [laughs]. It's that exciting to me. And every now and then people can take it the wrong way.

Michael Covel:           But that's an interesting point in the sense that what we're both in the business of doing though, too, is helping people to find, along the bell curve – we're helping people to find the outlier. Because we all know that there's no guarantee. You and I can't promise anybody you're going to make a consistent even 1% a month. Nobody can promise that, right? It's just an impossible promise. There's too much volatility in this world. We don't know what's going to happen. But we can give people insights on how to possibly get those outside tails, to get to those outlier tails. Because everyone knows if you can get there, you got a chance at something big, right? And that takes a different way of thinking. That takes a different style of thinking. So in that sense I'm sure we both share that, in the sense that we're helping people to understand at least where the tail even is.

Dan Ferris:                 Right. And to get there, to find those big bets, that 30% one month – or for me it would be like a multi-multi-bagger over several years – we then wind up having to teach people about risk control. We teach them about survival. Because survival is the only way that you're gonna find those big returns that will have made it all worth it.

Michael Covel:           There's a friend of mine out right now who has a new book out called The Rule. His name's Larry Hite. He was in the first Market Wizards book. He gave me the opportunity to write the forward for this book. And he named his book The Rule after David Ricardo's, again, "Cut your losses short. Let your winners run." And that is the risk management right there. The only risk management we really have is a stop loss, right? I mean, what is the definition of risk? Risk is a loss. I mean, what we can afford to lose – that's the risk.

Dan Ferris:                 Right. Permanent loss is risk. It's not volatility. It's not anything else. It's the risk of permanent impairment to capital. And I guess the trend followers have come up with a neat thing where they basically say – I forget who it was that first said everything is a 1% bet for him. He doesn't even care what it is. Everything is a 1% bet. Over time, cutting the losses on those little 1% bets, letting the others – and kind of pyramiding sometimes into the others when they're winners – that's everything. It's just that simple.

Michael Covel:           I think by the time this conversation's over you're going to be right there in the trend-following camp too.

Dan Ferris:                 Well, I feel like – no. I mean, maybe not. But it's kind of near and dear to my heart even though I don't do anything like it. Because it was the first thing that I sort of learned about, right? It stuck in my head. I keep referring back to it because I can't get rid of those stories and I can't get rid of – just even the stories from Livermore, Reminiscences of a Stock Operator, with Old Turkey. "It's a bull market." I just picture – every time the market hits new highs, I just picture that scene from Reminiscences of a Stock Operator where it's Old Turkey sitting in the corner saying, "Well, it's a bull market." Meaning: that's all you have to know. Meaning: what more do you need to know than “it's a bull market” and you're either buying or you're an idiot?

Michael Covel:           You say it perfectly. That's so true. That is the essence of it. And, look, we need to think about: what is even a bull market? What's a bear market? What is a market? A market is just people coming together to make bets. Some people think the bet's gonna go up; some think it's gonna go down. That's where you get a market, right? If all of a sudden you got a lot more people betting it's going to go up, guess where the market goes? Up. I mean, this is the great, great, great innovation of the market.

And I just have a hard time imagining – as long as we are still human beings with greed and fear locked in our soul, I have a hard time imagining that somehow or another trends will ever stop. And if trends don't stop, I have a hard time understanding how something like trend following will stop working. Beause there's no grand secret to trend following. It's not like some secret formula per se. As you have said in this conversation, it's more about having a set of robust rules, very clear, succinct, precise rules, just common sense in many ways, and sticking to them. That's it. It's the sticking too them – the reason that Daniel Kahneman got the Nobel Prize in economics as a psychologist for his prospect theory, which was all about loss aversion, which is right in the trend-following headspace again.

I mean, all these behavioral finance Nobel Prizes have been handed out. That's the reason trend following works. Those guys all figured it out.

Dan Ferris:                 Well, wait a minute. What are we saying here? Oh, I see what you're saying. You're saying because there are these human tendencies and cognitive biases and because we're not getting any less human anytime soon, we will behave in certain ways that will generate trends, and therefore you will be able to use this approach to make profits in markets. Something like that.

Michael Covel:           I think that's a reasonable assertion. I don't think that's a very controversial assertion.

Dan Ferris:                 It's certainly not. Because that's the same rationale that I will say value investing will always work over the long term. And trend followers have bad years just like value investors have bad years. And the reason it works over the long term is the same thing. People behave a certain way. They fall in love with some ideas and they fall extremely out of love and learn to hate certain other ones. Those other ones get cheap. Then eventually they get cheap enough people start buying them. Et cetera, et cetera. So, yeah, we're on the same page there, Michael, for sure. Human beings are going to keep being human beings. Certainly during our lifetime.

Michael Covel:           What's funny – because if we start this conversation, you kind of come up with some reasonable objections, and some reasonable press headlines of like, "Hey, is trend following still working? Is there something different about this decade?" But when you start to tear this subject apart over the course of an hour, we're kind of left with: "Well, hold on. People are people. Supply/demand. The market system." We all know that unexpected trends appear from nowhere. I'm sure some tech company that none of us have heard of will be the next darling that will kind of double, triple, quadruple in value out of nowhere. We all know that's going to happen, right?

And we all probably instinctively know that after a ten-year run, over a ten-year run, US stocks will eventually – something bad will happen. The question is: when? Right? And the answer is: we don't know. And no one knows. So then the other question becomes: what do you do if you don't know about tomorrow? If you don't have a way to figure out the uncertainty? Well, that gets back to, as you talk about, the monk with the plan. The monk with the plan who will take action based on market action. The market takes a certain action; we take a certain action. That's all we really got. Everything else is just a guessing game and parlor tricks and all of us sitting around the bar doing shots pretending we know what's going happen tomorrow. And none of us know what's going to happen tomorrow.

Dan Ferris:                 I'm sure that I have said almost those identical words very recently, within the past week or two. I must say those words every podcast. "I don't know the future. I don't know what's gonna happen. Can't predict the future." Et cetera. I've said it a million different ways. I don't know. It's funny. It's sort of like more than one way to skin a cat but we arrive at the same place. We come from completely different – almost, one could say, opposite perspectives. But we wind up in the same place: trying to control risk and not believing in our ability to predict the future, which we don't think anybody has. I don't think anybody has that. Except for Jim Simons [laughs]. Jim Simons can predict the future [laughs].

Michael Covel:           Well, you know what he can do? He can predict on a very small – he can get 51% of his trades right. So he's got like a very tiny expectation, and then he applies leverage to it. And he happens to be brilliant, and math formulas are named after him that us mere mortals will never understand [laughs].

Dan Ferris:                 Right. That's the thing about that. All they have to do is describe his math prowess and I'm like, "Okay. Well, I'll never do that. I'm just going to stick with what I'm doing." There's no chance I will ever do anything remotely like what he is doing. And what some other folks I know do. It's funny. It's exactly what Ben Graham said was not the case. Ben Graham said, "If there's complicated math involved, avoid it. It's not going to work." But certainly that has been proven false.

Michael Covel:           Well, that's interesting though. We don't necessarily know – I mean, we know that Simons got formulas named after him that are extremely complex. But generally, the best trading strategies are robust. They're simple to understand. He just is probably at a level of diversification and a level of speed that is something that us mere mortals can't get to.

But, you know, hey, there's a side tangent that I wanted to go on with this discussion of trend trading. Because a lot of times when people hear trend trading, they think technical analysis, chart reading. Everything that I've been talking about today is not that. So generally technical analysis, the books out there and stuff, are all about: "If this particular move happens then this will happen tomorrow." Or: "I looked at these candlestick charts and this particular pattern means this will happen tomorrow." I refer to that as prediction technical analysis. And what I'm talking about with trend following is more what I would call reaction technical analysis. Meaning, I'm reacting to market moves; I'm not attempting to predict a market move.

And so much of the traditional technical analysis books, which are not what the guys in the Market Wizards were doing, is really just hocus pocus. I mean, there are some quote "author legends" out there with technical analysis books, and I'm sure there are some people in your audience that have these books. And I can safely say that most all of these are literally hocus pocus. I mean, it just is not the way to go. Somehow or another – these books that've got 300 technical analysis patterns that you must know. That's just not how it works. That makes for interesting books and data mining and all that kind of stuff but that's not trend following.

Dan Ferris:                 Okay. Well, that makes sense to me, that prediction is not what it's about. Because as soon as somebody starts telling me that they have a pattern that they use that predicts certain moves, my eyes glaze over and I stop paying attention. So I'm glad that you took the time to make that point.

Michael Covel:           Same for me. I do too. I mean, it's just not the way the world works, right? Look, someone did a great blog post, and you can Google it based on what I'm about to say. But someone did a blog post. He went through all Jeff Bezos' shareholder letters. And I'm going to paraphrase a little bit but basically Bezos was talking about his strategy, his business strategy. And he said, "Look, you guys don't see all of our losses. Our losses meaning our experiments that we tried. You don't see all that stuff. You see the things that did well for the Amazon business. But you don't see all the things we tried that didn't work." That's huge. That's a huge aspect to this.

I've mentioned this as well in front of audiences too. The film business. There's a guy named Jason Blum right now. So many of the film producers, the more successful ones, say, "Hey, you know what? We're going to fund ten projects and nine of 'em – small budget projects. Nine of them are going to not work out. But one of them is going to become Paranormal Activity and make us hundreds of millions of dollars." So this experimentation mindset is really – you can see it across the world these days because – why? Whether it's Jeff Bezos or the Google guys, you can't predict anything. All you can do is keep trying. And when you keep trying you're going to have losses. Keep those losses to a minimum to keep you solvent, to keep you in the game. That's all we got until they take us away. At least until they get the life-extension stuff and they port our minds to a hard drive and then we can live in virtual reality forever.

Dan Ferris:                 That's right. Yeah. What you describe is a feature of other businesses too, right? There are prospect generators in the mining industry who basically spend a tiny amount of money on a bunch of different mineral prospects. Then they engage a partner and let the partner spend their money drilling holes in it. But the prospect generator is just basically in the business of getting as many of these tiny little bets as possible and making a deal and moving on. You get a little prospect, you make a deal, you move on. In hopes that one day one of them will be worth $200 million. And yet they're spending $10,000 or $100,000 or a few hundred thousand on each little bet over a period of several years. And what, after all – what do insurance companies do? Right? Well, they take a whole bunch of risks. It's an underwriting exercise.

Michael Covel:           Look at venture capital. If you kind of come at me and you say, "Hey, Mike, I don't know about this trend following. It might be dead." Hold on. No one's saying venture capital's dead, right? It's the same mentality. Now, here's an interesting example too. And I'm sure some of your audience has heard about this. There was almost a company that went public called WeWork, right? And WeWork was put together by a venture capital firm out of Japan called SoftBank. And from what I can gather, this was like five to 10% of their portfolio. Now, this thing did not go public. And it's a real dog. And the venture capital firm is going to take a hit on it. But it wasn't the entire net worth of the venture capital firm. They bet what they thought was a reasonable stake based on the money they had but they didn't bet it all. So they had their risk management there. And, again, no one's saying venture capital's over.

Dan Ferris:                 Sure. But I think when people raise these challenges to traditional trend-following approaches, they're talking about how much return you can expect to get in a given year, how often you get a decent return, that kind of stuff. And they're probably – maybe they're asking too much. I don't know. But the simple fact that human beings are never going to be anything other than human beings – that's a pretty good explanation.

Michael Covel:           Yeah. I mean, people are irrational and they're bat-you-know-what-crazy. And that happens. And everybody's impatient and everybody wants to be rich yesterday.

Dan Ferris:                 Right. Now, over time it makes sense – people are going to find things out. So, like we were saying earlier, no more 21-day breakouts. Maybe it's 210 or 300 or something like that. And maybe there are four other parameters that you need now that you didn't need in 1990. That I would believe. But there's something about the basic discipline of limiting position sizes and cutting losses quickly that – it's so geared towards survival; I would think that you could almost do a random strategy and not do too badly because you're going to bump into those big hits, those big returns, at some point.

Michael Covel:           I still remember the first time one of the market wizards – and I mentioned him earlier, Larry Hite – he was in his office in New York City and he brought out all these backtests to show me, and it was just exactly what you said: using a disciplined risk-management strategy of only taking so much loss. The entire strategy was a random entry. They were basically flipping coins. And it made money.

Dan Ferris:                 Right. Now, like we said, you better have monk-like discipline about cutting losses. And you better be in a couple of dozen markets at least at a time. But doable.

Michael Covel:           But you’ve got to have monk-like discipline to be Warren Buffett as well, right? You’ve got to have monk-like discipline to be a musician, to be an artist, to be a writer, to be a podcast host.

Dan Ferris:                 Well, I don't know about the whole podcast host thing [laughs]. I don't know if I have monk-like discipline about this. But I enjoy it so I spend some time at it. But speaking of time, we're sort of getting to the end here. We've been talking for a while. And it's been fun and it's gone by really quick. But if I could – first of all, what's your latest book? If I wanted to really be up to the minute on what you're about these days, Michael, which book would I read?

Michael Covel:           Well, this is going to sound crazy but there are four books in process. But the most recent one is my fifth edition of Trend Following. And that's just out in the last couple years. And that is my bible, so to speak. It is a big, heavy, thick book that is daunting and scary. And if you don't read it, you can use it as a weapon to kill your neighbor or something. Not that I want anybody to kill their neighbor. But it's a beast of a book. Even if you don't read it, it looks wonderful on the shelf.

Dan Ferris:                 All right. Yeah. So, Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets by Michael W. Covel. All right. Yeah. So that will get me up to the minute on where you are these days.

Michael Covel:           Yeah. I was going to say: if people want to find me, they can find me at TrendFollowing.com, and I will respond to every e-mail. If you write me an e-mail, I will respond. And my e-mail address is simple. It's my first name @ my last name dot-com, and you will find me.

Dan Ferris:                 All right. Find him. Ask him questions. Listen, if I could ask you, just before we go, if there's one thought that you could leave our listeners with, just one sort of brief nugget of wisdom from all your years at this, is there one? What would you tell them if I asked you to just give them one thought?

Michael Covel:           Don't trust anyone. Trust but verify. That is what Reagan said of Gorbachev. And I actually had a chance to meet Gorbachev once. He was asking me about trend-following traders, believe it or not. But I would say that: trust but verify. Trust everything that we've said on this podcast but go verify it. And if you can't verify it then, you know, maybe we're full of it. But I think you can verify everything that we've said on this podcast.

Dan Ferris:                 That is pretty good stuff. Too many people just hear things on the news, they hear things at cocktail parties, and they act on them rather than verifying and doing their own work. Thank you for that. That's excellent. Well, thanks, Michael. I certainly hope we'll be talking to you again soon. All right?

Michael Covel:           Yeah. Absolutely. It's fun. Absolutely. Good stuff. I appreciate it.

Dan Ferris:                 Yeah. You bet.

Michael Covel:           Take care.

[Music plays]

Dan Ferris:                 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 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 Stanley 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.

[Music plays]

Okay. It's time for the mailbag. I love the mailbag. I just have to admit that to you. I just love the mailbag. And our feedback is important to the show. It's very important to us. But just on a personal note, I love it. I love reading what you guys send in to me. And I also love that you responded to my plea for polite criticisms, right? I don't mind being criticized but it's become such a wonderful, civil, intellectual give and take in the mailbag since I asked you to do that. And I just wanted you to know: I'm very grateful for it. It's one of the best things I do all week.

So you can e-mail us with a question, comment, or politely-worded criticism, thank you, at [email protected]. I read every single one. I kind of skip over the Russian spam. I don't read the Russian spam anymore. But I read every single one of your e-mails and I try to respond to as many as possible. And, like last week, I picked a good chunk of them out this week because there were so many good ones.

So, starting here with an e-mail from Tabish R. And he is in England, and he says, "Dear Ferris, I am a new listener and have recently started to do a little bit of DIY investing. I am really enjoying the show and learning a lot. I live in England and I am 30. I work as an engineer and put away month after month for regular monthly investments. I have put 100% of my money in equity funds, 60% in Vanguard U.S. Equity Index Funds, 20% in JPM Asia Fund, and 20% in local Indian equity funds. I don't understand financial market very well and all my research suggests index funds are good for beginners. My aim is long-term growth, 10 to 15 years. I have a few questions below.

"Am I on the right track? Am I taking on too much risk with 100% equities? If recession hits in 3 or 4 years do I have to change the asset allocation if my growth term is 10 to 20 years? Thanks, Tabish R."

Tabish, this is an excellent question. I have to really be careful though because we cannot give individual advice. So all I'm going to tell you is that anybody who is very – you're an engineer. You're a smart person. You say you don't understand financial markets very well but you want to be invested. So you're investing in index funds. And all I'll say is: it makes sense to me for someone who does not pick individual stocks to use index funds and not expect their returns to arrive in less than ten years. So if you stay invested 10-plus years – 10, 15 years like you're talking about, or even you mentioned 20 years at one point – index funds make sense. Excellent question. I'm glad you asked.

Next is a question from James S. "Hey there, I just wanted to share a solution I have found to the low rates on cash held in brokerage accounts, especially now that trades are free in many of them. With your uninvested sweep funds, buy shares of the SHY ETF." That's the ticker symbol, SHY. "It's an ETF fund of US short-term Treasuries with an average maturity of about two years so there is little credit or interest rate risk. It currently yields about 2% annually, payable in monthly dividends. Cheers, James S."

Thank you, James. I'm glad you brought this up. I meant to talk about this last week. So, yes, I've actually recommended SHY. It was in a Stansberry Daily Digest some weeks ago. Because I thought being on the short end of the curve, of the yield curve, made a lot more sense than the long end if they're going to keep lowering rates. So, basically the basic idea here is sound. But there's one point that I failed to make last week about this. If you buy some type of a money market fund or this ETF or something, that's a trade. And that cash is no longer liquid cash available for settling trades or writing checks or anything like that. And my point was: the brokerage firm is sweeping the cash, getting a nice yield, and giving you a fourth or a fifth of it, which sounded really sucky to me. I think they should give you most of it.

And the sweep is available for settling trades and writing checks and things. But if you buy this ETF, just know that the money is no longer available for that. Okay? So that's the real point to make there.

Next one is from Peter G. I always love it when Peter G. writes in. He makes a lot of good points. He says, "Dan, the CNBC anchors you mentioned in your podcast remind me of the Stansberry network. There are so many subscriptions now that someone in the Stansberry cast of characters is always saying, 'I told you so.' I'm not directing this at you or anyone in particular but the Stansberry world of subscriptions has gotten so vast that no matter the economic occasion, they're covered. It's a little disconcerting that what was advertised as the end of America was merely marketing for the beginning of a subscription empire. Peter G."

Peter G., I'm going to respectfully disagree here. Because I understand the point but, look, the bigger the publishing company, the more diverse viewpoints. So I don't know if that's some failing of ours or if that's just what you get with a large number of diverse viewpoints. You could pick a bunch of different people – the same number of people from different publishers and make the same point. You see what I'm saying? So I'm not sure if – I don't think that makes us like the CNBC anchors. I called them fashion models reading teleprompters commenting on the last tick of the market. And then, yes, I did make the point that they always seem to be right. They always seem to say, "Hey, the market's going up and we knew it all along;" "Hey, the market's going down and we knew it all along for that too."

Otherwise I don't think that we're the same as them because we arrive at our viewpoints by doing fundamental research. And it's my contention that – and I'll even name names. Like Joe Kernen is a particular one I'm not crazy about. I don't think he's doing any real research. I think he's just talking. I think he's just rambling. I mean, I know I ramble sometimes. But I don't ramble like that idiot. I mean, come on. So, respectfully disagree. But thank you for the question.

Mike B. is next. Mike B. says, "Hello, Dan. Long-time listener but first time writing to you. I agree with your request for polite e-mails. I don't understand why people feel the need these days to be so rude. But thank you, social media. I also agree with you that anyone that thinks that climate change science – not that anything where the results cannot be reproduced by independent third parties can be called science – is just high school science" – he's saying he agrees that anyone who says climate change science is just high school science is a freaking moron. But then he says, "However, if you do not want rude e-mails then you should probably not call your listeners freaking morons" [laughs]. "That just opens up the potential for them to write back and call you the same or worse. Just a thought. Take care. Mike B."

Mike, you're spot on here, buddy [laughs]. I totally agree with you. Point taken. Moving on.

Tony J. says, "Hi, Dan. Now that brokerages are offering zero commissions and making money on the cash held in your account, would buy a money market ETF make sense for the cash held in your brokerage account?" And then he talks about the one that is called SPDR Barclays 1-3 Month T-Bill ETF, and the ticker symbol is BIL. So, same thing, Tony: if you're buying that, your cash is not available for settling trades and writing checks anymore. That's my only point with that. But you and the previous guy – you're right. Those things will get you a nice yield. So I don't disagree with you. But I just want to make that point about the liquidity issue. The money is no longer available.

Okay. So Tom S. says, "I've been listening to the podcast off and on from week to week, depending on how interesting the topics and guests are. But I like today's format as the best one of all." This was last week. "I'd like to see a guestless podcast each month." So, Tom, before I get to the rest of your question, done and done. You got it. I was thinking of doing it anyway.

"A couple of comments on broker profits," Tom continues. "One, there is a way to get a better return on uninvested cash." And then he basically says: buy a money market mutual fund. And I've commented on that twice now so you get what I think about that. But his other point was – he said, "There is another gravy train for retail brokers, and that's margin loans." And he said his broker, TD Ameritrade, charges 9% to 10% interest for small-to-moderate margin loan balances.

"And of course they can get cheap funds to lend out from the uninvested cash of other customers. The loans have no paperwork costs and almost no risk to the broker since they're secured by the investments. And if the customer's equity dips below a certain level, a margin call is issued to force the customer to deposit more funds or face a forced liquidation. Some brokers that are geared more to the trader rather than long-term investor may offer lower margin rates. Tom S."

Yes. So there's three things, Tom. There are spreads, there are the yield on your cash, your idle cash, and margin loans. Those are the three ways, now that people aren't charging commissions. It seems like I keep forgetting one every week. Maybe there's a fourth one. Somebody needs to write in.

All right. Paul M. is next and he says, "Hello, love most of your shows." Paul, I have to tell you: I love that. "Love most of your shows." Not all of them, but most of them [laughs]. He continues, "Just a question about Tesla concerning all the financial problems they appear to have. Have you ever thought Tesla, with all their advances in technology, would possibly be a buyout target of some huge company? Paul M."

Yes, Paul M., I have wondered about that from time to time. But not in the hundreds of dollars per share. I think if they get bought out, it's probably like a save-the-day kind of an acquisition and happens well below $100 per share. Just a guess. But I think paying tens of billions of dollars for anything they have right now would be too much. I mean, there're a lot of real car companies working on electric cars and building electric cars and selling electric cars and not going broke [laughs] making electric cars. So I think it would have to get a lot cheaper to be attractive in that regard. But it's a good question. It's a good question. It's a good thing for short sellers to ask that at any given time.

Okay. I've got one more of these and then we're done. This one is from Anthony S. "Mr. Ferris, it has been great listening to you on the podcast over the last year. Keep up the great work. I look forward to each new episode each week. It was nice to briefly chat with you at the Alliance meeting." You too, Anthony. "I'm building a book list based off many of your recommendations. As a stay-at-home dad, I don't usually have time to read a whole lot of books. I focus on the Stansberry newsletter family and daily e-mails." As well you should, Anthony. You're a smart fellow. He continues, "Constantly learning. Based on your political rants, I thought you would be interested in a short two-to-three-day course I took while I was in the Navy working at a nuclear training platform teaching young sailors to operate a nuclear reactor."

First of all, wow. And second of all, he continues, "The course was called 'Think Reliability.' It was a course teaching cause mapping, essentially finding the route cause of problems. I think all elected officials should be required to take the class and present a cause map when submitting any legislation. That would greatly decrease the continuous adding of regulations that goes on within our government like the push for stopping share buybacks. I would argue that three of the main reasons for continued share buybacks are: one, C-suite executive compensation structure; two, constant political uncertainty; and, three, the Fed keeping interest rates low for an excessively long period of time. Solving the root causes of problems will help solve the problems. Sincerely, Anthony S."

I can't argue with any of that and I totally agree. When people submit legislation, it should have a little more than just headline sort of thinking behind it. It often has no real thinking except political thinking, which is not thinking at all. So, yeah. They should be required to do something like that and present a real cause and discuss the unintended consequences that all of their facile, top-down solutions tend to cause, which they never acknowledge. Right? They never acknowledge it.

So that's it. That's it for the mailbag and that concludes another episode of Stansberry Investor Hour. Be sure to check out our website, InvestorHour.com, where you can listen to all of our episodes, and you can listen to every episode we've ever done. You can get a transcript from every episode we've ever done. And you can enter your e-mail address and make sure you get all the latest updates on all the future episodes. That's www.InvestorHour.com.

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Okay? That's it for this week. It's my privilege to come to you this week and every week. Thank you so much. And I will talk to you next week. Bye-bye.

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