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 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. Today we have a great interview with Eric Wade, our resident crypto doctor – but first, yours truly has a thought or two to share.

Now, one thought is from my colleague Scott Garliss of Stansberry News Wire. In a recent piece in Stansberry’s Daily Wealth newsletter. Scott says, “The stock market will keep making new highs for three primary reasons. They are higher corporate earnings, higher corporate revenues, and ongoing share repurchases by corporations.”

He says the higher corporate earnings, like 90-some-odd percent – I think 93 or 94 now – percent of companies in the S&P 500 have reported their quarterly earnings, and 75% of them beat earnings by an average of about 4%. 60% of them reported higher revenues. That’s really good too. And ongoing share repurchases… everybody says that these tend to support stock prices, and I don’t argue against any of that.

I’m bearish, right? I’ve been bearish for a couple years here, and I’ve been wrong, so I’m presenting other views here… a couple other ones anyway as you’ll see. And of course, aside from Scott Garliss, you probably know my Stansberry colleague Steve Sjuggerud has been predicting a massive melt-up in the stock market for over a year now, and we might be in the midst of that right now because we’re seeing a bunch of new highs here, a few new highs just in recent weeks.

So, maybe this is it. Maybe we’re melting up, in which case being bearish would be a very bad idea in the short-term. Now, oddly a melt-up would mean that being bearish in the longer term becomes a better and better idea. You see, the more you melt up and the more extreme the valuations get, the better and better an idea it is to be bearish long-term.

So, we have these two kind of bullish views from Scott and Steve, and on the other hand, though, my Stansberry colleague, trader-extraordinaire Greg Diamond recently said lower highs in the biotech sector amidst higher highs in the Nasdaq, the biotech sector kind of trending down versus the Nasdaq trending up, he said that was a bearish sign for stocks, and he says that and other signs that I think people pay him money to tell him – which I probably shouldn’t reveal for free – this and other signs are a major indication that the current rally is running out of steam, Greg says.

And previous podcast guest Jesse Felder continues to be bearish on stocks as well. He recently published a chart showing that the top ten IPOs as a group have crashed since they kind of topped out in July – even as the S&P 500 makes a new all-time high. So, you see there’s a similar kind of argument with these two guys. And Felder says, “Just look at the performance of Beyond Meat, Uber, Lyft, Smile Direct Club, Slack.” They’ve all crashed. He calls this the first real sign that risk aversion is starting to take hold and thinks it could spread to other sectors in the market.

So, a couple guys I like are bullish, a couple are bearish. I could add names on either side of the debate all day long, but you get the picture. Question is, what do you do when half of the folks you like are bullish and the other are bearish? I’ll tell you what you do: Don’t take it from them or anybody else and do your own homework.

Of course, my homework, mister value investor’s homework, says today is a better time to be a value investor than any time in the last 10 years, and I’m not the only one who’s been saying this. John Others of Bloomberg recently published a nifty little chart produced by the folks at Credit Suisse, and it shows the performance of various equity strategies (factors, they call them in the business) since October 3. Very short-term, maybe six weeks or so, and of course the poorest performer since October 3 was Momentum at -7%, Momentum Strategies.

Low volatility was -4%. The best performer was the low price to earnings stocks, the traditional value, +7.2% return. And small caps and stocks with high short interest also each gained 2.7% since October 3. Those are, I don’t know about the high short interest, but certainly the small caps are kind of traditional value territory as well. So far so good.

Of course, in a very loud public way I said a couple of months ago that I thought the rotation from expensive momentum to cheap value stocks was for real this time. It’s happened a couple of times the past decade, but I’m saying this is it, and it has indeed ushered in what I’m calling "The New Gold Major Value." So, of course I’m going take every opportunity to pound that table.

I’m a walking confirmation bias machine for value investing right now. All I’ll say about the Credit Suisse thing is: So far so good. It’s six weeks. I’m not going to give it any more importance than it deserves, but knock on wood – or whatever is nearby – that this continues. I think this is the right time to become a value investor.

So, I expect more often than not over the next – what? Five to 10 years, the bigger returns will not be from the FANG stocks and other big momentum performers over the last decade. I expect they’ll come from the cheap cyclicals and other cheap value-oriented stocks over the next five to 10 years. I’m not the only one either.

Our colleague Whitney Tilson at Empire Financial Research published a little bit of a note by a hedge-fund manager named Michael Cal of Makansas Capital Management. Recently Whitney did that in his daily email, and both Cal and Tilson agreed as Whitney put it, “A rotation into more traditional value stocks is far more likely than a general market meltdown.” That actually sounds pretty good to me. I would like for my bearishness to be wrong and for my golden age of value to be right so that nobody gets wiped out. That’s okay with me. I’m not dogmatic. I’m not taking sides in this thing. I’m just trying to be right.

So, I think, and what Cal had said in his note that Whitney published was simply that when we see this, the froth coming off of those IPO stocks that Jesse Felder was talking about, Felder thought it meant maybe the damage would spread, but Cal was saying something that actually appeals to me. He says, “Maybe this is just the speculative froth coming off the market and not affecting other things” and that makes sense.

That stuff deserves to crash because it’s way, way overvalued and most of it doesn’t generate any kind of profit. They’re burning cash, lighting money on fire, and have exorbitant valuations. So, that viewpoint makes sense to me. It’s hard for me to turn away from how expensive stocks are. John Hussmann is an economist who I follow just for his valuation work in the overall stock market, which I think is very good, and he’s saying from this point over the next 12 years, the expectation is for stocks to generate an average annual return of -2%. Not good.

Look, if that doesn’t come true and we don’t get a big meltdown, I’m good with that. I’ll be wrong on my bearishness all day long and be happy to do it, okay? Now I just wanna shift gears a little bit. You get what I’m saying there, right? I just wanna shift gears and talk about those share repurchases that Scott Garliss mentioned. I kind of glossed over that because I have some wider thoughts to share about it.

Last week we heard from listener Gary D. We’re going to hear from him again this week, by the way. Gary D. has some unrepeatable choice words for corporate managers who sell massive stock option grants into the corporate share repurchase programs. What a gravy train, right?

You get a whole bunch of options granted to you and then when it’s time, you exercise them and sell them and – oh, just at that point the board happens to approve a massive share repurchase – so kind of supporting the stock price into which you’re selling, right? And that looks shady to a lot of people. I’m not convinced it is as shady as that – but hey, it doesn’t look good to me either, I’m just going to say. It looks like kind of a scam at the expense of the shareholder… a little bit anyway.

So, I responded to Gary by saying I think people talk too much about this kind of stuff. It’s awful for sure, it can be, but as a shareholder – as long as the business is doing well and they don’t overpay for the shares they repurchase – I think as a shareholder you should be okay. But this week I thought, okay, this is a complicated issue. Let’s take a look at the other side of that coin.

Last week I said the most important thing was for companies to make sure they don’t overpay for shares. That’s the thing you should be looking at as a shareholder. Well, as we learned with everything in life, that’s not quite all there is to it. Share repurchases are a funny thing. When a business suffers and its stock price falls, it doesn’t really matter how many shares you bought back.

Doesn’t matter how much money you spent buying shares, right? That investment just evaporates. So, if the business does poorly, the stock is going to fall no matter how many shares you bought back, no ifs, ands, or buts about it. In other words, the share repurchases only create value if the business continues to create value. You can’t separate the two. If the business doesn’t continue to create value, the share repurchases will only add to the damage done.

Case in point, and this is an extreme case, but case in point, Macy’s, the struggling mall-based department store chain. Since January 2000, Macy’s board of directors has authorized a total of $18 billion in share repurchases according to a recent 10K. According to those same 10Ks, and I checked through every one of them going back to 2000 yesterday, just sat down and did that, and according to those reports, since 2001, they’ve spent about – I’m sorry, since 2000.

Macy’s is a retailer, so the fiscal year ends in January, so the January 2001 fiscal year is really the 2000 calendar year. I’ve got all these notes with different years on them, so forgive me for that. Since the year 2000, to be quite clear, they’ve spent about $16.3 billion on share repurchases of that $18 billion total authorization by the board. Indeed, if you look at the reports, in the latest report, there’s $1.7 billion of share repurchase authorization remaining unused.

The moral of the story here after mulling this over a little bit is simple, but just to make my point here, let me just tell you what happened with the stock price. I didn’t tell you that yet. So, the stock price in – we’ll just go back to January 2011 – it was $23.00. Peaked in July 2015 at $73.00 and is around $15.00 last time I checked the past day or so, so that’s roughly -80%.

The market value peak was a little different. I looked in Fact Set, which is kind of like Bloomberg but a lot thinner on data, and I think these were quarterly numbers. It said the market value, the market cap, peaked in December of 2014 at around $23 billion. So, today the market value of Macy’s is $5 billion. Oy. That’s $18 billion.

Now, it’s just a coincidence that they approved $18 billion of share repurchases and lit $18 billion of market cap on fire because their industry caved in and they didn’t know what to do about it. But it’s poetic, though, isn’t it? That those numbers are the same, that they approved spending $18 billion on share repurchases, and oh by the way, that’s exactly how much market cap we lit on fire by not being able to save this business?

The share repurchases did not support the stock price. You can’t support an ailing business by share repurchases. In effect, you can’t create value solely through share repurchases. You better be running a good business if you’re buying back shares, and you better not be overpaying. And whether or not you’re overpaying, if your whole industry is in decline and you’re buying back shares hand over fist…

The writing was on the wall in 2014, 2015, 2016, and they were spending like $1.5 billion, $1.9 billion, $2 billion in a single year in those years, and actually by calendar 2016 they were down to like $300 million, and then in 2017-2018 and this year so far they spent zero, right? That’s typical of what you see in a corporation. They’ll spend all the money on share repurchases when they have it – and when do they have it?

Well, at the top they’re doing great, and they don’t spend it at the bottom. They suspended their share repurchase program in 2009 and the suspension carried through until 2011. So, they were buying back nothing at the bottom and they bought back tons at the top, and they couldn’t save their business from the retail apocalypse, and all the money is just gone. They could’ve paid it out in dividends and it wouldn’t be gone. It would be gone from them, but it wouldn’t be gone from shareholders’ pockets, but they didn’t do that

People think they’re being tax efficient by not paying dividends. Well, they certainly were tax efficient, but the business got creamed and the money was lit on fire. My point here this week is: I recognize that most share repurchases are of this nature. Maybe the industry won’t melt down, but most share repurchases are kind of pretty crappy deals for shareholders. They overpay, they buy it all back at the top, they don’t buy any at the bottom, and it just doesn’t work out well for shareholders.

Still, I wouldn’t be too upset about share repurchases or too happy about them either way. Mostly this lesson is don’t waste too much time thinking about them. Continue to focus on whether or not the business you’re buying is good enough to generate the big returns that you want to see in stocks based on the price that you’re paying, right? Value and price, price and value. Keep those things foremost in your mind and use those things as your guiding light. Don’t use share repurchases as any kind of ultra-important market.

Even folks who have good businesses, they just tend to not be great at share repurchases. That’s just the way it goes. So, you've got to take each one of these cases from a bottom-up perspective and evaluate whether or not you think share repurchases mean a lot or a little. I think they mostly mean less than most folks think. Stay focused on price and value and I think you’ll make money over the long haul. Here endeth the lesson for this week, so let’s get on with our interview with the crypto doctor Eric Wade.

All right, it’s time for our interview. I’ve really been looking forward to this one. I love talking to this guy because he knows all kinds of stuff I have no clue about. Our guest today is Eric Wade. He is the editor of Crypto Capital at Stansberry Research. He’s an entertainment entrepreneur and investor who began picking stocks and trading futures contracts in college using his expertise to become a certified financial manager at the largest American retail brokerage.

He eventually sold the internet domain of his nickname WallStreet.com for over $1 million. Nice play, Eric. Eric has also been an angel investor, a movie script writer, and the founder of a family business that was recognized locally and internationally. He has also worked with some of the largest companies and ad agencies worldwide to expand their marketing reach. This guy is amazing.

Eric’s cryptocurrency career began by mining bitcoin. Soon, he turned to mining Ethereum. Then, he even taught himself how to build and program his own miners. That’s so cool. As the wave of interest in cryptocurrencies grew in 2016 and 2017, Eric began mining dozens of other cryptos, and as an investor he’s made huge profits in this space. Please welcome Eric Wade. Eric, welcome to the program.

Eric Wade:                  Thank you very much. Good to talk to you again.

Dan Ferris:                 I hope we didn’t embarrass you too badly with that wonderful introduction.

Eric Wade:                  No, it’s wonderful. It wouldn’t fit on a tombstone though, would it?

Dan Ferris:                 No, it would not definitely, but there’s a lot going on there. We have a lot to talk about today and I love when we have someone like you on because hardly anybody knows anything about this stuff, and we get a guy like you and it’s like, we want to learn everything you know.

During the course of this conversation, I want you to be able to tell us the meaning and the definition of some of these terms, blockchain, cryptocurrency, token, master token. You don’t have to get to all those right away, but just back of your mind here we do need to do that. So, I guess we talked to you, what was it, not too long ago, a couple months?

Eric Wade:                  Yeah, just a few months.

Dan Ferris:                 Yeah. What is the state of things? I have to confess, I don’t keep up with cryptocurrencies. I can’t keep up with everything. Has anything changed in the last two, three months since the last time we talked to you?

Eric Wade:                  I would say yes, and you’re right, there is a lot to keep up with on cryptocurrencies. Generally speaking in the cryptocurrency – let’s say the – world, the industry of cryptocurrencies even though it’s completely all run by different individuals, but in the world of cryptocurrency, more than 60% of that is bitcoin. It’s this really interesting investment class all by itself.

I like to get people to think of it as a new asset class, but even among that new asset class you’ve got bitcoin taking up, let’s say, 60 to 65% of the market cap, and the other thousands and thousands of cryptos fighting for the other one-third, basically, of the market cap, if there’s such a thing. It’s because cryptos in general, the idea, one of the central tenets of it is: Anyone who wants to participate, can. So, bitcoin is successful and has been around for over a decade. And it was literally just started by someone who thought, "hey, this is a good idea. Let me see what happens if I put it out there."

That ethos has kind of followed with cryptos for good or for bad. The regulators are now starting to look at it thinking do we really want “investments” that anyone can start? So, what’s been going on for the last few months is the crypto industry is trying to work its way out of, what we call, "crypto winter," or what investors would call, "a bear market," when everybody was talking about cryptos in late 2017, early 2018. And even the cab driver and the shoeshine guy were talking about cryptos. That was kind of the peak.

Then all of 2018 we had this long drawn out sellout. Well, now we’re almost done with 2019 and the personality of cryptos has been – we’re trying to recover. After every long-protracted bear there’s a recovery period. So we’re trying to recover, but at the same time, regulators are looking at our industry and saying, "Is that such a good thing that anybody who wants to start a crypto can?"

With businesses, anyone who wants to start a corporation can. In America you can be entrepreneurial. You can go out and start your own business. But that would be a private enterprise, and by the time you get to the point where you’re asking other people for money for investments, then you’re darn right that the regulators are going to get involved, right? Regulator D, regulator A, going public, things like that. There’s a lot of rules in place.

Crypto is in kind of that part of its growing up right now, where even though there is no corporation behind Bitcoin, there’s no corporation behind Ethereum, most of the bigger cryptos, there’s no corporation there. There are organizations and our regulators are having to look at them like, where do we stand on this? Is it a currency? Is it a commodity? Is it something that we even can regulate? Should we be trying to find people to punish them and levy fines against them?

So, that’s been our last few months is sort of going through that how much government involvement do we want, how much do we need, how much are we going to be forced to deal with, and even though it should be a pretty healthy return of the bull… And you say you’re not following cryptos, but you probably are familiar with some phenomenal runups we’ve had in the past with the amazing returns. Well, those have been stifled a little bit because what are the regulators going to do? That’s kind of on the top of everyone's brain right now is: How involved are regulators going to get, and what’s it going to look like in 3, 6, 9, 12 months?

So, I’ve been working with my subscribers and readers to pay attention to this. I even call it a "dark age." What used to be kind of an open, freewheeling, anyone can be involved industry… regulators are coming, for good or for bad. And I’m not completely against regulation because if people are putting their money into it then there should be some game rules that everybody has to follow, but it has affected the industry quite a bit. That’s kind of the macro theme of what we’re dealing with right now.

Dan Ferris:                 Okay, here’s my question then. Since a big part of this cryptocurrency phenomenon is the underlying technology called blockchain, and since one of the primary features of this is as represented to me by folks like you and other impenetrable security, how much can regulators do anyway if this thing is so secure and can’t be messed with? I’m clear that the U.S. Securities and Exchange Commission ("SEC") can say, “bitcoin is a security and we’re going to treat it that way.”

Okay, that much I get, but as to the rules, I mean the rules are like the frickin’ laws of physics. You can’t get into this thing. It’s solid. The security is impenetrable, and the rules are how many bitcoin get made is set in stone. So, this little universe seems to come with its own ironclad rules. It’s so secure. What is a regulator going to do aside from, like I said, the SEC could say bitcoin is a security, but what else is there for them to do?

Eric Wade:                  So, that’s actually a pretty sophisticated understanding for a guy who claims to not understand. The blockchain, and it’s probably worth a couple of seconds explaining just what that is... bitcoin program, and its heart is a computer program, or maybe you can look at it as, like, a team of computer programs that all work together.

Every 10 minutes, bitcoin, the program, locks down all of the transactions that happened from Bob to Alice to Carl or whatever over the bitcoin blockchain network. It locks down all the transactions into what it calls a block, and then for lack of a better explanation, it takes a picture of that block and starts the next series of 10 minutes of transactions with that picture of the one that happened before it.

So, it starts to form a chain. Like, you take strips of paper and staple them together and make a chain of paper to go around your Christmas tree or something. One block includes a picture of the previous block just so that anything that’s ever verified later on – there’s always a trackable record of where changes happen. That’s kind of what makes it impenetrable. We’ve got such high level of security on it. Basically, the cryptography that protects the network is as secure as anything you’d find the NSA using.

So, from that respect you’re right. It’s unchangeable and it’s very secure. What the regulators do is they say, "Okay, if we can’t change the laws of physics, the laws of crypto, then what we’ll change is how banking and how individuals and how investors interact with it." We’ll basically seal up the doors or the windows – if you can use that as kind of a picture in your head. What we’ve been dealing with in America is basically becoming kind of isolated from other portions of crypto.

Maybe the best example of this is one of the largest, fastest-growing crypto organizations there is, is called Binance. This is a company that has a crypto exchange and they have their own blockchain and they’re starting to make other cryptos that people can invest in for good or for bad, whatever possibilities it is. If you can think of the best analogy for what Binance is, it’s almost like a central bank and an exchange and a public company, kind of all rolled into one.

So, it’s this huge crypto organization, but the U.S. regulators said Americans shouldn’t be able to buy and sell cryptos over Binance. There’s the possibility – well, Americans can, but Binance, you’ll be in trouble if you’re allowing Americans to buy something that we in the future deem to look like a security, because obviously securities are what’s regulated.

So, Binance’s solution to that was, all right, we’ll create Binance.us and that’ll be a gateway for American investors and we will only list on Binance.us. It’s an exchange that you can buy and sell cryptos, but we’ll only list cryptos that we feel pretty comfortable won’t ever be deemed a security by U.S. regulators, and that’s turned out to be sort of the path that anyone who wants to deal with Americans has to take is to say we’re going to limit our exposure by limiting Americans’ exposure.

We’re getting to this kind of time in crypto where if you wanna be an American and you wanna invest, certainly there’s a little bit of crypto mindset of, “Well, you can’t tell me what to do” and that’ll probably never go away. There’s guys and gals I’m sure that’ll open accounts when they’re on vacation from somewhere else, or they’ll use a VPN or something.

For the most part, most American investors don’t go to that trouble. They just limit themselves, and that’s what crypto is doing, is limiting what you can and can’t buy by threatening the exchanges or what we call "on-ramps" that’ll actually take your money and put it into cryptos for you. The regulators are saying, “If you don’t want trouble with us, you’ll limit what you allow Americans to participate in” and it’s going even further than that, is state-by-state, New York State in America has its own, what they call, "a Bit license."

If you want to sell to New Yorkers, you have to apply for this Bit license – a lot like if you want to drive a taxi cab in New York City… you have to have a medallion. Well, if you want to allow people to buy and sell cryptos in New York State, you have to apply for this license, and it’s non-trivial. It’s something pretty difficult to get.

Another phenomenon that’s going on is, okay, if you want to buy cryptos in America, what state do you live in? There’s a lot of 49-state offerings that you can invest in from any state other than New York. It’s kind of an interesting time for an industry that was created to get around banking, right? And I’m laughing because at the very heart, the very core of crypto, the idea was to un-bank yourself. It was created around the time of this subprime crisis and the Federal Reserve pumping ungodly amounts of money into the system, and that’s where bitcoin was born.

And now here we are wasting everyone’s time with a conversation about regulations and banking and who can do what, and really at the heart of crypto it should be free. Well, not free like you don’t pay for it, but it should be open that anyone can participate, but if you live in America your ability to participate is being curtailed by regulators. And I’m sure they all have their hearts in the right place, trying to do the right thing

So, yeah, that was a long one, but you’re both right. It is impenetrable, so what they’re doing is they’re trying to board up the doors and windows.

Dan Ferris:                 Okay, so I know that you had a conversation with Ron Paul recently. It sounds to me -

Eric Wade:                  He’s wonderful.

Dan Ferris:                 Yeah, he is a wonderful guy. Of course, he’s a libertarian. He wants little to no government intervention in most of the economy, but it sounds to me like it is possible then for government to – government is like a monkey throwing its feces on everything, frankly. It sounds like they’re throwing it all over crypto.

It kind of shocks me that Ron is so interested in this as a potential sort of workaround and potential competition for cryptocurrencies to compete with government fiat currencies. It sounds to me like they can – if you’re calling this "the dark ages" and they’re doing all these regulations, it sounds like this can be messed with, that the government can mess with it, and that would kind of tend to darken its appeal. I’m a little stuck right now, I guess.

Eric Wade:                  No, and I understand. You’re absolutely right. One of the things that I very much enjoyed hearing from Ron Paul – a little bit of background on this is I was at a conference. I’ve been to five conferences in the last few weeks, but let’s call it two or three weeks ago.

I’m at a conference that Ron Paul was speaking at, and he gets up and he says, “I’m not a crypto expert, but I am someone who’s been talking about sound money for decades” and they gave him a standing ovation for it even though he was literally admitting he wasn’t a crypto expert and he wasn’t going to talk about cryptos at this crypto conference, but he’s getting a standing ovation for saying, “I believe in sound money principles.”

During our talk, the phrase that I kept hearing was “competing currencies.” Ron Paul for decades has believed Americans should have available to them competing currencies, and I think maybe that’s where a lot of the fear of the government comes from. You can work in all kinds of really macro notions on this, right? The idea that if our government had any pretense of gold standard or a currency that’s backed by anything, then they couldn’t just go out and throw around trillions of dollars of it when the subprime lenders were in trouble, right?

Clearly you can’t just print trillions of dollars of a currency in response to "banks are in trouble." We’ve got the repo window problems going on now, right? Are we printing dollars because the rest of the world needs liquidity? Is that what’s going on? So, at a time like this you’d think this would be the best time to have a competing currency, to have a cryptocurrency.

 If the American government, and I don’t wanna get too dark on this, but when you’re thinking in terms of the decades that Ron Paul has been talking about this and some of the crypto ethos and where it layers over onto maybe a more libertarian ethos, shouldn’t I be the master of my money and be able to cash out of the system? And a lot of times  [for] Americans, it’s really hard for us to even picture what that looks like. What would I do without dollars?

Are we talking about gold and gold coins and the beautiful coins from 1913 when the Fed was created and it was a $20.00 piece of gold and now worth thousands of dollars, right? Not because there’s more gold, not because the gold reinvested its dividends, but because $20.00 worth of gold in 1913 isn’t worth $20.00 anymore, it’s worth thousands, right?

That’s a long, long thought process of how do I break out of that, and could a digital currency be a way to break out of that? Of course, then I would expect the federal government to try to protect their position, right? In the notion of competing currency, I guess I would expect a central bank to compete as viciously as they could, if it is a competition.

And so, the American citizen or world citizen, and Americans, I’ve said this many times, is Americans have had the luxury of getting to ignore things that affect other people, like inflation. We’ve got something that the silent killer that takes 2 to 3% of your purchasing power every year, year in and year out, and the Fed as so much have said, “Wow, we wish we could maintain 2% inflation” as if that’s such a wonderful thing. That slowly erodes your purchasing power over time. And since the '80s, we’ve lost 60% of our purchasing power.

That’s after the 1970s amazing, huge inflation. We tend to think, "Oh, inflation, we’ve licked it." But since the early '80s we’ve lost 60% of our purchasing power with that dollar. So, yeah, there should be a competing currency. How are there trillions of dollars but only a few hundred million of cryptocurrencies if it’s something that could be so appealing? So, I think the next round when cryptocurrencies make their march towards a trillion dollars of market cap. And remember there’s a lot more to it than just a currency.

That’s what it really appeals to for most of the crypto investors is they think of it as smart money and they think of it as digital goods that can’t be copied, so it’s not just an exchange of value. It’s not just pay your bills with it, like dollars. There’s more utility to it that for the most part hasn’t even been unlocked. To the average investor, the biggest clue for cryptos is that most people still think of the value of cryptos as, well, "Can I sell it at a future date for more dollars? "

They’re thinking of it as a speculation on how can I accumulate more of this inferior currency by trading in and out of what could eventually play out to be a superior currency. Because in May of next year, bitcoin rewrites its own program so that it rewards miners a smaller amount, and the result of that is that bitcoin inflation rate will drop below 2% in May of next year, and it will never, for the life of it, ever be higher than that. Bitcoin is preprogrammed to run for at least another 100 years.

So, if you can imagine the currency that literally can’t, like you were mentioning earlier the laws of physics of bitcoin. Well, the laws of physics in May of next year are going to kick over to less than 20% for its lifetime as far as its inflation rate goes. Weaving all of that back in that we just talked about is Americans can ignore inflation because it’s been a manageable couple of percent. We scoff at it, right?

We think, oh, inflation doesn’t really affect me that much. I can buy some real estate and I can defeat inflation like that. Well, bitcoin as a competing currency, right now it is a little bit higher inflation than U.S. dollar. And May of next year, it kicks over to being less or at least something locked in. It’ll go four years at 1.8%, and then four years at .9%, and it’ll never look back. And that’s when I think the real competition is going to begin. And I would expect to see central banks do everything they can to try to make it look like it’s not appealing to the average investor.

Dan Ferris:                 Okay, so we’re making a case to kind of avoid this – which we don’t want do because it is actually a very good idea. Maybe we should shift gears a little bit. So, that’s the state of things up to now, put it that way. From now into the next year, you think something really kind of dramatic is going on that doesn’t involve cryptocurrencies per se but involves these things called tokens. I have some questions about this, but I want you to tell me what is a token and why is it good and why do you think the next year or so is going to be a really great time for these?

Eric Wade:                  That’s a great question. As I mentioned before, most of the future value of cryptocurrencies hasn’t been really well-defined or unlocked in most people’s minds. When I mentioned the notion of cryptocurrencies or tokens being smart money, most people think, “I understand the words you’re saying, but what does that mean?” At the very base explanation of it, let’s say you buy a Starbucks card. We’re all comfortable with that notion, right? You go to Starbucks a lot, whether you like it or don’t makes no difference to me.

If you buy a Starbucks card, you put $20.00 in, they hand you this piece of plastic that now has $20.00 worth of value, but it also has more value than that, right? If you use your card and you buy four breakfasts, they’ll give you a fifth breakfast or something like that, right? We’re all really comfortable with that kind of a notion that we’ve exchanged our currency for their currency and it has extra features, or maybe a subway token would be good, when New York City used to use subway tokens.

That would be another good example of a different kind of money that maybe has a different purpose. Cryptocurrencies, because they are run by a computer program that has a lot of intelligence behind it. A new kind of crypto is coming out that we call "tokens." It’s like a digital money, like that Starbucks card that we’re talking about, but it can also trigger other things to happen.

One of the tokens that we’re watching and really interested in, it’s a token that has a 15-second block time. Bitcoin's, very secure, very strong, but it creates a new block every 10 minutes, which means you could be waiting 10 minutes or even up to hours for a transaction to be verified. So, these new tokens that are coming out have modified some of these parts of the blockchain, the bitcoin program, to have faster block times or to have privacy, or even to use different algorithms so it gives them different strengths. And then you can actually build other programs on top of it, say for example the ability to maintain your identification.

That’s kind of a big one when it comes to investing. Imagine having an investment that is almost – in some respects you could think of it as self-aware... It knows who owns it and it knows something about you. I don’t mean that in a scary, future kind of way, but let’s say I wanted to buy something. The other day I wanted to sign up for an account and over my computer it was literally asking me, “Take a picture of your passport and send it to us.”

I thought, are you crazy? That’s where the whole procedure broke down. So, these tokens, though, that have the ability to maybe protect your identity, it could get in-between myself and that vendor, that vendor who’s asking me to upload my passport. It’s possible that a smart token could say, “Hey, I got this.” It could verify who I am to the vendor and verify to me, “Listen, I vouched for you, but I didn’t show him your passport.”

And that appeals to me. As someone who cares about how many times my passport has been duplicated and passed around the internet, that appeals to me, and the possibilities that that might unlock me being able to interact with this vendor in the future by sharing something that my token has verified my ID, without sharing my personal information.

That’s tough for a lot of investors to understand the first time is we can all pick that time that you’re taking a selfie and sending it off to Fidelity, right? Or scanning your driver’s license, or what’s the most common one? A utility bill. And then six months later we’re all surprised that, well, a database has been hacked and guess what they got? Well, they got your driver’s license and they got your utility bill because that vendor that you were doing business with stored all of that information in their database.

So, on the one hand we’ve got these blockchains that are super secure, and on the other hand you’ve got these databases that Target or Home Depot or whoever it is, credit card companies, even Experian who’s charged with holding our data securely, even Experian has been compromised. So, the value of that smart token, of these tokens, the ability to conduct a transaction, verify who owns it, maybe even store my music, things like that, right?

We’re just now coming into what if there was a secure way that used the power of the blockchain and faster transactions so I don’t have to wait ten minutes for something to be verified and can verify me without sharing that data? As an intelligent person, and I’m sure most of your listeners are thinking, thinking back to the last time they had to share some data on themselves, and maybe we even restrict our behaviors, right?

Maybe I don’t participate in something because I don’t want to make another copy of my driver’s license and send it off to who knows where and then basically just sit and wait for the hackers to get into it, and that’s where smart money I think is going to start really coming into its own, and these tokens that can maybe conduct a transaction on our behalf without sharing my personally identifying information, and so much more. There’s tokens out there that can connect a legacy database.

Maybe you’ve got a corporation that’s been doing its own database for 20 years, and you think that appeals to me, the security of blockchain, the security of Ethereum network or bitcoin network… but I don’t wanna have to rewrite my entire database. Well, there’s tokens that can connect the two securely. This whole notion of what are we going to do with this wonderful technology, this blockchain technology and these decentralized networks? What are we going to do with those?

Well, it’s just now starting to come into its own, and that hearkens back to what I was saying about the industry itself is two-thirds of our industry is bitcoin, and the other one-third, which is thousands of tokens, they’re still coming into their own as far as getting investors to see their value. And the story still remains to be told... Well, there’s a lot of potential future value hiding in some of these tiny sort of undiscovered tokens, and that’s what we were talking about with Congressman Ron Paul last night.

Yeah, bitcoin is great and competing currencies are great, and the fact that they allow us to add layers of complexity on top of that, right? They can run like a program that can then do tasks for you without compromising who you are. That to me, that’s going to be an eye-opener for the whole world, especially for anybody who’s been hacked or identity theft or anything like that, and then where we go from that, where our kids go... I have a phrase I like to use half-jokingly, I call it "generation 0X" because they’re going to have this smart money as a tool.

Our kids all grew up assuming they got a phone. Well, I didn’t grow up assuming I got a smart phone, but kids nowadays, the iPhone kids, they grew up assuming they have access to internet and Wi-Fi and smart phones and apps and stuff. Well, what are the kids who grow up assuming they get access to smart money and competing currencies, what are they going to do with it? What are they going to build on top of this?

That’s where these tokens come into play is some of them are worth less than a penny now, and they could be worth $5.00, $10.00, $50.00 a piece because, also remember, one of the best things about blockchain and crypto industry is in most cases, there’s a limited supply of tokens, a finite number of tokens, and that’s where you get your guys like Ron Paul interested in it, right? Dollars; we used to think there was some sort of rhyme or reason or limited supply, but the last decade should tell us, well, they can print them on demand, let alone the other currencies of the world.

So, you marry those two strengths, limited supply and maybe even some utility that we can derive from these smart money tokens, I can only imagine what the next generation of entrepreneurs is going to build on top of these things, but we’re discovering some now that are maybe kind of keeping themselves quiet and yet offer investors huge returns. Talked about that last night with Congressman Paul as well, just the phenomenal amount of returns for the people that get into these things early that we’re going to see.

Dan Ferris:                 Right. So, you answered a key question I had which is, how can tokens gain in value, but the supply is limited just like with bitcoin, right? That’s kind of the answer to that. Okay, well that’s good. It’s just a wonderful, sound money feature of this whole system. You’ve found one of these things that’s worth like a penny right now, is that true?

Eric Wade:                  Yeah, it’s still worth a penny and won’t be for long. A lot of times I think of this as obviously as a savvy investor, whenever something is extremely low cost or low market cap, your first line of defense should always be why? What does everybody not value in this?

I always check that first when I’m looking at cryptocurrencies – and any investment really – is, what am I not seeing? If you’re looking at a car and it’s a $10,000.00 car that someone is asking $1,000.00 for, you lift the hood or you drive it around the block or something. With cryptocurrencies, you don’t have the same method of evaluating them as you would with maybe a stock or a bond or something like that. Some of them don’t even have free cash flow, etc. So, you have to evaluate them differently.

This one is a really solid cryptocurrency that’s been around for years, and the team that manages it is phenomenal. They use multiple algorithms. They’re constantly developing new things. I would say if there’s one thing that’s probably our opportunity in this is that they haven’t really gotten into any kind of a marketing swing of things yet. That’s our opportunity. Crypto as a whole suffers from that.

There’s no corporation behind a lot of these, so there’s no chief marketing officer who goes out and hires the best marketing people and goes and spends his or her time on 5^th Avenue and spending a lot of time and money on marketing. So, it’s really the burden of the investor to discover where the opportunities are in cryptocurrencies rather than sit back and let the broker call you and say, “Hey, I’ve got this really hot IPO coming” or like a We Work situation.

You heard a lot about WeWork in the runup, and thank goodness there was some activist in investors who really beat that one up, but you heard about these investment bankers and everybody wanted to participate in this IPO for WeWork, and they were going to raise billions and billions of dollars, and it turned out it was going to be horrible for the retail investor. And the opposite side of that coin is what about cryptocurrencies that don’t have any kind of marketing department and don’t have a consortium of investment bankers that are out there pushing this thing?

Well, it’s up to us to discover them. You have to look at the fundamentals of it, make sure it’s sound, make sure it has something that future investors will value, and discovering those can be a bit of work, but that’s what I like to do for Stansberry. I like to really look at these under the hood, and some of them I’ve mined in the past. This token that we’re talking about is something that you can even still mine, should you want to, if you want to participate like that.

That also hearkens back to what I was saying in the beginning, is crypto really, some of the best ones, they kind of count on people wanting to be involved with it. They count on us having some sort of curiosity or wanting to lift the hood and get involved, and some of these tokens that’s the value they offer, is that you can get involved and get to know them from the inside out in a way that maybe you can’t with a company before it goes public or something like that.

That really appeals to me, and I like being able to find these hidden gems that everything works, but there’s no marketing behind it. If you can discover it early like that, you can make great returns. I had a crypto in our portfolio for the Crypto Capital portfolio right now. It’s up over 900% this year, no marketing department at all, no investment bankers, 900%.

Dan Ferris:                 Well, I bet the crypto people must love you because you’re like a one-man marketing army for the crypto world. They must think you’re awesome.

Eric Wade:                  I do, I go to a lot of meetings and as you can tell, I talk a lot like marketing departments, but I do, I like to get the word out. When I discovered cryptocurrencies years ago, it was a fascinating curiosity to me and I tried to learn as much as I could. I think there’s probably other people out there that if you look beyond just the speculative value of them, there’s probably people listening right now that it would really appeal to them to hear some of these really well thought out… And you get somebody like Congressman Ron Paul who says we do need competing currencies. We do need sound money options. So, it falls on us in the industry to tell that story.

Dan Ferris:                 Right. It’s so interesting to me that Ron Paul who is no spring chicken winds up being the kind of mainstream crypto guy just because of his desire to see sound money in existence. It’s like if my father came to me and said, “Hey Dan, I heard about this new technology” or something. It’s a little weird, but it makes perfect sense.

So, I have to ask you a very specific question, though, Eric. I listened to this thing you did last night online with Congressman Ron Paul and Jared Kelly from Stansberry Research, and I know this is slightly off-topic, but did I hear the words “14 million percent” at one point? Did I hear that right?

Eric Wade:                  Yeah, 14,000,000%. That was a fun one. Now, to be fair, it took five years to earn that 14,000,000% return, but that was early time of the internet and domain names, and I literally bought something for $7.00 because it had a little bit of utility that I needed. It was a domain name, WallStreet.com, and I wanted to have the email address of [email protected], and the only way to get that was to buy the domain. So, a high school friend of mine and I bought the domain and we sat on it for five years while emails and offers just kept rolling in with people saying, “Hey, I’ll buy that from you.”

We just held onto it until 1999 and were able to sell it in an auction for a little over $1 million. It was kind of a history-making auction because it was the first all-cash sale of a domain name for more than $1 million. If you also remember what else was going on in 1999, it was sort of a dot com peak. You could add the word “dot com” to anything and the value would go up. Yeah, we cashed in on that to the tune of 14,000,000%.

Dan Ferris:                 Nice. I wanted listeners to hear that because it’s just my impression just from having spoken to you that you have absolute street cred as the guy who finds weird stuff really early and makes lots of money on it. Figuring out bitcoin and cryptocurrencies is one thing, but you did something like that previously. I thought, jeez, who on earth has this kind of track record?

Eric Wade:                  Thank you. A lot of times people will ask me, “Okay, that was great, but that was kind of a one-time deal, right?” And I think, okay, the unique nature of domain names is, yeah, each one is a one-time deal. I was able to go back to the well and buy another one that I bought for $15.00 and turned into $22,300.00 in a couple of years, but yeah, my focus now is on cryptocurrencies.

We’ve been able to uncover 1,300% winners. I mentioned before in the portfolio right now something I recommended December 31, it’s up over 900%. We’ve got a lot of them in there that are hundreds of percents, and it’s because this is an industry that right now, more money is pouring in and more corporations are getting on board and institutions and even family offices and even the Yale private endowment is starting to invest in cryptocurrencies. So, it’s something that I think we’re still in the early stages.

Part of crypto in a lot of people is holding two opposing thoughts in their head at the same time. We’ve touched on that a couple of times with your great questions during this talk ourselves. One thought is, "Okay, bitcoin has been out there for 10 years and it’s worth over $100 billion, so I missed it." And the other side of it is whenever I ask anybody about cryptocurrencies, they don’t seem to know.

They’ve heard the word “bitcoin”, they’ve heard “Ethereum”, they heard about their friend who maybe made a bunch of money and then lost a bunch of money, so everybody thinks, "is it too late or is it still early?" And being able to hold both of those thoughts in your head, I think is where the opportunity comes, because going all the way back to when I bought that domain name in 1994… the reason why was because you may remember America Online. Everybody was on America Online.

It seemed like if you tried to register for an account on America Online, and imagine having the name Eric which is a pretty common name, and you go and you say, “I wanna register for America Online” and they say, “Okay, your username is going to be Eric78537559 because we’ve already got 17 million other guys named Eric.” So, the competing thought in your head there is everybody is online. My username is taken because there’s so many people that there’s no usernames available.

Well, my response to that was I’ll go somewhere where there isn’t everybody online. I’ll buy something that I can own myself. So, those two competing thoughts in your head of, well, cryptocurrency is new enough that when I ask people about it, even intelligent people, they say, “I kind of know what it is, but I don’t really know what it is.” But on the other hand, bitcoin has proven itself for 10 years.

If you can entertain both of those thoughts at the same time or look for a crypto that’s proven itself but yet has a big future, then you can be successful as a crypto investor. I think that’s one of the keys that intelligent investors are probably at home right now shaking their head thinking, "Yeah, I kind of get that. If I can find something that hasn’t fully run its course but has proven itself that there’s other users out there…" and that’s the sweet spot that I think crypto is in.

Even though we started this conversation talking about regulators coming in and limiting and ratcheting down what we can do, crypto will find a way past that. It’ll survive, just like what was the Investment Act of 1933 and 1934. Well, that didn’t kill stocks, right? There’s probably stocks that you could’ve bought at that point that are worth infinite percentages higher now than they were when the regulators came into the stock market, right? I’ll use that 80-year history of the stock market.

Would you have been smarter to have been a buyer or a seller when the regulators came in, in 1933 and 1934? Well, long-term it’s played out you could’ve bought just about anything at that point and done well over the next 80 years. Well, anything that still survived, right? So, that’s how I see crypto now, is let’s find the place where that matches up, where those two marry each other, is early but proven.

Dan Ferris:                 Sure, and if it wasn’t proven, the regulators wouldn’t be interested. It’s sort of like when the antitrust and the Justice Department of folks come after you, you know you’ve got a fantastic business. You know bitcoin and cryptos are really worth something because they’re not going away and regulators are having to take them seriously. So, yeah, I agree with that perspective.

The event last night wound up, you’re offering a deal on your Crypto Capital newsletter. Is that correct?

Eric Wade:                  Yeah, absolutely. We want to be able to get this information out to people, so we’ve got a good deal on it. I think there’s a link that you guys can provide for people who want to subscribe to it. We publish every month a full research report. We publish a video every week that we then transcribe. So, we stay on top of it, and then obviously crypto market moves rapidly, so if there’s ever an occasion that we need to put out an alert between updates, we do that as well.

It’s a full-blown research report that even if you’re just getting started or even if you’re just looking to speculate, we have investors of a broad swipe all the way from speculators to true believers that want to really get to know these, and Crypto Capital research report kind of address that for everybody.

Dan Ferris:                 Nice. We have a special website for listeners, it’s called InvestorHourCrypto.com and you can get all the details and sign up for Eric’s Crypto Capital newsletter there, which if you’re really serious about this and you just heard this guy talk for this whole interview, that’s the place to go and find out a whole lot more.

I know every time you talk, Eric, I’m just like, why don’t I spend more time thinking about this? Why aren’t I going after this ferociously? It sounds like the future is just coming at me so fast is part of it, and the other part is just like, wow, what an opportunity. It's exactly like that domain name thing for $7.00 to $1 million. I can’t wait to see what the next issue says.

Eric Wade:                  I appreciate that. For anybody who’s thought about getting started but then the reality of it sets in, let me just throw out one last notion to maybe a new investor out there who’s intrigued, wants to watch the tape from last night or maybe they did and they’re joining us now. When it’s time to actually get started, what I recommend to people is your whole crypto portfolio to start with should maybe occupy what you’d put into one stock if you’re a stock investor.

If you’re typically buying $1,000.00 or $3,000.00 or $5,000.00 of a stock when you hear a good stock idea, or a bond, if you’re buying a lot of five bonds or something, then your crypto portfolio to start off with should be no more than that. You don’t move all of your investment money over to crypto. You think of it like one of your positions. We recommend to our readers 1 to 5% of your overall investment portfolio, because it’s still true that you shouldn’t be investing anything in crypto that you’re not prepared to see a lot of volatility all the way up to maybe losing it.

We don’t trade it too frequently. On average through Crypto Capital we hold crypto positions about eight months, and that surprises a lot of people when they hear that, because crypto is fast and moves fast. It’s always changing.

But when we tell people that our track record works best when we’re holding something, buy early and then hold it through the appreciation but put a reasonable amount in and make sure you have your position sizes proper. Your largest crypto holding should match the market, should be bitcoin. Even if you’re investing in some of these fast or future tokens, you start with mostly bitcoin and then you scoop out a little bit into each of these tokens. That seems to be kind of the winning formula for people so that they can get started with something they find to be reasonable.

If you’ve got 20 stocks then your crypto portfolio would work right in there almost like number 21. Even though it’s not a stock, it’s its own asset class, so it definitely moves differently than the stock market, and I hope it stays that way. But that’s what we’ve found to be where most people’s comfort level lies is to think of it like what would you put into one stock?

And that makes it easier for people to get started, because it makes it kind of finite and they can get their arms around that as, all right, I’ll take what I would put into one stock, I’ll buy some bitcoin, and then when I hear a great idea or the next research report comes out, I’ll buy a little bit of that. I’ll move a little bit of my bitcoin into this token that I’ve heard about, and over time you build yourself a crypto portfolio that you can understand instead of trying to bite it all off and chew it all at the same time.

It’s a little bit at a time. We understand it’s a new asset class and it can be something that is really rewarding for people who take the time to get to know it, and we walk you through all that with Crypto Capital. Obviously with Stansberry, right? We like research, independent research, and this is no different.

Dan Ferris:                 Great. We also like risk controls, so I appreciate that position size is a fantastic way to put risk control on something that is super volatile, so I thank you for that. That’s actually, I usually ask people I interview, what would you like to leave your listener with? I think I would like to leave them with that so they know that we’re playing by some pretty good time-honored rules here, and doing this in the smartest possible way.

I feel like we could talk for another hour, but we don’t really have that much time. But Eric, I think we’re going to have to keep getting you on the program every few to several months. How do you feel about that?

Eric Wade:                  Well, I appreciate that. I have heard some phenomenal programs on this. Obviously, every time there’s a new one published, I immediately just pick up the phone and let it play, and I have heard some of your programs with some of the interviews that are just eye-openers. To be able to participate in that and reach your listeners with something that they maybe have heard about and be asked intelligent questions like that, I think we’ve covered a lot. You challenged me with some, “Okay, these are both true. How can that be?” I think listeners, I hope, got a lot out of it.

I agree with you, if we can leave them with the notion of let’s make some sensible investments with risk control, then the volatility of cryptos and the possibility that will come out of this regulatory environment profitable on the other side, and it could be outrageous profits. Probably not 14,000,000% but hundreds and hundreds of percents profits if you manage your risk right. I agree, that’s a good way to close it out.

Dan Ferris:                 Yeah, that is. That’s perfect. Thank you so much, Eric. We look forward to having you on the program again. I feel like you’re my go-to crypto guy, and I hope our listeners think of you that way too.

Eric Wade:                  Any time. Thank you.

Dan Ferris:                 You bet. Thanks very much, Eric, and I guess it’s bye-bye for now.

Eric Wade:                  Bye.

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 Broderson 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 Ken Fisher, the billionaire you’ve seen on TV; Jack Dorsey, founder and CEO of Twitter and payments company Square; and billionaire investor Howard Marx 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 Teal, 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 Broderson. The InvestorsPodcast.com; check it out.

Okay, it’s time for the mailbag. This is where you and I get to have a frank, honest conversation about investing. You write in to [email protected] with comments, politely-worded criticisms, and questions, and I respond if need be. I don’t know if you’ve noticed in the past couple weeks, but sometimes an email stands on its own and it doesn’t require me to respond very much, if at all. And that’s the way a conversation is, isn’t it, between friends?

You don’t always need to have both sides yammering away. Sometimes you guys say all there is to be said and all I need to do is read your words, and I like your words. I read all your words. I don’t read the Russian spam anymore, but I read every single feedback email that comes in.

Let’s hear from Gary D. once again. I like Gary D., he’s a good guy. He writes in a lot. Not reading his whole message, it’s kind of long. Gary is talking about the Walgreen’s acquisition that we were discussing last week. Gary D. says, “I would not hold Walgreen’s Boots Alliance stock or bonds now because I expect that company like Toys R Us will be gone from the roadmap within the next three years. The raiders will load it up with debt, steal all the assets, and leave its carcass on the side of the road.

Also, I thought your comments about the seller having a choice were a bit, well, I want to say naïve, but I don’t mean to offend.” That’s okay. That’s a polite criticism, Gary. Gary continues, “The C suite and the board are all in on the gravy train and they all stand to walk away with their fortune piece of the pie leaving the common bondholders, common shareholders, and the public in this case holding the bag so to speak.

Mark my words, Walgreen’s will cease to exist in three years. We’ll talk about this again in three years and see who’s right. I promise I will relent and grant you props if you win, but I think this is a Toys R Us scenario all over again. The sharks can smell blood in the water.

Anyway, Dan, you’re doing a great job at the helm of Stansberry Investor Hour. Porter in his infinite brilliance knew exactly what he was doing when he gave this baby to you. You’re a genuinely nice guy and I’m happy and proud to be your friend. Please enjoy your time with this gig and thank you so much for all you do. It’s greatly appreciated on this end, and I look forward to each new episode. Gary D.”

Thanks for all the kind words, Gary. Time stamp November 2019. We’ll come back in three years and see what we can see about Walgreen’s.

Next is Stewart O., and Stewart O. just briefly says, “It is to your credit that you are prepared to interview people such as Michael Covell” who we interviewed recently “and Mark Dow” from October 18, “that seem to have a viewpoint so far from your own, to ask questions and not engage in confrontational viewpoint warfare so common in today’s journalism. Well done. Regards, Stewart O.”

Thank you, Stewart. Thank you for noticing. This is a conscious effort. I know what people like sometimes. They like all this confrontational stuff, but I hate it, and I don’t really learn very much when I see people doing this in the news media, just kind of yammering at each other.

We want tp help you become a better investor, so I just don’t see how going to war with my interview guests achieves that goal. Even if it is entertaining, we want to entertain while learning, right? It’s not just pure entertainment of yelling and screaming. Thank you, Stewart O. for that.

One more. It’s a little long, but I like it. It’s from Jason W., and Jason W. says, “Hi, Dan. There are a lot of podcasts to choose from, but yours is one I listen to weekly. I’m so glad you asked Michael Covell some tough questions instead of just agreeing with everything he said and making it sound easy. There are too many yes men everywhere and not enough people who push back.

Do you think it’s realistic for the average mom-and-pop investor to beat the market using trend following from their laptop at their kitchen table? How many years of studying and trial and error would it take to become proficient at this? How many hours a week would it take someone? How many retail investors end up actually beating the index over time?

People touting stock trading need to talk more about this stuff. I ask this because sometimes these styles of investing are made to appear easier than they sound and more realistic than they really are, yet everyone says investing is not easy. But is this really realistic for 99% of retail investors, or is it just some wild goose chase you waste years trying to learn and end up losing money?

If it is so doable if you just follow some simple rules, why aren’t there more funds doing this type of investing and beating the market regularly? Even small funds. Why wouldn’t all value investors just quit doing that and take up trend following? Anyway, this is just a long rant/complaint I have on many people that make it appear like beating the market through any type of short-term trading, trend following, etc. is realistic for retail investors, and it usually involves selling some kind of course product related to it.

The same goes for real estate flipping in terms of making it sound easier than it is, although I think this actually is much easier to at least understand and do for a retail investor than any type of public stock short-term trading. Thanks for listening, Jason W.”

Thank you for listening, Jason W. That’s a very honest question and that’s why I read it. Look, this is a very, very good question. Charlie Munger says if you think it’s easy, you’re stupid, and I can tell you I really can’t comment on the trend following, but you’re asking the right question, that’s all I’ll say. If you look at Covell’s trend following book, you could kill someone with that thing. There’s a lot in there.

That’s a big hint. It is a massive, massive book. I don’t want anyone to think that Michael Covell was representing trend following as really easy. He wrote a gargantuan book about it. You don’t write gargantuan books about anything that’s easy.

Having said that, that’s his deal, not mine, and I can only talk about what I’ve done and what I continue to do. Specifically you mentioned people having something to sell. Yes, I sell research. I sell stock picks in my Extreme Value newsletter. I should say “our” Extreme Value newsletter because my chief research officer Mike Barrett is an essential part of the equation there. He’s really kind of the heart and soul of it almost because he really is the guy who, if you’re going to do real valuation work, most people just do pricing work.

We do real valuation work, and you need an individual dedicated primarily to that task because it is very, very complex and it’s a bit tedious. We use something called the expectations investing model. There’s a book called Expectations Investing by a former podcast guest Michael Mobison and another guy, his mentor _____  Rappaport, and it’s got a model in it that Mike and I use to value companies.

It’s nitty-gritty valuation stuff, and most people just do pricing. They’ll say, well, this is a good business and this company is trading at 10 times EV to EBITDA or 10 times earnings or 10 times free cash flow or whatever it is, and the peers are all trading at 15 times or something like that. That’s just pricing. That’s not valuation. We actually determine, we re-engineer the current stock price to assess what the market’s opinion about the valuation is, and then we decide if that opinion is pessimistic, optimistic, or somewhere in-between.

If it’s pessimistic and we like the business, then it’s a buy. If it’s optimistic or somewhere in-between, doesn’t really matter how much we like it, it’s just not a buy, and it might be something to avoid for quite a while. All of that is just to say it’s not easy, it’s hard, and we charge on average I think like it’s going to cost you $1,500.00 on average to get into Extreme Value.

The publisher changes the price and I don’t always know exactly all the details of it, but I sure know all the details of everything that goes into it, and you’re right, it’s not easy. It’s something you need to study. It takes a long time, and it’s ongoing. You’re never done. I’m going to take a wild stab in the dark, the trend following is the same way.

It’s a very good question and I read your question just to get it in other listeners’ ears because they should ask it too. Thank you, Jason W. for that.

Okay, folks, that is it. That is another episode of the Stansberry Investor Hour. It’s my privilege to come to you this week and every week. Thank you so much for listening, and look, just write in to [email protected] with your questions, comments, and politely-worded criticisms, and go to that same website, InvestorHour.com.

We have a transcript for every episode that we’ve ever done. We’re going to keep doing that. People ask about it all the time. We do have a transcript for every episode we’ve ever done. We’re going to keep doing that. You’ll find them at investorhour.com. Just click on the episode you want, then scroll down. If it’s not there for the most recent episode yet, just give us a day or two. It’ll show up, I promise. That’s one important thing that people have asked about, and of course you can enter your email also and that’ll give you all the updates and let you know when all the future episodes are coming out, right?

                                    So, investorhour.com. Check it out. Thank you once again. I look forward to talking to you on our same old trusty format next week. Thanks a lot. Bye-bye for now.

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

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

[End of Audio]