If you’ve ever wondered how Dan finds recommendations for his Extreme Value newsletter, today is your lucky day…
Because this week, Dan is letting Investor Hour listeners peek behind the curtain to hear from one of his closest colleagues.
He’s the senior analyst for Extreme Value, the one, and only Mike Barrett.
Mike uses decades of cash flow modeling and valuation expertise to help identify some of the highest upside stocks anywhere in the market.
In fact, Dan says that Mike is the real brains behind many of Stansberry Research’s top recommendations…
Like when Mike showed his readers how to make 20X their money in just 7 months on a small biotech company treating Alzheimer’s disease…
Or how to make up to 19X their money in just over a year and a half, with a small California firm of only 76 employees…
Or the time he showed his followers how to make 9X their money in 6 months on a company fighting COVID-19…
The truth is, he’s one of Stansberry Research’s best-kept secrets…
But that’s not likely to last much longer…
Because now Mike is stepping forward to reveal his new 5-Step approach that he’s developed to identify many of these massive 10X winners.
He’s written a new special report with 10 different new stocks with 10X potential, that have NEVER been covered by anyone at Stansberry Research. You can learn more at www.MikeMessage.com.
If you’re looking to add a boost to your portfolio, this is a conversation you don’t want to miss.
P.S. If you’re interested in hearing more about some of Mike’s biggest winners, he’s giving away all the details on it right here, and it’s 100% free to attend. To learn more, visit www.MikeMessage.com
Editor of 10x Investor and Senior analyst for Extreme Value
Mike Barrett is editor of 10x Investor and the senior analyst for Extreme Value. During Mike's decade-plus tenure with Stansberry Research, he has uncovered some of the firm's highest-returning recommendations.
2:03 – On the opening rant this week, Dan gives listeners a rare warning… “I believe that is possible for the S&P 500 to fall more than 20% in a single day…”
8:55 – But Dan still says you need to have money in the markets… “You need to be a part of [the stock market]. Unless you are a great entrepreneur or some kind or a great real estate investor, or a great investor in some other vehicle, you probably need to be invested in the stock market for the long term to make the most of your savings…”
10:47 – Dan says he’s still finding new ideas for Extreme Value readers. “We found another one this month. Really great business, something I’ve been waiting to recommend for years and years, but it always seems too expensive…”
15:24 – This week, Dan invites Mike Barrett of Stansberry Research onto the show. For many years, Mike has worked alongside Dan as the senior analyst for the Extreme Value newsletter, where he’s recommended some of the biggest wins in Stansberry history. Now, he’s using his decades of cashflow modeling and valuation expertise to help identify new opportunities with his new newsletter, the 10x Investor.
22:06 – Mike shares how his experience in real estate has helped him as an investment analyst… “Real estate valuation and equity valuation are pretty similar. It’s really all about future cashflows…”
26:30 – What does Mike look for in a stock? “I don’t look at the multiples exclusively that the market is paying… We look at – in Extreme Value, and 10X Investor – the multiples the buyers and sellers are paying, during their transactions. There’s a big difference!”
33:45 – Dan asks Mike about his process for finding potential 10X investments… “I was looking for a commonality. I was looking at these ideas that was similar across them, even though they showed up in different packages… And as I looked closer, what I decided is they all shared one thing in common…”
41:14 – Mike explains some of the fascinating things he’s tracking with his new service… “In the 10X inaugural issue, I lay out the 5-Step system that we’re using. I lay it out there so everybody completely understands it. I’ve also developed a separate system for evaluating biotech stocks. I personally think that little piece of information inside the report is worth the price of admission…”
43:25 – Mike says, “The 10 initial stocks in this report have never been covered by anyone else at Stansberry. They’re brand new…”
46:50 – Mike leaves the listeners with one final thought as their conversation closes… “That’s been my motivation all these months, working 10+ hours a day, seven days a week. I think this is information that can help a lot of people… We’re kinda breaking new ground here at Stansberry.”
54:33 – We’ve got some great questions on the mailbag this week… One listener asks Dan about ARK’s new fund that is designed to short value stocks… Another listener asks Dan if he buys U.S. gold coins… And another listener writes asking Dan’s thoughts about how to parse through all the content that Stansberry Research produces… Listen to Dan’s response to these questions and many more on this week’s episode.
Announcer: Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour. [Music plays] Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's 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 published by Stansberry Research. Today, we’ll talk with my good friend Mike Barrett, my friend and colleague of the last decade. Mike has his own brand-new product coming out called 10x Investor, and we’ll talk all about it and the system that he’s developed to find incredible deals that nobody else in the whole Stansberry universe has found. In the mailbag today, questions about ARK Investment Management, deep-dive research, and a crypto security question answered by Eric Wade.
And remember. You can call our listener feedback line, 800-381-2357. Tell us what’s on your mind and hear your voice on the show. For my opening rant this week, I will give you a warning that I intend to issue once or twice a year. It’s a rare event. It probably won’t happen, but it can happen and somebody needs to tell you about it every now and then. That and more right now on the Stansberry Investor Hour [music stops]. So what’s this warning? What is this warning that I’m talking about that I intend to issue once or twice a year? Well, I issued it recently in writing in the form of a Stansberry Digest on Tuesday of this week. And the last time I did it was back in January of this year.
And the warning is simple. I believe that it is possible for the S&P 500 to fall more than 20% in a single day. Let me tell you what I am not saying first. I am not saying that I’m predicting this will happen very soon or that the conditions are right. You know, smarter people than me have tried to figure out when the conditions are right, but nobody can really predict this sort of thing. And the reason this is an extremely controversial viewpoint is, first of all, the biggest drop in the S&P 500 was October 1987. The Dow Jones dropped 22.6% that day. The S&P 500 dropped 20.47% that day.
So, you know, that was more than 20%, but that’s not what I’m talking about. I think it can drop 20, 25, 30%, maybe even more. And that’s a controversial statement because they have these things on the stock exchange called circuit breakers. And the circuit breakers happen this way, like, if the S&P 500 is down 7%, they shut down trading for 15 minutes, give everybody a chance to catch their breath, and let the order flow catch up. Then they start trading again after 15 minutes. Then if it falls 13%, then they shut it down again, another 15-minute break. And if the S&P 500 falls 20% in one session, they close the exchange.
So how, then, you might say, Dan, [laughs] could it possibly fall more than 20% if they have a mechanism in place to shut the trading down if it falls 20%? It is for this reason. I view – I’ve said this before. I view markets not as a man-made machine. I view markets as natural phenomenon. They’re what happens when people get together, as long as they’re not prohibited from the free exchange of ideas and goods and cash and investment securities and whatever.
And see, I think a misunderstanding is that the market is that building in New York on Wall Street with all the – you know, with computers and people inside of it. The market isn’t a tangible thing. The market is the exchanges. It’s the exchanges between people. It’s the relationships and the actions that people take in those relationships, the exchanges. It’s not the building and it’s not the computers, and it’s not a tangible thing. See? And because I believe it’s this natural phenomenon that occurs wherever human beings gather in large enough numbers, I don’t think mankind has control of it to the extent that some people would probably like you to believe, right?
The Federal Reserve I think would like you to believe, “We’ve got this. You know, we’re controlling interest rates” – which I don’t think they are. “We’re controlling, you know, asset prices.” Which they would never admit to, but I think they believe they are. And I just don’t think mankind has this kind of control over natural phenomenon and I think markets are natural. So, I think that securities prices have a mind of their own, even if they do stop trading at minus 20%. That doesn’t mean that’s where the price stops moving, right? The price is what you’re willing to offer, and you are a human being. You don’t shut down when the market shuts down [laughs].
You see what I’m saying? It’s this idea that we have more control than I think we really do. I don’t think we have that kind of control, despite the mechanisms put in place to try to exercise it. So like I said. Once or twice a year, I feel like I should repeat this. If it’s more than that, if I’m constantly repeating it, it’s noise, right? Because these are rare events. In my Tuesday Digest piece for the Stansberry Digest where I wrote about this idea, I named the – four times... four. Just four since 1928 – that the S&P 500 has fallen by a double-digit percentage, 10% or more. Just four times. OK?
Obviously, the worst one was October 9, 1987, and then there was Black Monday and Tuesday, October 28 and 29, 1929. That was about 11 or 12% each. And then, there was an 11% day down in March of 2020. So, you know, four times. And then, here I am saying, “Well, I think it can fall a lot more than the very worst of those rare occurrences. So yeah. It’s a rare occurrence. It may never even happen during our lifetime. I’m 60. If I live to be 100, we might never see it. You know? And it has never happened yet during my lifetime. Well, that’s not true. It happened October 19. It was a little more than 20%.
So, what’s the purpose of this? Well, part of the purpose is I just want you to – just saying it out loud is controversial enough, [laughs] right? Nobody’s telling you this. To me, this is low-hanging fruit for any analyst to say, “Oh. And by the way. This can happen, I believe.” And the rest of the time, what happens most of the time? Most of the time, stocks are a great bet. Over the long term, over the past century, are you kidding? You know, if you read... oh, gosh, I forget their names – Elroy, Marsh, and Staunton, Triumph of the Optimists. But stocks were like a million-and-a-half percent in the U.S.in the 20th century, for those 100 years. A million-and-a-half percent. Not a bad bet, right?
So, over the long term, stocks are a great bet. People keep showing up. They keep finding solutions. They keep generating value. They keep building these businesses that – gosh, lots of excess free cash flow, so much that they literally don’t know what to do with it. And you need to be a part of that. I mean, unless you are a great entrepreneur of some kind or a great real estate investor or a great investor in some other vehicle, you probably need to be invested in the stock market for the long term to make the most of your savings. You know? Some significant portion of your savings, right? But every now and then, things get a little crazy and people like me turn bearish for a little while.
And it can seem like an interminable while, like a long while – a couple years at a time with the markets still going [laughs] straight up. OK? But eventually, crazy, speculative markets where people are speculating on short-term options in higher volumes than the stock exchange – like the volume of call options has overtaken the volume of stocks. I don’t think it’s ever happened before. So, you know, there’s a speculative frenzy right now and these things usually turn around and turn into bear markets or crashes or whatever. And then, that becomes a huge buying opportunity and away we go, stocks once again become a bull market again after those episodes.
But like I said. My mission for the rest of my career is to help people get through what I think is going to be a pretty nasty bear market coming up. You know, when, I don’t know, right? I always say, “Prepare, don’t predict.” I’m never going to try to predict it. And then once that happens, I will spend the rest of my career trying to say, “Hey. Don’t be afraid. Stocks are cheap. You should own them.” Not there yet. But miraculously, we are finding new long ideas for Extreme Value. We found another one this month. Really great business, something I’ve been waiting to recommend for years and years but it always seemed too expensive.
And our guest today, Mike Barrett, sent it to me in an e-mail and I was like, “Wow. That’s the one. I’ve been waiting for years for this. Great.” So look. I’m not a permanent bear. I’m not saying you should never buy stocks – any of that stuff. But I’m just warning you that things besides the market going straight up forever by double-digit amounts every year can happen. OK? Just that much. Be prepared. How do you prepare for a one-day crash, 20%, 30%, or more?” Well, it’s kind of impossible, right? The only thing that I can come up with in the way of advice is, you probably want to stop out of your speculative positions. You got to know which are your speculations and which are your long-term, great businesses that you want to keep.
And you’d stop out of your speculations – you know it would essentially be over at that point, right? You know, the speculative market would just be jamming on the brakes on a day like that. And it would be over and you’d have to sell them out and say, “OK. Well, I’m not going to bet on this garbage for a while." And then, you’d probably put some money into your really great businesses. If you own – I don’t know – just pick an easy example like Berkshire Hathaway. If that stock fell 40% that day, you’d probably want to buy more, I’m guessing. You know? Even with something like – I mean, Apple. I think Apple’s a great business. You know, you’d probably want to buy more of that.
In Extreme Value, we’ve recommended things like Starbucks and Waste Management. [Laughs] I promise you people are going to keep drinking coffee and people are going to keep loving Starbucks and people are going to keep needing to have their trash removed. So, you might want to add to those on a day like that. But you’d want to – if you’re still holding Peloton and it finally gets completely murdered the rest of the way, it’s over. You might not want it. Of course, with Peloton it sounds so far it may turn into a value play at some point. But you get the drift, right? You get the gist. It can happen. Be prepared. Have a plan. Stick to your guns. That’s all I’m going to say about that today. All right. Let’s talk with my good friend Mike Barrett. Let’s do it right now. [Music plays and stops]
Last year when most investors were watching their stocks plummet, one Wall Street legend was using an unfair advantage to identify winning stocks with massive upside, like Riot Blockchain, before it shot up 10,090% in less than 12 months... Digital Turbine, before it shot up 789% in eight months... Overstock.com, before it shot up 1,050% in four months... and more. Clients have paid as much as $5,000 per month to see this kind of research, but today you can get a glimpse at his system, the Power Gauge, absolutely free. It’s a new way to see which small stocks could soon be rated a "buy" across Wall Street and shoot up by using a secret so powerful CNBC’s Jim Kramer once said even he doesn’t want to bet against it.
This Power Gauge comes from the legendary Marc Chaikin. Marc is the creator of one of Wall Street’s most popular indicators. A system that appears on every Bloomberg terminal in the world and is used by banks, hedge funds, and every major brokerage site. He spent 50 years on Wall Street, survived and thrived in nine bear markets, build three new indices for the Nasdaq where he once rang the opening bell. But today, Marc turned his back on Wall Street and wants to show you how his unfair advantage works. Right now, you can get a free, in-depth look at how his Power Gauge system works, a way to type in any of 4,000 different ticker symbols and see exactly where the stock is most likely to go next, and in any type of market. Simply go to www.powergauge info.com for your free look. That’s powergaugeinfo.com. [Music plays and stops]
Today is really special, man. We are interviewing my friend and colleague of the past decade, Mike Barrett. Mike Barrett is editor of 10x Investor and the senior analyst for Extreme Value. He uses decades of cash-flow modeling and valuation expertise to find stocks with 10-bagger potential for 10x Investor subscribers and underappreciated, high-quality growth stories for Extreme Value subscribers. During Mike’s decade-plus tenure with Stansberry Research, he has uncovered some of the firm’s highest-returning recommendations. Mike holds an undergraduate degree in agricultural engineering from the University of Georgia, an MBA from Florida State, and MAI and SRA designations awarded by the Appraisal Institute. Not many people have those. The MAI is often considered the equivalent of doctorate-level work in the field of commercial real estate valuation, and Mike has that. So with that, Mike, welcome to the show.
Mike Barrett: Hey, Dan. Thanks. Glad to be here.
Dan Ferris: Yeah. This is fun. It’s nice to just [laughs] talk to somebody I know and talk to all the time rather than somebody whose face I’ve literally never seen before in many instances. But the first thing we got to talk about is how it all began for you. Like, how old were you when a career as a finance guy became the choice. You know, how old were you when you said, “This is it. I’ve found it. Let’s do it”?
Mike Barrett: Great question. It’s funny. I was about two weeks away from – I went back to finish up my last semester in engineering school. I’d already been accepted at FSU, into the MBA program and my dad says to me, “Hey. I want you to go get your real estate license.” Now, keep in mind I’m two weeks – I’m in the middle of my vacation break before I go back to school and the last thing in the world I want to do is go sit in the classroom for a week and get a real estate license. Had no interest in it at all, or so I thought. But I did – my dad said, “Go do it,” and so I did it.
And what’s funny is, the very first day, within the first hour, we start discussing real estate valuation and appraising. And I don’t know what it was, but I instantly knew that that’s what I wanted to do. There was no question in my mind that that’s what I wanted to do. So I finished up the engineering degree, went to MBA school. While I was there, I worked for an appraisal company and then went on with a full-time after. So, that was that moment I was sitting in that classroom and it just – bam, it hit me, and I knew right then that that’s what I wanted to do. Crazy.
Dan Ferris: Yeah. That is really something. It’s like it makes me wonder what the teacher was talking about at that moment. You know?
Mike Barrett: I don’t know. You know, that’s a great question. I don’t remember. It was just the concept, it was just this idea, of valuation. And the nice thing about engineering is that you learn how to – it’s all about math, right? It’s all about systems and creating things. And there was just something about the mathematical concepts associated with valuation that really appealed to me at that moment. And I just knew that that’s what I wanted to do. You know, as I’d gotten older and reflected on it, the fact that my dad was in real estate and was a successful broker – surely, that played a role here. I just didn’t – it was like a latent thing, right? I didn’t know that I had this desire to be part of that and this skill. I just had to be – something had to be put in front of me for me to realize that.
Dan Ferris: You were a chip off the old block and you didn’t even know it.
Mike Barrett: That’s right [laughs]. I absolutely was.
Dan Ferris: That’s right. But before that moment, you were on track to be an engineer of some kind.
Mike Barrett: I was. I was in the ag engineering program at Georgia and loved it. It was a great experience. and the wonderful thing about ag engineering is you learned mechanical and civil and electrical and all of these different things. I think my design project as a senior was to design a mechanical peach harvester. So, that was really fascinating to me. But, you know, what was interesting – it was – 1983, I guess. And the job market wasn’t great back then. Inflation was raging. It was a tough time. So, it was a good time to go to MBA school and then go into a different direction.
Dan Ferris: Yeah. That’s really cool. I think that’s great. So you spent – yeah – how many years like as a real estate appraiser guy?
Mike Barrett: A lot. A decade or so or more. I don’t even know.
Dan Ferris: OK.
Mike Barrett: You know, it was cool. I started out appraising homes, which was a great foundation for what I moved into eventually. Which what I really wanted to do was focus on the commercial side of business and shopping centers, apartment complexes, hotels, so forth. And so, it’s a process. It’s like anything else. You have to – it’s really almost like an apprenticeship. You have to go to work of somebody who knows how to do it, who has the connections and the experience and you learn from them. You mentioned the MAI earlier. To get that designation, you have to demonstrate a sufficient amount of experience in the business. You have to actually sit in front of a panel of your peers who review your work and discuss it and defend it in front of them. So it’s a very rigorous process.
Dan Ferris: That’s cool. Yeah. Really cool. I mean, you are – and, you know, for our listeners who are mostly interested in equities and ideas around equities, you’re basically an expert in intrinsic value. I mean, that’s not a stretch at all to say that. That’s entirely accurate, isn’t it?
Mike Barrett: No, that’s correct. That’s correct. I mean, I spent years – and it takes years and years to get those, earn those, designations and you have to put in a certain amount of experience to do that. And what’s interesting is that – and I didn’t appreciate this until sometime later. But real estate valuation and equity valuation are very similar. It’s really all about future cash flows. And I’ve written about this before in the Digest. It’s ultimately an advantage for me because valuation is forward-looking. It’s all about what’s to come, not what’s happened in the past.
And because – if you think about the process you go through when you’re valuing, say, a shopping center, you’ve got 20 or 30 tenants that are coming and going. You’ve got all these different things that are happening. And so, you build these cash-flow models over the next three, five, 10 years based on what you expect to happen. And so, it’s a very rigorous, detailed process. And so, when it came to evaluating equities I was already very familiar and comfortable with that looking-forward concept and thinking about the future. And so, it was really a natural step for me to switch from real estate into equities.
Dan Ferris: Yeah. What I love about this, Mike, is so many people involved in the stock market look at the share price and the market cap as the value, as the intrinsic value. And your training, though, is clearly – and my personal experience and personal development, like, the intrinsic value is in the cash flows. It’s in the business. It’s not – the share price reflects that in one way or, you know – more or less, most of the time. But you know better than most that the intrinsic value is in – it’s in the cash flow generation capability of that asset. And to be grounded in that and not to be grounded in spending all your time trying to guess about the securities prices movements... I think it’s actually kind of rare nowadays. It may even be getting rarer all the time [laughs] as the market goes higher and higher, right?
Mike Barrett: It’s a real asset. When you understand valuation – I think it’s the best way to approach stock selection. Most people focus on multiples, “What’s the stock trading at,” versus next year’s earnings or whatever. The problem is that – well, let me put it this way. When you learn to model cash flows, you understand very specifically what kind of growth and margin expectations are factored into those prices that ultimately get reflected in those multiples. And so, when you say, “I’m” –
Dan Ferris: Price and multiple are the same thing, right? I mean, they’re practically the same thing.
Mike Barrett: They are the same thing. It’s just that when you do the intrinsic valuation the way we do it, you understand what assumptions you’re making about the future. When you say, “I’m going to pay 10 times,” you don’t really understand what assumptions you’re making about growth and margins. So I see... the other thing that I do, that I think’s really important – is, we all – as you know, we do two approaches to value in Extreme Value. We look at the intrinsic value on our income basis by modeling future cash flows, and then we take that number, and we test it for reasonableness by converting it into a multiple and then say, “OK. What is the market paying for a similar amount of income and growth?” Whereas a lot of people just focus on the multiples themselves without going into the detail about what’s really reflected in it.
Dan Ferris: Right. So I bet you anything many listeners are going, “Whoa, whoa, whoa. Wait a minute. You said you’re testing for reasonableness against a multiple, but you just said the multiple was really no different than the price. It was not a great valuation method.”
Mike Barrett: Well, it is a good valuation method as a test. Let me put it that way. It’s – to me, the problem is, if you’re strictly going to buy and sell stocks based on a multiple you don’t really understand the finer details of what you’re paying with regard to growth, expectations, and margin expectations. But at the end of the day, here’s the difference and here’s why it’s important. I don’t look at the multiples typically or exclusively that the market is paying. We look at in Extreme Value and 10x Investor the multiples that buyers and sellers are paying for in actual transactions. There’s a big difference.
You can buy IBM or Apple or whatever at whatever multiple today. But the question ultimately is, “What have buyers and sellers paid for similar businesses – what multiples did they pay?” and those are the multiples that I focus on. I’ve got my own proprietary database that I’ve developed – I think it’s got 150 transactions in it – where I understand what the expectations at the time of the sale were with regard to future growth and margin... our expectations. And I use those as a test of reasonableness against our intrinsic value estimate.
Because the other piece of this is, we mentioned what intrinsic value is. That’s the discounted present value of all of the cash that the owners will take out of the business in the future, right? Well, another way to look at that is, an alternative way to look at that is, “What’s the highest price that somebody would pay for that business today knowing that that’s the future – or that’s the potential of the business in the future?” So, when a company pays 25 times EBITDA or 14 times sales, whatever the case is, ultimately that multiple that they’re paying is a reflection of their expectations for those future cash flows.
Dan Ferris: Right. And one of the things I kind of care about is, people will pay more for 100% of a business than they will for a piece of – they’ll pay more for control, really. Do you think about that or does that not figure into your thinking at all?
Mike Barrett: No, not really. What we do is, we – in essence, what we do is we’re looking at the intrinsic value of the business. We’re looking at what somebody would pay for the entire business. You’re right. There is a – there’s probably a discount there or premium depending on which side you want to look at it from. But, no, we don’t get into that. And so, yeah. The point here is that when we do these 10x valuations, we do ultimately test those valuations against the comp database that we do have to get a sense for, “Is it really reasonable that somebody would pay this kind of a price for this cash-flow stream?”
Dan Ferris: Right. So, let’s make clear to our listener what we’re talking about. So when I introduced Mike – I said, “You know, he’s the guy behind their new 10x Investor product” – and we’ll talk more about that. And of course, he’s been – he really runs Extreme Value if I’m really being [laughs] honest. I mean, he took the model that we used and just ran with it. And with his experience... like, in the beginning, I was kind of doing my own work. But I thought, “God, he’s just so much better at it than me. I have to let him run with it.”
And really for the bull run that we’ve seen for all the time just about that you’ve been with Extreme Value, it’s been the best way to – like, the deep value sort of multiples and things, that’s been the way to pick stocks since you started with Extreme Value, right? So the way that you do it has been the best way, because that’s how you get those perfect moments to find the great businesses that we like in Extreme Value.
But what I’m getting at here, though, is it seems to me so different. Like, when you tell me, “Hey. You’re the Extreme Value guy,” well in Extreme Value we’re looking for really great, generally mature businesses that have big competitive advantages and they gush cash flow, they generally have great balance sheets and great managements and the names are well-known... stuff like Waste Management or Starbucks or something like that. But for that guy to turn around and tell me, “Yeah. I’m looking to make 10x,” and I’m calculating the intrinsic value of something that doesn’t have earnings yet, I’m like, “Make the connection here for me. If anybody can make the connection you can.” But it’s not instantly visible.
Mike Barrett: Yeah. And you make a great point. And it’s funny. When I think back to how it all started, I do screening – I look for stocks every day. That’s part of what I do. And what I began to notice was that there were all of these companies – these obscure, smaller companies – that I didn’t know anything about. And as I looked closer at them, I thought, “OK. I like that story,” I realized the thing had already gone from $2 or $3 or $5 up or $40, or $50, or $100 or $150.
And I thought, “Wow. I never knew anything about this. How did that happen? How did it go from $5 to $75 and I never knew anything about it?” And I decided that it was time to figure that out, because there were quite a few of these things happening. And I thought, “Not only am I as an investor myself missing out on an opportunity, as best as I could tell the folks – the good folks that we work with at Stansberry were missing out on a lot of these opportunities as well.
And so, I thought, “OK.” I like to give myself a challenge every year. You know, last year I told you I learned – I taught myself how to play the drums. A few years, I said, “You know what? This is going to be my challenge for the year. I’m going to figure out a way, come up with a system, that figures out how to find these things and then figures out how to evaluate them.” Because you’re right. You made a good point. The concept of 10x, the companies that we’re talking about, are entirely different from the bigger, well-known, mature companies that we cover in Extreme Value.
Dan Ferris: Right. And it’s not only that they’re different. It’s just like they seem like they’re night and day. It seems like – you know, it’s the difference between like the caricature maybe, or the typical sort of archetype of the value – the stogie value investor who doesn’t buy unprofitable businesses that are unproven or something. It’s like your value investor gene got broken or something. You know [laughs]? But not really though, right? You’re doing almost the same work to find these seemingly opposite opportunities. This fascinates me to no end, actually.
Mike Barrett: Yeah. And you’re right. And so, what I realized pretty quickly – OK. So what I thought was, when I started this process, I thought, “The best way to figure out” – I was looking for a commonality. I was looking for something about these ideas that was similar across them even though they came – they showed up in different packages. And as I looked closer, what I decided was that they all pretty much shared one thing in common, and that was that they were – these business models had been built around this novel idea, this unique idea that someone had come up with, that of course constituted intellectual property in their hands. You know, a wonderful example is Netflix. Look what Netflix has done. Look what they created and what it’s turned into. I mean, there was a day when you could buy Netflix at $30, $40 a share. Now it’s $600, $700 a share.
Dan Ferris: Nice.
Mike Barrett: And so, what’s interesting is that you have to – this is the other thing that I learned and realized quickly was, these are ideas. You have to figure out how to put a cash value on these ideas long before the things that most investors are focused on – what’s your profits and margins and so forth. – those things are pretty much out of the equation for the next three or four, five years in most cases. In fact, some of the stocks in this 10x Investor program that I’m recommending that goes out here in the next – later this week... they’re years away from mass production in some cases.
But that doesn’t mean there isn’t tremendous value in the intellectual property that they own and are exploiting right now for these massive opportunities that are ahead. So that’s the trick. You got to figure out how to create a – put a cash value on these ideas. And really, based on the experience and expertise that I’ve had, there is a formula. There’s a way to do it that’s very similar to what we do in Extreme Value. And rather than focusing on intrinsic value, what we do is, I created this convention called Intrinsic Value Potential. Now, you’re wondering. “OK. What is that? How is it different?”
Dan Ferris: Right. Like future intrinsic value.
Mike Barrett: The difference is – and the best way for me to explain it – is that, again, these companies are in many cases two, three, four, five years away from stabilized operating levels. They’re in the process of massively growing their top line but profits are still years away in most cases. They’re more focused on grabbing the market share right now and preparing for what’s to come. So, intrinsic value potential is all about looking into the future – three, four, five years out – when the company has gotten to that point where it’s more mature, profitability’s now becoming a bigger part of the business model and understanding and estimating what the value is at that point. So ideally, what we’re looking for is a stock that is trading today, say, at $10 a share that has this intrinsic value potential based on future expectations for revenue and profitability and so forth that’s about $100 a share. So, that’s the essence of what we’re doing here.
Dan Ferris: Right. And I think we should emphasize. Like, this is no mere abstract exercise for you, is it? Like, you were buying thee things and kind of making a lot of money on them in many cases before you decided, “Hey. I need to – this thing’s fully developed and I need to share it with the rest of the world.” Correct?
Mike Barrett: That’s correct. I mean, right. I didn’t just create this and then we’re throwing this out there as a product. I had to prove – and I did that with my own capital for most of this time. I actually bought, you know... one that comes to mind, Kodiak Sciences. It’s a small biotech company that I bought in '19 – at about, I don’t know, somewhere under $9 a share. It has gotten as high as $170 a share. I think it’s trading about $95 right now. So again. This – yeah. This is proven. I’ve proven – that’s why when I say that this process has taken years, it took years to kind of tweak the system and then to prove it as well. It wasn’t just a matter of creating it. It was, “Let’s see if it really works with real trading capital.”
Dan Ferris: Right. I mean, you’ve been telling me about this for at least a couple years, and then you’ve been talking with folks in Stansberry besides me for quite a while longer about it. I do want to talk about screening. Because you made an interesting comment. You said you do screening every single day. And I do that too, but I think I do like more traditional-type cash-flow multiples and returns on capital and all that kind of Baloney [laughs]. But we were talking last night and you said that you’re screening – you developed a whole screening process. It sounds like you want to keep it a secret. But, like, is there anything you can tell me about it? I know it’s very different. But, like, can you give me a hint or something? I mean, anything.
Mike Barrett: [Laughs] Well, yes. I mean, you’re right. If you’re going to find these stocks and you’re going to find them early – and that’s really important, right? You want to get in when it’s $5 or $10 a share, not when it’s already been known and it’s $50 or $60 a share. and so, what you find out really quickly is that if you’re going to find them early, the traditional screening methods where you plug in things like sales growth or profitability and so forth – that doesn’t cut it. Because many times, these companies have only existed for six months, 12 months, 24 months. And those traditional screening approaches oftentimes don’t pick up these newer companies that are – they don’t have those things yet.
I mean, even if they’ve existed for two or three years, there’s no profitability. There’s in some cases no revenue. And so, there’s no way that, in most cases, these stocks are going to show up on those traditional screens that – by the way – not only you but 99% of the analyst community are using those same screens, as are a lot of individual investors because those things are now widely available to almost anybody. But it goes back to, if everybody in the world is doing the same thing, you don’t want to do that. You want to go in a different direction. So here’s what I will tell you.
I’m not going to tell you much because... well, here’s the good news. In the 10x, the inaugural issue, I lay out the five-step system that we’re using. I leave it completely out there so everybody understands it. I’ve also developed a separate system for evaluating biotech stocks. I personally think that little piece of information inside the report is worth the price of admission. Because it’s one of those fields where it can be mystifying as to, “How in the world do you value something that has two or three employees and is probably never going to make money?”
So, I’ve laid out a tremendous amount of the intellectual property behind this system that I’ve created. The one thing I won’t do is talk much about the screening process [laughs]. Because it’s the one thing – I haven’t even said anything to Stansberry folks about it. Because it’s taken me years to get to the point where I’ve got this thing. And it really is the essence of what makes 10x special. Because if you can’t find these ideas early, then there’s no point. But what I will – so I hope I’ve at least given the listener enough to know that if you’re doing the traditional approach, you’re probably not going to find these ideas there. You’re going to have to come up with a different process.
Dan Ferris: That’s a good point. And what you said before and what we said before about other Stansberry folks... like, one of the early things I remember of when we were talking about this was, you said, “I got a whole list of stocks here that are like – some of them have already run 10x and some of them have the potential to run 10x.” And, like, they never appeared in any Stansberry publication.” I mean, who knows how many stock picks we put out as a company? It must be hundreds at this point a year, and they didn’t find these. It’s amazing.
Mike Barrett: Yeah. And let me also make the point that the 10 initial stocks in this report have never been covered by anybody else in Stansberry. They’re brand-new ideas. I’ve been working on this since our boss, Matt, gave us the go-ahead in August. I’ve been working seven days a week. Most of those days were 10-hour days. And to put this thing together and find these things and to provide the – I think our managing editor told me yesterday that it’s 39 pages and about 16,000 words. So, it’s a comprehensive document packed with all kinds of details and analysis. And yeah. It’s breaking new ground at Stansberry, for sure.
Dan Ferris: Right. Right. And you can get – our listener needs to know. They can get all this information if they’re interested in signing up for 10x Investor or just seeing the presentation, which is free. They can go to mikemessage.com. And there’s a whole presentation there with Mike and I chimed in for a few minutes and gave my two cents... told the world how great he is for [laughs] five minutes. Yeah. And, hey, my pleasure, man. You know, I actually have to say this. I mean, it’s going to embarrass you. But, like, they say that the thing you should do if you’re in a position to participate in hiring someone... and another fellow from Stansberry and I hired Mike – that you should hire someone who’s better than you and smarter than you.
And, man, did we do that. [Laughs] Like, if you’re running a publication based on the idea of intrinsic value, you hire the guy with decades of experience who knows intrinsic value up, down, sideways, inside-out... like stone cold. And we certainly did that. And then, you know, here you developed this whole other system over a period of years. You tested it, it works with real money and now we’re sharing it with the whole world and it’s called 10x Investor. And listeners can find out about it by going to mikemessage.com. So let me ask you, Mike. Is there anything you feel like we haven’t said about 10x Investor that you really want to tell people? I just want to make sure we cover this.
Mike Barrett: No. I think we’ve covered it all, Dan. You know, we’ve talked about the system. It’s a unique system with a unique way of finding the ideas. We cover – there’s no part of the market that we won’t look at. I’ll look at anything that could potentially 10 times. Oftentimes, the ideas are in the technology area but biotechnology is an area that’s covered as well. No. I think we covered it. I think we got it all in there.
Dan Ferris: Great. So then, it’s time for the final question. I ask my – same final question, every single guest, every single interview no matter what the topic is. So that question is, very simply, if you could leave our listeners with a single thought today – and I suppose it could include going to mikemessage.com [laughs] – if you could leave them with a single thought today, what would it be?
Mike Barrett: Well, I suspect that there are listeners out there that are wondering, “OK. You created this system. You used it for your own capital and you made a lot of money. Why in the world are you putting it out there now?” And, you know, my answer to that would be I’ve always lived for a higher purpose. I think that we should – we have these talents and these gifts that we’re given and our job is to put them out there to help other people. And so, I think it’s the right thing to do. That’s been my motivation all these months working 10-plus-hours days, seven days a week. I think this is information that can help a lot of people. It can help our subscribers.
Like when we talked about before, we’re kind of breaking new ground at Stansberry. We’re covering an aspect of the stock market that hasn’t been sufficiently covered before. And these are potentially life-changing ideas here. These are stocks that can take $2,500 and turn it into $25,000 and so forth. And so, nothing would thrill me more than for these ideas that I can’t buy anymore myself... for someone else – for lots of someone else – to run with them and make 10, 20, 30 times if that’s the potential on their capital and let it be life-changing for them. I think that would be wonderful.
Dan Ferris: That’s great. And I should add that you can ask that question to about, “Why are you doing this rather than using the ideas yourself?” You can ask that to like dozens of people at Stansberry and you’ll get a somewhat similar response from all of them. You know, they’re successful investors, they worked for incredibly successful investment firms, they’ve been individual traders, they made plenty of money in the market, all that stuff. And they all feel this similar need that you described to just, you know, tell the world about it. So that’s great. That’s a great final thought. I’m glad you said that because I agree. You’re right. People are wondering about it. So always good to talk to you, Mike. And thanks for being here today.
Mike Barrett: You’re welcome. Thank you.
Dan Ferris: You bet. And one more time, everybody, mikemessage.com. M-I-K-E message.com. You’ll see a whole presentation about everything we talked about and lots more. There’s lots more information in that presentation we could ever get to here. All right, man. We will talk again soon. We’re going to have you on the program probably, you know, within the next six or 12 months because we got to find out how all of this is going, right?
Mike Barrett: Right [laughs]. Hopefully good.
Dan Ferris: Yep. Yep. Yep. Hopefully good. Fingers crossed. I’m sure it will. All right. Thanks a lot.
Mike Barrett: OK. Thanks. [Music plays and stops]
Dan Ferris: Well, I always enjoy talking to my old friend and close colleague of the past more than a decade now – or maybe just a little over a decade. I think Mike started in 2011 with us. And one of the first things he ever did was find Constellation Brands, which is the best-performing closed recommendation Extreme Value. I think it was like 620% or something. And he found many others, you know, triple-digit winners and stuff. Like I said. He’s better at it than I am. He’s better at understanding and ferreting out a reasonable intrinsic value for a business than I am. You know, I’m good at whatever I’m good at but Mike is just a master at that.
And I have watched him with relish over the years. I actually sent him a book years ago called Expectations Investing with former podcast guest Michael Mauboussin, written by Mauboussin and Mauboussin’s mentor Alfred Rappaport. And I said, “Mike, I really like this Expectations Investing approach and I think we should use it." And I didn’t think any more of it and Mike just ran with it. I mean, he ran with it and that’s the model that we use. And I think that’s been the best way to assess value and find new ideas for us for, you know, thoughtful, long-term investors who are focused on fundamental value of the last decade.
Because if you just look at the regular multiples, you can’t be – it’s been hard to be like a traditional deep value kind of investor. Which deep value is almost like distressed investing but not quite. And it’s been hard to do that. So, what we’ve done instead is kind of pivot, and we’re more interested in assessing growth prospects and value relative to that, and Mike is great at it. He runs a whole model and we let the model find the ideas for us. And it’s been great. And you can find out more about Mike’s new newsletter. This is the first time he’s had his own new newsletter at Stansberry called 10x Investor.
He’s brought all this experience to bear and there’s a whole presentation that he did about it. He goes into quite a bit of depth about a whole bunch of stocks that he found that ran up huge, that produce incredible returns, that he made money on himself. And the presentation is at mikemessage.com. www.M-I-K-E message.com. Even if you don’t want to buy a newsletter, watch the presentation. You’ll learn so much. I promise you. Mikemessage.com. Check it out. All right. Time to look at the mailbag. Let’s do it right now. [Music plays and stops] Today, I want to bring up Matt McCall’s exclusive interview He recently filmed this for everyday investors.
And since I’m the host of Investor Hour radio, I want you to learn more about Matt and what his presentation is all about. Matt has decided to step forward with some much-needed clarity on the markets and a huge prediction about the stock market that most media outlets are completely overlooking. As the world goes crazy for speculations, thousands are turning to Matt McCall for his latest thoughts. As usual, his prediction is not what you’d expect. Matt says, “There’s a big lie infiltrating the mainstream financial media right now and I’m hellbent on exposing it.”
Matt believes we’re at a pivotal moment in financial history where fortunes will be made and lost. But the right story about exactly how to make money in the stock market today is not being told.” So to get the story out, Matt McCall went in front of a live audience to reveal likely the best way to make money in America right now and exactly how to position yourself properly. During the presentation, you also get the name of the number-one stock Matt McCall says to buy right now. The last time he gave away a free recommendation like this, it soared over 300%. So you want to pay attention.
To watch the exclusive interview free for a limited time only, visit www.messagefromdan.com. The website, again, is messagefromdan.com. [Music plays and stops] In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Send questions, comments, and politely worded criticisms, please, to [email protected]. I read as many e-mails as time allows and I respond to as many as possible. You can also call our listener feedback line, 800-381-2357. Tell us what’s on your mind and hear your voice on the show. First up this week is L.K. And L.K., I’m glad you asked about this, L.K. Because if not, I was probably going to do it in the rant. But you asked about it, so I left it for now.
L.K. says, “How are you? After following you and your research, I have become very confident with investing. I like your quote, ‘Prepare, don’t predict.’ What’s your opinion on ARK, ARK Investment Management, starting a fund to short value stocks? What’s your opinion on ARK starting a fund to short value stocks? Cathie – Cathie Wood, ARK Investment Management founder – has got very lucky with money printing in zero rates. I feel she has no investment thesis as such. She just keeps predicting higher and higher prices for Tesla... openly throws her investment ideas and starts pumping again and again. She is a very influential person. Many of my friends follow her blindly lost all money investing in her picks. Looks like she is very nervous as her ETFs are going to have a negative return here. Now she is trying much higher to pump her hypergrowth story. Wanted to know. Should we worry about her betting against value stocks? Thanks, L.K.”
L.K., if anything I would say this is the sign of the bottom in value versus, you know, momentum or growth, right? And yes. ARK Investment Management – she’s recently talked about this in the press where she says there are a lot of value traps in the big indexes and she wants to start a fund that she says – it’s basically ARK on steroids, right? So, they’ll be long all the growth names that everybody’s excited about – Tesla being the biggest position in their... Tesla’s the biggest position in their flagship fund which has like 60% of the firm’s assets under management in it. The ARK Innovation Fund, ticker symbol ARKK.
And yeah. She’s been a very vocal bull on Tesla. I think she’s one of these people who says, “You know, Tesla’s going to be $4,000 a share.” And that sounded crazy when the stock was like $400, but it’s $1,000. So who knows? I don’t know. It can probably be $4,000 but I would suspect it would only spend about a minute at that valuation before it crashed. But we’ll see. So yeah. She’s been really, really influential in the sort of growth bull market. I give her a little more credit than you do.
I don’t think she just got lucky. She got long innovation and technology starting in 2014. And it was the right thing to do. And she’s made a ton of money, and she – her funds have really taken off. They had – I think they’re down to $40 billion or so, maybe $35 or $40 billion under management. I don’t know. It’s down substantially from the high of like $50 or – I want to say $53 billion earlier this year. It peaked in February. But since then, you know, the fund flows – like, if you go into a Bloomberg or someplace you can look at the fund flows. And they were all green. They were all positive.
But now, it’s like a healthy dose of red, of negative flows out of ARK funds... especially out of the big one – ARK Innovation. So no. We should not worry about her betting against value stocks. It doesn’t mean anything. In other words, you’re implying that because she’s been influential in the way up in technology and growth stocks maybe she’ll be influential beating the daylights out of value stocks further. But they’ve already been beat up so bad she really can’t do much more damage. It’s a decent question, though. Thank you, LK. Next up is NW. NW has a very simply one-sentence question. “Do you buy USA coins?”
NW, I assume you mean, “Do I buy” – for example – “like American Eagle gold coins. and I certainly do when they’re available. I think they’re a perfectly good – American Eagle and Krugerrands. And I think I have a Canadian maple leaf or something in there. But mostly, it’s Krugerrands and American Eagles. So the answer’s yes. No reason not to. They’re good coins. Next is Craig. Craig. I’m going to call you "LOL Craig" because that’s how you signed your e-mail, "LOL Craig." All right, LOL Craig. You say, “How does one have time to do a deep dive into everyone’s recommendations?”
I think you mean into – you know, if you get a lot of Stansberry publications or a lot of newsletters in general, how do you find time to do a deep dive into everyone’s recommendations? So LOL Craig continues. “Steve Sjuggerud has made me a lot of money. For example, Seabridge as an example, is it technicals versus fundamentals, pure speculation?" I’m not sure what you’re asking me there, Craig. You know, Steve is very clear about what he’s looking for. He wants stocks that are hated, cheap and in an uptrend. But continuing, "And by the way, at 15 years to your 60, I am very diversified.” I think that means you’re 75. “You have land, gold and silver junk coins, guns – been collecting for 50-plus years – cryptos, gemstones, artwork, plus my brokerage accounts.”
Yeah. You’re diversified [laughs]. Good for you, man. Good job. “Appreciate your thoughts about going with trusted advisors versus diving deep into what they recommend. Maybe I’m just lazy. LOL Craig.” So, Craig, there’s no – it’s not an either-or proposition. You know, your decision to trust someone is your decision to trust someone. I can’t tell you to do that, whether you should do it or not do it or how to do it. But I can give you a little bit of insight into the deep diving that you’re asking about. That’s all I can really do for you today. If you want to know how to do a deep dive into a stock, there’s a couple things I would suggest.
For the how-to, for what to focus on, and what to look for, there’s a book by a guy named Lawrence Cunningham called The Essays of Warren Buffett. And he went through all the Buffett – the Berkshire Hathaway shareholder letters and took out all the good parts to tell you how Buffett does what he – you know, to a great degree. How Buffett thinks about analyzing businesses. The other thing you do is just go straight to the 10-K at sec.gov and look up the 10-K, read all the risk factors and read about the business and read the management section and read everything. Look at the financials, read it all. You’ll have tons of questions. I promise you.
And, you know, use that Warren Buffett book as your guide and start with the 10-K. And from there, you’ll figure it out. I promise. But it isn’t easy, so good luck to you, Craig. It’s a good question. All right. Lastly this week, we had a question from a week or two ago by Joe W. And I forwarded it to Eric Wade and Eric Wade provided a comment. So Joe W. says, “Please ask Eric” – Joe W., I love how you say, “I don’t care what you have to say about this. I need to ask Eric.” [Laughs] And you’re right. So Joe W. says, “Please ask Eric to address the article where hackers use individuals’ phones to gain access to exchanges to drain individuals’ accounts. Does that mean phone Apps are unsafe? Joe W.”
Eric says, “Joe W. may be talking about sim card attacks. In those, a hacker convinces a dumb or unscrupulous employee to port the victim’s phone to a new sim. Then the hacker has access to just about everything. It’s also possible to gain access to an unsecured phone if you know their passcode. They may be talking about that.” Joe W. may be talking about that. “But these risks are identical to draining my bank or identify theft, et cetera, not specific to cryptos. The difference is, there’s no advocate trying to smooth things over when it comes to cryptos. Signed, Eric Wade.”
So did you get that last comment? Like, we’re constantly hearing about these things from companies like Apple where they say, “Oh. You know, if there’s some backdoors on – oh, we’re going to fix it. It’s fine. If you just do this and this and this, your phone will be secure.” But people are telling you that with relation to cryptos even though those same risks apply to your crypto exchange account on your phone just like anything else.
OK? I hope that covers it for you, Joe. That’s all we got. All right. That’s another mailbag and that’s another episode of the Stansberry Investor Hour. Hope you enjoyed it as much as I did. We provide a transcript for every episode. Go to www.investorhour.com. Click on the episode you want, [music starts] scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody who might enjoy listening to the show, tell them to check it out on their podcast app or at investorhour.com.
Do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you’re there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @InvestorHour. On Twitter, our handle is @Investor_Hour. Have a guest you want me to interview? Drop me a note: [email protected] or call the listener feedback line, 800-381-2357. Tell us what’s on your mind and hear your voice on the show. Till next week, I’m Dan Ferris. Thanks for listening.
Announcer: Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail: [email protected]. This broadcast is 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.