On this week's Stansberry Investor Hour, Dan and Corey are joined by Empire Financial Research analyst Enrique Abeyta. He's the editor of the Empire Elite Trader, Empire Elite Growth, and Empire Elite Income newsletters. In them, he gives his subscribers stock advice and provides commentary on the markets. And in this week's episode, he's sharing some of that wisdom and insight with our listeners.
Dan and Corey begin the podcast by talking about cryptocurrency and the U.S. Securities and Exchange Commission ("SEC") recently filing lawsuits against both Coinbase Global and Binance. The SEC's motivation stems from the fact that these platforms have been offering securities without obtaining the necessary licenses. As Corey mentions, "Nobody has defined these things as securities yet, except the SEC believes that they are."
Enrique then joins the conversation to speak about his mosaic approach to investing. It involves piecing together a wide range of data points and perspectives to form a comprehensive view of a stock or the overall market. However, Enrique recognizes that different factors may hold varying importance depending on the overall environment. So he emphasizes the need to adapt and stay attuned to changing dynamics...
I'm out there trying to give the data points without necessarily trying to give people the conclusion... People can make their own decisions.
Dan and Enrique later discuss the role technology has played in the maturation and evolution of both the asset-management and newsletter industries. Enrique posits that technology integration has transformed these sectors and enabled greater access to information, sophisticated analysis, and enhanced communication channels.
He also notes that it's growing more acceptable to combine quantitative and qualitative approaches. Though these two approaches were often seen as mutually exclusive in the past, there's now an increasing recognition that incorporating both aspects can provide a more holistic understanding of investment opportunities. As Enrique explains...
The business is just growing up. For whatever reasons, 30 years ago, the idea of adding quantitative to qualitative was just not... acceptable. I think our industries are beginning to evolve to take in those adaptations.
The discussion then shifts to the ongoing debate between value and growth investing. Enrique asserts that finding companies with the potential to increase their value is the ultimate driver of investment success, but investors need to be "optimistic" with discipline. He argues that regardless of whether one follows a quantitative or qualitative approach, identifying companies with substantial value growth potential offers a logical path to financial success.
Lastly, Enrique shifts to talking about a huge bet on banks. He believes that the bank failures provided a large lesson in human psychology, politics, and how the world really works. To hear his full breakdown and analysis, check out the podcast now.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we talk with Empire Financial Research editor Enrique Abeyta.
Dan Ferris: And today Corey and I will talk about cryptocurrency and the SEC and whatever else is on our minds.
Corey McLaughlin: And remember, if you want to get in touch with us, send a note to [email protected] and tell us what's on your mind.
Dan Ferris: That and more right now on the Stansberry Investor Hour.
So let's talk about crypto because the SEC is finally getting serious about it, and they filed these two lawsuits, one against Coinbase, the largest crypto exchange in the U.S., based in the U.S., and the other one is against Binance, which I think is the largest one in the world. I know it bills itself as the largest bitcoin exchange. So, you know, the SEC is finally kind of going after them because essentially they're issuing securities – this is what the SEC said – they're issuing securities and they're not licensed securities dealers. And here's the thing, OK?
I can't believe at any time in the history of Binance and Coinbase that their lawyers didn't say, excuse me, just real quick, one second – I'm about 99 percent sure that by the SEC rules we're issuing securities and we're trading securities so, you know, just to let you know they will come after us, it will happen. I can't believe no lawyer ever said that to them at any point in their history.
Corey McLaughlin: Yeah. They said they've tried to talk to – you know, Coinbase has said they've tried to talk to the SEC, and they have been talking for two years, you know, at least, and apparently they met with them 30 times last year, so I'm sure this came up at some point. The big thing is, like you said, the SEC is suing them because they're offering unregistered securities, they're acting as an illegal broker. However, nobody's defined what crypto really is and nobody's defined these things as securities yet other than the SEC believes that they are.
So there we go. I don't know. The SEC has been on the warpath against other crypto exchanges for a while now. Coinbase – this is kind of the last one.
Dan Ferris: Yeah. It was my impression the SEC was going after individual tokens and saying, well, you're a fraud, you're a fraud, you're a fraud, et cetera, et cetera, but they never went after the exchanges, and that was like Gary Gensler's big thing. He's like, screw the tokens. Go after the exchanges. But again, you know, all those meetings, those dozens of meetings, 30 – I thought I read 40. Maybe that was just 30 last year, 40 total, another 10 this year. I don't know.
But they met with them dozens of times, and I'm pretty sure that the way those meetings go is, you know, SEC is on one side of the table and they're saying, pretty sure it's a security, and Coinbase and Binance on the other side is saying, no, no, not really, not really. [Laughs] I mean I don't care because I think the SEC is ridiculous. I don't think they protect anybody from anything, but I don't get to make the rules. I have to live in this world and it's a regulated world, and in that world the SEC defines what a security is, and I'm pretty sure they knew this was coming. They had to know this was coming. Had to.
Corey McLaughlin: Yeah. I would think anybody shouldn't be surprised, especially if you've been meeting with them forever.
Dan Ferris: Yeah.
Corey McLaughlin: I mean and since this year started, there's been three kind of not as big crypto exchanges that one has got a $30 million fine from the SEC and closed down their quote staking business for the same reasons that the SEC is going after Coinbase now. Another one is just – you know, others have moved their operations to other countries, focused on other trading, others have gone bankrupt, and so they know it's coming. I think the difference between Coinbase and the others is Coinbase is publicly traded under SEC approval and I'm guessing that they think they have a decent argument, like, well, you know, we've been operating for four years and you've been calling – I mean we've been publicly traded and you're calling us illegal brokers for four years, like what happened here. So it's –
Dan Ferris: Why were we allowed to continue to publicly trade – exactly.
Corey McLaughlin: Right. If you knew. And I read through the lawsuit as much as I could on short deadlines and writing and stuff, and, you know, in there, part of SEC's argument is things that they've reported in their financial statements. So, you know, if it was a problem then, you know, why wouldn't they say it's a problem right now when it happened? I don't know.
Dan Ferris: Yeah. That's true.
Corey McLaughlin: There's all kinds of different angles to this that, you know, I'm sure it'll drag on for a while.
Dan Ferris: Right. So I guess then what happens, right? So let's say that the outcome of this is, well, you're a securities dealer and you have to be a licensed securities dealer and a licensed exchange, I would guess. Then what? Is that bad for crypto? I don't know. It's probably bad for the scammiest tokens, right? [Laughs]
It's bad for anybody who's got to put out the equivalent of a 10-Q or a 10-K – I don't know how they'll do it – or a prospectus or something. Anybody who's got to file a detailed thing with the SEC about their token is going to have some 'splaining to do, you know? In the words of Ricky Ricardo, by the way. That's what that was. So, you know, I'm mixed on this because I read 10-Ks and 10-Qs all the time, literally every day of my life, and to me it's like the first place to go, you know?
Sometimes the actual first place to go for me is Bloomberg, but then I'm like – like this morning, I had to sort out a difference between the Bloomberg published data and the real data from the SEC, and they didn't match. So which one do I go with? Well, of course I go with the SEC reports, the one that the company filed that, you know, they file it with lawyers and they don't want to get sued all the rest of this stuff. So I'm mixed because I think the SEC pretends to protect people and it doesn't really, but if they require all this reporting I'm going to take advantage of it, right?
Corey McLaughlin: Right. Yeah. I'm with you there. There's obviously scammier things in crypto, as there are all places, but it's – [Laughs] you know, this would help kind of people separate that. At the same time though – I mean it may help people separate that – at the same time though, you know, it's possible if the SEC, you know, wins, let's say, and gets what they want, which is for Coinbase to, you know, give up their quote ill-gotten gains based on these tokens where they were, you know, getting commission on staking, basically, that could be more than $6 billion, right?
So Coinbase right now has $5 billion cash and $3 billion debt so, you know, do the simple math there. Things don't turn out well for Coinbase if the SEC wins unless, you know, they get a cash infusion from somewhere or settle with the SEC for less or something like that. But my point is, to your point, the other half of this is, yeah, does that help people who have crypto sitting on Coinbase right now? I mean, no, because if Coinbase goes bankrupt then they're stuck in this bankruptcy process that a lot of these other exchanges are going through that people are experiencing right now too that have gone on for a year and people haven't seen their money, and if they do, you know, it's going to be not at all – this is a developing story, I would say, and at the same time, a lot of people are calling for Congress to actually define what the rules should be in crypto, which there's a huge draft bill that just got introduced on the same day. So these things are connected, you know? This isn't all coincidence. So there's a lot here that we don't know.
Dan Ferris: There is. I want to go down the rabbit hole of registration and prospectuses, though.
Corey McLaughlin: Sure.
Dan Ferris: Like for example, who the hell files the prospectus for bitcoin? Satoshi Nakamoto? [Laughs] You know? What happens with that?
Corey McLaughlin: Yeah, it's interesting, because bitcoin and Ethereum are not mentioned in any of this other than indirectly.
Dan Ferris: No.
Corey McLaughlin: These aren't the coins that the SEC is talking about. Presumably, they would want to include them, but I think that's just too big of a thing right now, but yeah.
Dan Ferris: I would say they're the ones it's not worried about, but I can't – you know, if the other ones are securities, so are they. And what's his name? I forget the guy's name for Ethereum. Russian name. Can't think of it. Whatever.
We're two old guys trying to remember and we can't. So he'll file that or his company or whatever will file that, but who will file for bitcoin? Because if you can't – if it's a security, you've got to have a prospectus or it can't trade, right? It can't be offered to the public, in other words. And I've offered securities to the public in my time and I've filled out all that crap.
So I don't know. I have no idea where they're headed with all this, what it will look like in five years. I would hope not very different from what it looks like now because it's a pretty freewheeling, free trading thing. It trades 24/7, which I love. I think that's the way it should be. It could wind up being really good for the world.
It's an alternative, and we need alternatives. I like competition and alternatives very, very much. And, you know, we'll see. We'll see what the SEC actually does. We know what they're saying right now. Yet to see what they'll actually do.
Corey McLaughlin: Right. And I will say one practical thing that comes out of this, you know, for people right now I think we mentioned several months ago when there was another crypto thing happening, this is a reminder to – you don't actually own the crypto that is sitting on these exchanges. So if somebody has money on Coinbase, you don't actually own it. And so the difference – the reminder here is if you're worried about that, and say Coinbase goes bankrupt and goes the way of the others, you should be transferring or have your crypto in one of these self-custody wallets, which our friend Eric Wade and their team from Crypto Capital will explain all of that. That's the only way that you can guarantee that it stays in your possession, that it doesn't get wrapped up in a bankruptcy filing and all that stuff.
So there's a bunch out there. I just wrote about it in the Digest this week too. You can find some specifics there on names of these different wallets. The last thing I would want is somebody to have $10,000 sitting on Coinbase and just, you know, be stuck without it because of what the SEC thinks is the best for everybody. So that's a practical thing and really reminds you of what crypto was invented for in the first place, which was to be outside of the system. That's the big difference here.
Dan Ferris: Yeah.
Corey McLaughlin: It's supposed to be outside the system. It's not supposed to be regulated, per se.
Dan Ferris: It's not supposed to be regulated. [Laughs]
Corey McLaughlin: Yeah. It's not supposed to be.
Dan Ferris: Right.
Corey McLaughlin: Here we are. Who's surprised though that the government would see something that could be competitive to all their power and want to regulate it? That's the way it goes, right?
Dan Ferris: That is the way it goes. Well, I guess you and I are probably both kind of a big, fat wait and see. You know, that's where we are on this. But there are some funny things about it. We'll see.
I can't wait to see who has to file the prospectus for bitcoin. That is the one thing that I cannot truly wait for, and just to see what the environment is like after this stuff gets regulated.
Corey McLaughlin: Maybe we'll learn who Satoshi is when that happens.
Dan Ferris: Yeah. I would love to. Or if it's even one person, et cetera, et cetera. That's pretty cool. Maybe we'll talk some more about this with our guest who knows a bit about crypto and other things. He's actually one of the smarter investors I've met in my life.
He's got his hands in all kinds of things. He's a publisher and, you know, an analyst and an investor and a really great guy. I like hanging out with him. I always run into him at our conferences and things, and he's a lot of fun and he's just got a really lively intellect. His name is Enrique Abeyta.
He works for Empire Financial, one of our affiliate companies, and he always has great ideas. He's a great follow on Twitter. Rather than me saying his praises maybe we'll just talk to him. Let's talk with Enrique Abeyta. Let's do it right now.
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Enrique, welcome back to the show. Good to talk with you again.
Enrique Abeyta: Good to see you. I'm here in our Baltimore offices enjoying a fine summer day here.
Dan Ferris: All right. Yeah. There aren't many fine summer days in Baltimore, so you enjoy that one while you get it. [Laughs] Most of them are sweltering, having been born and raised there. So it's been a while since you've been on the show. I don't even know how long.
A lot has happened. What can one say? I mean it's been an interesting couple of years here, and I love following you on Twitter because your feed on Twitter is just – it's sort of a relentless, you know, train of ideas. You know, there's just constant ideas – this is a good idea, this is good for this industry, this company is interesting, this is good for the – you know, it's just like one after another.
And not a lot of opining about, you know, the economy and the direction of the overall market, which I find refreshing, actually. So first of all, thank you for that. [Laughs]
Enrique Abeyta: Well, I like to – what I try to do in there is I like to give observation almost as datapoints without necessarily trying to force a conclusion. You know, I think a big part of that is what I was raised in, in the hedge-fund industry, is what's called the mosaic approach, which is that you take a look in a given stock or for the stock market overall, you look at a mosaic of datapoints, many, many things, and understand that at different times in the market or the life cycle of a stock, different things in the mosaic work differently together. So, you know, while there are always, let's say, rules that work, kind of the laws of physics, any given time, what's most relevant will change. So, you know, like I said, I'm out there trying to give the datapoints without necessarily trying to give people the conclusion. First off, because I might be wrong, [Laughs] but second is so people can make their own decisions.
Dan Ferris: Yeah. So people can make their own decisions. But it's interesting, having become a newsletter veteran at this point, you may have noticed in the feedback that a lot of investors would almost rather not make the decision and really want other people to do a lot of the heavy lifting for them.
Enrique Abeyta: Yeah, look, let's compare and contrast, you know, my Twitter feed versus the newsletters because there we are giving people the decisions, yeah. So I think on Twitter, you know, away from just the legal aspect of opining on individual stocks and all that, you know, what I try to do there is just make it interesting. It's really to generate conversation and to generate thought. The funny thing about the Twitter feed is it's a big part of my process.
You know, I probably spend 20 minutes to an hour every day going on there, but I'm learning from it. It keeps me engaged in the market. It often will take me down roads that I learn things that I never knew before. But in our newsletters, it's quite different. You know, one that I would talk about, and not that we're here on a sales pitch or anything like this, but my letters basically break down sort of into two categories – trading and investing.
Investing is really an idea that you've got a two-to-five-year timeframe. We're looking for three to ten-baggers. You know, it may be very volatile. Look, in a bear market, those ideas aren't going to do great. In a bull market, they'll do fantastic. But the trading letters, and this is when we talk about opining on stuff, you know, we've got one called Empire Elite Trader and we recently rolled something out called Empire Elite Data, which basically takes my trading methodology and, you know, I broke down how I look at trading opportunities into about five to eight variables that are always there, and so we've actually created a data tool that screens for these ideas and it's done great.
So the data tool, which people can subscribe to, we're not necessarily making a recommendation there. That's what Empire Elite Trader is for. But one of the nice things about my trading newsletter is exactly what you're saying. We literally say buy this stock now, sell this stock now. It's certainly not a black box, but it certainly gives the reader as much guidance as possible so they kind of don't have to think about it, to be honest.
So, yes, my Twitter feed, very open ended. Our newsletter is focused on giving people ideas.
Dan Ferris: Right. You know, quantitative systems, let's face it, in our business are finally hot. For a long time, you had sort of this guru, fundamental, or maybe macro-type content, and then over the past however many years, more of these sort of data products have come out, and I always wonder – every time there's a new one I wonder, does this person have a real edge?
Enrique Abeyta: Well, you know, it's interesting. I think we're seeing a maturation of the asset management business as well as the newsletter business and adaptation and evolution to technology. So, you know, my background way back in the day was out of fixed income and derivatives, and so I kind of grew up with a healthy strain of quantitative analysis. So my hedge funds – I'm going to walk you through a little bit of a journey here – you know, I remember there was at one point with my first hedge fund, which was called Stadia Capital – we had grown the business. We had really good years, 2001, 2002, 2003.
We were sort of struggling in 2004, and a big investor pulled their money. It was actually Mesirow out of Chicago, someone that I respected a lot, like we had a great relationship with them, and they one day just said, oh, yeah – you know, they'd asked for some numbers and they pulled, I want to say, like $100 million. It was this very serious amount of money. And so I said to them, I go, look, it's your money, obviously. Can you explain to me what you're looking at, like what the decision was?
They went back and they said, well, we're looking at your steady state portfolios, and what that is, they basically took every month and took what we owned at the beginning of the month and what would've happened at the end of the month if we had done nothing from a trading perspective versus what actually happened, and then they would run it on three-month and six-month rollers. And what they determined was that our active management was actively detracting majorly from our returns, meaning that if we simply had done nothing, our returns would've been much better. And so with my second fund, what I did – this one was called 360 Global – what I began to do was take – look, all investors kind of think there's two actions when you're making an investment.
There is perhaps what I would call the fundamental or decision-making process – am I going to buy this stock, short this stock, et cetera – but then there is the implementation process, right? Am I going to buy it right now, am I going to hold it, am I going to trade it, et cetera. And what I found through time is really smart managers were quite good at the fundamental process but really bad at the implementation process. More often than not, if you run those steady state portfolios, managers far, far underperform if they had just picked the stocks and gone away.
So what we did at my other fund, I actually had – it was one of my best friends. He was the guy who helped develop the Bloomberg API. We put a quantitative overlay on top of our fundamental ideas. And so the idea was, like, we all know buy low, sell high. We all know if something is super overbought with an RSI of 80 should probably be trimming, and if it goes down to an RSI of 22 you should probably be buying. But in the heat of the moment, it's very hard to do that.
It's hard to do it for two reasons. No. 1, psychologically, but No. 2, I find that most managers, they sort of kind of ran their trading at hoc. So, you know, if the manager had a lunch that day, they might miss the trading opportunity. And that's literally – we had funds that were managing billions of dollars that still to this day manage their trading this way. So what we did is we created a system that basically overlaid our ideas and automatically sort of told us when to buy and sell.
The automatic signals were based on methodologies that we developed, and that's what we've done here with Empire Elite. So, you know, look, I'll kind of lead this with when I talk about evolution, adaptation, technology, et cetera, you know, Renaissance Technologies. This is all they do. Renaissance, which is Jim Simons, who I'm sure you're familiar with, you know, arguably the most successful hedge fund in the history of mankind. My understanding of the vast majority of their strategies, they're literally just there harvesting what I would call human psychology-induced volatility.
So the thing about as much as we see AI in the markets, as much as see technology, it's still controlled ultimately by humans and the same mistakes. This is what's so great about Empire Elite Trader. We're just taking advantage of human emotion and what happens with stocks in a highly probabilistic fashion. So I think – I'll end with this – I think that the business is just growing up, that for whatever reasons 30 years ago, the idea of adding quantitative to qualitative was just not – it wasn't acceptable.
It was like, well, I'm the stock picker. The reality though is like, you know, when you're building a car you use engineering, right? You get better, not worse. I think our industries are beginning to evolve into that and to take in those adaptations. We're very much on the forefront of that. I've been doing it for 25 years, so for me it feels very natural.
Dan Ferris: Yeah. You've actually hit on a theme that having talked to a lot of guests who have managed assets and still are, many of them, there's this constant theme of fundamental versus what we'll call technical, right? What do the fundamentals tell you to do? And the fundamentals tend to be – that's where you get your conviction and that's where your emotions are kind of engaged, because you say, oh, wow, this is a great business, this is a great opportunity, this thing's really cheap, and then people, as you're talking about – more often than ever now, I'm hearing people say, well, we overlay these technical things because we don't trust – they'll come out and say it.
So many guests come out and say it – we just don't trust our ability to buy and sell at a given moment. You know, we need to do it mechanically, unemotionally.
Enrique Abeyta: Yeah. And look, I actually think they should be doing that more on the fundamental side too. I'm very results based, I'm very data driven. I also believe very much in a hit the ball where it's pitched strategy, to use the baseball analogy. I think when you try to force things, you get forced into bad returns. I think that's what happens.
So with our strategies, like I said, the trading strategies are very much "take advantage of human psychology as it emerges" in existing trends. The fundamental strategies, the investing strategies are very much let's look at the math on the companies because that's the other thing. You know, you said the C word, cheap. I don't really use that word in my lexicon.
But I think that when I look at what stocks have been successful for me, and you and I have talked about this a lot, you know, look, every single time, if you give me a company that's earning $1, and they will eventually earn $5 or $10, the stock is going up. I don't care if the stock's cheap, if the stock's expensive. Now if it's trading at 300 times earnings, maybe it goes up a little, you know? But if you combine these two things, you know, $1 of earnings going to $10 of earnings and expectations that they're only going to $5 of earnings, you now have – and so when I say that, the funny thing is that could be a value stock, right? There's no – I mean cyclicals do that, general growth properties did that, you know, distress situations do that.
So this is one of my topics. When people talk about value versus growth, there's only one strategy that works. It's growth. You know, Coca-Cola did not make Buffett all that money because it was a cheap stock. It was trading at a fine multiple, but Coca-Cola made him all that money because they went from making $100 million to making, you know, $5 billion.
And so whether you're buying cheap stocks, expensive stocks, et cetera, I do think valuation matters, but if you can find things that you think you're going to go from $1 to $10, especially when the world thinks it's $5, you're in a good spot to make money regardless of valuation. I mention that though because I feel most fundamental-based investors are not rigorous enough not – how would I say this? They need to be stricter about what they're looking at, right?
They need to set the bar higher. And I think too often it's like, oh, it's a nice business, OK, it can grow some, it looks cheap. Who cares? Move on. I don't want to hear those things. I want to hear, oh my god, this thing is going to quintuple earnings and no one knows.
If you're not having that conversation you had about a stock – because you don't need 100 stocks, right? You don't need 1,000 stocks. You only need 20, let's say. You should probably be moving onto the next idea.
Dan Ferris: Yeah. You only need 20, but boy, finding those 20 is something, isn't it? [Laughs]
Enrique Abeyta: Yeah. You know, look, though. One of the other statistics I love to share with people is that do you realize that there's 4,000 liquid stocks in the U.S.? Every single year, including bear markets, there are inevitably 50 stocks that are up 100 percent. And most years, there's hundreds that are up 100 percent in that given year.
So why aren't you looking for those stocks? And that doesn't mean they're all volatile or anything like that. So, yeah. But people just set the bar too low, if anything, in their investing.
Dan Ferris: Well, let's talk more about that. What constitutes a higher bar? You're saying fundamental – you said, you know, people who focus on fundamentals are setting the bar too low, and you're saying, well, it's a nice business and it's cheap, that's not enough. But it's funny because I've heard people – I mean everybody's different, everybody has a different style, but I've heard people like Howard Marks or something talk about, well, you know, it's not a wonderful business. It's more about the price, not how wonderful it is.
Enrique Abeyta: Yep.
Dan Ferris: You know?
Enrique Abeyta: Well, look, let's just go to math. I'm a very simple person. You know, if I'm buying a piece of distressed debt and it's trading at 10 cents and I think I'm going to get $1, then I've got a ten-bagger. That could be on a terrible business. If I'm buying a company that's earning $1 and I think they earn $10, that stock's got a good shot of going up 500 to 1,000 percent, whether it's a cheap stock or an expensive stock.
So I always begin with that question, like how much do I think this asset really is going to go up? And look, you know, it depends on the investor and what your goals are, right? I think that an investor can sit there and say, oh, OK, well I'm looking for stability, and maybe you're a little bit older or things like that, but I just come back to the math. I'm very different with this.
My buddy Ricky Sandler actually posted something on Twitter. I was flying yesterday, so I didn't respond to him. But he's like, yeah, people spend too much time looking for ten-baggers, and I completely disagree. I think people don't spend nearly enough time looking for ten-baggers because, you know, let's have fun with math. Let's take five stocks and let's hold them for three years, five years.
One stock goes to zero, one stock gets cut in half, one stock is flat, one stock is up 30 percent, and one stock is a five-bagger. You have a 20 percent-plus IRR on that portfolio of stocks, and so, you know, mega returns can make up for a lot of mistakes. That's not saying you should be making those mistakes, that's not saying you should go out and own something that is potentially going to go to zero. But look, I'm a math guy, man.
You know, if there's big math – big math can make up for a lot of mistakes. And ultimately, fundamentally, I don't think big math is that hard to find, right? In either value or growth. Just look at the underlying business, you know, and just say, OK, how big is the TAM, what is their market position, what is the potential growth? It's out there.
It's out there. And we've got 100 years of economic examples showing us what they are. So again, I think people just set the bar – you know, people are too undisciplined as traders and set the bar too low as fundamental investors.
Dan Ferris: Too undisciplined as traders is quite another thing that comes up very, very often. What I figured out I think is that people call themselves traders, but they either don't have a system or they maybe have a system that they go outside of it too much, they exercise too much discretion and wind up – you know, the decisions that they make outside of the system, I mean they have effectively abandoned it, so those results and the system's results are two different things.
Enrique Abeyta: I also don't think that the core methodologies sometimes are very sound, like people are very loosey-goosey even with their methodologies when it comes to trading. You know, it's funny, all the [Laughs] I – feel like there's almost an intellectual disrespect for traders by everyone except the most successful hedge-fund managers in the world who all were traders, you know? [Laughs]
Dan Ferris: Right. And they build their systems – they take 10 years to build their systems and then people are saying, well, I'm just, you know–
Enrique Abeyta: Yeah, I mean –
Dan Ferris: People hear something somewhere and then they think that's a system, and it's not.
Enrique Abeyta: But if you look at, you know, Millennium, Renaissance, Citadel, even Steve Cohen, they're all doing what I'm saying. You know, it may not seem like it sometimes because they will plug in managers who may or may not be bought into the quantitative aspect of it, but they have a quantitative overlay on top of them and are managing the managers that way. So look, you know, let's take this back to an everyday investor, though. You know, come up with some very simple rules, decide whether you're trading or investing, in trading strategies come up with a plan that you think works, execute that plan, in investing strategies come up with a plan and execute it.
You know, my partner Gabe and I always say this thing, plan the trade, trade the plan. I think the problem is most people don't have a good plan and then they don't stick to it. [Laughs] So, you know, lo and behold, they aren't very good when you do that.
Dan Ferris: Yeah. It's just like anything else. It's the oddest thing, because I feel like a lot of people are drawn to the making of money, rather than what really goes into it, which is the building of a system. If you're drawn to the making of money, your focus winds up being too short term and you're not focused on the thing that results in a regular sort of almost reliable result. I don't want to use that word but, you know, good results over time.
You don't get that except by long effort. I mean it's building a house, it's farming, it's not like, you know, a quick hit.
Enrique Abeyta: I also think stock picking – and, you know, I'm a very anti value investor. I actually think the cult of value investing has done more damage to investor returns than almost – it's equally as bad as the cult of speculative bubbles, but it's much more insidious, right? Because it's insidious because it's deceptive. People think they're doing something that's helpful to them, but they're actually doing the opposite of what should be helpful. But it comes down to this – I'm a math guy, and I think that what happens with the cult of value investing, fundamental investing, et cetera, there is almost a disdain for the quantitative, right?
It's like, oh, Warren Buffett doesn't use any quantitative stuff. But if you actually go through Buffett's returns, I could isolate for you very quantitatively what all his greatest returns have in common. By the way, all of his greatest returns have in common, a company that was earning $1 and then ended up earning $10, every single damn one of them. So, you know, I think that again maybe being more rigorous about your underlying methodologies and then the implementation of them, I think that's where people fail.
You know, we spend a lot of time on that. I'm very unorthodox in a lot of ways, but when it comes to – I have very strong orthodoxies when it comes to my trading and investing. They're all data based, you know? Based on what I've seen has actually worked across the last 50 years.
Dan Ferris: Can you generalize what has worked across the last 50 years?
Enrique Abeyta: I already have a bunch of times, you know?
Dan Ferris: Besides a $1 – yeah.
Enrique Abeyta: Look, look. Here's some simple rules, and then I'll bring it back to – I'll actually put it in trading. Companies that grow earnings from $1 to $10 tend to go up, not down. Companies that beat expectations tend to go up, not down. Companies with positive earnings revisions tend to go up, not down. Look at the total addressable market of the business, and do they have the ability – does the math actually work?
So, you know, like what we do, we do this both for trading and investing. I go into Bloomberg and I do screens. First thing I look at is the trajectory of earnings. Second thing I look at is what are earnings revisions doing. Third thing I look at is the history of discreet earnings reports.
Fourth thing I look at is I think about the business and actually say does it make sense that this business could go from earning $1 to $10? And then you take those and that's basically your core underlying working material. So for investing strategies, what I'm looking for are what are the greatest – who has the most earnings growth and how likely is it going to be? I may be willing to trade off companies beating numbers for the near-term period because I'm looking longer.
For trading, what we do is we use RSI, relative strength index, which is a very simple, you know, measure of investor enthusiasm, and we look for companies that have all the characteristics I just said that are trading below an RSI of 30. So you could ask yourself, why does a company that, you know, is beating numbers, is growing earnings, all this stuff, why would it trade below an RSI of 30? You know, how would it get oversold?
All kinds of stuff can happen, you know? A lot of companies that we see have a history of beating numbers, but to be honest, it's because they manage the street expectations very well. So they will go into a quarter and they'll say, oh, yeah, we're going to hit the numbers, but the margins, the gross margins are going to do this, that, and the other, and then they beat the gross margins every time. Now you and I can sit there and say is that market manipulation?
We can say whatever we want. I kind of don't care if the company's actually going to hit its numbers and earn returns for shareholders. But what they've done is they've created a positive cycle of stimulus, of serotonin, right, you know, if you own a company and they beat their numbers every time. So what I was saying about getting oversold, you know, maybe they come in and talk down the margins in a quarter and then everyone freaks out because, oh, they're talking down the margins, and the owners on the margins sell it down. Then you find that stock that's deeply oversold.
But what works – earnings growth, beating expectations. But I just come back down to – and then in trading, taking advantage of psychology – but I come back to just one damn thing, find companies that grow value and grow it a lot, and the stocks are going to go up. That's worked for every damn investor in the history of mankind, and I think it's always going to work because it's just logical, right? So whether we're being quantitative or not, company goes from earning $100 million to earning $5 billion, the enterprise should be worth more, you know? That's how it should work, and it does.
Dan Ferris: Yeah. Right. I don't think the cult of value exists that you're talking about. I think – like all the people I know who call themselves value investors, they sound a lot more like you than the whatever you want to call it, the caricature of a value investor who's buying – you know, they don't buy discounts to book value and stuff. You know what I'm saying?
Enrique Abeyta: Yeah. But look, I think that – I spent a lot of time on human psychology. You and I have spoken about this. Negative feedback has eight times the impact on us psychologically and chemically. And so you always sound a lot smarter if you come out and pull ideas apart, right? Like pulling an idea apart always is going to sound smarter than tell you – me sitting here and telling you why something will work never is going to sound as smart as me pulling an idea apart and telling you why it won't work, OK?
But the fact is when we're investing to make money, we need to buy things that work, OK? It is important to avoid the things that don't work, but if you just avoid things that don't work but don't find the ones that do work, what was the point? You've kind of missed it. And so I still think, you know – look, I have a lot of respect for Warren Buffett. I think his greatest skill is longevity, by the way.
You know, you start investing when you're 20 and you live to 95, you're going to have some pretty damn good returns. But I think his greatest skill is actually just a couple core ideas, but I don't feel like what's actually made him money is well communicated. If you go through where he made the money and what all of them have in common, it's very different than what people want. But I mention Warren Buffett because if I go on my Twitter feed and said who would you listen to more, who are you more interested in having lunch with, Warren Buffett or Steve Cohen, I think I would get 70 percent Warren Buffett.
Maybe that's a bad example. Maybe I'll use Howard Marks because Buffett is kind of the Michael Jordan figure or something like that. But Howard Marks or Steve Cohen? I think everyone would go Howard Marks, but I'd much rather sit down with Steve Cohen, you know, because I think that, again, owning the trading action – maybe I'll put that up on Twitter. You know, I'll be like, OK, who would you rather have lunch with? Howard Marks or Steve Cohen? We'll see what people say.
Dan Ferris: Yeah. It's interesting because I would say Steve Cohen right away. I feel like I know Howard Marks. I've been reading for years and years and years. I read the book Most Important Thing multiple times, and I've gone over those chapters on risk multiple times. You know, Steve Cohen is just kind of a mystery to me. I don't completely understand what he does and how he does it and all that, which is, you know, on purpose.
Enrique Abeyta: Yeah. By the way, because this is where technology takes us right now, I'm literally going to put this poll up as we speak. [Laughs]
Dan Ferris: All right. Good. Yeah, I'm curious. I think you're going to get a lot of Steve Cohen. And don't worry, this won't go out until after your poll is up. [Laughs]
Enrique Abeyta: I don't care. Yeah, we'll see. There might be a lot of Mets fans, so that could drive the conversation.
Dan Ferris: So Cohen owns the Mets?
Enrique Abeyta: Yep, Steve Cohen bought the Mets a couple years ago.
Dan Ferris: OK. Right. Yeah. But, you know, I call myself a value guy, but if you see the stocks I'm recommending, you know, it's profitable, cash-generating businesses that we believe can grow more than we think the market currently believes they can grow. I mean it's almost the exact same thing you just said, and I continue to call myself a value investor, as I have for years and years.
You know, the idea of buying something because it's at a discount to book value, I'm like, you know, there's a reason for that, you know? If it's a really good bank, right after Silicon Valley Bank failed, that's one thing, right? But mostly you're not a strategy.
Enrique Abeyta: That's a good example. I was hoping we were going to talk about this. I mean we made a huge bet on the banks. I have in my trading service, we have, I want to say, 15 banks in there, and in some of the other services, but that's a perfect example where I guess also what I look for are extremes, like I want to find an extreme growth, I want to find extreme value, I want to find extreme sentiment. OK.
Because that's where I feel like – you know, I'm sure we've talked about this. It's just like playing blackjack, right? If you're counting cards in blackjack, what you want to do is you want to up your bets when you get to a point where the probability that face cards are going to be coming out as much higher, right? And we know that. We know when that can happen, right?
You can't legally count cards and stuff like that, but mathematically we know when that can happen. It's the same thing with stocks, you know? And, you know, the bank thing to me was so fascinating because it was also such a lesson in human psychology and realpolitik. Realpolitik is a Russian term referring to how the world really works. You know, one of the things that I thought was so interesting, there were all these people saying, oh, all these banks are going to go under and all this other stuff, and I was just like, no, man.
The regulators are not going to let this happen. Period. End of story. They will pull out every bullet they have. And by the way, I think they barely used even half the gun and I think we're through this.
So, you know, people are like, well, you can't know that for sure. I'm like, well, that's like saying that I can't know for sure that someone's not going to drive their car off a cliff. I can know it for sure because there are people that are highly motivated, that have incredible tools, so, yes, if I'm driving a car I can't prove for sure that that person's not going to go straight off and off the cliff. OK.
Dan Ferris: True.
Enrique Abeyta: I guess that is a factually true statement, OK? But that's how I felt with the banks and the regulators. I was like, there is no chance that they are not going to step in, and they basically did it. They still have a lot more bullets. But that's what we like to take advantage of, right? You know, I think that it's very intellectually attractive to say, oh, well, you know, the regulators, we can't count on what the regulators are going to do.
You can, man. I mean there are active actors – and this gets back to another subject that I would say, and I kind of wanted to say this to Ricky, too. You know, you make money by being optimistic, not pessimistic. You can manage your risk by being pessimistic, but people forget the U.S. economy grows, the regulators and the government and the actors in the U.S. economy are all focused on actual growth. Economic growth is the single greatest thing to happen to humanity in our history as we bring down human suffering.
And so the system is rigged, by the way. The system's rigged to go up, as it should be. It's called human progress. But this is the big picture that people get lost in. It's like, oh, no, the regulators aren't going to do this. I was like, no, man. We can make this better.
And look, some of them will be wrong, OK, but more often than not, when you get extremes like that, it was – now we recommended to the banks a basket approach because I was like, I don't know, any given bank could go to zero, but if two go to zero and four of them double, you know, I'm in good shape in terms of aggregate return.
Dan Ferris: Right. It's the ascent of man is a topic that frequently comes up on the show, or I frequently bring it up because it's what we all want to happen and it is happening, and it's actually happened, you know, at a greater pace for more human beings than ever before. You know, I think – what's that guy's name? – Vaclav Smil. I think he was saying if there are almost 8 billion people in the world at this point, it's like 7.9 billion or more people overwhelmingly are not food insecure – they're not malnourished, basically.
Enrique Abeyta: Absolutely.
Dan Ferris: And that's incredible progress, and it means other things too. It means they're capable of doing other things.
Enrique Abeyta: When you look at the – I look at it as percentage of human suffering. You know, look, I've spent a lot of time studying happiness also, and what's interesting is once humans get past food security, shelter security, and what I will call violence security – I can eat, I've got shelter, and I'm not getting killed or raped – that's the basics, and once we're beyond that, what's fascinating is that happiness is very not correlated to income, OK? In fact, the lower half of that is slightly happier than the upper half of it.
But, you know, I think that human beings, we're kind of preprogrammed to – once we get past, you know, eating, sleeping, and not getting killed or raped, we're kind of like – we're just who we are, you know, and we make our own happiness. But my point is, and this gets back to the stock market, this gets back to investing, because I want to bring it all back to this, every single day that happens is the single best day in human history so far, OK? Now some days might be worse because there was a flood and 100,000 people died.
Dan Ferris: Sure, sure.
Enrique Abeyta: I'm not getting into the particulars. But in aggregate, on moving averages, when we look at percentage of people suffering from food security, suffering from shelter security, suffering from violence as a percentage of humanity, it is just going down and down and down, down. That doesn't mean we can't do better, but, you know, look, optimism wins. If there's one thing I would've done – I started on Wall Street when I was a portfolio manager, analyst, I started when I was maybe 22, 23 – I wish me now just walked into that me and just said be optimistic, find things that are earning $1 that will earn $10, and ignore everything else. OK?
Dan Ferris: Don't try to be a smart naysayer, yeah.
Enrique Abeyta: Yep, yep.
Dan Ferris: I agree.
Enrique Abeyta: With that there, I wouldn't be talking to you. I'd be hanging out with Elon Musk in our moon base because I'd be so wealthy had I simply done that. So, you know, that has – but again, it's based on optimism, it's based on belief. Things do work out.
Dan Ferris: I feel like we're on a roll here and I learned something. I read this wonderful book by Benedict Carey called How We Learn, and it said that the best way to learn things is to find that moment when you're really on a roll and things are really flowing and that is when you stop doing what you're doing. So the way we stop doing what we're doing here on the show is – and we've actually been talking the usual amount of time anyway, it just so happens – is to ask the final question.
Enrique Abeyta: OK.
Dan Ferris: And I almost feel as though you've answered it, but I need to ask it anyway, and that's if you could leave the listener with one thought today, what would it be? And if you've already said it, that's cool.
Enrique Abeyta: Yeah. Look, it is to be optimistic. Be optimistic, you know? [Laughs] How about this? I'll put it in one sentence. Be optimistic with discipline. You know, I think that's the – the challenge with optimism is it can veer into speculation, and unchecked optimism without underlying methodologies and disciplines is probably the greatest destroyer of value for investors, but the ultimate failure of investors is, in my opinion, not being optimistic enough. You know, I think that –
Dan Ferris: Like consistently, yeah.
Enrique Abeyta: Yeah, yeah. Optimism with discipline, you know, with a methodology. You know, that's what works. I've been doing this for 30 years. I clearly can see what works.
I wish I would've done more of that, you know, like I said, maybe when my – I don't know if my son – he's 10 years old right now – I don't know that he'll ever go to Wall Street or whatever, but if he does I'm going to slap him around when he's 22 and say just buy the damn stocks that go from earnings from $1 to $10. And he'll live to be 100, so he'll be the next Warren Buffett, how about that?
Dan Ferris: There you go. That's an optimistic note. Listen, man, I always enjoy talking with you. Actually, I enjoy just setting you loose and listening and I'm taking notes and thinking, and it's always very stimulating for me and I know it is for our listener too, so thanks for talking with us.
Enrique Abeyta: No, absolutely. Love to do it. You know, follow me on Twitter at Enrique Abeyta, E-N-R-I-Q-U-E, A-B-E-Y-T-A. You know, we try to put some interesting stuff up there that can be helpful for investors, and check out our branch of the MarketWise empire, Empire Financial Research, you know, and, yeah, appreciate the time.
Dan Ferris: Yeah. You've got a website? EmpireFinancialResearch.com?
Enrique Abeyta: Yep. EmpireFinancialResearch.com.
Dan Ferris: All right. Thanks again, man. Really appreciate it.
Enrique Abeyta: Cool. Good to see you, Dan.
Dan Ferris: Yeah, you too.
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So it's always enjoyable and enlightening and educational conversation with Enrique Abeyta. He always has a deeper, often sort of different view of things, and it's funny, I feel like we check in with him every now and then just to remind us that, you know, he doesn't like the cult of value and he's looking for stocks that have $1 of earnings going to $10 and it's all about, you know, companies that can grow over a period of time and not much else for him. Then he worked sentiment and other things into the conversation.
I just think he's a really good investor. He's obviously got a lot of experience. I mean he grew his hedge fund from, I think it was like, $500,000 to over $1 billion. So, you know, he did pretty well. [Laughs]
All right? He was talking about a client that he lost money. He lost their account. They pulled it from him. He didn't talk about all the money he made for all the other clients, which he certainly did. And it shows.
You know, he just has a deeper view of things that I sort of insist that he share with us periodically. He's going to be a regular. Every six or 12 months you're going to be hearing from Enrique. Like I said, I learn from him every single time. It's a learning experience for me, and I take notes and I try to work, you know, his ideas into my own work, my own analysis of things.
I always come away with saying, hm, maybe I should do this, maybe I should do that, maybe I should run this screen or do this test or whatever. So it's really cool to talk to Enrique. Another really fun, enlightening interview. We've had some really good ones lately. I just feel like they get better and better. I hope you do too. I feel like our conversations with our guests just get better and better over time.
So that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did. We provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com.
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