Five days ago, GameStop traded for less than $50 per share.
Yet on Thursday, at the time of this writing, the stock has soared as high as $482.85…
What on earth is going on?
Dan explains what is behind the meteoric rise of GameStop, AMC, and a few other unassuming stocks in this week’s opening rant.
Then Dan invites a trading legend and “market wizard” onto the show. For decades, Peter Brandt has been considered one of the world’s foremost authorities on using classical charting principals to trade futures, forex and even the crypto markets.
Peter is also featured in the acclaimed book by Jack Schwager, Unknown Market Wizards: The Best Traders You’ve Never Heard Of. He’s also the second wizard we’ve had on the podcast.
Peter gives Dan an in-depth look into why the classical chart patterns don’t seem to work anymore, and how Peter’s adjusted his trading today. If you think of yourself as a trader, this is an interview you cannot afford to miss.
And finally, on this week’s mailbag Dan receives a great question about how the dollar could strengthen amidst this environment of stimulus. Another listener has a few questions about the recent censorship across big tech.
Dan gives his thoughts on these topics and more on this week’s episode.
Interested in more from Stansberry Research? Check out the American Consequences podcast here: https://podfollow.com/americanconsequences
Founder and CEO of Factor LLC
Peter Brandt is the founder and CEO of Factor LLC, a proprietary trading firm founded in 1981 at the Chicago Board of Trade. Peter is considered one of the world's foremost authorities on using classical charting principles to trade futures, forex, and crypto markets. His book, Diary of a Professional Commodity Trader (John Wiley and Sons), was the #1 ranked financial book on Amazon for 25 weeks in 2011. Factor research is based on four pillars: classical charting principles, aggressive risk management, the process of market speculation, and the importance of human elements in trading.
2:59 – GameStop? AMC? What’s going on? “There’s a frenzy of buying that results from a bunch of know-nothings piling into these stocks… and the share prices soar out of sight for no good reason at all, these are garbage companies.”
6:06 – Should you go long or short? “Sit back and watch, sit back and watch and don’t let your money touch this garbage, you’ll have a little bit of fun and you’ll sleep well.”
7:00 – The quote of the week comes from Charles McKay’s classic book Extraordinary Popular Delusions and the Madness of Crowds, “Money has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers and risked almost their existence upon the turn of a piece of paper… Men, it has been well said think in herds. It will be seen that they go mad in herds, while they only recover their senses slowly and one by one.”
8:41 – On this week’s interview, Dan invites the one and only Peter Brandt onto the show. Peter is the founder and CEO of Factor LLC, a proprietary trading firm founded in 1981 at the Chicago Board of Trade. Peter is considered one of the world’s foremost authorities on using classical charting principals to trade futures, forex and even crypto markets.
11:35 – Dan asks Peter about a popular figure from his past… “So you and Ronald [McDonald] go way back?”
14:51 – How did Peter get started at the Chicago Board of Trade? Peter shares the story of how he left advertising and set out on the path to commodities trading.
23:07 – Dan asks Peter, “I want you to talk about if you could, the first time you were trading with a well-thought-out system that worked, when was that?” Peter gives a surprisingly candid answer.
28:14 – Peter says that chart patterns aren’t as easy to spot today… “I think that has to do with the fact that we see more false breakouts today…” so where does Peter find his edge now?
33:15 – Peter says “About 15% of my trades year to year will produce 85% of my profits…”
37:58 – Peter says the most influential book he’s ever read about trading is nearly 100 years old… Dan is so impressed he puts the interview on a brief hold and buys the book on Amazon right then and there.
45:25 – After Peter and Dan talk risk management and position sizing, Dan sums up it up best, “…they’re not looking up to see how much they could make, they’re looking down to see how much they could potentially lose.”
47:03 – Peter explains the shapes he looks for in charts to signal it’s time to “get in” before breakouts and when to “get out.”
51:43 – Peter turns the interview around and questions Dan… “We do know that value stocks have underperformed tech stocks and growth stocks for a number of years, do you see a day when value stocks will once again claim a place at the table?”
56:39 – Peter asks Dan, “Coming from your background, I would love to hear your narrative for being a Bitcoin bull?… I’d love to hear your spin on why you believe Bitcoin would be an attractive place to park your money.”
1:00:20 – Peter leaves the listeners with one final thought before the interview ends, “If you’re a trader, it’s more important for you to trade to live, not live to trade…”
1:03:17 – On the mailbag this week, star-listener Vaughn M. opens up with a great question, “what are some ways the dollar could strengthen amidst the backdrop of printing and stimulating?” Another listener challenges an assertion made by P.D. Mangan on “dreading” his workouts. And another listener asks some questions about the recent censorship by big tech. Dan replies to these questions and 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. Signup 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. Before we get into the day's episode, don't forget; Trish Regan is now a part of the Stansberry family. Check out her podcast, American Consequences With Trish Regan. The Link will be in the description of this episode. As for today, we'll talk with trading legend and market wizard Peter Brant.
I'll ask Peter about his relationship with Ronald McDonald, why the old chart patterns aren't working anymore, and then Peter says he wants to turn the tables and ask me a couple questions. That should be cool. This week in the mail bag, lots of great stuff. Feedback about a recent guest, Andrew Beer and P.D. Mangan and questions about inflation, Apple, Intel and free speech on social media platforms. In my opening rant this week, I want plenty of time to talk with Peter rant, so I'll just quickly go over the most insane thing in the stock market right now. That and more right now on the Stansberry Investor Hour.
Okay. Today's rant will be a little short. Want to leave plenty of time to talk with Peter Brant. He's our second Market Wizard interview subject. Our first was Mark Minervini. All right? I can't wait to get to it. But first, there's no way – there is absolutely no way – I can talk about anything else but GameStop. And other stocks too. Tt's not just GameStop...and the total insanity in the stock market right now. As I speak to you, there's a couple of stocks that are up like literally 100 or 200 percent in a single day.
And GameStop is one of them. It's gone absolutely ballistic just the last several days. AMC Theaters, the movie theater company that's just had like the worst thing that could ever happen to it...which is still happening to it; Express. Right? Express, the retail company. Koss headphones is another one. They were up like – last time I looked – 100 percent or so. Just insane. Insane action. And look. We can get into why this is. The basic dynamic is probably just about right. It's the sort of thing that happens during these really manic episodes. People go onto places like Reddit, you know – social media platforms – and they just talk up these stocks. They have no idea what they're doing. They're like, "Oh, buy. Buy. Buy."
And there's a frenzy of buying that results from just a bunch of no-nothings piling into these...in the case of GameStop, before it went ballistic, relatively small companies. And the share prices soar out of sight for no good reason at all. And these are garbage companies. GameStop sold their business that owned AT&T stores. All they have left is GameStop stores. You know? These places where people go to buy and sell and trade physical video games. Like on discs. Physical video games. It's ridiculous. It's not anything you'd ever want to own.
And AMC Theaters? Come on. I mean, these are like melting ice cubes. They weren't doing great before the pandemic, and now they're doing even worse. Express, a retailer that you go to in the mall? I mean, there's still too many malls. Austin Root at Stansberry pointed out this morning – he said, "You know, people are also buying AMCX." It was up when I looked like 4 or 5 percent or something. "Because they're mistakenly buying AMCX because they think it's AMC." Right? It's just all ridiculous. And you know what it is? It's things that happen at the top. It's classic speculative behavior.
Now, of course there is this extra little bit of juice in that some hedge funds were short these things in a massive way, and retail via Reddit Message Board Posts seems to have kind of blown the shorts out of the water. Okay. Fine. Big deal. It's still – this is stuff that happens at tops. Like, a guy I know who's a...well, Vitaly Katsenelson. We've had him on the program. He's a great guy. Friend of mine, good investor. He said his son was itching for him to buy GameStop. This is like a day or two ago on Twitter.
And, yes, in the past day or two he would've triple or quadrupled his money or something crazy. But, you know, I think this stuff is going to crash. If it can soar 200 percent in one day for no good reason whatsoever, it can crash 50, 70, 90 percent in a very short period of time for no reason whatsoever, except to just get back to where it was. Right? All this stuff is headed back to where it was. It's insane. So the reason I'm not digging into it too deep is, the point of the show is we're trying to help each other become better investors. Yeah. This is easy. Avoid. Walk around it. Don't do it. Don't go long. Don't go short. Just stay away from it.
Really good traders never get involved in this garbage 'cause they know there's no way – there's no way – you have any clue of what's going to happen next. Eventually, will this stuff crash? Absolutely. But will it crash after it quadruples one more time? I don't know. Maybe. You know? Is GameStop a 10X from here before it crashes? I don't know. Maybe. You get it? Sit back and watch. If you sit back and watch and don't let your money touch this garbage, you'll have a little bit of fun and you'll sleep well. That's my real – I think that's the important message; the underlying potentially scandalous nature of the involvement of folks on Reddit or whatever.
That might be a nice story too, but the real point is you should stay away. That's all I have to say about that. I'm going to do my quote of the week, which I think is appropriate [laughs] for the moment, and then we're going to talk to the one and only Peter Brant. St eh quote of the week is from Charles Mackay's classic book, Extraordinary Popular Delusions and the Madness of Crowds. It's from right in the preface. Right in the beginning of the book. You know, it's before Page 1 even.
Mackay says, "Money has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers and risked almost their existence upon the turn of a piece of paper. Men, it has been well said, think in herds. It will be seen that they go mad in herds while they only recover their senses slowly and one by one." That's Charles Mackay from Extraordinary Popular Delusions in the Madness of Crowds. Especially that last part about recovering their senses slowly one by one. It's a fairly famous quote. I'm willing to bet some of you have heard it.
But you got to admit the timing is right for it. Okay? I think Mackay said it all. All right. Let's do it, man. Let's talk with Peter Brant. Let's do it right now. [Music plays and stops] Nasdaq hit 13,000 for the first time in history. Bitcoin topped $40,000 just days after cracking $30,000. The words "mania," "euphoria" and "frenzy" are all over the financial press. But is there more to the story? You bet there is. And my good friend and long-time colleague, Doctor Steve Sjuggerud – who first warned of the cash panic in 2015 – is now pounding the table about a dramatic financial event that has finally begun. Earn more absolutely free of charge by visiting 2021bullmarket.com. Again. 2021bullmarket.com. Check it out. [Music plays and stops]
Today's guest is the one and only Peter Brant. Peter Brant is the Founder and CEO of Factor LLC, a proprietary trading firm founded in 1981 at the Chicago Board of Trade. Peter is considered one of the world's foremost authorities on using classical charting principles to trade futures, 4X and even crypto markets. His book, Diary of a Professional Commodity Trader – published by John Wiley and Sons – was the number-one-ranked financial book on Amazon for 25 weeks in 2011. Factor Research is based on four pillars; classical charting principles, aggressive risk management, the process of market speculation and the importance of human elements of trading. I’m sure we're going to talk about all that today and more. Peter Brant, welcome to the program.
Peter Brandt: Oh, thanks. It's my pleasure and privilege to be with you, Dan.
Dan Ferris: Okay. So, Peter, I've read – actually, I've read parts of...and I think I've actually read the whole interview at this point – of the Schwager book, Unknown Market Wizards. You're the first interview in jack Schwager's new book. and we interviewed Jack, and we talked a little bit about you then. And I usually talk with people in your business about how they got started and how they grew up and all that. But you mentioned a little bit of that in your book. And I want people to read the book because Schwager's books are great. So, Peter, there's a question that I have got to start out with. After reading the Schwager interview, there's no other topic that I could start out with. Please, Peter, tell me about your relationship with Ronald McDonald.
Peter Brandt: Oh, boy. Given the fact that I eat at McDonald's, and every once in a while...yeah. I mean, that's a fascinating part. Right? I mean, talk about digging into the closet for that question. Wow. You go way back. As a matter of fact, 50 years ago out of college I went into the advertising business. And that was my major, actually. I had a double major in college. You know, economics, business and then journalism and advertising. So I joined a very large advertising agency in Chicago. We'd lived in Minnesota our whole lives and headed to Chicago. And it was one of the largest ad agencies in the world at the time with huge clients.
One of those closets was McDonald's. And I ended up being assigned to the McDonald's account just about the time that Ronald McDonald was invented with his big shoes. And so, that was [laughs] – that's my connection with Ronald McDonald as I was engaged in an ad agency where Ronald McDonald in effect was born as an effort to reach young kids and appeal the McDonald's restaurant to entire families. So yeah. Boy. You went deep for that one, Dan. Congratulations.
Dan Ferris: [Laughs] Yeah. So basically, you and Ronald go way back is what you're telling me.
Peter Brandt: We go way back. We're best friends.
Dan Ferris: Yeah, that's right. And it sounds like the relationship has continued right up until today.
Peter Brandt: Well, yeah. And it was 'cause – as a matter of fact, I had worked on the McDonald's account in advertising. and then when I went over and became fascinated with commodity trading and left the advertising business and went to work at the Chicago Board of Trade for continental grain – which large-grain merchandising firm – one of my assignments was to go out and find institutional business that would do their grain trading and futures clearing through Continental. And I had a relationship with McDonald's at the time and ended up going to McDonald's and signing them on as a client. So I saw McDonald's from the advertising side but then also became very familiar with McDonald's from the standpoint of grain merchandising and purchasing in the commodity side too. So it was an interesting book end there.
Dan Ferris: That is so cool. So, you know, now that I'm talking with you I'm one degree removed from Ronald McDonald. It's great. You liked advertising, didn't you? It's not that you didn't like advertising. You just discovered trading and just – the trading bug bit you. But you liked advertising, didn't you?
Peter Brandt: I did like advertising. And I think I was good in it for a young guy. They had me on a fast track. I kind of didn't like the corporate world from the standpoint of writing memos and attending meetings. That's not me. I'm more of an entrepreneurial guy. But I loved the fascination of advertising. But then, you know, at the time I'm living in Chicago. And we actually lived in Evanston, which is a suburb north of Chicago and met a guy who was a soybean trader at the Chicago Board of Trade.
And he asked me to come down, and I had lunch with him a few times at the Chicago Board of Trade member dining room overlooking the trading floor, overlooking corn and bean; the grain portion of the trading floor and absolutely became fascinated by that. I had just...it was a world that I just – bewildered me. It was a wonder to me. and even though I liked advertising and, at the time, I'm a guy in my mid-20's. And I approached the founder of the ad agency. The agency name at the time was Needham, Harper and Steers.
And talked to Dick Needham and said, "Hey. I've got this bug that – I've got this itch in my back I've got to scratch called commodity trading, and I'm going to go and join the Chicago Board of Trade. And if I absolutely blow out and it's not for me, will you hire me back in a year with a raise?" And Dick Needham said, "Sure. Of course we will." So that really gave me a plan B, right? I had the freedom to fly. And so, the rest is history. Went down to the Chicago Board of Trade in early-1975, and I've gotten bold into business. You know? I was in my mid-20's at the time. Now I'm in my mid-70's, and this is what I've been doing for the past 45 to 50 years.
Dan Ferris: Wow. That's an impressive negotiation there. You know? Just getting that deal worked out before you left advertising. And for a raise even when you came back. You're my hero right now.
Peter Brandt: Yeah. [Laughs] Oh, you shock low if that's true.
Dan Ferris: Okay. But you started out as a broker. You didn't start out trading but just as a way to get into the business. What was that experience like?
Peter Brandt: Well, it was a fascinating time because we had just come off periods of very stable and very low commodity prices throughout the '40s and '50s and '60s. And then, we entered the '70s. There was some crop failures around the world. There was some wild inflation that was taking place. And so, '72, '73 really was the beginning of the modern commodity era as we know it. You know, gold became a legal thing to trade. And so, we had a lot of things taking place; global macro-ized it and really traced the period of modern raw material, raw commodity trading really back to just about the point that I came into the business.
And so, you know, we read the big bull markets. We had these wild and crazy markets. And so, that was fascinating. I knew at the time that I just wanted to trade. I mean, those are the folks that I met. I became friends with guys that were proprietary traders; that is, trading with their own money for their own account. So I knew that's where I wanted to be. I wanted to be a proprietary trader, and you're absolutely right. Back then, there was no fast track into the business. Everybody started at the same place at the bottom.
And then, you went from there. And so, my original place in the business was to go find customers that could do their commodity trading through Continental grain, and I was able to sign up a couple of very large accounts. Well that really allowed me the ability to go out and then really seek the proprietary trading part of the business. I had to learn the business. I mean, trading is a very hard thing to do. I knew nothing about the commodity business when I came into the business. And so, it really took me a period of four or five years to get my footing under myself. I think I blew out three or four accounts. We were allowed to trade for our own accounts back in those days, and I think in the process of learning to be a trader I totally destroyed a few accounts.
And I really had to figure out what that looked like for me to be a trader. You know, I tried to trade based on supply and demand, and I tried a whole number of ways to try to approach the market with my own risk positions. And you learn by your mistakes, and you make mistakes, and you kind of refix things and repivot and try something else. And it really was about four years, I think, before I could say, "Hey. I kind of know where I'm going." And then, of course, in 1975 when I came into the business I really started getting traction as a trader in '79 and '80. And then in October of 1981, I really left Continental and went off on my own and started Factor Research and trading at the Board of Trade as a proprietary trader.
Dan Ferris: Very cool. Actually, just a quick question. It's just something that's kind of gnawing at me to ask you. Do you, by any chance, remember, Peter, what a round turn commission was when you started as a broker?
Peter Brandt: Oh, yeah. I sure do. I mean, if you're on the floor – and I did enough business that I was able to gain access to the floor and...yeah. I wasn't in the pit. I wasn't a pit trader. I'd just ride off on the edge of the pit. You know, back when you're on the floor, it was just insignificant amount as a floor trader to clear your trades. But as a retail speculator back then, round turn commissions ranged anywhere from $50 to $75. I suppose there were some bucket shops that charged more. But a retail trader was basically paying about $50 of round turn commission if you were a big institutional customer such as my institutional customers. McDonald's, Campbell Soup Company and so forth. They paid in the area of $15.
And of course, my round turn clear right now was less than $5. So we've seen commissions rates on futures go down substantially over time. But back then, commissions amounted to something. and because of that, at $50 round turn commission for a retail customer the idea of day trading off the floor was really very rare back then because commissions would've eaten you alive. And so, for the most part if you were not on the floor – if you're off floor – you tended to end up really adopting more of a position overnight approach to markets where you held onto your position because it was really a rare day trader that could really cover that $50 round turn and make money at the end of a month or so.
Dan Ferris: Yeah. The reason I ask – I was, I want to say, the victim...but the customer of such a bucket shop whose name I won't mention. and they were charging me – and, I mean, this wasn't even the '70s or '80s. I think it was...must've been early-'90s. They were charging like $100 round turn. And I turned $20 – was it...no. I turned $2,000 into $268 in about six or seven months. It was easy to do, and you paid $100.
Peter Brandt: Yeah. You were not – that's not a novel story. I mean, commissions ate people alive. And back then, the brokerage firms that were legitimate were very, very aware of something called a commission-to-equity ratio. And, you know, they would be suspect of a broker who brought in retail traders and had commission-equity ratio that they exceeded a certain part, because they felt that they had some liability there. And so, it was something that – they would always take a look at a broker that...it was called churning your customer. And, you know, yeah. So $100 commission, that was a – that was not uncommon at all.
Dan Ferris: Yeah. So, Peter, I want to sort of leap-frog ahead to that moment. Maybe it was when you went off on your own in 1981. But I want you to talk about, if you could, the first time you were really trading with a well-thought-out system that worked. When was that?
Peter Brandt: Well, that's kind of a loaded question. Right? Because I would venture to say that there are days and weeks and months still where I kind of wonder, "Do I have a well-thought-out system?" I think that [laughs] that's the reality of trading.
Dan Ferris: Okay. Well, wait a minute. So let me tell you where the question came from. I interviewed Mark Minervini who was in the Stock Market Wizards book of Schwager. And he told me that he had worked on his system – he trades equities. and he told me he worked on his system for ten years before it was really, you know...before he really had it down. And I guess maybe I'm projecting that onto you and saying, "Well, okay. How long did Peter work on his system before he had it down?" And if it doesn’t apply, that's fine. But I’m just curious about, when did you start getting really systematic and doing things that are at least similar to what you're doing today...is kind of what I'm after.
Peter Brandt: Yeah. No. That's actually a great question. I would say late-'79 I really had a sense of how I wanted to, generally speaking, approach the markets; what that looked like. It really starting putting out the meat on the bones to the way I wanted to trade. And by mid-1980's, I pretty much had a pretty good understanding of, "How am I going to select a trade? How am I going to size it? How am I going to determine my risk? How am I going to manage a trade once I put on?"
And so, those were really things that, for the most part, were in place by '81 and for sure in place when I launched the firm. You know, things have changed over time, of course. The market has changed. We've changed our risk profile, our temperament changes. And so, we fine-tuned things and we do things slightly different as things go on. But I would say in my mind how I trade today has a certain level of differences from how I traded in 1981. But I don't think somebody looking in not really familiar with the details of how I trade...they'd say, "Boy. They look pretty much the same." That in many ways, how I trade today resembles how I first started trading when I went the proper route only with Factor Trading back in 1981.
And that's basically trading on classical charting. I was introduced to Edwards and Magee and Schabacker in 1979, and that really is how I started putting together my approach to trading based on classical chars and classical chart patterns. And when I first launched Factor Trading, I traded classical chart patterns. That continues to be how I trade today. You know, there are differences today in how I manage trades, on how I size trades. But for the most part, the type of trades that I do today are exactly the kinds of trades that I would've done back in 1980.
Dan Ferris: Okay. And yet, in the Schwager interview I was kind of blown away. I wasn't surprised, but I was still a little blown away when you said at one point the old chart patterns just don't work anymore. And I was like, "Oh." So I understand that some things have remained the same. But what is it – are you still like...you're still a classical charting guy, but the old charting patterns don't work. Help me resolve those two. What do you mean there?
Peter Brandt: Yeah. I mean, I think there was a level of reliability that you would take a given pattern...let's say take a head-and-shoulders patterns, the head-and-shoulders top, head-and-shoulders bottom; rectangle top, rectangle pattern that you break out. I think there was a higher level of reliability for those patterns to do what Schabacker, Edwards and Magee would say they should do back in the '70s and '80s even into the '90s than there are today.
And I think that has to do with the fact that we see more false breakouts today. We see more breakouts that don’t work today than we did back then. And so, I think there was a time back then where the patterns themselves really offered an edge to a trader who would be very disciplined in waiting for those patterns to develop and then jumping aboard those patterns when they broke out; that that in itself provided an edge to trading where I think today there's a level of false breakouts and premature breakouts – head fakes – that really have taken some of the edge – a lot of the edge, in fact – that classical charting offer back in those days has taken that away.
And so, we still have patterns today. We still have breakout patterns today. It's still the way I trade today. But I think today I'm gaining my edge from really trade management; how I manage trades, how I cut losses. That's where my edge is coming from. I think back then I could be pretty careless in terms of what a pattern was. You know, if it looked like a pattern and acted like a patter for the most part, it ended up working like a pattern; where I think a classical chartist in these days has to be much more choosy, much more picky, on the kinds of patterns that we look for to trade.
I mean, back then I would trade symmetrical triangles. I don't trade symmetrical triangles anymore because the level of unreliability of a symmetrical triangle today is so great that it would only cause frustration. There's no real edge. There's no real predictability. And so, I think that's true for a number of patterns that, back in the early days, I would've traded; where I don't trade now just simply because I don't trust them. That the level of unpredictability, the level of – the high failure rate of those patterns are such that it's very, very difficult to make money in those patterns. So I tend now to really be focused on a narrow niche of patterns that I believe we still have the reliability. I mean, it doesn’t mean that they work all the time.
I mean, I probably am wrong. I lose money on 50 percent of the trades I take out. And so, that gives...my default assumption is, I’m going to be wrong on a trade. And so, the key now – rather than just simply some sort of magic that happens when a chart pattern develops...the key now is really cutting loss of the shorts and letting winners run. It's in those patterns that work to make sure that you have enough size and that you stay with it long enough that you can overtake the 50 percent of the trades that are losers. And so, if you say that 50 percent of patterns work and 50 percent of patterns don't work, there's no real edge there. The edge comes from how you manage trades within that structure.
Dan Ferris: Right. So you are assessing if it's 50/50, you have to be successful at basically assessing what we might call risk reward. Right? So here's – you say, "Here's my exit point. That's down 1 unit. But here's my potential – or, my stop loss is down maybe 1 unit. But then, my potential profit is up 3 or 5 units," or something like that. Is that the general thinking?
Peter Brandt: Yeah. I mean, it is. And I think it can be expressed with a little more specificity, too, being that there was a 17th-Centry economist/philosopher by the name of...or, 18th Century of Vilfredo Pareto. And everybody started the Pareto principle, right? That 20 percent of events really produce 80 percent of the consequences. Or in the world of trading, 20 percent of your trades produce 80 percent of your profits. And the Pareto principle really applies to just about every area of life that you look at. 20 percent of parents will do 80 percent of the volunteer work at their kid's school. 20 percent of people will contribute to 80 percent of the money to nonprofit organizations.
Pareto principle rules life. For me as a trader, I know that about 15 percent of my trades year-to-year will produce 85 percent of my profits. And so, it's what happens with those 15 percent is my ability to let those 15 percent run and my ability to really have the 85 percent not be big losers; to have the 85 percent scratch. And being that's 0 will show that that 15 percent can represent my net profit over time. That really is the focus of...that's my calculus as a trader, is the way I do that or...and I don't even give myself credit. The way that's done is to get out of losses really quickly; to the old saying, "Cut losses short."
When you have a loss, don't hang around. Don’t live with a loss based on the hope that it won't become a worse loss. So when you get a loss, know when to cut it really quickly. And when you get a profit, it's the ability of that profit. And sometimes, you don't see a profit will trade grow. It becomes a small truck profit and ends up becoming a break-even or a small loss, even. But it's had 15 percent of trades. How do you harvest those 15 percent of the trades? So at the end of the year those are really the only trades that count. Those are the trades to put in that bottom line. Unfortunately, you have to go through 100 percent of the trade and the process of discovery.
Dan Ferris: Right. [Laughs] Right. So really quick, I just want to go back and ask you. Schabacker was published in 1932. And Edwards and Magee is, what, 1948? If I read those books today, is that still valuable?
Peter Brandt: You know, Schabacker is – I mean, I've got to say that if I would've only read one book – and I read a lot of books over time that are financial books, trading books. But if there was only one book that I can point to and say, "This really was the book that gave me my career," it would be Technical Analysis of Stock Market Profits by Richard W. Schabacker. Which, by the way, has – for the very first time – been published in hard back cover. It was soft back for...well, originally it was just notes that were Xerox, but then it became a soft back-covered book and now is a hard back-covered book as of the last couple months.
And that's billable on Google or Amazon. But yeah. I mean, that's really the book that defines, for the most part, how I look at markets; the lenses that I used to look at markets. Schabacker's brother-in-law was Edwards. And so, you know, when Schabacker died early – very early, like 1936 he was still a young man – it was his brother-in-law, Edwards, that kind of picked up his work and continued. And that's been how the Edwards and Magee book came out, is Edwards had Schabacker as his brother-in-law to pick up the work of Schabacker and then publish Technical Analysis of Stock Trends. And so, that's kind of the lineage. But yeah. I highly recommend the Schabacker books.
In fact, I recommend the Schabacker book more than I recommend Edwards and Magee because, you know, why not go back to the origination? And Schabacker's really the one who codified all of these things to begin with. Of course, you know, you had Dow and some of the early people who were talking about these patterns. But it was really Schabacker who kind of codified the whole school of technical analysis that we refer to as classical charting. He was the one who put labels on it and names on it and started creating an organized way to look at it.
Dan Ferris: Wow. So his book was first published in 1932, and you sound like you're still really enthusiastic about its ability to teach you something valuable even today. Even as you admit that these old chart patterns, some of them, just don't work anymore. I'm about to Click on Amazon, and I just bought the Schabacker book. I'm not even a trader. But if Peter Brant says that's the book to buy, I have got to have it. So that impresses me. That's interesting. I have to find out what's in that book. What is in that book? Just sum it up for me. What's in that that's still valuable not far from 100 years later here?
Peter Brandt: Well, I think what he did is, he set up the fact that you have to have a lens that you put on, a pair of glasses that you put on that you can look at the markets and somehow start putting certain things in buckets; the way to understand the market. And it's a lens through which you can look that you can come to some sort of determination that defines not only what the markets have done but maybe what they're doing now and then, you know, stretching it into what might happen in the future. And the uniqueness of Schabacker is, he was considered one of the authorities on fundamental analysis back in the 1920's.
When he wrote this book on classical charting at the time, he had worked for the New York Central Bank. He was the editor of Forbes Magazine. I mean, the Forbes Magazine goes way back into that period. He was recognized and acknowledged as one of the premier fundamental analysts on Wall Street. But he had observed that prices, when potted on a graph, can perform some repeatable geometric patterns. You know? We've all heard the terms diamonds, head-and-shoulders, triangles, rectangles, trend lines, gaps, all of these things. We've all grown up. If we haven't really been an adherent to those things, we've at least heard of those things.
And it was Schabacker that organized these things into ideas and principles and concepts and put them into this book and said, "Here's what a head-and-shoulders really is. You know, here are the components that are required to constitute a head-and-shoulders. Here are the components of price action when plotted on a graph that constitute a rectangle, that constitute a wedge, that constitute a diamond," and so forth. And he was really the person who we can trace all of those things back to. And so, even today I'll see on social media a chart that somebody puts out and says that they have drawn on there that, "Here's a symmetrical triangle," or, "Here's a" – whatever the case may be.
And I look at it and go, "Schabacker would not agree with you. That does not meet the definition of a triangle as put forth by Schabacker. And therefore, you can't call it that." And I'll give people a latitude to say that beauty is in the eyes of the beholder. But I want to look at charts. And when I identify a chart pattern, the first thing I ask myself is, "Is this how Schabacker would have defined this chart?" And so, I want to kind of hold myself accountable to the organizational principles of classical charting as put forth by Schabacker in the 1933 book.
Dan Ferris: Wow. Okay. But since we kind of established that these days the chart patterns are like a 50/50 proposition, let's talk about everything else. So what would that be like? Position sizing and time in the trade or how you establish a stop loss, how you establish your profit targets? Tell me about that. How do you – let's start with position sizing. How do you think about that?
Peter Brandt: Well, my first point is risk. You know, position sizing is a variable. And it's determined by when you get into a trade. And for me, that is when a trade breaks out. And I have a definition if I have a rectangle. I have a definition of, you know, how much of a breakout really constitutes a breakout. And so, at my point of entry, which is represented by what I believe the price would be when a chart pattern is completed. And then, I have a rule on how I set my initial risk. I always use stops on orders, on positions. I never go without stops.
And so, it's kind of like, "Here is where I'm going to get in, and here's where I'm going to get out initially if I'm wrong." And so, you can calculate that, and then you can reduce that down to a number of shares and a number of contracts of futures contract. And for me, that's determined by my risk. And my maximum risk back in the early days of trading was 200 to 300 basis points of my total capital in individual trade. In other words, on $1 million I was willing to risk somewhere in the area of $10,000 to $20,000 or 100 to 200 basis points of risk on up to 300 basis points in some cases.
Well, that's gone down over the years as I've gotten a little bit older, as I've accumulated capital. My goal isn't necessarily to make my account the biggest it could possibly be; rather, it's tended to migrate more toward, "I want to trade for income." My risk now is about 50 basis points. Now, what that means is that – let's say per $100,000. I'll take a 0 off the amount. From $100,000 of account size or nominal account size of what I have, I'm willing to risk $500 on a trade.
And so, if I'm buying a stock and it works out that I'm risking X number of dollars on a stock I buy at $100, I'm risking the $95 a share. That's $5 a share. And I'm risking 1/2 of 1 percent or 50 basis points. You know, you just do the math. So that's how sizing occurs for me. Sizing is not my going-in assumption. My going-in assumption is, "How much am I going to risk on a trade?" And then where I get in and where I get out are the determinants on what my size is. Does that make sense?
Dan Ferris: Sure. Sure. I knew it was going to be risk-based. Like, you know, I've read the Schwager books and talked to a lot of traders, and we always wind up here. We always wind up in the same place. You know? It's about, they're not looking up to see how much to make. They're looking down first before anything else to see how much they could potentially lose. And in that same vein...so that's position size. And we talked a little bit about this already, but maybe if you care to drill down any more...or if you don't, that's fine. We can move on – about entry and exit; how quick – what is the stop loss point based on, and what is the profit-taking point based on?
Peter Brandt: Yeah. And that's going to vary. You could talk to 100 different guys who say they're classical chartists, and you're going to get 200 different answers to that one, Dan. But I can give you my answer really quickly. And that is, I base my trades directionally based on weekly charts. I want to see things take place. I want to see patterns on weekly charts. But then in terms of tactically the execution of a trade, I go to the daily chart. And so, on a daily chart I'll look at a pattern – let's say it's a rectangle pattern, which means that there's a period of congestion, consolidation in a market where you've gone up, and you find about approximately the same level where the market tops and then get a reaction.
You have kind of a same level and a congestionary where support is found. And so, you have this...really, it's what Edwards and Magee calls a parallelogram. You have this area of congestion that really looks like a rectangle or a parallelogram. And there's a point at which the markets thrust through the upper boundary of that parallelogram and you have the breakout. And so, that really defines where I'm going to get in. Where I'm going to get out really is...I use a simple rule which I call a last day rule. When a market breaks out of a chart pattern on a daily chart, I identify the last full price bar that occurs within that pattern.
And if it's a long-side trade, my stop then goes below the low of that last full price bar within a pattern. That is the point at which I put a stop and say, "We've broken out, and now the market has returned and gone back into this pattern that had been completed and even takes out the low of the last full price bar within that pattern." You know, I'll say, "Okay. That's where at-risk point is. That's where I'll get out of a trade." Now you asked about, "Where do I get out if I'm right?" And that gets back to the principles in classical charting...is, when you have a congestion zone, you determine the height of that congestion.
You go into a congestion zone in a stock between $80 a share and $100 a share for a period of time, and then you have a breakout. That's a $20 range. And so, you extend that $20 range from the upper level of that pattern. And so, say you have a head-and-shoulders pattern bottom that takes place, and the height of that head-and-shoulders bottom is – $30 a share is the neck line. $10 a share is the bottom of the head. That's $20. When you break out, you assume the market's going to move in a distance equal to the height of that pattern. So you have a target of $50.
And so, for me that becomes crucial. Because I want to take a pattern out that gives me an opportunity to make some multiple of what I am willing to lose, as what I want to make. And so, getting back to the Pareto principle, the calculus of me being profitable is based on the fact that out of 100 trades I can find 15 trades that will go to their target. And so, that gives you then an idea of how dependable I need to have these patterns deliver for me. I even need to have 15 patterns out of 100 break out and go to the target for my calculus to work. But that also then depends that 85 of those trades, I can find a way to at least break even.
Dan Ferris: Well, thank you for that. Thank you for kind of digging in and explaining that in good detail for us. Peter, we've actually been talking a long time. We're just about at the end here. Before the interview, you said you had questions for me, though. So before we finish up, I'm kind of curious as to what was on your mind.
Peter Brandt: Well, I mean, you're known as a value investor. Going back to Ben Graham's book, right...I mean, is really kind of your hallmark and is really something that defines you. It's something that I've never really dug into. I mean, but yeah. I think there's a whole generation of the younger traders now that value investing to them is just a mysterious dark zone. You know, for one reason value investing has not been in vogue here in recent years, and we've had a whole generation of traders come in to crypto and Robinhood and so forth that value investing is this complete unknown. We do know that value of stocks have underperformed. Tech stocks and growth stocks for a number of years, you see today where value of stocks will once again claim a place at the table.
Dan Ferris: That's a great question. You know, I've recently had to just stand back and say, "What am I talking about when I say, 'Value stocks'?" And I'm afraid when we use that term nowadays – if we're talking about anything meaningful – we're talking about the contents of value indexes. Which as we know, like, if you take like a Russell value index with a Russell growth index, there's actually a lot of overlap between the two. They have some of the same stocks in them. [Laughs] But they just got there by a different means. Right? IT's revenue growth versus maybe price-to-book or price-to-earnings or price-to-cashflow or some constellation thereof.
And so, you know, you have to sort of recognize what we mean by value stocks. Now, personally I have made an evolution – which I'm not a billionaire. But I've made an [laughs] evolution similar to Warren Buffett. I think everyone has to. You know, Ben Graham in security analysis – he showed us these metrics. Right? Price-to-book and 60 percent of book value...I mean, he had all these very specific things. You know? And they just become the traditional value metrics. Well, you know, some people still do that, but I don't think it's a good idea. I think it's really hard because it's really much more efficient to do that with computers and just sweep through the market and hoover up everything you can.
And you got to have a lot of capital to do it. Right? Because you're buying 1,000 positions at a time or whatever. So that's really hard to capture that effect anymore, I think. But I think what you can do – on a repeatable basis, right? Every now and then, even over the past few years, value has...those value stocks have performed. And even somewhat recently here. But for a long-term strategy in what I would still call the value discipline, you're thinking a lot more about – it's all the Buffett stuff.
Right? "Does this business have a sustainable, competitive advantage? Do we like the management? And what does the fundamental financial history look like? You know, what do the margins look like over time? What does the free cashflow look like over time? And why?" Right? "Why are they able to do this, and will they be able to continue to do it based on what's happening right now?" And then, what we do is we think about all that, and then we have this thing we do called price and plot expectations where the traditional discounted cashflow...it's like you plug in all these kinds of predictions about what's going to happen in the future with revenues and margins and cashflow, and then you discount it back to the present, and you do some math. And then, you get this intrinsic value number.
But that looks too much like a prediction to me. And I hate prediction. I don't want a prediction-based strategy. So if you flipped that on its head and say, "What do I have to plug in to get to the current market price? And did I have to plug in something that I think is too pessimistic. 'Cause if it is, I think I might have an opportunity on the long side here. And if it's not pessimistic, maybe I have something that's fairly values. And if it's way optimistic, maybe I have something that's way overvalued. Right? So that's the way we think about it now. At least, that's the way I do and Mike Barrett, my Chief Research Officer in our monthly advisory called Extreme Value. That's what we do now.
So it's not really – I'm wide open to finding a Ben Graham-type opportunity [laughs], but most of them kind of deserve to be trading for less than net cash and all those other kinds of Ben Graham things. So that’s' sort of where I am now. But to be specific, to answer your question, I suspect that we may get an opportunity to buy those basically – just call them the value indexes; you know, the value stocks by the traditional metrics. We might get an opportunity to buy them that will give us a couple of years of decent performance. You know, maybe starting soon; starting within the next couple of years. I suspect. I don't have to predict it, but I suspect it's coming. And if it does arrive, I really hope that I'm smart enough to be there and take advantage of it.
Peter Brandt: That's fantastic. I love that answer. That's a great answer because it really says, "Hey. Markets do change. We need to constantly be looking at how we define what's tradable for ourselves." And that ties to a different question. Coming from your background, I would love to hear your narrative for being a Bitcoin bull. Because I know you've adopted constructive attitude towards Bitcoin. I'd love to hear your spin on why you believe Bitcoin is an attractive place to be parking money.
Dan Ferris: So for me, Bitcoin is a burgeoning currency, a burgeoning store of value with very little history – very early days, of course – that has the potential to generate...you know, it's already generated from the bottom...from the beginning, it's already generated enormous – tens of thousands – of percent of returns. But I think even from here, from whatever it is – $30,000 or so – it has the potential to be like a multi-bagger, just call. You know, like a 10X or 50X or something like that. And I think everyone ought to have just a tiny position. Something you could afford to lose 100 percent of and just let it go for ten years.
And that gets to the reasons why I specifically like it. The specific fundamentals are, it is cryptographically secure. They traded speed for security. Like one of the big criticisms is that transactions take too long. Which is valid. But it's highly secure. And I believe it'll be much better managed, for example, than the biggest competition; which is the US dollar. I mean, we've printed $3 trillion of those this year. And Bitcoin is close to – I haven't looked lately. But it's close to 19 million outstanding Bitcoin. I think it was like 18.6 or so the last time I looked recently. And there's never going to be more than 21 million of them.
And if things go on as they are, that point won't arrive until the year 2140. So that's a pretty low inflation. That's pretty darn good currency management. And there isn't a central bank behind it that's going to say, "We have to do something that's going to make the stock market happy, and we have to do something that's going to make voters happy." You know? It's a completely different motivation. And it's got this world's biggest computer network behind it and with all that security around it. So I just think it's really worth taking seriously. I wish I'd taken it seriously about ten years earlier. But it really is worth taking seriously to me.
Peter Brandt: Well, that's fascinating. I love sharing the think of – you have kind of what I call the crypto maniacs...you know, you hear their narrative, and sometimes it's a little wild and crazy. But I love when I run into people who have had a depth of learning the markets and a sophisticated way of understanding stock values migrate to Bitcoin. I love hearing the reasons why because often they give me a richer sense for my understanding of Bitcoin. And I appreciate you doing that here today.
Dan Ferris: It's my pleasure. I love having the tables turned on me by Peter Brant, of all people. It was unexpected. I thank you for that. It's great. But we are out of time. But I do have to ask you my one final question that I ask every guest I ever have. And that is, if you could leave our listeners with just one thought today, what would that be?
Peter Brandt: If you're a trader, it's more important for you to trade to live, not live to trade. There are a lot of important things that we have in life. I've seen young people become just overly obsessed with financial markets as the way that they define their lives and their world. And I just think there are richer things that we as individuals and human beings; family, health, meaning. Things that we can be passionate about that will give us a fuller life than financial markets. And so, I want to trade to make my living, but I don’t want to live to trade. And so, that's what I would leave people with.
Dan Ferris: Very wise. I expected nothing less. It was very wise. Thank you, Peter. And thanks for being here. I really appreciate it. It was a great talk, and I hope you can come back again. I feel like we just started, and we have a lot more to talk about.
Peter Brandt: Well, I'd love to. And it was a great interview. You asked me things that really I was not expecting and often don't hear that really allowed me to, I think, dig a little deeper into what I do and why I do it. So I really appreciated your questions, Dan.
Dan Ferris: Oh, I'm glad to hear that. I might have to – I might have to tell the whole world over and over that Peter Brant just said that. [Laughs]
Peter Brandt: Well, you have a good day. And thanks for inviting me on.
Dan Ferris: All right. Bye-bye, Peter.
Peter Brandt: Bye-bye.
Dan Ferris: Wow. That was really terrific. Peter's now the second Market Wizard that we've talked to. And just like with Mark Minervini, it was...for me. I hope you agree. It was a great conversation, and we went lots of fun places. If you didn't listen to the Mark Minervini episodes, just go back to investorhour.com and check it out because we talked about a lot of fun stuff with Mark too. You know? His music career and thrown $100 out the window, and here's Peter; knows Ronald McDonald personally and has a long relationship with him. So that was a lot of fun. All right. That was great. Let's check out the mail bag. [Music plays and stops] As a listener to this show, you know we don't talk politics.
But there is a time and a place for it; on our American Consequences podcast with Trish Regan, the famed financial and political journalist. Each week, Trish breaks down the latest news from DC and around the world with some expert guests including economist Stephen Moore, Senator Marsha Blackburn and Ron Paul. If you want to know how the latest political wheeling's and dealings can affect the economy, American Consequences is the podcast for you. Check it out at americanconsequences.com/podcast. [Music plays and stops]
In the mail bag each week, you and I have an honest conversation about investing or whatever is on your mind. Just Send your questions, comments and politely worded criticisms to [email protected]hour.com. I read as many E-mails as time allows, and I respond to as many as possible. Before I get into the mail bag, I want to make something clear about James W with whom I disagreed last week. I think James is an ideal listener. He was very polite in his criticism. It was politely worded. He was slightly snarky, but okay. It's fine. It happens. I do the same thing. Right? I do the same thing.
But I just want James and everyone to know I disagreed with him quite passionately, but he's exactly the kind of person that I want listening to our show and participating in this discussion that we have every week. So thank you, James W, for that. And I hope we'll hear a lot more from you and other folks like you. Vaughn M is next. And, Vaughn, I have to say you're what I have in mind when I ask people not to write long E-mails. This is Vaughn's entire E-mail. He says, "What are some ways that the dollar could strengthen amidst the backdrop of printing and stimulating? Love your podcast. Vaughn M." Beautiful.
So ways the dollar can strengthen amidst the backdrop of printing and stimulating. If you're printing to buy – if you're doing what the Fed does and you're marking up their account so that you can buy securities and basically bank reserves – right, you buy the securities owned by the bank, and then they wind up with a dollar of reserves, and the Fed has their securities – that's a deflationary thing over time. Right? It's just a swapping income out of the system and dollars into it. and then, there's the whole prospect of, "Okay. When are these dollars, and how are these dollars, going to be lent and spent?
And at what rate of – you know, what velocity?" Right? So there's that. That's my main answer to your question, Vaughn. You know, otherwise if you're doing all this printing to finance fiscal stimulus, then you've got a problem. Then maybe you got – that can go too far, and it can become inflationary. That's all I’m going to say about it. But it's a good question. Next is James B. He says, "Dan, I appreciate the effort you put into thought-provoking guests and the breadth of experience they have."
And then he says, "Unfortunately, my broker does not offer TSX. That is to say, stocks that trade on the Toronto Stock Exchange. "My broker does not offer TSC stocks nor allow me to buy their pink sheets on the OTC market. Can you offer any advice about how I can get to these opportunities? Thank you in-advance for your time and attention. Sincerely, James B." James B, you just got to find a broker that does it. There is no other answer that I can give you. I really have no – if your broker doesn’t do it, you got to put some money in with another broker who does it if you want to buy those stocks. Boom. Period.
Next comes Tarl K. Tark says, "It was encouraging and informative to hear all the tips on health and exercise from P.D. Mangan. I personally had success over many years with a similar strategy of eating whole foods and getting regular exercise, including weight-lifting. Though I'm no expert, I must strongly disagree with the idea that dreading your workouts is correct. How can anyone hope to make a regular activity of something they dread? I think the opposite, in fact. You must make exercise a thing to look forward to. How?
First, don't push yourself so hard. It's fine to have an intense workout but going to this high muscle failure intensity is difficult mentally and physically. You don't need to go this hard to get stronger and experience health benefits. Second, you're supposed to feel better after the workout is over than when you started. Personally, I've never felt good after a go-to-failure-type workout. Just exhausted and weak. Thanks for all the great podcasts, Dan. I was very excited when you took over the Investor Hour because Extreme Value has been my favorite newsletter to read since shortly after I became a Stansberry Alliance member in 2010. Tarl K."
Thank you, Tarl, for reading Extreme Value and being a good podcast guy. Tarl, I hear you. And I kind of agree. I don't think you need to push yourself to failure to get benefits of exercise. I think if you want to maximize the benefit and be as efficient as possible and work out 30 minutes a week and be as jacked [laughs] as P.D. Mangan...I mean, that guy looks like a weight-lifter, and he works out two 30-minute workouts a week. It's amazing. And I have to say personally, though. I kind of disagree on the second thing. When I do something to failure – when I lift a weight and I can't do one more rep – I actually feel really good afterwards.
So I'm not sure about that one. But, you know, overall I see where you're coming from. However, this thing about dreading the workout...it's kind of like having a portfolio that you're too much in love with. You know, you don't want that. You want to have a portfolio where there is some – you're a little uncomfortable with some of it. Right? You don't want to be totally in love with it. And I think this is in that vein. That's all I'm going to say about that. It's a good question. It's a fair point, I think.
Taylor S writes in and says, "That rant at the end of last week's podcast was incredibly well said. I have a friend who used to use the phrase, 'I may not like what you have to say, but I'll defend your right to say it.' It's not lost on me that he no longer uses that phrase. I strongly believe we are past the point of no return with free speech. It's now only free speech so long as you agree with the Left." What last week's listener and many others fail to see is, eventually the Left will come knocking for them too. One can simply never be woke enough. Here's to hoping 2021 is at least a 1-bagger from 2020. Or would it need to be a 2-bager to return to normal? I don’t know if that makes any sense. Ha-ha. Thanks, Taylor S."
I hear you. I don't think I need to comment. Kiteen. She signs Kiteen. I believe that's a she. Kiteen says, "Love the show. You're always right." [Laugh]s And she has a little smiley face. Kiteen, I'm not always right, but I appreciate you saying that. I'll take it as a compliment. And don't let my wife hear you say that because when she says, "You're always right," she's not very happy when she's saying that. Kiteen continues. "Can't help but want to comment on last week's show and all the letters and discussions you had in the mail bag about social media and censorship with so many folks writing in and saying, 'But they're private companies. They can do what they want.' I have to disagree, and I hope you have some lawyers in your audience to comment on this.'"
I'm no lawyer, but I like to try to argue like one. "And first off, these are all public corporations. They're not private, and they cannot simply do as they please. They have shareholders and boards to answer to. I have to wonder if all the more Conservative Facebook shareholders go together to challenge the censorship if they'd had a case. Second, I'm going to pick through the terms and conditions of service. But my understanding is that, while the platforms are free to users, there actually is consideration in that there is an exchange involved and one of value."
"In order to use these platforms, one has to agree to the terms of the service which, in a nutshell, will say, 'We'll collect all this data from you and use it, sell it for advertisers, to target you.' So I'm giving my data to them in exchange for free use of the platform. But now, they've limited my free use of the platform, but they didn't stop using my data. What are your thoughts? Feel free to shout out the questions to any attorney listeners. Kiteen."
You know, that's an interesting...that second part is a really interesting take. And I'm glad you brought it up. As far as the public thing, you're right. They're not public in the sense of taxpayer-funded. So technically speaking, we call them private companies, but they do answer to shareholders and boards. And that's right. Where are the shareholders and boards? It's a fair question. Robert H is next. He says, "Hi, Dan. This podcast to me sets a new standard. I have no idea how I would've come across these hedge fund-like opportunities without your efforts. Interviews like this hit it out of the park and keep me coming back for more."
Robert is talking about last week's episode with Andrew Beer. He continues. "Since you regularly surprise listeners to the upside, I can't wait to see how you top this. No pressure." [Laughs] Wink-wink. "A question I wish you had asked. 'Do these funds remain 100-percent-ish invested, or do they reserve the option of going to some significant degree of cash if that is indicated?' Following your recommendation of holding a cash reserve, I wonder whether funds like this do so as well. A reason I avoid mutual funds is because they generally remain fully invested, which in my humble opinion is a dangerous model. Great job. Robert H." So, Robert, I am assuming that they do continue to be fully invested. And I didn't find anything that contradicted that in looking around, just poking around in the material for them. So yeah.
You know? You got to – you have to want to stay in that strategy is the point of it. And that's what you're doing when you own that fund. Mike K is next. He writes in and says, "Hi, Dan. I did enjoy the Andrew Beer episode. I did look at the historical performance of DBEH, the long-short ETF that Andrew's company Dynamic Beta runs. It has a short history of just over one year but is impressive. One-year return listed at 27 percent. I do like the lower fees. My question is, if this is attempting to mimic hedge fund activities, what does a typical long-short hedge fund return for the industry? Are long-short hedge funds typically outperforming the S&P 500? Just trying to gain additional information on whether I will consider DBEH for an investment. Thanks, Mike K."
Mike, I started to look this up. And then, I said, "Wait a minute. Wait a minute. Wait a minute. Whatever I find is going to be an average for the whole industry. I don’t know how meaningful that is. To do this right, Mike – and I couldn’t take the time to do this. To do this right, you got to dig down into DBEH, and you got to know about the specific strategies. I don’t think a long-short hedge fund industry average over time is going to cut it. Maybe you could say, "Well, it should." I would kind of hope not. I would kind of hope that Dynamic Beta does a better job that the overall industry. That would be my hope.
Anyway. That's my only thought on that. Laura G is next. She says, "What are your thoughts on investing in Apple now because of its new in-house M1 chip running the PC is better and faster than those of Intel? Laura G." I don't think that's a reason to buy Apple or not buy Apple. It may be a reason to buy Intel or not buy Intel, but I don't think it's a reason to buy Apple or not. Luke T writes in and says, "I can understand the investing appeal of crypto and would love to get involved in direct purchase of crypto. Call me old, but I truly believe there are many, many like me with sizeable investable assets but are afraid of the purchase process, not the block chain process but the purchase process. Keep up the great podcast. Luke T."
Like, you got to bite the bullet, dude. You just got to go onto – I use Coinbase. Some people say Coinbase sucks. I don't know. Or Binance or whatever your flavor of crypto exchange. And you got to wade in and do it. That's all I got. There's no [laughs] getting around it. I don't know if anybody can make it simpler than just Logging onto one of these Websites. I found Coinbase, like, really super-duper easy. Easier than opening an E-trade or an Ameritrade at Fidelity; whatever kind of account online to trade stocks. I found it much easier because there wasn't all the, you know, regulatory rigamarole and back-and-forth that you get into and forms to fill out. It was like, "Boom, boom, boom. Easy-peasy," and you're done in minutes. So don't be afraid. Just wade it. Wade on in and do it.
Last one this week is from Edward L.M. "Good evening, Dan. I thoroughly enjoy the podcast and look forward to it every week. I agree with you about the whole coup insurrection for the most part. What I am more concerned about is the underlying issues that cause people to feel and be disenfranchised. We saw this with all the rioting and looting in our cities this past summer. We saw organizations from one side of the political aisle – what happens when the other side gets some organizations, starts protesting and rioting? An actual coup, civil war?"
"All this money they're printing will certainly not help people achieve the American Dream that they feel they deserve. I have also heard of some surveys indicate large numbers of US citizens are looking to travel abroad this summer. How much if any could all of these dollars that will eventually find their way back into their banking system affect inflation? Coupled with the Fed actively trying to create inflation domestically, could this be the straw that breaks the camel's back? I look forward to hearing your thoughts. Keep up the great work."
I'm not sure I get the question about travel. Dollars are printed. They go into circulation. You know, maybe if you're suggesting that dollars printed by the Fed will be lent and spent as investments in travel or dollars printed and spent by the federal government as some kind of stimulus or program or something will find their way into travel...I don't see where you're headed exactly there. I don't quite understand that. You know, lots of people traveling and spending their money in travel is going to be the straw that breaks the camel's back in terms of inflation, domestically. Maybe you could write back in, Edwin, and clear that up.
But yeah. I like your comments about [laughs] both sides of the aisle organizing and protesting and rioting. An actual coup? I seriously doubt it. Civil war? Some people have used that. I kind of doubt it. Look. I think most people are going to sit on their couch and watch it all. It'll be riots in the streets. I don't think we're done with that. But the United States breaking down into actual civil war? I don't predict the future. I don’t do that sort of thing, but I think it's unlikely. Probably a question we should ask, though. Right? You're right to ask it.
Well, that's another mail bag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. Let's try a new challenge this week. If you're listening to this episode right now and you're really enjoying it, Send someone else a Link to the podcast so we can continue to grow. Anyone you know who might also enjoy the show, just tell them to check it out on their podcast App or at investorhour.com.
If you want to hear more from Stansberry Research, check out amercianconseqeunces.com/podcast. And do me a favor. Subscribe to our 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. You can also Follow us on Facebook and Instagram. Our Handle is @InvestorHour. Follow us on Twitter, Our Handle there is @Investor_Hour. You have a guest you want me to interview? Drop me a note at [email protected] Till next week. I’m Dan Ferris. Thanks for listening.
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