It’s summertime, so Dan starts his weekly rant with something Americans should talk about once each summer – baseball, and in particular the surprising reason behind a spike in grand slams starting in 2015.
In a week that includes a rash of insider selling at Beyond Meat, the mysterious disappearance of the owner of the largest coffee chain in India, to Madoff’s plea for a presidential pardon from Trump, to Forever 21’s strange shipment of Atkins Diet Bars with Plus-Sized orders – “one of the epic retail failures of my lifetime!” – there’s a lot to unpack before this week’s podcast guest.
Matt McCall is the founder and president of Penn Financial Group, an investment advisory firm serving individual and institutional clients. He also travels extensively and speaks to thousands of individual investors each year about investing and personal finance. Over the last decade, he has focused his energy on individual stocks as well as ETFs.
Incredibly, Matt argues that we’re in the early stages of a bull market – even as he acknowledges we’re 10 years in the current one. It’s one we haven’t heard before – but when you hear his rationale, we think you’ll have second thoughts about getting 100% out right now.
In the meantime, don’t miss his warning on the health care sector, and the rise of “telemedicine” and genetics sequencing that’s fallen in cost from $1 billion in 2003 to around $100 today – and still falling – and the details on the three stocks he’s picked to play the trends.
Founder and President, Penn Financial Group
Matt McCall is the president of Penn Financial Group (PFG), an investment advisory firm offering personalized portfolio management. He is also the editor of several newsletters including The ETF Bulletin, which publishes two real-time portfolios based on PFG's proprietary top-down approach to investing.
NOTES & LINKS
3:34: Before the Mueller report, there was the Mitchell Report – an inquiry on a huge increase in grand slams in baseball that puts the blame on steroids use – but the surge, as Dan explains, was actually manufactured thousands of miles away from the nearest drug cartels.
8:13: Could we be looking at something similar to 2008, when Bear Sterns and Northwestern Mutual and other firms mistook leverage for genius? Here’s why Dan says we could be looking at “some equally ugly variant of that.”
13:40: Boeing is still down 15% after the grounding of its 737 craft – but Dan reveals the government’s sword of Damocles hanging over the company that could make its loss even bigger.
18:48: No investor is really “warned and saved” unless they’re briefed and protected on “mass insanity” – here are some of the common characteristics to look out for.
21:30: Dan covers the mysterious disappearance of an Indian coffee mogul. “This is classic end-of-cycle stuff.”
28:35: Dan explains why we shouldn’t look too much into the insider selling of Beyond Meat shares – once we’re done looking into some basic math. “They should sell 2 million more shares, they should sell whatever they can get away with.”
30:36: Dan introduces this week’s podcast guest, Matt McCall. Matt is the founder and president of Penn Financial Group, an investment advisory firm serving individual and institutional clients. He also travels extensively and speaks to thousands of individual investors each year about investing and personal finance.
31:48: Dan asks Matt when he first had an inkling that managing people’s money might be for him, and Matt explains the unlikely journey from a football scholarship to sports betting to a $10,000 investment in the stock market that took off.
38:24: Dan asks Matt about the warnings of overstretched valuations and mania, and Matt explains why he’s much more concerned with following the trend than with any of those indicators. “I still think we are in the early stages of a bull market here.”
43:14: Matt explains why investing is so simple, yet so hard. “It’s like getting in shape – all you do is work out and eat right – so simple!”
46:44: Matt reveals a leader in liquid biopsies. “What I think happens in the next couple of years is insurance companies say, to lower your rates, you get your genome sequenced.”
1:02:20: Dan answers a mailbag question from Edwin M., who asks how to find a job as an analyst
Announcer: Broadcasting from Baltimore, Maryland and all around the world, you’re listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here is your host, Dan Ferris.
Dan Ferris: Hello and welcome to another episode of the Stansberry Investor Hour podcast. I am your host Dan Ferris. I’m also the editor of Extreme Value. That’s a value investing service published by Stansberry Research.
I’ve got some weird stuff to talk about today. We have a great guest. It’s going to be a fun show. Let’s get to it right now. For today’s rant, I'm going to talk about something that we should talk about in the summertime in the United States of America. And that, of course, is baseball. Baseball, OK.
Now in June 2018, right, little over a year ago, Major League Baseball, the company, the corporation that is Major League Baseball, they bought Rawlings, OK? Rawlings. The company that makes the official MLB helmet and baseball used in every Major League Baseball game, OK, Major League Baseball – and plus, you know they had a California-based private equity firm involved in the transaction as well. But they’re in charge. MLB owns Rawlings now and they’re in charge of it, right?
So Rawlings has been around for a long time. Little Missouri-based company founded in 1887. And the deal – so MLB Executive Vice President of Strategy, Technology and Innovation, Chris Marinak, at the time of the deal was made – he said it was made because the league was “particularly interested in providing even more input and direction on the production of the official ball of Major League Baseball.”
Now why would they want to do that, you say? Well, OK, a month before the transaction the Washington Post reports that the Major League Baseball, MLB, admitted what many Major League pitchers had long suspected, OK. That changes in the composition of Rawlings baseballs were responsible for spike in home runs that occurred starting in the middle of the 2015 season. Like three years before the takeover... all right.
And later a report came out, an MLB report said the spike was due to the reduction of aerodynamic drag on the baseball. but not “to a livelier or juiced ball," right?
So basically, the aerodynamic drag – I think they’re trying to suggest that the stitches on the ball were smaller and had a lower profile so, you know, that reduces the drag. You know when you’re throwing a ball 90 miles an hour and it’s coming off that bat at who-knows-what speed, these things mean something, OK? Those stitches mean something.
But still they said the ball is not juiced. The internal composition of the ball remained the same.
Now you might remember there was talk about juiced or altered baseballs in the early 2000s, but they did an independent investigation – which they called the Mitchell Report – which fixed the blame on steroid use. So the players were using steroids and banging the crap out of the ball. So the players were juiced, not the baseball, right?
But now it has been discovered that the pill, the core of the baseball, has been changed. It used to be slightly off center – which caused drag – making it harder to hit homeruns. But under MLB’s very strong influence, Rawlings now centers the pill in the center of the baseball, and that helps the ball fly straighter and smoother, and a lot farther coming off that bat.
And players, oddly, have been kind of silence – they’ve been silent about this thing all along, until Houston Astros pitcher Justin Verlander spoke up and said something last month. Now Verlander is quite a voice in baseball, right? Eight-time all-star. And he was picked again this year for the second time as the starting pitcher for the American League, right? So this guy can say what he wants. He’s a great player and he can say what he wants. And he said – I’m going to read the whole quote – he said:
“It’s an effing joke. Major League Baseball’s turning this game into a joke. They own Rawlings. If any other 40-billion-dollar company bought out a 400-million-dollar company and the product changed dramatically, it’s not a guess as to what happened. We all know what happened."
"Manfred," – that’s MLB commission Rob Manfred, he says – “Manfred, the first time he came in, what’d he say? He said 'we want more offense.' All of a sudden he comes in, the balls are juiced. It's not a coincidence. We’re not idiots.”
Right? So the MLB wants the – they want the game to be faster. And they want more offense, they say. They want more hits, more runs. So they tell Rawlings to center the pill and now the ball goes a lot farther coming off the bat.
So maybe you have figured out where I’m kind of going with this. Substitute the Federal Reserve for MLB and the stock market for Rawlings baseballs, and then you see where I’m going. In baseball they juiced the ball and suddenly, the best pitchers are giving up more homeruns. There’s nothing they can do about it. Their skill is not involved in that decision, right? As of June 21, MLB was on pace to reach a new all-time high of 6,612 homeruns this year – more than 500 over the previous record of 6,105 set in 2017. That’s a lot of – a lot more homeruns.
I suspect MLB’s credibility will eventually suffer and it’ll have to tell Rawlings to stop juicing baseballs. Or not. Maybe the fans won’t care. After all, in the stock market investors don’t seem to care that the level of interest rates has been juiced into negative territory by central banks all over the world. Investors are enjoying that. They’re enjoying the wealth effect they get from that. You know while it lasts. And it never lasts. They don’t want to be bothered, OK?
But credibility will suffer when the losses come in, right? If fans stop attending baseball games, oh, then MLB will have to act. The thing is, I bet the MLB won’t’ say, hey, fans, since you hate us juicing baseballs and we’re starting to actually lose money because of it, we decided to juice them even more. They won’t say that. That, however, is exactly what you get with central banks when the losses in financial markets start piling up. They say, since low rates and easy credit looked great until they killed you, we’ve decided even lower rates and easier credit are just what the doctor ordered. And they say this knowing full well the extreme brevity of financial memory will prevent fans, you know investors, from remembering how juiced rates eventually killed them last time.
It reminds me of the old song, do you remember Harry Nilsson? "The Lime in the Coconut?" "You put the lime in the coconut and drink them all up," right? So in the song, a girl drinks a mixture of lime and coconut and she gets a stomachache. So she calls the doctor and he tells her to do the same: "Put the lime in the coconut and call me in the morning." Right? It’s just, you know, it’s hair of the dog that bit you, right? It’s kind of a classic tale.
So I get it. I get the song. But in the financial markets this isn’t some garden-variety hangover we’re talking about, OK? We could be looking at something worse than 2008 when Bear Sterns and Lehman Brothers and Washington Mutual all mistook leverage for genius as Hedge Fund Manager Steve Eisman put it, and they disappeared from existence. They either went bankrupt or were acquired and disappeared – had to be acquired.
Sooner or later we should expect to get back to the condition that it was alleged the Federal Reserve would cure. Only now it’ll be exponentially worse, right? And you remember why the Fed was created, right? So there were these, you know, occasional what they call "banking panics" in the late nineteenth and early twentieth centuries. And, you know very so often you’d have one of these panics and maybe a dozen- or two-dozen small financial institutions would go out of business. You know, then they created the Federal Reserve and we got the Great Depression. So we could be looking at something like that, or some equally ugly variant of that. And we always have this hazy idea toward the end of the cycle "oh, maybe times are different." You know, we’re technologically advanced at this point, you know. The economy is different. No such thing can ever happen again.
But that’s just something people say at the top. Do I even need to remind you who said “stock prices have reached what looks like a permanently high plateau. I do not believe that there will soon, if ever, be a 50- or 60-point break below present levels.” Right. That was Irving Fisher in October 1929. Within days of the crash. Days before the crash, right?
Now I’m sure many of you will dismiss this, you know, "Dan is, you know engaging in handwringing." "This is overwrought." Or just "he’s an idiot, he’s way too early with this." And, you know you’ll call me a frustrated bear, right? Some bear I am. In Extreme Value, Mike Barrett and I have picked seven new long ideas this year. And oh, look, it’s the seventh month of the year. So we’ve been cranking out long ideas month after month. And we, you know, that includes like three really high conviction ideas where we don’t use trailing stops because we really think the thing – we have a huge, high conviction about it, simply put.
And, of course, I understand that bear markets don’t happen often. And they generally pass very quickly. And they’re generally followed eventually by long bull markets where prices hit new highs, right? I get it. So maybe you don’t worry so much about the bear. But you still need to watch out for the caribou. And caribou start showing up at the end of these long episodes.
What’s caribou? OK. Let me read a quote from the late Leon Levy’s excellent, excellent 2002 memoir, a book called The Mind of Wall Street. I’m just going to read this thing. I'm not going to tell you who Leon Levy is. Just read The Mind of Wall Street. It’s a great, great book.
So Levy writes: “In the early 1970s all the calculations for the cost of the Alaska pipeline were thrown out of whack when environmentalists sought injunctions to halt the project until the pipeline’s effect on caribou could be studied and addressed. It was though the pipeline as then designed would disrupt the migratory patterns of the caribous which survived by eating lichens in one of the most inhospitable climates on earth. Dealing with the caribou delayed the pipeline for about eight years. And since time is money, the changed timetable forced the pipeline’s owner, Atlantic Richfield to reprice the bonds that would finance the project. Ever since then, investment professionals have referred to such unknowns as the caribou factor.”
So Boeing is a decent example of the caribou factor at work. You know, a current example. Boeing 737 Max definitely qualifies as a big project. You know, the sort of big project that attracts these caribou factors. The whole thing costs like three to five billion. It started in 2006. It’s 10 years later, they had the maiden flight and orders were placed starting in, what, 2011. Quickly became Boeing’s bestselling aircraft. Hundreds of deliveries worldwide. Thousands of unfilled orders. And then, of course, what happened? You know the caribou factor. Two of them crashed in October ’18 and March ’19. October 2018 and March 2019. Killing everyone aboard both times. 346 people died.
By March 13, within days of the first crash, the 737 Max was grounded worldwide and the parking lot up at Boeing Field in Seattle started filling up with undelivered planes. And the DOJ, Department of Justice, continues to investigate this thing. And they recently expanded their inquiry to include Boeing’s larger 787 Dreamliner.
So last week Boeing reports a 2.94 billion loss for the quarter. Biggest quarterly loss in its 103-year history, OK? Max shipments are on hold and sales were down 35% below last year’s second quarter. Same quarter last year. They took a 5.6-billion-dollar charge to cover the potential cost of compensating the Max customers. And they expect the thing to be – the 737 to be back in the air later this year. I’ve seen other projections that say next year. And the stocks – you know, aerospace and defense stocks have done well this year. And Boeing with them. But it's down quite a bit, like 15 or 16% since the 737 was grounded in March, right?
So, you know, what if the DOJ starts expanding its investigation beyond the 737 and 787? And you know the 787 shipments last quarter were what kept, one of the primary reasons Boeing’s loss wasn’t even bigger, right? If the government says, "You know, we need to a preemptive grounding of the 787." Boy, that’s a serious caribou infestation for Boeing.
By now you’re like, "OK, Dan. OK, OK. Juiced balls. Juiced stocks. Caribou factor. Stuff happens. We get it. Do you ever report good news?" Yes. Of course I do. We’ve had good news for Extreme Value shareholders. Starbucks is up like almost 80% at this point since last August when we first covered it. Our gold-related picks have done well. And, you know, just in the wider world, there’s all kinds of good news.
Now there’s one group called Our World in Data who recently reported that the global child mortality is down tenfold over the last two centuries. They monitor – this group monitors changes in global living conditions. Wow. That’s cool. That’s good news. And I believe there’s all kinds of good news like that around the world, if you just look for it. You can google it. You know, "good news about global living conditions" or something.
So there’s plenty of good news. We live in a wonderful time. It’s a wonderful time to be alive. And believe it or not, I consider myself an optimist despite this curmudgeon label that I seem to have earned. You know, so I’m not like permabear. I’m not a permabear.
But let me ask you this, OK? If I’m right about how risky juiced stocks and bonds are today, right? The Federal Reserve has juiced this stuff for a decade. And if the outcome is anywhere near as bad as I suggest it will be. And if nobody told you about it and nobody pounded the table like a lunatic about it and said "you need to be careful, bad things happen at the end of these long cycles," let me ask you, would you be grateful for all the good news we reported before it all went south? If nobody told you about it. I don’t think so.
And I’m not telling you to, you know sell everything, buy guns, gold and groceries, and head for the hills. I’ve never said that and I never will. I don’t think that’s the kind of world we live in. And I’ll be the first to admit that most of the time, you should totally ignore the overall top-down state of the stock and bond markets. It’s just a waste of time, on average, and the overwhelming majority of years that you can think about it. But every now and then – every decade or so, you know – investors get too enthusiastic, and central banks and various government agencies get a little too active in the economy, and valuations sore and risks build up. And I’m trying to help you avoid what investor and author Howard Marks calls “a failure of the imagination.” And he says that’s the ability to understand in advance the full breadth of the range of outcomes.
That’s what risk is. It’s a wide range of outcomes. Right? What’s the range of outcomes for stocks versus bonds? Well, I bet a lot more stocks go to zero than bonds. It’s a wider range of outcomes. Stocks are riskier than bonds.
What about small-cap stocks versus mega-cap stocks? Well, most of the mega caps are going to survive. Many small caps will not. Wider range of outcomes. Higher risk. You get it?
So you have to consider this broad range of outcomes. And when valuations get pushed up like they are today, and weird things like these Mount-Everest-sized piles of triple B debt, right? The bottom rung of investment grade just before it turns to junk. You know when this happens, it’s time to fire up the old imagination and appreciate the potential for one of a rather wide range of outcomes to happen. Maybe sooner rather than later. Right?
Marx says most of the time the future is indeed like the past. So extrapolation doesn’t do any harm, right? "The trend is your friend," I guess, is a simple way of saying that. But then he says, at the important turning points though, when the future stops being like the past, extrapolation fails and large amounts of money are lost or not made.
If you’re pushing 60 like me, you want to avoid that whole, large amounts of money not being made and being lost especially, you know, kind of thing. You want to avoid that. And if you’re like me, you spend all the time thinking about it that you believe is necessary to accomplish the goal.
So you need to learn to protect yourself. And you should read John Kenneth Galbraith’s essay, A Short History of Financial Euphoria. Here’s a quote. He says: "Regulation and more orthodox economic knowledge are not what protect the individual and the financial institution when euphoria returns, leading on as it does to the eventual crash and its sullen and painful aftermath. There is protection only in a clear perception of the characteristics common to these flights into what conservatively be described as mass insanity. Only then is the investor warned and saved."
I’m not trying to be a downer. I’m trying to provide some clear perception of the characteristics common to these flights of mass insanity. So forgive me if I sound kind of high-handed sometimes, but I’m on a high-handed mission. I’m trying to save you from the MLB, the Federal Reserve, and herds of caribou that want to delay your retirement by a decade. And reprice your entire portfolio faster than you’d ever believe, OK? That’s the rant.
Write into [email protected]. Tell me what you think.
Let’s talk about what’s new in the world.
I have to tell you, this week what’s new in the world is just a bunch of weird stuff. I’ll try to get through as much of it as possible. But it’s weird.
So the first thing is it appears that the founder of the largest coffee shop chain in India – it appears that he’s jumped off a bridge. Because he’s been missing since earlier this week. And his chauffer was driving him across a bridge and this guy, his name is V. G. Siddhartha. So Siddhartha asked his chauffer to drive him across this bridge. And then he said – he told him to stop. And he said, wait here. And then he took a walk on the bridge. And he never came back. And the driver, you know, of course told the police. And that was the last time anybody saw him. They can’t find him. They’re looking, you know in the river. I mean it’s an Indian river. It’s called the Netravati River – hope I didn’t butcher that too badly. This guy, he founded this coffee company. Biggest coffee shop chain in India. It’s called the Café Coffee Day chain. And there was a letter apparently that he left. But the reports of this letter aren’t really that great yet, according to Reuters.
But apparently the letter said "I fought for a long time but today I gave up." So maybe he really did jump off a bridge and kill himself. But there was trouble. The company was indebted. Folks were putting pressure on him. And you know what happens.
This is kind of what happens. You know this is like how it begins. In fact, this is like classic end of cycle stuff where things start going wrong and, you know, investors and businessmen start like jumping out of windows and jumping off bridges and stuff. So it’s weird, but it kind of fits the time I think.
Another weird thing, Bernie Madoff, right? Bernie Madoff, the Ponzi-scheme guy. The guy who ran a 60-plus, billion-dollar Ponzi scheme. For years and years, and evidence was brought to the SEC like 10 times, and they balked every single time. You know, showing how truly worthless they are. Well, Madoff, he’s in prison. He’s serving 150-year sentence for orchestrating the biggest Ponzi scheme in history. He has asked Donald Trump to reduce his sentence. He’s 81 years old and he’s in this federal prison in North Carolina. And he’s probably looking toward the end of his life and thinking "you know, I don’t want to die in prison or something."
I think it's weird of him to expect that, like, anybody anywhere would let him out of prison. Not because he deserves to spend the rest of his life in prison. Like he didn’t murder anyone. He murdered their money for sure. He definitely deserved to go to jail. A hundred fifty years? I don’t know. He clearly was – you know, they were making an example of him. And they picked the right guy to make an example of. Look, I’m not on Bernie’s side. But who cares where he dies. If he dies in prison or if he dies, you know I mean he – I hope he doesn’t have any money left. I hope they took all the money away from him. You know, who knows where he’d wind up. I mean would it be any better than some prison that’s probably not too bad? You know he’s probably not in there with murders and rapists and stuff. Or maybe he is. I don’t know.
But it’s weird. It’s weird for Bernie Madoff to think that, you know, we’ve sort of forgotten about how much we hate what he did.
OK, so the weirdness continues. I’m not done with the weirdness here. Forever 21, you know, the clothing company, right? They sent Atkins diet bars with plus-sized orders. So you know plus-sized gals, big gals, ordered clothing. And they thought it would be a real good idea to throw some Atkins diet bars in there. This is one of the epic, you know, retail fails of my lifetime. I mean they say from time to time, they surprise their customers with free test products from third parties. And you know, "OK, fine." But try to be a little sensitive about, you know, imagine walking up to an obese person on the street and saying "here’s an Atkins diet bar." You need – I mean it's just, you know, they might need to be on a diet, but it’s kind of rude to say it. And it’s really awkward when they’re paying you for clothing and you’re saying "we’d rather sell you smaller clothing so here’s an Atkins diet bar." You know, "you tubbo." I mean it’s just not good... and it’s weird. And, of course, you know there was the sincere apology issued by the company.
We have a lot of that. Maybe shame is making a comeback. That’s not necessarily a bad thing. You know there used to be whole societies based on honor and shame.
The weirdness continues with Justin Sun – he’s the crypto millionaire who paid 4.6 million to have lunch with Warren Buffett. Buffet does that thing every year where he auctions off lunch on eBay. And they go to Smith and Wollensky steakhouse in New York and have [inaudible]. And he gives the proceeds to the Glide Foundation that helps homeless people... San Francisco based charity.
Justin Sun was a crypto millionaire who won the auction this year and he says he’s postponed the meeting. He got a meeting with Warren Buffett that he paid $4 million, but he’s postponed the meeting. He might have a good excuse. He says he has kidney stones. But there’s this kind of rumor – I think it’s a rumor – that he’s actually being held in China and subject to investigation about illegal fundraising and money laundering, and other things. I guess we’ll find out if he eventually shows up for lunch – whether he has held in China or not. Of course if he’s smart, he won’t say he was held in China because then he’ll wind up being held in China again.
So that’s for the weirdness. Of course the only other thing I want to talk about is Beyond Meat. You know, the fake meat company that is up like 8% since its IPO less than three months ago. And they are going into Dunkin' Donuts. Dunkin' Donuts is unveiling a – it's a limited time thing they say – a "Beyond Sausage" breakfast sandwich.
So I’ve heard that the sausage is their best product. I think they have beef and sausage, and maybe something else. Chicken. "Beyond Chicken." I’m not sure. But I’ve heard the sausage is pretty good. I’ve heard the meat actually tastes like what it is, which is pea protein, right? From peas. And I’ve heard that when you’re cooking meat, it smells like peas and it kind of tastes like peas. So you know, big surprise there.
But apparently the sausage is pretty good. And I’ll bet – you can probably make sausage out of, like, anything and it would taste pretty good, right? That’s the point. You know, you take whatever odd cuts of meat you have and you spice it up real good, and – I love sausage – I’d probably love this thing. But this is interesting: Research firm NPD says that breakfast is really the only growth market left for fast food. I think we’ve actually known that for some time – I don’t think that’s a new development.
But Beyond Meat, the company, is giving insiders a quick way to cash out after their 800% post-IPO run up. They said on Monday that existing investors will be selling three million shares in a secondary offering, even though the IPO is less than three months ago. I thought they’d be locked up longer than that. I mean, venture back companies do this. They hold secondary offerings. They sell their shares. But not less than three months after the IPO – it’s a little weird. Beyond Meat, itself, will sell an additional 250,000 shares to raise cash for investing in its operations. Now that is smart. If Elon Musk were smart when his stock was soaring up around whatever it was (was it 400, or something, at some point?), he would have issued as many shares as he could get away with. That’s what you should do. When you know that your stock is exorbitantly overvalued, that there’s no way it deserves to be trading at, like, 50- or 80-times sales or whatever this thing is. I haven’t even looked lately. It’s just so insane it just goes up every day. You should sell more shares. That is the wise thing to do.
So they’re selling 250,000 more to raise some cash. And I think they should sell two million more. They should do whatever they can get away with. That’s what I would do.
And I’ve done something that I never do. I’ve gotten through every item of news that I had in front of me.
It’s time for our interview now, but before that just a quick word from our sponsor.
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Dan Ferris: OK. It's time for our interview. Our guest today is Matt McCall. Matt McCall is the founder and president of Penn Financial Group, an investment advisory firm serving individual and institutional clients. He also travels extensively and speaks to thousands of individual investors each year about investing in personal finance. Over the last decade, he has focused his energy on individual stocks, as well as exchange traded funds, becoming one of only a few investment advisors to offer expertise in both areas. This concentration on stock selection has cultivated a precise, top-down macro-to-micro strategy to maximize profits and manage risk.
Matt is now pleased to bring his expertise, passion and commitment to a bigger group of individual investors. He believes deeply in helping people build their wealth through next generation investing strategies. And he also is an advocate of educating investors so they understand exactly how these investments work for them.
Matt McCall, welcome to the program, sir.
Matt McCall: Thank you so much, Dan. Thanks for having me on.
Dan Ferris: OK, Matt, you actually, you know, handle other people’s money for a living. So when I get folks like you in the program I always ask them – because sometimes it’s very interesting – "when did you first have an inkling that this sort of life was for you?" "That picking stocks and making investments was for you?" "Were you very young?" "Did you find out later on in college or when did you first get an inkling of this?"
Matt McCall: Sure. It’s a good question. And the answer might be a little long so cut me off. I really wasn’t into it through college. I went to college on a football scholarship. And I was going to be a gym teacher and coach football. That was going to be my life. Bounced around from college to college. That didn’t quite work out. And eventually I was about a 20-year-old freshman at my fifth college and I realized I have to get my stuff together. I thought I’d supplement my income by betting sports, because I’m a big sports guy. I thought, "Oh, boy, I got this figured out." And as you probably know, most people who bet on sports end up losing money, which is why the casinos are here.
So I didn’t do very well. And finally my father pulled me aside. He said, "Listen, you've got to get your stuff together. Here’s $10,000 from your grandmother who passed away in the last year." He goes, "Why don’t you do something with it?" So I said, "OK, let’s get in the stock market." This was about in 1999. So obviously it was in the headlines. Things were doing well. And I remember buying stocks like CMGI back in the day. These tech stocks. And doubled my money in a couple months. And I thought, "Boy, this is easy. This is my calling."
So I ended up switching my major to finance. Spending another year and a half in school straight through to get the degree. And of course that 10,000 that turned into 20,000 eventually turned into about 2,000 because the tech wreck came in 2000. So I learned a lot of lessons in a matter of 12 months. But what I found out was that if you do some hard work and you go above and beyond what you see on CNBC and everywhere else, that you can actually find some anomalies and find situations where there are stocks that are mispriced. To me it was great waking up every day and having the opportunity to kind of beat the market and do your own research. And you really create your own future. So that’s kind of how it all began at that point. And then I went out to Denver, Colorado the day after I graduated. And I started as a broker at Charles Schwab and started my career there.
Dan Ferris: Wow. That’s actually pretty cool. A lot of people, of course, were brought into the market in 1999 or late 90s in general and got wrecked but decided "hey, I can make this work." So kudos to you for sticking around and learning how to do it.
So Matt, it interests me when someone defines themselves as a macro to micro. Your strategy is macro to micro. Tell me about that. I’m a bottom-up guy myself, mostly. What does that mean? Macro-to-micro strategy.
Matt McCall: So probably the exact opposite of what you do every day, Dan. I try to look at the big picture. You know, you mentioned I travel a lot. So my passion is really the stock market and really traveling the world. And I like to see how other people live. And I try to keep my eyes open on the pulse. Almost a Peter Lynch type of approach to the stock market. Where you kind of look at what’s going on around you and say, "Wow, how can I make money off that?"
To me, you know I like to play the odds in my favor. This goes back to gambling or anything else in life where I’m a numbers guy so if I can find a trend that I believe is a mega trend – let’s say for the next 10 years – I believe the odds of picking a winning company within that trend are higher. I think it’s very difficult to find a stock that, say, has great fundamentals but is in a sector that’s dying. Say for example it’s a brick-and-mortar retail store, but boy this company is killing it. The odds of me picking that one retailer that does well in a sector that’s dying, I just don’t think the odds are in my favor. So if I can pick a sector that’s moving up – you know, the rising tide brings up all ships – it just kind of makes my job a little bit easier in my opinion.
Granted, you know a lot of Wall Street, including yourself, does the bottom-up and it works. That’s why Wall Street’s there. To me though I just find that it’s more fascinating for me to find the trend. I want to find that big trend. And then I will narrow it down and I’ll analyze the stocks probably very similar to you do, Dan. But I just start at the top and work my way down.
Dan Ferris: I see. Hence, macro to micro. So let me ask you this though, Matt. Would you all – how do you define yourself in terms of your activity in the market? Like do you call yourself an investor or a trader or a speculator or where do you come in on, like, timeframe? Are you holding for days or months or years – or what are you doing?
Matt McCall: Sure. You know I'm a long-term investor. And I think when I tell people what I do, because I go after a lot of small cap companies, we’ve done a lot in the cannabis industry since 2014. So you think "oh, he’s a speculator, he’s into these penny stocks." That’s not true at all. I try to find the best companies out there. And to me, I try to find the big winners. And we had a big event last night called the "10X Innovation Event". And people say, "Well, '10X.' This guy’s a joke. He can’t get any stock to go up 10X." you’d be amazed how many stocks if you look back in the last 10 years, _____ bull market, have gone up 10X and many more. Big names.
So for me, the only way to achieve those large gains is to take a long-term approach. So for me it's long term. I’m not trying to ride this market. I’m not trying to time it. I got into this market after I became a broker at Schwab, my passion became reading charts. I wrote a book 11 years ago on charting. So I love technical analysis and I like doing that. However, I’ve learned and fine-tuned my strategy over the last 17 years that listen, it’s great to be able to time the market. It’s great to go back and trade stocks. But that’s in hindsight, 20/20. It’s very difficult to do. Because we have emotions that get involved. And I feel if I can pick the right trend and the right stock in that trend, it takes time for that to happen.
You know Amazon’s a great example. In the last nine years I think it's about 2,700%. If you look at each annual return, only two of those nine years has it been up over 100%. And in a matter of fact, in two of those years it’s been down. So you’re not going to make this 10X overnight. If you want to try to make big gains you have to hold, you have to weather through ups and downs. It’s part of the market.
So yeah, long winded answer, I’m a long term investor.
Dan Ferris: OK. So you’re a long-term guy. You look at the top-down first. But you – you’re a long-term guy who goes top-down first. But you’re not a market timer. So first example, right now folks like myself are saying "boy, you know this market has been going like gangbusters. Valuations are stretched." Etcetera, etcetera, etcetera. But you’re not saying that. You just continue with the trend. Is that correct?
Matt McCall: That is correct. And, you know I also think that we are still in the early stages of a bull market here because, yes, it’s 10 years in. But the thing is, if you look at the long-term chart of, let’s say, the Dow for example, ‘66 to ‘82 completely. I mean, in those 16 years, we had a lot of ups and downs but it was flat. '82 to 2000 we already talked about. We know what happened there. 2000 to 2014, so this – it was only 14 years this time, it took that long for the next breakout to hit a new a high.
So to me we’re four, five years in to that next, big leg higher. So I think there’s 10 more years left. I mean, could there be a couple bear markets on the way? Absolutely. There will be. There will be recessions. But to me this is part of a long-term secular bull market that we’re in right now.
So that being said, because I believe that, yes, we’re going to have to weather the ups and downs and it doesn’t change my strategy now. If anything we’ll use any pullbacks as an opportunity. The pullback ended a year that we had in the market we put out 10 stocks into our 10X innovation portfolio. And those – I did that because we had such a pullback in the market some of the stocks we’re following fell 30, 40% from a high. And ended being great opportunities. So that’s kind of how I focus on it. I’ll time the market when there’s pullbacks. But I’ll just use that as an opportunity to either add the positions or build the position in the stock that I like for the long term.
Dan Ferris: Right. So I technically I wouldn’t call that even market timing. You’re just sticking with the trend and taking advantage of an opportunity. So – and I admire a man who sticks to his strategy. And I’ll tell you something, I’ve heard very, very few people say that we’re still early stages of an extended bull run. You know so many people, I guess maybe I’m in the crowded side of things now. I don’t know. But a lot of people are getting concerned and saying "you know, this has been going on for a while and how much longer can it go?" But according to you, you think it can go on for another 10 years.
Matt McCall: I just –
Dan Ferris: With ups and downs.
Matt McCall: Yeah, obviously. With bear markets along the way. You’re going to have pullbacks. I just I don’t believe a bull market dies of old age. I think there has to be something out there. And there could be an event, a black swan event. I can’t foresee. And nobody can foresee. And that could happen. I just think the factors right now of having inflation in check, having low interest rates, having an economy that’s doing OK, which is what you want for the stock market, you have a president that bases his success on the stock market, there’s a lot of factors out there that I don’t see something – I don’t see the big clouds rolling in yet. Hey, listen, my view could change in a year. Something happens and I’m like, "Hey, listen, I think we’re going to end. But for right now I’ll continue to ride that trend."
Dan Ferris: Right. But you will vary coldly and coolly say "hey, if the trend is over," you will tell everyone "hey, the trend is over," right? That’s part of your strategy.
Matt McCall: Yeah. I mean my ego will get out of the way. Listen, if I think it’s over, it’s over. I mean I’m going to let the market tell me when it’s over. Not me try to guess when it’s over.
Dan Ferris: I see. Yes. You know a lot of what you say it sounds so simple. And for a lot of – it’s so hard though. Emotionally it’s really hard for a lot of people. Because you know that happens, you know? The market goes down 19% like it did last fall and people get scared out. And if you look at that, you know Ameritrade IMX thing where they look at what individual investors are doing, they were out and they’ve been out since, I think, earlier last year and they’re not back in. But you are. You’re ticking with it. So you –
Matt McCall: Listen, it’s not easy, like you said. I mean when that market’s falling, you know seven out of nine days in December and the clients are calling and subscribers are not happy, it’s not an easy job. You know that. It doesn’t make – but it’s funny you mention the word simple because I bring that up a lot if I give speeches or if I’m talking to a group of people. And you know I say investing is very simple. But it’s not easy. You know an analogy I use is getting in shape. Getting in shape is simple. You eat better and you work out. I mean it’s very simple. But it’s one of the hardest things in the world to do. You know I eat pretty well, but I’ll tell you last night I had a hankering for ice cream. And I opened up that ice cream and I finished it. So like it’s not "I know I shouldn’t be eating it," but I still did it because it’s so darn hard to put that peanut butter ice cream away after two bites.
Dan Ferris: Yeah. I feel you on that one. So let’s talk about some of the, one or two at least of the kind of trends that you’re seeing right now. Specifically you have this idea about healthcare. And you say that, you know, "one size does not fit all in healthcare" and that represents a great opportunity. And it sounds like you’re saying it represents a huge trend that’s going to snowball for many years to come. What do you mean? What do you mean when you say that "one size does not fit all in healthcare?"
Matt McCall: Sure. Well, you know I'm a bit of a hypochondriac so I go to a doctor and urgent care way too much. They know me by the first name, that’s how ridiculous it is. And it’s like "oh, Matt’s here again. He’s got a little cough." So I know the healthcare system pretty well. I know it’s not good.
What I’ll say is when you go in now, you’re kind of treated like cattle. You’re kind of herded in. It’s just a terrible experience. You finally get in to the doctor. He or she gives you two or three minutes. "OK, cough." "Do this." "Yep, yep, here’s your drugs, go home." And it’s really not personalized at all. And unless you have money to have that personalized experience.
So to me I think that’s going to change. And I think a few things are going to change. One, I think telemedicine is going to be very big. I think we’re not going to have to go to the doctor and deal with the kids coughing on you just to get some antibiotics. We’ll be able to do that through our phone or through our computer.
The other thing is genetic sequencing. You know and a lot of people think "gene editing, oh, we’re going to make these designer babies." I’m not talking about that. I’m talking about the fact that there are genetic testing companies out there that, for people that have cancer, you’ll get your genome sequence and it will give you the specific treatment for that type of cancer.
Instead of going in and saying "well, OK, you have colon cancer. You’re 55 years old. You weigh this much or this height. You fall into this drug." No, it should be based on how that drug or that treatment will react to your body and the makeup of your body. And the cost of the sequencing has gone down, as you know, dramatically. You know 2003, when they sequenced the first human genome it cost a billion dollars and took, like, 13 years or something ridiculous like that. Now they’re saying a year or two from now, it’s going to cost $100. I mean it’s insane how much it’s fallen and the amount of people that will get sequenced.
Another one is liquid biopsies. So you hear the word biopsy and think "oh, my god, it's terrible. It's so painful." They have these liquid biopsies that they’re rolling out now that it’ll be early detection of cancer. So most people can beat cancer if it’s detected early. Just imagine if you could go in there every year and get a liquid biopsy, it puts a drop of blood in there and it tells you if you have any precancerous cells out there. I mean it blows my mind.
And then you have reoccurring cancers out there as people have it and you go back and every year you just make sure the cancer’s not coming back.
So the way that we’re treated will be so much more personalized and be based on the patient versus the doctor seeing as many people as they can see to get in and out to cover their costs.
Dan Ferris: I see. And there are specific – there are already specific companies you’re interested in with this or you know you’re just looking at the beginning of the trend or what?
Matt McCall: No, we have a couple. We added three stocks. We have a little genetic testing portfolio or "basket," let’s call, it in the one newsletter. We added them fourth quarter of last year. So maybe about six to eight months ago. And we’ve done really well. And they’re small-cap stocks. Two are up 60% and the third one just got bought the other day. So they’ve done really, really well. And these are stocks that I believe are the ones that didn’t get bought, these are four or 500% gains potentially in the next five or six years because the amount of people that are getting tested is just mind-blowing.
There’s a company that went public not too long ago called Guardant Health. Symbol is "GH" on that one. And they are really the leader in these liquid biopsies. Which to me, we don’t have it. I don’t own any of it. But the stock went public late last year in October. I think it was around $20 or so. Now it’s all the way up to almost 100 bucks. I mean it’s taken off. And I missed that move in that stock. But I’m still looking at it.
And to me it’s about the testing. Because no matter what drug company or treatment company we’re able to take advantage of this, they all need the test. And we’re going to see a lot more tests because of the cost coming down.
I’ll tell you this, Dan. What I think‘s going to happen in the next couple of years is insurance companies eventually will say, "Listen, part of, you know, having your health insurance through us – if you want to lower your rates you go get your genome sequenced." And that will get your rates lowered and, you know there’s always that issue of privacy because now your information could be out there and people can use that to create better drugs. China’s already doing that. But I think that’s where we end up getting. Where we all are going to have our genome sequenced for treatment of diseases that we could potentially have.
Dan Ferris: Yeah, I’m sorry, Matt. Can we just back up a little bit? Like the liquid biopsy does or does not exist right now. It’s still in development?
Matt McCall: It does exist. Guardant Health. Symbol GH has one right now. It’s funny though they don’t call it – they call it the Guardant 360 I think. And I was reading about the company just like two days ago. And the reason they pulled the word "biopsy" out of it, I guess, because "biopsy" has such a negative connotation with people that they don’t use the word "biopsy." But it is a liquid biopsy.
Dan Ferris: Yeah. If you tell me I need a biopsy I’m not going to think it’s a good day. I mean.
Matt McCall: No. exactly.
Dan Ferris: So are you primarily looking for technological trends or no?
Matt McCall: No, no. not necessarily. I mean a lot of them happen to be because I’m looking for trends that’ll be growth oriented over the next 10 years. So it’s going to be a lot of ones you hear about. Internet of things. Artificial intelligence. But one is transportation’s one of them. Transportation to me, is a multitrillion-dollar opportunity. And for two years. One, electric vehicles. Two, autonomous vehicles. And this is going to be from a guy who hasn’t owned a car in 12 years. I don’t even have a legal driver’s license. So probably the worst guy to talk about cars, but the amount of research I’ve done on this is ridiculous.
Autonomous vehicles will be here in 10 years and they’ll be everywhere. I think they will be. There’s no doubt in my mind they’ll be here. It’s very difficult for people to fathom that and give up a car. But for me it’s easy because I haven’t had a car in so long. And I would take advantage of that left and right. And I say if you doubt me, go stand on your corner on your street or go stand on the overpass and look down on a highway for one hour. And watch people drive. We are so bad. We because most accidents texting. I mean it is unbelievable. I mean it's scary actually. I did it because I always tell people to do it. So I stood over an overpass in Nashville where I just moved from and watched people drive by. How fast they go. How they’re texting. Cutting people off. It is – I didn’t want to get in the car after that. It was insane.
So when we take that away and we have autonomous vehicles, I'm telling you, you will love it once we them out there.
Dan Ferris: Yeah. I was talking about this with some folks all of whom were like value guys like myself. And they were saying – you know like they showed me these simulations where it was like a simulation of autonomous vehicles at an intersection and the roads were four lanes wide. And none of the cars stopped, right? They’re just – so in other words, there’s no way a human being can compete with that. And we were saying, "Well gosh, in that environment when you get to whatever penetration you like, you know 40 or 50 or 60%, at some point insurance companies would say, you want to drive your own car you’re going to pay through the nose for insurance bcc there’s because way you can perform as well as these autonomous vehicles. And I agree. The thought that we’re within 10 years of a lot of penetration on the roadways of autonomous vehicles, it’s nowhere on anyone’s radar screen. I can barely fathom it.
I mean I entertain a broad range of outcomes. You know that’s the nature of risk underwriting in whatever you’re doing. Whether it’s insurance or equities or bonds or stocks, whatever. So I entertain a broad range of outcomes. But I will admit it’s hard for me to fathom that there’s going to be, you know let’s say more than half or even like 20 or 30% autonomous vehicles. That would just – I don’t know. It would scare the crap out of me I think.
Matt McCall: See, for some reason I want it. Maybe I want it because I have money invested in all the stocks that will go up. But I also feel like it's something that we kind of need right now. And I just – seeing how bad drivers are, and maybe it’s me getting older saying, "Oh, those darn teenagers." But oh, my goodness they’re so bad. You know their mind’s all over the place because they’re so used to having their head buried in a screen somewhere that it scares me that they don’t that real-life driving experiences.
But, you know and you make a great point, Dan, that, you know it's really not on anybody’s radar. So to me this is a great time to get into stocks that could benefit from that. And even if the penetration is only 20%, that’s still a lot of vehicles and a lot of companies will make a lot of money if we get the 20% at that point. So I think there’s great opportunity.
The tough thing is, again, it sounds simple. "Oh, let’s buy a couple stocks that could benefit from this." But it’s not easy because you have to be patient. Because it’s never fun being the first guy at the part. And you’re going to be the first guy at the part for buying these stocks.
Dan Ferris: OK. Well, you know you talk about this EVs and autonomous vehicles, there’s no way our listeners would allow me to get away with asking – with not asking you if you own Tesla.
Matt McCall: That’s a great question. I do not own Tesla right now. But after the drop that it had I guess it was last week, I’m considering it, but I think it's going to take maybe a quarter or so for them to kind of figure out what’s going. My issue with the last quarter was they lost over 400 million dollars, yet they sold the newest model came out much above the price they were going to – they started at 35,000. The average selling price was 50,000. The other thing was they delivered more cars than they ever have. 50% more than the previous quarter. And they still lose 400 million dollars. So that’s a concern to me.
But I will say I have a man-crush on Elon Musk. I think the guy’s a genius and I think that he’ll figure it out. He’s a little crazy. He’s a lot of crazy. Let’s be serious. He’s a lot of crazy. But I think he’ll figure it out and there will be a price that will buy Tesla. Just not yet.
Dan Ferris: Wow. So do you think he’s a good CEO?
Matt McCall: No.
Dan Ferris: That’s not an easy question.
Matt McCall: Yeah, it's tough for me to answer because I think he’s a genius and I think he’s got great ideas. But he’s not a good CEO. You know a lot of people start small business, entrepreneurs and then it grows and they’re not the CEO. But they’re kind of the visionary. He’s a great visionary, Dan, but he’s not a great CEO.
Dan Ferris: Right.
Matt McCall: In my opinion.
Dan Ferris: Agreed. I mean – does it bother you that he’s like – he appears to be stretched so unbelievably thin? I mean he’s got his hands in a million-different pies.
Matt McCall: No. Because that’s kind of my personality, too. I like to be involved in 10 different things. In a couple days from now I’m opening a Pilates studio and a clothing boutique, which I know nothing about. So yeah, I like to be spread-thin too and take opportunities. So I’m OK with that. Because I think his vision all comes together at some point with energy storage. The big thing with Tesla I think if they could figure out energy storage, how to harness a lot of the solar power, I think they could be really big for them. People are overlooking that.
And the other thing Tesla has that I think a lot of people don’t consider, and he’s been a big proponent of this, is everybody that owns a Tesla data gets sent back to Tesla. And we all know data is worth so much. So they have so much data on these semi-autonomous vehicles that I really believe that that could end up paying off really big down the road as well.
Dan Ferris: OK. One last Tesla question and then I’ll stop bugging you about this. What about competition? Does the competition bother you?
Matt McCall: Yes. I think Toyota’s very close. I think Toyota, they are working on a solid-state battery EV. Which will change the game in my opinion. That’s the future of batteries. So that could be a game changer. And they want to have a prototype out there before the Olympics next year. So that’s very interesting. Keep an eye on Toyota. I think they’re kind of a dark horse here.
But going back to the data, the fact that they have the data differentiates them a little bit from everybody else. But yes, there’s definitely a competition concern because you know it – even if they roll out the first fully autonomous vehicle, Tesla, you know everybody else is right behind them. So yeah, I mean competition is going to be an issue.
So that’s why when I invested in the AV, EV portion of the portfolio, I don’t go after the automakers typically. I’ll go after the sensor makers, the chip makers, the companies that make the _____ _____ that goes on the top of the AV. So I’ll play kind of the picks and shovels around it and not the actual automaker.
Dan Ferris: So you’ve got a couple of – looks like you’ve got a couple of newsletters. One of them is called Matt McCall’s Early Stage Investor and one is called Matt McCall’s Investment Opportunities. Can you just kind of tell me a little bit about each of those and what makes them different from the other one?
Matt McCall: Sure. Investment Opportunities is a lot of stuff we talked about. The big picture themes. And we will concentrate on bigger stocks. You know mid caps, large caps. And they’re like 10 cents and they’re – it's been in there a long time. Obviously Steve Sjuggarud is a big fan of that one. You know Alibaba. So some of the big Chinese companies are in there. We actually have Facebook in there as well. Which I love Facebook here.
Then with Early Stage Investor it’s kind of what it sounds like. We take more of a VC-type approach and try to find companies trading under two billion dollars. And then we build little baskets around that. So the genetic testing companies that I mentioned, that basket of three, they’re all small companies under two billion at the time when we put them in there. And they built up a little genetic testing basket for us.
But really, everything I talked about goes into both these newsletters. We try to find that top-down approach, find those themes we like, and then each month we put out an issue, it’s like 25, 30 pages, and we’ll concentrate on maybe one or two stocks or a theme or two. And we’ll highlight a new stock pick or two every month in each service.
Dan Ferris: So Matt has – I just want to talk to listeners for a second. Matt has an incredible track record. I can hardly believe what I’m reading in front of me, but this is what – 200 triple-digit winners ranging from 100% to 965%. 16 stocks that sort 1,000%, 2,000% and more. I have a serious, serious case of track-record envy right now. I just want everyone to know. I’ve got some triple-digit winners. I don’t have those quadruple-digit winners. That’s pretty incredible.
And, Matt, tell me, like the quadruple-digit winners, those are things that you hold for years I assume, right?
Matt McCall: Yep. You know a lot of those obviously were added when the market pulled back ’08, ’09, 2010, in that time frame obviously. The market’s done very well since then. But yeah, most of these, they take quite a bit of time. Again, you know anybody who tells you you’re going to make you five or six, 10 times your money in a couple years, is probably trying to pull something over on ya. In my opinion. I never go into a meeting with a potential client or talk to a subscriber and say, "Hey, this is what we’re going to do in two years." Because nobody really knows.
But to me if we pick the right trend, and then if we get lucky enough to pick the best stocks in that trend and we let it ride, yeah, I mean you can definitely let it go. And it’s funny because some of the big winners that I’ve had over the last 10 years, they came back in ’09 is when we got into them, but you know like Ulta Beauty’s a retailer. But I found that Dan because I was standing outside an Ulta Beauty at the time. And I was like, "What the hell’s going on in there? I was waiting for a girl to come out." I went in and it’s like, "Oh, my god, the store is amazing." And so I did a little research and found Ulta Beauty.
So that’s not even like a high-flying tech stock. Boston Beer, Sam Adams. A friend of mine’s in the beer industry. We talked about it 10 years ago. I said, ah, let’s give, you know give Sam a try. 1,600% since then.
I focus on the tech. but there’s also just opportunities always out there in front of us. But yes, the hardest thing is patience. Holding through pullbacks. Holding through recessions. Bear markets. Listen, it’s hard for everybody. But if we can lower our emotions that we have in there, boy, it does wonders.
And, you know, real quick, one way I’d like to help people get through this is – imagine, Dan, if we had every day the stock market for our house, the value of our house. We saw the value of our house every day, tick by tick go up and down. What we would do. Because clearly there’s going to be times where the market – your house value’s going to pull back for whatever reason. Interest rates go up. You know maybe there’s some issues with the city. They raise taxes. It could be anything. Imagine that. People would be in and out of their house, selling their houses all the time. It’d be chaos.
So you don’t know the value of their house. For some of these things you don’t need to look at it every day. Let the market go.
Dan Ferris: You know, Matt, I usually ask people, you know, what would you like to leave our listener with. But you just answered that. That was brilliant.
Matt McCall: Yeah, that’s fine.
Dan Ferris: You know we have come to the end of our time here. But I just want our listeners to know they can go to www.mccallevent.com. That’s M-C-C-A-L-L-event-dot-com. And get a special, Investor-Hour-listeners-only price. And there’s a one-year bundle of both of your newsletters for $1999. And there’s a lifetime bundle – lifetime, that’s a long time – for $2999. At mccallevent.com. And I guess we’ll probably throw this URL up on our website for Investor Hour folks. But that’s a really nice offer. Thanks very much, Matt, for coming by and talking to us. I really enjoyed this. You and I are very different investors, but I feel like I learned a lot from you.
Matt McCall: I appreciate it. Yeah. And I had a great time too and I really appreciate having me on, Dan.
Dan Ferris: You bet. And look, you’ll have to promise to come back some time and talk to us again.
Matt McCall: Sounds good. In 10 years I’ll take my autonomous vehicle over to meet you.
Dan Ferris: That’s right. You will. And I’ll be paying a fortune for car insurance because I’ll still be driving. All right, Matt, thank you very much. Bye-bye.
Matt McCall: All right. Thank you.
Dan Ferris: All right, everybody. It's time for the mailbag. Your feedback is very important to this show. I can’t say it enough. This is where you and I have a conversation and it's one of my favorite things to do each week. I read every single e-mail that you send us. OK. I even read the Russian spam. All right. I read everything. I read the people who won’t leave me alone because they say they have some wonderful financial guru that they want to get on the program. I get a lot of those. And I tend to shy away from them.
Anyway, send us your feedback. Questions, comments, politely worded criticisms to [email protected]. I read every single one. Let’s do it.
OK, the first one is from Edwin M. And he says: "Hello, Dan. I truly enjoy listening to the show and always appreciate your value based approach to investing. As a young 25 year old trying to get along in life the insights from you and your guests on financial matters are invaluable to me and the future of my family. I especially appreciate some of the guests that you have and your constant reminder that it is all about mindset and knowing your circle of competence. I started listening to the show back when Porter and Buck were still doing it and was sad to see them go. However, you have improved remarkably in your hosting the podcast and I appreciate you taking the time to educate us with real meat and potatoes investment related material and advice.
"I do have one question that has been burning in me for the last several weeks. I was educated in a parochial school and graduated with an eighth-grade diploma and just went ahead and got a GED. Not ideal for working in the financial sector. I have always enjoyed money things and am wondering if you could point me in the right direction on obtaining enough knowledge to get a job as an analyst or something along those lines. I am not looking to get into student loans and prefer self-directed education. Thanks so much for the education you provide. Sincerely, Edwin M."
Edwin M., thank you for all the complimentary words that you have for me and for the show. This is a hard question. Basically you’re asking me like how can I get a good enough education somebody will hire me to be an analyst. Well, it depends on who you want to hire you. Really, the financial world has changed. It’s not just like go get a finance degree and you get a job and that’s it. I mean people can get finance jobs with all kinds of different degrees. And, you know in the beginning you may have to accept something like a sales trainee kind of a position or something like that. Just to get your foot in the door.
Our interview guest today said he started as a broker. And you know he’s wound up doing all kinds of things. You know he invests in a wide range of companies and he manages other people’s money and he writes newsletters and he said he was opening a boutique and a Pilates studio. I mean he’s got his hands in a lot of different financial pies. Started out as basically a broker, which is a salesman.
So you know that might be your way in. Of course to do that, you’d have to get – I forget which one it is. It’s like Series 65 or 72 or 31. I don’t even know what it is. But if you contact any brokerage firm and say, "I want to be a broker," they’ll tell you what FINRA series you have to get. And then it would be up to you to study for the test. And I’ve got – I did this a long time ago when I was managing other peoples’ money for a very brief time. And I think I have a Series 65. I don’t know what it means. But I studied. I just bought some books off the internet and I studied and they had practice tests. And I got – and you know I did it. I did the test and passed. And you know if you do that, then financial firms will be more likely to want to hire you.
So that’s what I would suggest. You know figure out how you want to work for and what FINRA-series licensure you need to have and then – that’s – studying for that is pretty much a self-directed thing. And then, you know your real education starts when you get hired. So that’s really the best I’ve got for you. You know I’m recommending books all the time. But your question’s slightly different. I hope that helps.
Next one is from Mike S. Mike S. says: "I’ve been reading your warnings about the state of the market for some time now which brought this question to mind. Since a 2008 style market crash would likely drag everything down, would you recommend selling even your value stocks when an imminent downturn was suspected and then buying things back after they bottomed? Or would you recommend just riding it out on the belief that they would be affected less and recover relatively more quickly than other equities? Thanks for the Starbucks recommendation, by the way. It's one of my biggest winners. Mike S."
You’re welcome, Mike S. That’s one of my biggest winners too. Biggest winners in the newsletter recently I should say. You have a good question. And the reason I put it in here is because a lot of people ask me this. The problem is, think about what you’re asking. Should I just sell at the top and then buy back at the bottom? Yeah, sure. Of course you should. We all should. But nobody knows where the top is and nobody knows where the bottom is. So you need some kind of risk controls. And only you can know what’s right for you.
Most people, you know like a 20, 30% trailing stop somewhere in that neighborhood. 25% is a number we’ve used around Stansberry for many years. But you have to decide what’s right for you. And, you know that can keep you out of a big bear market and prevent you from selling out in a panic at the bottom when you’re down 50, 60, 70%.
That’s one thing you could do. And then from there you know when the market’s down 50 or 60% or whatever, you know you've got to figure, well, I don’t know where the bottom is but it can’t be far from here. And that’s really just about the best you can do. Just use whatever risk controls are right for you and pick whatever stocks you want to pick. And don’t necessarily change that just because there’s a bear market. Look, a value investor like me, I’ve said this over and over again, you’re going to naturally pick a lot fewer stocks near the top than you will near the bottom. You know there’s more stuff that’s cheap near the bottom than there is near the top. So you’ll naturally have more cash. You’ll naturally pick fewer stocks. You’ll naturally be less exposed, etcetera.
Good question. There’s no one-size-fits-all answer for these things. And if there was, I really couldn’t offer it because that would be a violation of my contractual prohibition against giving individual advice. But it's a good question, Mike. Thank you for writing in.
Got a couple more, quick ones here. Stefan C says: "Dear Mr. Ferris, love the show. It’s light years different from the old one but you have taken it in another direction with style and grace. Since the president has ruled against the petitioners of Section 232, the uranium sector has completely washed out. I am behind in my reading so I haven’t read my most recent issue of Extreme Value, but I think there might be some extreme values in the uranium space. Have you looked at it lately or see any recommendation from the rubble strewn about?
In any event, I enjoy your guest selection. Annie Duke, how would have thunk? Keep up the good work. Regards, Stefan C.
OK, Stefan. This is a good question. I don’t think you’re going to see a lot of – you’re not going to see any pure uranium picks in Extreme Value. And I’ll tell you why. I mean It’s been beaten up for a while. I agree with you. It’s a good place to find some really beat up deep value type stuff.
Thing is, we don’t do mining stocks. Pure mining stocks in extremely value. We’ll do a royalty company and not much else. And one of our royalty companies owns a prospect generation business too, which is those are the two really low capital expenditure, potentially high-return ends of the mining spectrum, right, is the prospect generation and royalty creation. Otherwise you’re talking about investing in a pure exploration play, which is highly risky and highly unlikely to turn out really well. Or you’re talking about investing in a mining company that actually pulls uranium out of the ground. And mining companies are just notoriously bad businesses. High capital-expenditure requirements. You know there’s no consistency in profit margins at all. The balance sheets are often lousy. You know you can’t count on them to consistently generate free cash flow. They’re just like every good thing that we find in a good business, like mining companies don’t have that. So you won’t see any of those pure uranium plays in Extreme Value.
Here’s fourth and final mailbag item today. "Dear Dan, big fan of the show and think you have picked so great guests since you took the helm. Oh, some great guests I think he means. You don’t talk about passive investing often, but I will hear it from time to time. Every time I hear someone talk about how average Joe investor is piling in the passive products, such as index ETFs, I have wondered if this will be negative for those companies that find themselves in these products when there's a downturn. It is my belief that when the average-Joe investor panic-sells, that these passive funds will get crushed. I’ve gone as far as thinking that it might be a good idea if possible to know a stock’s exposure to passive products before buying it. Not sure if I knew whether I would change my stop loss strategy or hedge or not buy, but it seems like it would be good to know. Would love to hear your thoughts on this. Regards, Wade S."
Wade S., thank you. You know for your compliments on the show. And for this question. Because I think you’re right. I think you should know a stock’s exposure to passive, you know like ETFs and index funds and things. Because for example, take the – the example that’s kind of running around the financial industry, I don’t know if most people know this, is Exxon Mobile. Exxon Mobile is in – it’s in growth ETFs. It’s in value ETFs. It’s in energy ETFs. It’s in literally like a couple of dozen ETFs. Which is absurd. You can’t be all those things. You know and not to mention the fact that like, you know the revenue is down and the stock price is up, and the business doesn’t look as good as it did and the share price is up.
So you’d want to know what your exposure was there, wouldn’t you? You’d want to know if you were buying the ETF if you had big exposure to Exxon Mobile, and you’d want to know if you were buying Exxon Mobile if – you know that it was in all these ETFs. So it kind of goes both ways, doesn’t it? Because I’ll tell you something, a lot of these ETFs, they are not anything like what they claim to be. They’re not like exposure to, you know, the Spanish economy. You know you look at the Spanish ETF, the spain, the big spain ETF. I forget what the symbol is. You know I think it's like 60 or 70% of the revenue comes from outside of Spain. Of the companies in the ETF. So I don’t know, are you buying Spain? Are you buying the Spanish economy? I don’t think you are.
Maybe you’re buying Spanish investors’ interest in the stock market or something. But it’s not exactly what’s advertised. And, you know if you look at some energy ETFs and things, you know there will be a huge concentration in like three or four stocks, you know. Like Exxon, Chevron, maybe Schlumberger or something. It’s just, you know, big energy related companies.
You don’t buy ETFs to focus on one or more stocks. You buy them to get a smattering of an industry. So yeah, there’s a lot wrong with this. There’s also the fact that it's been reported that half of all the money in the stock market in the United States is now in passive products. In index-oriented products, ETFs, whatever, index funds. And that really worries me a little bit because what does happen if people start heading the other way? You know the algorithm on the index fund is real basic. Bring in a dollar of capital, buy a dollar of equity. Well, it goes the other way too. If I want to redeem – if we all want to redeem at the same time and get out of the fund, they have to sell a dollar of equity to pay you a dollar of – to pay your dollar out.
So you just have to wonder if the stock market itself doesn’t become the crowded trade. Because the stock market itself has been the alpha. That’s been the big alpha. All the active investors have performed poorly the last several years. All the value investors have performed poorly for the last several years. So the big trade has to be in the index. That can’t go on forever. These things never do go on forever.
When it turns around and goes the other way I have no idea. I don’t time. But it’s a great question. And it’s a deep subject. There's a lot going on there. A lot to unpack. Thank you, Wade S. That’s a great, great question. And maybe in a future rant or something we’ll talk more about that.
So that concludes another episode of the Stanberry Investor Hour. Be sure to check out our website, www.investorhour.com. You can listen to every episode we’ve ever done. You can see a transcript for every episode we’ve ever done. And you can enter your e-mail in to make sure that you get all the latest updates on every episode. Just go to investorhour.com.
All right, folks. It's my privilege to come to you every week. Thank you so much for listening. And I will talk to you next week. Thank you. Bye-bye.
Announcer: Thank you for listening to the Stansberry Investor Hour. To access today’s notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail at [email protected]. This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risks. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is provided by Stansberry Research and is copyrighted by the Stanberry Radio Network.
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