Episodes

Dan Ferris: The 2024 Stansberry Research Conference and Alliance Meeting is back this fall in Las Vegas. And for the first time ever, they've extended their early bird discounted ticket pricing, which means if you reserve your seat today, you can save $450 off your ticket. Head over to www.vegasearlybird.com to find all the details and get your discounted ticket. The Stansberry conference is truly one of the best business, mixed with pleasure, industry events out there. Past speakers have included Shark Tank's Kevin O'Leary, Dennis Miller, and Steve Forbes. And of course, all your favorite Stansberry editors will be there, too, including yours truly. I mean, I hope I'm one of your favorites.

I look forward to this event every year, it's great getting the chance to meet our listeners from the show, whether it's chatting during a break, or grabbing a beer at the end of the day, or whatever. So I hope you're planning to join us. It's a great event, go to www.vegasearlybird.com to get your discounted ticket before prices increase. That's www.vegasearlybird.com. So come on out and find me in Vegas, and say hello.

David, welcome to the show. Good to have you here.

David Daglio: Great to be here, Dan.

Dan Ferris: So David, you're a new guest on the show. We haven't had you before. So I'm going to ask you my sort of, you know, canned first time question for guests. And it's simply like if we ran into each other, and didn't already know each other in a bar, and the topic of finance came up, and we were talking. And I said, "Oh, you're in finance? OK. What kind of investor are you," how would you answer that question?

David Daglio: Yeah. Dan, I think I started a lot like your listeners. So late in my 20s, I kind of got the market bug, and I was doing it in all of my free time. At that point, I was a management consultant. Before that, I was an engineer. And I said, no, this is what I want to do for the rest of my life. And what has suited me well, is really understanding who I am as a person. And once you understand who you are as a person, then you can apply that as an investor. There's no right or wrong ways to invest.

Dan Ferris: Exactly.

David Daglio: And so yeah, so that's kind of, the person I am is I love to be the devil's advocate, the contrarian in the room, asking the question no one wants to ask. And so that's the type of investor I've become.

Dan Ferris: All right. I love everything I'm hearing. I've told people many times, many times, I've written and said it in presentations on the podcast, know yourself, know what kind of person you are. Because that's, you know, that's where the kind of investor you are will come from.

David Daglio: Yeah.

Dan Ferris: So what are you doing now? What's your gig?

David Daglio: Yeah, the gig today is I advise wealthy families, successful entrepreneurs, in what's called "a multifamily office." So I work for Twin Focus. We have 40-odd families that we advise on their investment, as well as the rest of their life, as needed. Prior to that, I was the chief investment officer at a firm called "Mellon." I had about 500 billion in assets under advisement or watching. And then in my sojourn in the middle, I started with my partner, Kyle Pinkerton, we started something called BC-GUMPS. And that has been acquired by the Twin Focus folks. And the idea of BC-GUMPs is can we create creative solutions that the market isn't seeing?

Dan Ferris: OK. That sounds intriguing. Can you get me a little deeper into that?

David Daglio: Yeah, you know, the central, the central problem for investors is that the big firms, they sell what they have. Right? So if it's banana season, they promote bananas. If what just worked with, you know, fast-growing tech companies, that's what they have inventory for. Where all the money is made is going what isn't being promoted, what is off the shelf, what is on sale, you know, buying straw hats, in the winter, etc. So, the concept of how I invest and think about the world is how can we find, you know, straw hats in the winter, meaning they're on sale, and in areas that are not heavily promoted by Wall Street, private equity, etc.

Dan Ferris: You are just speaking my language, man. I have to tell you, you're speaking my language. So this is the, you know, very near and dear to my heart. I mean, I write a newsletter called Extreme Value. OK. And –

David Daglio: Oh, you do? Damn. Great. Yeah.

Dan Ferris: So you know, I love the idea of finding things that other folks aren't necessarily looking at. And that's been, like, for at least up to 2022 or so. And really, since, you know, the last year or so, too. It's been hard. It's been difficult.

David Daglio: Yes.

Dan Ferris: You know, it's been difficult to be a contrarian. It's been difficult to be like, you know, a value-oriented guy like me. And we, you know, we've had to sort of adapt and, and do things a little differently. However, some of these things have gotten interesting, like, you know, I thought, you know, copper was interesting at one point. And today, I think natural gas is really interesting, because, you know, the price of natural gas has just been beaten all up. And, you know, gold stocks versus gold is an interesting thing.

David Daglio: Yeah.

Dan Ferris: What kind of things – maybe we should talk about what kind of things you're doing today. And if you're, you know, if you don't want to give away the secret sauce, we could talk about some historical examples.

David Daglio: No. Hey Dan, I really like, I really liked that question. And I'm going to frame it two ways. You know what, first of all, and Cliff Asness at AQR has written about this at length. But you know, if it's a risk premium, meaning you make money investing in that style and approach over time, my hunch is that risk premium should be hard. And if they're easy to apply, like a momentum strategy, following the crowds, where you win them, beat the market nine out of 10 years, it's unlikely to be the winning approach.

And so, you know, while there's talks about what the real risk premiums are in the world, I think there's only one risk premium, which is if you buy assets at a discount to their long-run cash flow, you have margin of safety, and you have a good chance of making money. And so I just put that framework over and over again. So Dan, it's not surprising to me that you mentioned two of my favorite concepts right now. So if I could just elaborate on natural gas, and what we did with natural gas for our clients. And then what I am doing personally for gold stocks, and then we're thinking about how to institutionalize this.

You know, first look, natural gas is an asset that, today, is in massive abundance. There's something called BTU parity. As you know, BTU parity is a simple concept that the BTU should all trade for the same. But right now, natural gas trades at the largest discount of all times, oil, coal, etc. And that's because we have too much natural gas here in the states. We also had a warm winter. And so the intersection of those two things is put natural gas below cash costs. It can't stay there.

The stocks that are discounting natural gas stays there. And on top of it, we have nice demand story, right? As you know, Dan, we are putting in LNG, which is an exporting of natural gas to the rest of the world. It's done for two reasons, one, it's cheaper here. But second, it gives you a better defense. Right? There's you hate to import natural gas from the Russians if they're your enemy, right, if you're the European nation. So in 2025, '26, '27, '28, '29, we see accelerating demand of LNG shipments, natural gas from here' to the rest of the world, and you get to buy gas and the stocks very cheaply.

We partnered with a firm called Wellington. And Wellington is running a fund for us that is targeting, you know, safe natural gas stocks that have nice convexity to the trade that I know you know well. That the trade thing I'm most curious about, that I'm still surprised hasn't worked this year, is as you know, the world is looking for a call option in case the central banks are wrong. And there's two ways to buy those call options. One is in gold. That is a 2,000-year track record. And the other is in bitcoin, which has, I don't know, a five-year track record. I like the 2,000-year track records.

There's nothing wrong with bitcoin. I don't want to get a hate mail on this. But to me, I like the history of gold as a store of assets seems to make sense to me. So gold has moved up, I don't know, Dan, about 40% in the last six months, yet the securities have not repriced that so we can get leading gold miners at some of the cheapest prices on records on a static gold price. So I think the opportunity to make, you know, far better than equity-like returns in the gold miners is best it's been in probably 30 years, with or without gold appreciation.

Dan Ferris: Right.

David Daglio: Now, if we actually have gold appreciation, then you know, you want to buy the Canadian junior miners, if we don't have gold appreciation, you're probably better with the you know, the two big ones, which are Barrick and Newmont.

Dan Ferris: Right. Which are, which have I published the sort of gold versus Newmont chart in my latest issue of the newsletter called The Ferris Report. And when I looked at it, I was like, I didn't know it was that bad. You know? It's horrendous, you know, it's just, they're, they're in, you know, two opposite directions.

David Daglio: They are, Dan, and I think, you know, some of it, let's be fair, it's self-inflicted a little bit at Newmont. They had, I don't know, remember the name of the mine, but they're big Mexican mine had, you know, strike issues, kind of governance issues. And some of it was post-COVID. So just everything went wrong. Maybe they overpaid for their last couple acquisitions. But that's now been discounted in the stock. So you know, you've got, you know, a 4% yield, which is probably going higher, which is very close to what you get on the long bond anyhow.

And then you've got an asset, where the earnings could accrete, let's say, at 20% to 25% a year, which means a dividend can go up at 20% to 25%, which we don't get from Treasurys. Boy, to me, it looks like one of the better risk-rewards, you know, I have seen. And what's fantastic is that there are many ways to play it. You could just be hey, I'm going to own the ETF. If you understand security selection, you can find one or two winners inside of that group. And if you're really bullish on gold, longer term, you know, just buy the junior miners, and you know, three or four of them will probably be up four or fivefold.

Dan Ferris: Yeah. Again, it's definitely speaking my language. So are you, you, personally, let me get – I just want to get this straight, you personally have this strategy that you're doing for yourself, and you're trying to sort of roll it out to clients and institutions?

David Daglio: Yeah, I think the better way to say it is, we're the clients' righthand person, when it comes to how they think about long-run investing. Some of our clients are sophisticated investors, right. So you would know the firm's they were, you know, partners' leading firms. So, you know, we're, we're really a tentacle for them. They may know one thing, U.S. growth equities very well, but there's 900 other asset classes. Are there other ways we could express some of their wisdom? So we do some of that. And then we do classic wealth planning, you know, which is a little bit of stocks, a little bit of bonds, take a little bit more risk here, etc.

And each client relationship we have, Dan, I would say is unique. And we do that, we do that purposely because every client has unique needs, and some people also may have a bias. We have one client, who would love your podcast, who which has a real bias that is, you know, that, hey, value is where the money is made, and value is hard. And when no one else wants to do something, that's probably we should roll up our sleeves and do a lot more work.

Corey McLaughlin: Hey, David, you've talked a little bit about this already in a couple of different ways. But my question is, we have a lot of individual investors, listening to the show, what do they not know about – you know what I mean, you were at Mellon, right, $500 billion under management.

David Daglio: Yeah.

Corey McLaughlin: That's not an insignificant amount of money. What do individual investors not know about like a firm like that, of what they can do or can't do just mechanically? And what may be an advantage for an individual investor, or disadvantage, you know, compared to a firm, like, of that size?

Dan Ferris: Yeah, advantage and disadvantage.

David Daglio: Yeah. Yeah. Yeah. Let's – look, I think I'm at the perfect, perfect size firm today. And the disadvantage of being at a very large firm, is sometimes we see great ideas and maybe like, well, you know, $500 billion, everything – if we can't put a billion to work, it's not worth doing. Right? And so even when I hear from the larger investment banks, most of their ideas start with billion-dollar ideas. Our total client base today is eight and a half billion. So that means if we find an idea where we can put 10 to $20 million to work, and get good returns, we can.

But we're also large enough, so that we get inbound calls from every single firm in the world. Right? So I have the same access I did at my larger firm, but I have the ability to be nimble. And you know, when we look at all successful investors, and I'm going to pick on one of my favorites here, you know, when Warren Buffett was nimble, and you look at his first 30 years of returns, they were exceptional.

Dan Ferris: Oh yeah.

David Daglio: But when you look at his last 15 years' worth of returns, they're pretty pedestrian. And so, being an excellent investor, but also having access to the nimbleness, I think is really important. You know, Corey, the way – so what can we do better at larger firms? And is – look, my ability at my own – my old firm to do deep fundamental work really rapidly was staggering. And, you know, so I had an analyst team of 125, each experts on their subject. I had 15-odd investigative reporters, and then we had 500 sell side firms that would advise us. Right?

So if anything, our problem with these big firms was figuring out what to listen to. I think we're individual investors have an advantage is they're not deluged with information. And so if they can find one or two partners that they really trust, and think ideally, in the same way, they probably can have better returns. The other thing, advantage, I think a retail investor has, and frankly, I have in my personal account as well, is I don't have a boss. And that's going to sound silly.

But the biggest problem with being a portfolio – I was a portfolio manager for 20 years, I ran small cap, hedge funds, etc. I used to say I didn't have a boss, but the practical reality is my top 100 clients were my bosses. And every quarter, I came in, and they asked me the same question: "How did you do last quarter?" And I would respond, Dan, as you would expect, I would say, "Look, I'm going to tell you how I did last quarter, but we're investing on ideas that we think are great ideas over the next three to five. I can't tell you what quarter they're going to go up."

Now, it took me 15 years, and probably 15,000 meetings to get the majority of my clients to stop asking about the next 90 days. I was in a privileged position after a lot of success. But I think most, if not all people at good firms, have an enormous amount of pressure to perform in the short run. And we can see that in the market today, if you had looked at active managers that were underweight, Nvidia, let's say, a year ago, you would have seen 70% of the market was underweight. These are active managers. Today, if you look at that, the number is probably like 49%. So you know, so we've just sucked everyone in because the fear of missing out. And that's what defines markets.

But I think as individual investors, you can be much more pragmatic, much more long-term, much more thoughtful, because you don't have so many people asking about your last 90 days of returns.

Dan Ferris: That's interesting, because it's this – I view that advantage, you just named, as the ultimate low-hanging fruit. It's obvious, it's simple, but, man, it's not easy. It's just to be more patient and longer-term oriented. I mean, an individual, like a firm sees, you know, the accounts going down 5% or 10%. And maybe they can handle it, and they can, you know, make some calls, and smooth things over or whatever, or some amount, I don't know what the amount is, 15%, whatever.

David Daglio: Yep.

Dan Ferris: But individuals, they just, you know, you probably read all the behavioral studies, so we don't need to get into all that. But, you know, they're 15 times more sensitive to pain than to, you know, good things. So, you know, they're, they're just, and they perceive pain differently. So when they're down 20%, you know, they're waiting and waiting. And then, you know, they tend to sell at the catastrophic bottom, you know, it's just...

David Daglio: Correct. Correct.

Dan Ferris: It's just horrendous. But you're right, they, of all people, the individual has this tremendous advantage just sitting there waiting for them to pick it up.

David Daglio: Correct. Correct. Dan, sorry to interrupt. But there's so much...

Dan Ferris: No, go ahead.

David Daglio: ... wisdom, that I said to my team this morning, we have a weekly meeting where we digest all the ideas we've heard from the past week. And I said to him, look, the problem with this weekly meeting, is that we're always thinking there's an idea. And what we have to be is incredibly selective when that idea comes across. And then we need didn't know how to pounce. And the individuals, and/or the firms that do this well, document how they think about it in advance. OK, here are the conditions we're looking for.

So at Twin Focus, we look for three conditions for an idea, or a manager, or what have you. First, we want to see some type of extreme capital imbalance, right? Because that means pricing can be on our side. Second, we want something where we can call when fundamentals can improve. It may be two years out, like LNG is probably 18 months out for demand. But I'm really sure we're exporting LNG out of the stage, which boosts up natural gas demand. So that's real fundamental.

Then the next question we ask, it is the hardest one to answer: are we the right people to do it, meaning to make the individual decisions, or are we better off handing it to someone who's got a real competitive advantage? And, and when we can answer those three questions, each time, we make better decisions, so we're looking for capital imbalance, price is on our side, fundamentals that we can see how they improve. And then lastly, we make this decision, do we do it internally, or are we better off, you know, paying fees, of course, for an expert to do it? And each time the answer could be different. And I think that's the same question all individuals should do.

But the second thing, Dan, you were kind of alluding to. And, you know, when I started the business, god, a long time ago, when I started the business, I thought this was about building better financial models, having more information being smarter than everyone else. And now, 30 years later, I'm like, why didn't I take more psychology courses? Because this was really, as you alluded to, Dan, the business is about facts, but it's about how you interpret those facts.

And if you can train your mind and your mind to be more patient, to do more type two thinking, not type one thinking Daniel Kahneman, who just passed away, right? All those things allow you to be more successful longer term. But it's a life's work. Right? It is – this is not, you know, six weeks, I take a behavioral class. You literally need to think about it every day.

Dan Ferris: Right. And of course, I forget who made the joke. I think it was Tyler Cowen, economist Tyler Cowen, you know, he was talking about Dan Ariely's book, Predictably Irrational, and you mentioned the prospect of taking a six-month course or something. And at the end of that course, you say, "Well, now I'm not going to be predictably irrational." And, and you people don't get that you are always predictably irrational. You are a human being and you can't get around your predictable irrationality.

David Daglio: Yeah.

Dan Ferris: So it's harder than that. You don't get rid of it. You manage it every minute of every day that you're in the market.

David Daglio: Yeah, you know, 100%. And we – what we're doing at Twin Focus, we did a lot more in our old firm, because we just had so many people. But, like, really sharing what your intellectual biases are. And once you know that, you know, that's fine. It could be a good intellectual bias. It could be a bad one. But, like, let's then be selective inside of that. Right? And, you know, for example, one of the biases, I see today in our clients across the board, is that all unique and breakthrough technology is a good idea.

And the truth of the matter is, it's relatively rare. And we should be selective. But we have this recency bias, where it feels like a lot of good breakthrough tech ideas worked. And so there's this enormous recency bias is built off for people, and I think that's why we probably have some crown jewels in the tech industry. But I think we've lifted up too many things simultaneously. There's only usually one or two great ideas that are given.

Dan Ferris: Yes, that's right. It's the, you know, I call this, like, looking for the next Amazon, right? Everybody thinks they're going to find the next Amazon.

David Daglio: Correct.

Dan Ferris: And, you know, it's like, one and, you know, 100,000 or something. I mean, the other is so far against you. Like, if you're not, if you're not a VC firm with, you know, 200 positions or whatever, you're not going to – you have no hope of finding it.

David Daglio: Yeah. And don't, you know, like, and I tell this story, because it's, just to me, it's so shocking. We were a contrarian investor. It's 2004, I believe, you can fact check me, Corey, but this is the day that Google became public. This is Google. Right? At that point, they're growing EBITA at 100% year over year. Everyone knows it, kind of figured it out. Everyone knew Google was, I'm sure Lycos was still around. Netscape was still stumbling. But, like, this was the winner.

Google came in public at 10 times next year's EBITA. The skepticism in the room, I sat in the IPO room, was off the charts. Right? And that was because most tech companies had, you know, over promised and under delivered for the better part of ten years. So this comes to the capital imbalance question. I think, you know, not let's not forget, Google was a great company has done very well. But there was an incredible amount of disbelief that you had to power through. We've all owned Apple, in my predecessor firm, we bought Apple 2001, '02, and '03. You could buy Apple at a discount to its net cash on its balance sheet. Right?

So I didn't even need to know anything about the iPhone. I just needed to know the company wasn't going away. That's how much skepticism there was. And so on great investments are made when there's skepticism that abounds about the idea. And I do think, as an individual investor, you have the ability to see through this skepticism, because you don't have so much noise raining on you about what consensus is.

Corey McLaughlin: Dan, Apple, 20 – in that time period reminds me of, we were just talking biotech, right? Same thing right now.

Dan Ferris: Oh yeah.

David Daglio: Yep. Yep. Well, we have, you know, biotech is another great example. We uncorked the human genome, Dan, give or take, in like nine, ten, eleven. And you could buy, in the public markets, the leaders of the industry for nine times earnings. Right? So now it's consensus that we're going to change the human genome. At that point, no one believed. And so, you know, those are the earth-shattering moments you're looking for, you know, when there's when there's, there's kind of a disbelief because of the prior history of Big Pharma was pretty weak, right? They hadn't done that well. So they labeled these companies a big pharma with perfect hindsight, they weren't. Right?

Dan Ferris: Right. And of course, and we've talked a bit about the biotech situation. You know, they're like actual net-nets, companies trading at actually serious discounts to net cash, on the one hand. But on the other hand, as our guest and colleague and friend Dave Lashmet pointed out, like, 6% of drugs make it through clinical trials.

David Daglio: Yes.

Dan Ferris: So you know, it's sort of like, I like I have to liken it to, to buying, like, exploration mining stocks.

David Daglio: Yeah.

Dan Ferris: And I've known people who have done this, with great success and run funds for ten years that made like 55% keggers at it. But all the money came from like, you know, five stocks in a portfolio of 100. You know, just stuff go to 1,000 to one. And it ain't easy.

David Daglio: It isn't. It isn't. And I think the – we spent a lot of time looking at these net, net-net companies, you alluded to in biotech. I'm actually on the board of a public biotech company. So you know, I know the, I know, this space, I know the odds very well. I think there's two things going on. I think one, it's tough to govern these companies. And what I mean by that is, if they have $400 million in R&D, and a $200 million R&D project in front of them, if that 200 million fails, the management team is going to spend the next 200 anyhow. And so it's a little harder to manage these things.

But I'm intrigued, I'm intrigued. I think there's a condition under which you have a really good call option, and to your point, you probably need to own a dozen of them. And maybe one or two are break even, one or two go up a ton, and the others, you know, you ride down to zero. I think that's a winning approach for sure. And look, the biotech analysts are no better at handicapping the odds of success than a random coin toss.

Dan Ferris: That's right.

David Daglio: Now they do – after they're successful, they do a pretty good job because they can size the served available market really well. And I think they're skillful at that, and many have proven that. But there's so much that goes wrong in the clinical to get to your 6% hit rate.

Dan Ferris: Yeah. Yep. That's a – and I love, look, as a, as a guy, who has studied Ben Graham, and read Security Analysis, like a net-net is like, wow, OK. But I just got –

David Daglio: It's so rare.

Dan Ferris: Yeah, it is rare. But, actually, it's not rare. Like, they're there all the time. You know, but 99% of them are nothing you'd ever want to get anywhere near. And I got so used to, like, we had found a bunch of them in 2001, 2002.

David Daglio: Yep. Yep.

Dan Ferris: Like, there were, like, decent ones around.

David Daglio: Tech companies. Yeah.

Dan Ferris: And I was like, wow, this is great. Of course, within a few years, like, or actually just a couple of years, like you couldn't find any decent ones anymore. It was back to the same old, same old. And I just have gotten used to not even thinking about them. Like, I haven't run a net-net screen in I don't know how long, which is – that's crazy for me. [Crosstalk] Go ahead.

David Daglio: Dan, I'm going to ruminate on something with you here, maybe it's a better signal of where the markets act with the sector and industry. So you know, what we had, I can think of three large net-nets in my career, that, you know, one was the tech, the end of the tech boom. You could buy telecom companies, you know, that were trading at, you know, five cents on their book assets. And maybe at net-net, you could buy software companies, same deal. That was a marker that the market had given up on tech. It was time to buy tech. And if you had bought net-net companies, or you bought Google, you made money.

The next big one we had was you could have bought – there were probably 3,000 companies in Japan five years ago trading at net-net. And as you know, that market has really excelled, and value has worked in that market. So those – it was a good signal just to say, why not look at Japan because no one believes. Even the insiders don't believe. Right?

Dan Ferris: Right.

David Daglio: And so maybe this the biotech marker might be that, hey, no one believes in biotech. It's a good signal on how cautious everyone is. And you know, you could make money going value. Maybe you make bond money, you know, buying, you know, growth equity inside of healthcare as well. But there's a lot of pessimism, that's for sure.

Dan Ferris: Yeah, that's probably a smart way to think about it. And to be fair about Japan, like you could have done it three or four times, you know, since 1989, or 1990, or so.

David Daglio: Yeah. Yeah.

Dan Ferris: It was just like perennial, right? I mean, every now and then you get to do net-nets in Japan. And like you say, value work there, too. And I actually think we're headed into something like that in the U.S. But that's a prediction at this point. It's obviously not this moment.

David Daglio: It's not this quarter, that's for sure.

Dan Ferris: No. No, it's not this quarter. Yeah. So you said something, I made a note here, that just kind of went by, and I'm sure that my readers are probably going, "What does that mean?" And the term was capital imbalance.

David Daglio: Yeah.

Dan Ferris: What did you mean by that?

David Daglio: Yeah, I think it's easier to describe, you know it when you see it. All right? So let's talk about some we have in the market today. If you're along an office building today, you've got a note that, say, at $80, but the business is only worth 40. The banks are hamstrung because they can't take more of this loan on their balance sheet. So there's imbalance. Meaning if you're willing to load into that space, you've got an imbalance. Now, we could debate how long that's going to go on.

The most obvious imbalance we see in the market today takes a little bit of a contrarian pole to it, is that in the energy sector today, because of ESG mandates, there's four sellers. And we're live in opportunity today, it's actually what's called a GP-led secondary, but there's a forced seller. It's a pension plan that is adding to sell their assets, because they want their statements to look like they have less fossil fuel. And that's depressing the asset below fair value.

Dan Ferris: Hmm. I see.

David Daglio: So we really like, you know, this concept of forced sellers. And, you know, sometimes it's, it sounds very value-like You know, other times, it can sound growth-like. I would argue we had a capital imbalance inside of genetics in venture capital in '09, '10, and '11, where everyone in the space said, "I need money, this is changing the world. We're going to get people healthier." But they couldn't get money in because venture capital had failed for 10 years in healthcare. And so there was this deep skepticism, really about, you know, the simple molecules, not complex molecules, which would be genetics.

So we're constantly on the lookout for it. You usually get shades of it, Dan. You usually don't get it like black and white, like you're getting with energy today. Or maybe even natural gas as a related to energy. So we keep looking for it. It's not the only thing, right? Sometimes you can just say, look, everyone believes, and they're right. But in this case, we'd love to see everyone there's a disbelief, and we're right. Did that make more sense?

Dan Ferris: Yeah. Actually, the first example, I would, I would kind of point my listener to that first example of the commercial real estate property, where the loans at, you know, whatever, 80 or something, and the value is at 40. So you know, there there's a capital imbalance there, for sure.

David Daglio: Yeah, yeah.

Dan Ferris: Yeah. That's an interesting way of looking at things.

David Daglio: Yeah. And it doesn't mean, it doesn't mean you should or shouldn't invest, because you want to know what the terms are and how far along, you know, that cycle was. But you know, look, this one's fresh in my mind. If you go back and read Amazon's press release in 2000, it was late 2000, the stock is down about 80%.

Bezos gets on the call, and said, you know, he said, "We grew our gross profit," which at that point was the key metric. "We grew up by 80% year over year. The business is firing on all cylinders. We're continuing to invest. But we're going to slow down capital, because frankly, we don't see the money coming in, and it's going to be harder for us to raise capital than it was, you know, two years earlier."

If you had just read that press release, and not thought about anything else, you would have said, "That's the finest company in the world." The problem is you had all this noise around you, right. And so I would argue there was a capital imbalance in that good companies were not getting funded in '01, '02 in tech, despite, you know, near perfect financial statements. So it doesn't have to always be in things that are really troubled. They could be performing well. You know, that skepticism is really important. But if you had, you know – and you can do this as an individual investor.

So let's talk about my favorite TV character, Dan, which is Spock. And what was, what was so awesome about Spock was that he, you know, everyone else was like, well, I feel this, and I think this, and Spock would say, "But here are the facts. The facts are Amazon grew their top line by 80%." You know, what does that really mean? How could we do that if you can buy this at three times normalized profits, growing profits at 80%, Spock would say go, let's go land on that continent or that planet. And none of the history would have mattered.

And so I think the more we can get ourselves to think like, you know, kind of good Spock, not the mean-spirited one, but really the one that was trying to get the captain and everyone to make good choices, I think we end up with better choices as humans.

Dan Ferris: We do. That sort of ignoring history is hard for people, especially when it's been – like right now, I think it's hard for people not to believe that all the big money they're ever going to make is in large cap tech stocks. You know, that's, that's all they're ever going to need to do.

David Daglio: Yeah.

Dan Ferris: Just find the Nvidia, find the next Amazon, find the next whatever. And that idea has just – it's worked too well for too long. And, and it's, you know, when you can buy a company with a, you know, multibillion dollar market cap, and see it go up 200% or something, you know, people start to think that's normal, and that you can do it often. And, you know, I think I think they're going to learn otherwise, but maybe not, like we said, maybe not this quarter.

David Daglio: Yeah, yeah, I mean, look, we on the market is always trying to make the most amount of people wrong at any given moment. Let's say that statements true. If that's true, this is the greatest consensus trade I've seen in my, in my lifetime. We can, we can measure this in flows. We can measure this in relative performance. Now, there's a good story behind it, like all consensus items have good stories.

Dan Ferris: Oh yeah.

David Daglio: The profit growth in Nvidia is incredible.

Dan Ferris: Yep.

David Daglio: So there is a good story, I understand the story, but it is at this point, you know, very much, very much in consensus, and that would make me nervous, at least starting to like, you know, at least take the foot off the gas, and at least start to say, hey, look, is there some place you know, we can go better? And like, you know, where we led the call, boy to me, owning a few gold miners, you know, that are yielding four with 15% returns on capital kind of makes sense to me, you know, as a way to barbell the portfolio.

Dan Ferris: Yeah, absolutely. And, you know, to your point, like bubbles are rooted in reality. They just go way too far. Sure.

David Daglio: Yeah. Yeah.

Dan Ferris: So we are we are at our point where we ask our final question. And it's the same question for every guest, like, no matter what the topic, even if it's a non-financial topic, which it is occasionally, exact same question. And that is simply: if you could leave our listeners with a single thought today, what would it be? What would you like it to be?

David Daglio: If I could have told myself one thing when I started this profession 30 years ago, so 30 years, every single day tens of thousands of management meetings, literally building maybe 100,000 models, having teams build it for me working with some great investors getting to, you know, I met Charlie Munger before he passed away, I think there's one thing I would have spent more time on. And it was where your questions were going, Dan, which is, you know, understand, how you feel, how your own humanness, you're a sapien, how that interferes with your good decision making.

And it could be something as simple as just going to your closest friends, you can do it tonight. I always use my spouse, Christina, and I just say to Christina, I go, can you tell me what my biases are? Like, you know how I think about politics. You know, what I'm looking at. Where do you think my biases are? And then really just write them down. Understand them. And some of those are winning attributes. Others of those are maybe going to, like, I'm probably a contrarian too often. Right? So I need a checklist that slows me down from being a contrarian.

And that's fine. That's who I am. So that I know that not every contrarian idea is the right one. Sometimes, the markets right. So it took me 30 years to figure it out, that my psychology classes were maybe more important than my Finance 101 classes.

Dan Ferris: As we all do. The market forces that knowledge and wisdom upon you, doesn't it?

David Daglio: Yes. Yes.

Dan Ferris: It's universal. But that's a great answer. Thank you. And thanks for being here, David. It was really, really a lot of fun to talk with you, I have to say.

David Daglio: Great, great. I enjoyed it. Thanks for your time.

Dan Ferris: All right. And we're definitely going to be inviting you back, so look for that e-mail in, I don't know six or 12 months or something.

Corey McLaughlin: Talk soon, Dan.

Announcer: Opinions expressed on this program are solely those of the contributor, and do not necessarily reflect the opinions of Stansberry Research, its parent company or affiliates.