Episodes

Announcer:                 Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research.

Today we'll talk with Chris Retzler. Chris manages a small-cap growth fund for Needham Asset Management. The fund has done great since the COVID bear market bottom, roughly doubled off of that bottom. I'm real curious to see if Chris is excited about any new small-cap ideas today.

This week in the mailbag, listener Romeo B. has a question about acquisitions, listener Taylor S. asks about aluminum of all things, and Lance K. says he loves our interviews, but he's disappointed in me.

In my opening rant this week, I want to talk about bonds and the relationship between stocks and bonds. That and more right now on the Stansberry Investor Hour.

Bonds. Why talk about bonds? Well, a lot of people are talking about them because if you just look at the benchmark 10-year Treasury yield, it bottomed out around 40 basis points last summer, July if I'm not mistaken, just eyeballing a chart here.

And it's continued. It's close to 1.5% now. So that's a little more than a 100-basis point move, just about a tripling, a little more than a tripling, of the yield off the bottom.

So does that mean anything, and if so, what? My view of this right now is really not an answer. It's a question. I've been thinking about this, and I thought I had an answer for you, but I really just have a question. And my question is just what I asked you: What does this mean?

Specifically, does this mean that the bond rally is truly broken and that we finally have topped out in the bond market and now you should be short Treasurys? Because certainly being short since last July was the thing to do.

I even did a trade. I tried to do a little countercyclical trade and be long the TLT. Ticker symbol TLT is the longer end of the yield curve, the 20-years-and-longer Treasurys. And it didn't work. We exited minus 2%. It wasn't a big loss or anything, and my other trades in the Digest were plus 100% or plus 200%. They did gangbusters.

But I got that one wrong. I should have just stuck with the trend, and then I could have shorted from – the TLT was in the $150s then, and now it's below $140. That would have been a nice little short.

So what do you do now? And that's all I have is a question, and the question is this that you need to ask: Is inflation really kicking in here enough to keep yields higher now, or can the Fed crank up the money printer and go into the bond market and buy, buy, buy and press yields back down lower?

That is the question, and I think it actually is an important one. At first, I was thinking, "Well, maybe this move doesn't mean so much." If you look at it in the scheme of things since whenever you like, since the '90s or since 2000 or something, it just looks like it could be another little dip back up in yields before they sink even farther and who knows, maybe even go negative, just like they have in Europe and Japan, right? That's one way to maybe look at it.

Or is this it? Is this when inflation finally comes back, and this is the telltale sign? My guess is we're going to see lower yields in the near term and that there will be kind of a rally, just call it a rally in bonds and maybe stocks in the near term.

But longer term, there is a question there that needs to be answered, and certainly I think it's a no-brainer not to hold too many Treasurys, right? I think that's a no-brainer because even at 1.5% – you lend somebody $100, let's just say, for 10 years and they're going to pay you $1.50 a year and then give you your $100 back?

Oh, boy, that's real sexy, isn't it? That sounds like a crappy deal, and it is. Inflation will turn it negative in real terms, right, likely without question. So there's something to think about there.

Now the other thing I mentioned I want to talk about was the relationship between stocks and bonds, and all I have to say is this. Even Warren Buffett in the past couple years has made one of these statements like, "Well, if yields stay this low – if bond yields stay this low, stocks are really cheap."

And I want you to think about what this means. Bond yields are the lowest they've ever been since forever. In 5,000 years of data, they've never been this low. So bond prices are at the 100th percentile, as expensive as they have ever been relative to all of history, all of recorded interest rate history.

So is Buffett telling me that that's the asset I want to compare equities to? Equities are attractive relative to the most expensive thing not at this moment, but in all of time, in all of recorded history, the most expensive thing in financial markets anyway, right?

I just think that's a little bit bonkers. I don't think you can look at stocks and say, "Well, hey, man, if they're 25 times earnings, that's a 4% earnings yield. It's a heck of a lot better than 1.5% on the 10-year Treasury, right? So it's a good deal."

No, no. I do not think that's how it works in the real world, and I think we're going to learn that lesson in a big, hairy, scary, painful way, especially if the Fed tries to keep stabilizing and suppressing rates, if they keep printing and buying bonds, and printing and printing like crazy, and buying new debt from the government, which the government will then go and spend on new stuff.

I just think the more the Fed tries to suppress, the worse the ultimate consequences. I think if they let the market adjust and do its thing without too much interference, things may be volatile. Things may get hairy now and then. But they won't be an utter disaster like it was in 2008 and like I think it's going to be within the next few years here.

I just wanted to tell you those two things real quick about bonds because I think it's a good question to ask, that question: Does this move up in interest rates since last July mean that things are different permanently, or is it just another blip in the endless sinking of yields to zero and below?

We'll see. We'll find out. And of course, the other question is can you really say that stocks are cheap relative to the most attractive financial asset in the history of all time, of all recorded history? I don't think you can.

All right, I'm going to do my quote of the week now, which comes from a guy named Felix Dennis, who wrote a couple of books. One is called How to Get Rich. The other one is called The Narrow Road, and this quote is from The Narrow Road. And they're both about making money. Dennis was an entrepreneur. He was a publisher. He published Maxim magazine, among other things.

And he is just a really fun, interesting guy. These books, they're not too long, but they're very entertaining, and I think they're excellent reads. I highly recommend both of them, The Narrow Road and How to Get Rich, by Felix Dennis.

And In the Narrow Road, Dennis said, "Tenacity will eventually trump all other qualities, whether inherited, acquired, or mimicked. Anyone prepared to dedicate themselves and persevere in the getting of money will eventually succeed. To such a person, the odds of success are meaningless." Felix Dennis from The Narrow Road.

And I found that last sentence particularly interesting: "To such a person, the odds of success are meaningless." It really characterizes the kind of drive that – you can name a famous entrepreneur like a Steve Jobs or somebody. They just have this drive that will not quit. They will not ever quit. They will get where they're going.

And I think investors have to have that same kind of drive. Maybe it doesn't have to be so intense, and maybe what investors really need to do with their tenacity is not mess with their portfolios too much.

That takes some tenacity when you're having – when you're looking at a 401(k) that's down 30 or 40% or whatever your performance was last March, last year, 2020 March, what with COVID raging and everything, it's hard to stay the course. It's hard to keep yourself dedicated and to persevere, but it's what you have to do. Good quote, good quote from Felix Dennis.

All right, let's talk with our guest. Let's do it right now. If you have been listening to this podcast for any length of time, you know I don't make a lot of recommendations on investments. However, for a short time I will be sharing not just any recommendation but my No. 1 recommendation right now.

This is the one where if you said, "Dan, I'm going to put a gun to your head. You've got to put all your money in one stock. What would it be," it would be this one, easy. It would be the easy decision.

Now my Extreme Value newsletter readers are the only people who can get access to this recommendation, but I did do a video recently to share my story about this company and one of the main people behind it. If you're interested, we sat me down in my house, and they put a camera and a microphone in front of me. So if you want to see me get really, really worked up about one of my investment ideas on camera, this is your chance.

And I am worked up. It's an incredibly cheap stock. I think it can return something like 10 times your money over the long term, over the next five to 10 years, something like that. And I'll tell you in the video why I think it's the perfect moment for this stock. It's the right stock at the right moment with the right management team and right business model. It's awesome.

So if you want to see the video we did, visit extremevaluevideo.com. you've got to get in before it's too late. The video won't be up forever. It won't be up very long at all. Again, this is the one stock I'd put all my money into if you made me do it. The website again is extremevaluevideo.com. Check it out.

Today's guest is Chris Retzler. Chris Retzler is a portfolio manager at Needham Small Cap Growth Fund. Chris originally joined Needham Asset Management in 2005 as a portfolio analyst. Prior to Needham, he worked as part of Merrill Lynch's investment banking division from 1994 to 2002.

Chris focuses on building long-term relationships with the management teams of his portfolio companies and also the challenges of finding undiscovered or misunderstood investment opportunities. Sounds good to me. Welcome to the program, Chris.

Chris Retzler:             Thank you.

Dan Ferris:                 So Chris, I generally ask the same first question of most people in your business because I'm just so curious. I'm always looking to find somebody who is like Warren Buffett and they started looking at the stock tables when they were kids or whatever.

But the question is when did you really start getting interested in investing or the stock market or business or anything that could be said to be the first inkling that your current career was your path?

Chris Retzler:             Well, you're certainly right. I did begin looking at the stock tables at a very young age. My family was interested in investing, which certainly sparked my interest in it. I think it's just always been something within me to challenge myself and be successful, whether it be in athletics, which I had done for most of my young life, and up through college as a Division I water polo player.

I think the markets always have that excitement of winners and losers and putting your best foot forward every day. The markets change every day, and you have to be versatile and flexible. So I think it's been building for many years.

But when I got out of college I did a Fulbright scholarship in Bolivia, and I witnessed while down there a lot of the privatizations in Latin America in the early 1990s. I said to myself, "This is very interesting. How can I get involved in this, but from a business perspective?" And it's what drove me back to begin investment banking in New York City, where a lot of that work for privatizations around the globe in those years was occurring.

And from there it was just a love of working with companies, building relationships, trying to understand the big picture that executives deal with and grapple with every day in running their businesses coupled with how do you finance them and position them for long-term success?

After just under 10 years of investment banking at Merrill Lynch and a short stint at business school at Columbia Business School, I decided to go into our family business for a few years, where I got some good operational background. How do you really work with human resource issues in growing a business?

And then ultimately came back to asset management in 2005 and applying all that I had learned up to that point in doing due diligence, and having to then make decisions where we would invest money, and having to live with those investments for more than just a moment in time, and try to be a long-term investor, try to find value that other investors might have passed over or would be ignoring or, for that matter, just didn't have the patience and long-term perspective to wait as managements work their business strategies and hopefully be rewarded.

It's very easy for people to say they missed a stock because it went up 20% in one day. The real question is, were you there for a period of time where you had that probability every day and you just were prepared for when that occurred?

And I think that that's when people talk about rewarding long-term investors is it's very hard to predict that one-day move up or down, and you have to have good diligence skills and patience to live through that and especially where we are more concentrated investors. Typically our top 10 holdings are anywhere from 40 to 60% of the assets that we manage. You really have to do a lot of work to feel comfortable to make those long-term investments.

So a longwinded answer to a short question, but hopefully that gives you some background as to who I am and how I've gotten to where I am.

Dan Ferris:                 Yeah, and how you think about investing, which that's where we're going to wind up anyway, right? I'm just looking at the top 10 holdings of the Needham Small Cap Growth Fund. I've got the retail class ticker up here, NESGX.

Before we get to the holdings, the first thing I notice is that the thing looks like it has doubled off last year's panic COVID bottom, maybe from about, what, $15. to $29. today. So you've had a really, really great run here, and the chart, it's almost ballistic.

So I'm curious as to how you're thinking about this performance and what could possibly be next for you. Are you worried that the performance is so good recently that it might disappoint over the next 12 months? What are you thinking right now about that, Chris?

Chris Retzler:             So I think you have highlighted a success that we've had probably over the last couple years, but took advantage last March where we had prepared for some retrenchment in the market and had maintained a nice cash position during the month of March that we were able to deploy on many of those very difficult down days.

One thing you need to add back to the price that you're probably looking at is the dividend that we distributed in November. So charts for mutual funds are a little bit challenging. I haven't looked at the total return. I think for 2020 we were up just around 72% for the year to date, and the year before that we were up just over 50%. So we've had a very good two-year run.

We have a heavier concentration in technology companies and higher-growth health care names. But they're not stagnant, and I think that that's something that's important when you ask, "Do we expect to have a potential delay or a pullback? Does it make us nervous after two great years?"

We are active managers. We are flexible in the allocations that we make. We have learned over the years to take money off the table in some of our more successful names. And we are in an environment fortunately where I think stock pickers are being rewarded and companies can have very specific company-specific positive catalysts that would drive their stocks forward hopefully even in down markets.

Now it's hard to buy a nice house in a tough neighborhood, but long term we think that those secular growth trends for companies should be rewarded, and we are seeing areas specifically in small caps that should begin to benefit: electric vehicles, autonomous driving, whether it's fully autonomous or not.

I think anybody who's been out to buy a new car in the last few years has probably identified that there's a lot more digital circuitry in a car. It's more like a computer with four wheels. And we think that that trend is going to continue. The sensors for backing up and parking and all those things – that's all driven by technology, and technology that hadn't really been in automotive for a long time.

What we're seeing in the industry is that there's a semiconductor shortage on a global basis. We think that that's a temporal issue. Whether that lasts two or three quarters, that'll be up for debate. But companies are very well-focused on bringing that supply back to a more normal equilibrium.

But we see that as opportunity because how do you get back to that equilibrium? What are the actions of companies during this time period that they would take that would even help to accelerate further technological innovation into automotive as well as the production to make all that?

So semi-cap equipment we think still is very well positioned long term. The stocks have done well. It wouldn't surprise us if there's some continued correction of some of the winners, and this is what we had been saying back in January that we thought there would be some form of a correction some point late February through March. We view that as a buying opportunity for long-term investors.

Our view on the second half of 2021, with the fiscal stimulus that is expected to be put in place and the monetary support from central banks globally we think supports risk assets for the foreseeable future. I'm not saying that there aren't normal corrections of five and 10% that could occur. We think those are healthy for the long-term bull market that we're in.

Dan Ferris:                 So as I read through your bio and hear you talk, I'm struck by something, and I'm also looking at the turnover of the fund, which is listed as 136%. I think this data comes from Morningstar, I'm not sure.

But that's a high turnover, and what I'm wondering is we said that you spend time establishing relationships with management teams, and yet the turnover seems high. You can tell me – if that number's all wrong, then that's fine, too.

You must have some holdings that you're really – you're really concentrated. You've got, what 40 to 60 you said in the top 10 names. That's got to take a lot of work, and I can't imagine you're turning those over really fast. You must be turning over smaller positions faster. Tell me about that dynamic.

Chris Retzler:             So I would only correct you to say that there's about 40 to 60 names in the portfolio total and that the top 10 names represent 40 to 60% of the fund.

Dan Ferris:                 Right, OK.

Chris Retzler:             So we are much more concentrated. Yes, you do highlight something. Turnover is not a focus that drives my daily investment thesis and view. We have seen substantial inflows and outflows through the funds, and I think a lot of equity had seen that over the past year during the pandemic. That does cause higher turnover.

However, what we learned 10 years ago was when you have positions that give you 200 to 300% returns in a very tight, shortened period, generally, it behooves you to take some money off the table, and that's what we have done to protect pretax performance for our investors. We don't like having to remake the money twice in round-trip positions.

But if you do look at let's say our top 20 positions, I think they're pretty recognizable almost every quarter. Where they are in the stack of the portfolio may change a little bit, but we generally have stayed quite consistent in a handful of our names.

Dan Ferris:                 OK, that makes sense to me. So you alluded earlier to one theme maybe that's running through the portfolio – the electric vehicles, autonomous driving, cars are becoming computers with wheels – and you've got a lot of technology in this portfolio.

So I'm sort of wondering, that strikes me as a longer-term theme, and in the past year we've had this really incredible outperformance in the shorter-term themes related to the pandemic, right? The pet companies and anything related to stay-at-home, e-commerce, etc.

Were you involved in any – did you try to take advantage of that short-term – those short-term themes or did you stick to your knitting and you had a great performance anyway? What was your guys' thinking around that?

Chris Retzler:             So I think it's a combination. I will say that we owned Moderna before the COVID pandemic. We owned GenMark, which was a testing company for the flu, before the pandemic. And we had a few other names also that benefited that we were involved with before.

So we had some benefit on that side. We have also found other companies that were exposed to the increased COVID testing, and we still think that those are great opportunities.

I think what COVID did to some of these names is it provided long-term funding for some of the other programs that they need capital to drive the success of those products. And so in the case of GenMark, it pulled forward a lot of sales of equipment that then gets placed into health care settings, and then there's a razor blade ongoing business opportunity. And so companies like that we went looking for, and we had some success.

Other names we saw, specific in health care, is – you had a lot of procedures that were postponed or unable to be done because the hospital health centers had to be focused on COVID. Elective surgeries were pushed off.

But oncology is only something you can push off for so far. Some names that we picked – we bought at the lows recovered over the summer months as those procedures ended up having to be done. Orthopedic is probably one that was last to recover because those are more postponable.

I think where we also benefited and we had already been exposed to was through semiconductors and equipment that drives the infrastructure of communications, storage, processing.

As people worked from anywhere, those demands – 5G, Wi-Fi, software businesses that you could work from home, the way we're communicating right now – how many different types of products are now readily available and are used daily in the business world that never had been used before? Schools, how they were able to quickly adapt.

So a lot of it was technology pulled forward and then put in place, but I don't see that contracting too much. There will be some contraction as individuals go back to a workplace setting in some potentially modified manner than it was before.

I personally have found myself to be highly motivated and more efficient based upon my location at this point in time where I can expand my work hours by multiple hours and be highly more productive in talking with companies, listening to quarterly calls, speaking with analysts.

In all of our past investments with semiconductors, it all led to – they were beneficiaries. And so we still think that there's great opportunities there, and I don't think that this trend is over.

Dan Ferris:                 Oh, cool. I've got a question totally out of left field. It doesn't follow on anything you just said, but I'm curious. I'm curious if you guys have any kind of a top-down view of the world. I know you said you expect stimulus to continue and to push markets up.

Do you worry, as some of us are, that we are in a bubble? Stocks could crash. They're way overvalued. Is any of that in your thinking as well?

Chris Retzler:             I definitely take a macro understanding when we do look at the portfolio management of exposure, the portfolio being made up of individual stocks. So being a bottom-up investor, we do keep macro as a part of our thought process, but we still invest in good companies even if things may look tough.

With regards to whether we're in a bubble, I do believe there are some areas that feel extended. With interest rates on the short end of the curve as low as they are and the Fed telling us that they will remain that low for an extended period, what we are witnessing is an increased yield curve steepening for the 10- and 30-year bonds, which is sniffing out inflation.

And with fiscal stimulus, if it's at $1.9 trillion, and really not much of it truly focused on COVID and funding other programs, none of which quite frankly generate long-term economic benefits, it is inflationary.

It is something that we are monitoring. The bond market generally is smarter than equity, and so we look to the bond market to see if there's any dislocation and whether there's any sort of a tantrum in that market that would bleed over into the equities.

I think currently we're moving through a period of where it's being digested that the yield curve is being repriced on the long end. But again, as I mentioned earlier, the amount of monetary and fiscal stimulus out there I think is supportive of risk assets.

So my view to the second half of 2021 is substantial economic growth, whether that can continue into 2022 yet to be determined, probably not at the same growth rates that we will see the second half of this year.

But we do have a new administration in place obviously, and we have a Democratically controlled Washington, D.C., at this point in time that I do think you're going to get some progress in certain areas. Alternative energy could be an area, and under that again we would include electric vehicles, potential infrastructure buildout for that growth.

We could also see other alternative energy programs through regulation that would drive greater use of wind or solar or infrastructure, but infrastructure would be very welcome, in my opinion.

I think when looking at Texas and what happened down there with a shock cold freeze that came through, it highlighted the fact that the infrastructure may need to be reevaluated, and I don't view that negatively. After watching the Macondo offshore oil spill, what that actually ended up doing was creating a lot greater safety within the oil and gas industry.

A lot of good came out of that from the technological advancement, and I think that you're probably going to see some of that now after Texas highlighting where some of the vulnerabilities are in infrastructure, power, pipelines, and other things.

So I do remain bullish. I wouldn't bet against America. I think that with the right policies and the right investments there's always a lot of opportunity in the United States, and I think we're going to see that over the coming years.

Dan Ferris:                 OK, so at the end there you're sounding very much like Warren Buffett. Actually, he has that line in his latest shareholder letter. And I'm wondering, in his case they have these four criteria that they always tell you about: We want a business we understand, a management team we like, a sustainable competitive advantage, and a good price.

And I'm wondering what are your bullet points, whether there are three or four or 10, that you look for as you look bottom-up for the misunderstood, looked-over opportunities? I guess the ultimate question here would be how do you pick stocks? Are there certain markers that you look for in every opportunity?

Chris Retzler:             That's great. Look, I certainly can't disagree with the greatest investor in the world, but the funny thing is I used that phrase, "Don't bet against America," in an article last summer. So maybe he read my article. I don't know.

Dan Ferris:                 That's right.

Chris Retzler:             But I would say, first and foremost, one of the biggest items that we spend an inordinate amount of time within our diligence process is getting to know management and building relationships with management. To be a concentrated investor with a focus on small-cap companies, it really is imperative to get to know your management team.

A lot of times when small-cap companies are going through growth phases, to the common investor it might look like things are really falling apart or cash flow is going the wrong direction when in fact it's telling you that there's significant growth on the horizon.

As a long-term investor that's an opportunity to put money into the company, and so to really understand that and be able to be with a credible management team is critical on that front.

One other item that I would add different than – add to what you mentioned of Buffett's four tenets of investing, with technology one thing you have to very careful with and get comfortable with is does your company have a technological moat? And whether that moat is for technology or services, I think, is very important.

Semiconductors and semi-cap equipment generally have very strong technological moats. There aren't many companies out there that typically do the same thing. There may be two or three. But it's not like you see new entrants into this space that will challenge those margins. It's just too capital-intensive for companies to catch up to where that technology is.

You look at companies on the services side where you have a lot of telemedicine right now, and you try to figure out... is there a technological moat to the services they're providing? Or is it very easy to companies to come in and create?

I don't think that there's an answer yet on that. I think it's still being discussed in the marketplace. But what we do know is telemedicine is challenging the traditional medical system, and it's got very good growth trajectory.

I think what you need to find is the right management team that's going to be able to grow organically or grow through acquisition and do it in an appropriate manner that causes them to become No. 1. I think back to Amazon over the years, of all the naysayers who just never believed that they were going to get to where they are.

Now when you break down what Amazon is and all the different businesses, it's just amazing. No one I don't think could have imagined that Amazon would be the company it is today say 15 or 20 years ago. But that's quite frankly a very creative and flexible management team that was highly capable.

So a longwinded answer. I would add technological moat and being able to defend it. You see that a lot in health care, so that's why we like health care technology companies.

Dan Ferris:                 Chris, could you give us an example of one that has a technological moat that you really like that's in the portfolio now?

Chris Retzler:             Yeah. I would say again, as I mentioned earlier, semi-cap equipment. Semiconductors have been manufactured for decades, and the processes and equipment that's used is very technical. One of our holdings, Photronics, makes photomasks, and those photomasks are used in the production of semiconductors and also flat panel displays.

And the technology is very technical. It's not a type of business that you would see someone go out and recreate or try to start at this point in time.

And so with the demand of semiconductors and the supply constraint that the pandemic put in place starting last spring when people canceled orders, and they were already running on a tight supply, what we're seeing now is a pull forward... and a demand even to the point that President Biden signed an executive order to try to tackle the supply constraints of semiconductors, which quite frankly is a longer-term problem, but one that's being solved by the marketplace.

We're going to see most likely Samsung and Taiwan Semi potentially build a semiconductor factory in the United States in the Lower 48 for the first time in a long time. That's very positive and very bullish for the American economy that we would be potentially bringing home our supply chains.

Pharmaceutical supply chains should also return. The disaster that occurred in Puerto Rico in the early 2000s when pharmaceutical manufacturing was driven out to overseas and the pandemic has highlighted the strategic importance and national security to bring those businesses back.

So I think that those are two areas where there's a lot of technology and a technological moat that can be highly defended.

Dan Ferris:                 Nice. Maybe I could just ask you if you've got one more example. Chris, is there a company that you're holding now that you really like as a current opportunity? I know our listeners are thinking this. That's why I'm asking. I know they're thinking, "Hey, Dan, ask this guy what stocks he likes to buy right now." Is there one that you can tell us about?

Chris Retzler:             Sure. I can add two because I just gave you one in the last segment there, Photronics. But I also would highlight a name that has just brought in a new CEO, and it's called Limelight.

It's a smaller company compared to Akamai, also in the space of Fastly, which many investors have heard, that did very well last year and has been – the whole sector has been somewhat correcting since the last summer months.

But I feel very strongly that Limelight, now with a management change and a new CEO who I have spent time with, I think, understands the challenges for the business, the changes that he needs to make going forward.

We have yet to hear the full business plan, but I think they have identified areas where they had been weak, and it's a company at this point in time that has been, in my opinion, abandoned by the investment community and has become a "show me" story.

What it does is it does content delivery over-the-top, so things like Peacock and Discovery Plus and all these over-the-top offerings, Disney+, that we've been hearing about. Content-delivery networks help to expedite that delivery.

I think that that is going to be a continuing business opportunity as the overall entertainment industry changes, and we think that now with a new CEO in place that at these low levels, in the low $3s, that there's a great opportunity for someone with a longer-term horizon of investment.

Dan Ferris:                 All right, thank you for that. That's awesome. So I've got one final question for you, Chris. This is my same question that I ask I think just about every single guest I have interviewed in the past couple years. Just thinking of our listener, if you could leave our listener today with just a single thought, what might that be?

Chris Retzler:             I would say hopefully your listeners are investors, so they can take a longer-term viewpoint. I am a firm believer in dollar-cost averaging, which helps to take some of the emotion out of investing, and I think you have to invest with conviction.

Again, I think back to what Buffett said: "Invest in what you know." We try not to invest in companies that I don't have a lot of experience with or industries that I'm not as close with.

I think that's been a great part of our success is what is our moat? What is our investing moat that allows us to be successful? And I think that that's investing where you are able to do your best homework. Stay focused from that perspective. I wouldn't let what you see on media or TV – and that you chase.

Again, I played water polo in college, and you always wanted to go where the ball was going, not where it is. How did you make a play? It was by predicting what the field would look like and then being there.

And I think investing is that same thing. You're really chasing, and very disastrously I think for many, as we have witnessed in the last month with some of the names that have been moving around really with almost no fundamental analysis done.

So that would be my advice to investors is invest in what you know and do it with confidence, but also be flexible if things don't – if things change, always be processing that to be flexible in your investment thesis.

Dan Ferris:                 That sounds good. I'm getting shades of Peter Lynch in that. Invest in what you know, and don't get scared out of it unless things change. Great.

Well, thanks for that, Chris, and thanks for being here. Thanks for taking time out and talking with us today. I sincerely hope we'll get to do it again sometime. I feel like I learned a lot from you.

Chris Retzler:             Perfect. Well, thank you very much, and hopefully the market moves through its pullback here. I think the end of 2021 here, there's just so many positive things on the horizon that really excite me.

Dan Ferris:                 Sounds good to me, man. Thanks again for being here, Chris.

Chris Retzler:             Thank you. Bye-bye.

Dan Ferris:                 All right, that was really cool. I love talking with – we should get more of these small-cap growth manager guys on here because they've always got plenty of ideas and plenty of stocks they want to talk about. We got at least three of them, Photronics, Limelight, and one other one that somehow I can't even remember.

But anyway, we got plenty of ideas from him, and that really – I know that's what you want, I really do. I know that's what you want: "Give me a stock. Give me a ticker." And Chris certainly delivered today.

All right, cool. Let's take a look at the mailbag. In the mailbag each week you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms please to [email protected].

I read as many e-mails as time allows, and I respond to as many as possible. Or you can give us a call at our new listener feedback line. Call us at 800-381-2357, and tell us what's on your mind. That's 800-381-2357.

No good calls this week, but we got plenty of e-mails, and the first one is from Romeo B. Romeo B. has written in before. Thank you for being a consistent listener and correspondent, Romeo.

And he says, "Hi, Dan. I found this online gambling stock which has a lot to like. However, I was concerned by the slow but steady reduction in profitability over the years. So I contacted the company to ask whether acquisitions had anything to do with it. They're doing one almost every year.

The CFO came back saying the main reason for lower gross margins is more markets being regulated locally, that is, gaming taxes being increased and that hopefully mergers and acquisitions had a positive impact on return on equity, otherwise they had done something terribly wrong.

I like the first part of the answer, but the second part not so much. And I find that whenever I ask a company about acquisitions, they're not being helpful.

So my question is how do you determine whether a company has made a sound acquisition? For this particular stock, the financial statements' footnotes give the EBIT multiples," that's earnings before interest and taxes, "... paid for at the time. And they seem very reasonable, but the company does not report how these businesses are doing individually now that they have merged.

Thanks for the podcast. Looking forward to it every week. Romeo B."

A couple of things here, Romeo. First of all, this is a great question, and it's not easy. There are a lot of companies out there who are taking advantage – some of them are taking advantage of low interest rates and they borrow money to buy other companies, or they're just taking advantage of the fact that their stock price is so high because interest rates are so low and they can use it as currency.

And I looked at acquisitions in general – mergers and acquisitions in general years ago, and it seemed like net-net in the end, acquisitions are a negative, generally speaking, on average.

So I'm always skeptical about acquisitions, but I also have to recognize that a lot of companies are good at it. Now you haven't said what company it is, so I don't know if they're in my bucket of companies that are good at it or not.

First thing you do is what are they buying specifically? Are they staying in their lane? Are they getting too far outside their core competency? You have to know that going in.

What do I think this company does really well? Are they making that better and stronger or adding to it in a way that makes it better and stronger by doing the acquisitions? What are they buying? Is it a gambling company that's buying car dealerships or something crazy? That would be an absurd example, but you get the picture.

Second, if it's a publicly traded company that they're buying, check out the financials and determine – you seem to be a pretty savvy guy. You're looking at footnotes and EBIT multiples and things.

Determine, if it's a public company, whether or not it's a business you'd want to own permanently and buy 100% of, or if it would be just a trading vehicle for you. If they're buying 100% of it and you view it as not such a great business, there's your answer.

A lot of the times you don't get the kind of transparency you want because maybe it's not a publicly traded company... and in the press releases and all the details that are made public about the acquisition, you just don't get a lot of detail. In that case, as you pointed out, they don't break these things out. They just merge it into the business.

So you've got to look at whatever segment of the business that it's going into and keep an eye on that. You may not get your answer right now. You may have to wait for your answer. But you can keep an eye on the quarterly results of that segment.

And another thing is that management, generally speaking, will tell you what they expect. There will be various costs related with this, $10 million next quarter or $30 million the quarter after that or whatever.

Write that down and go back to it. If they said it'll cost them an extra $50 million to integrate the business or something and then it winds up being $100 million and taking twice as long, then there's your answer, too. And those things, they unfold over time, so you might be able to see them coming if you keep an eye on them.

Companies that are good at acquiring, they're special. We have a few of them in Extreme Value, and they tend to stick to their guns. They stick to their business. They don't go outside of it. They buy good management teams that run a good business, and they tend to leave them alone, we find.

Lately, we found two or three of these where they acquire the business and they kind of just leave it alone and let it be. They even sometimes will leave the brand name intact and not necessarily put their corporate brand name on it.

Just a few thoughts for you, Romeo. That's all I've got for now. But it's a great question, and it's definitely something to think about.

Next comes Taylor S. Taylor, we were talking – we got a question in a previous episode about what a bitcoin transaction looks like. Taylor says he thinks he can simplify it.

"A business-to-consumer transaction may look like this: A consumer buys a small coffee for three Satoshis, which is a hundred-millionth of a bitcoin, and most likely through your phone or a point-of-sale system using QR codes linked to your personal wallet and to the coffee shop wallet." He says, "P.S., this exact scenario is possible right now."

He was just making it more concrete about what a transaction looks like, and you recall I was focused on the value of bitcoin before, after, and during the transaction. I thought it's so volatile. It's just kind of strange to think of using it as a currency.

Then Taylor S. says, "As a millennial, I have to say I'm pretty bearish on gold and silver long term, still far less bearish than USD. I understand why people use it," meaning gold and silver, "... as a hedge, but I can't imagine future real-world use for it in my day today." Oh, "in my day-to-day," meaning his day-to-day activities.

"I don't know how to validate its purity, how to find someone to smelt it down so I can exchange it for goods. I don't even know how I would go about selling my physical gold or silver. Take it a jeweler or a pawnshop, I guess?

I understand this is a very contrarian idea, and I'm going against thousands of years of history. But, hey, that's just me. I would be curious to see if anyone shared my thoughts."

And then he finishes up with this question, he or she. I don't know if Taylor is a he or she. "Could what happened to aluminum ever happen to gold or silver? Taylor. S."

Taylor, you've got a lot of thoughts in this e-mail. I appreciate that. I like that. And it's not super long, but it's got a lot of stuff in it. So gold or silver long term, I think there's massive Lindy effect, right? When something has been around for 5,000 years, there is a high likelihood it'll be around for thousands of years more in the same role as a store of value.

And as far as selling your physical gold or silver, yeah, you can take it to a jeweler or a pawnshop. You can also take it to a gold or silver – a coin dealer. They usually sold gold and silver and buy gold and silver coins. Any place that sells gold and silver coins is going to buy them.

And as far as being bearish, I don't share your viewpoint, but this question you have, it says, "Could what happened to aluminum ever happen to gold or silver?" I'm not sure what you mean. I'm going to assume – and correct me if I'm wrong, Taylor. Write back in, [email protected].

But I assume you mean aluminum is cheap, right? It's abundant and cheap. In fact, it's the most abundant metal in the Earth's crust, aluminum. It's like 80,000 parts per million according to three or four sources that I checked out.

Gold, according to two or three sources, was between 0.0011 and 0.004 parts per million, and I didn't look at silver. So gold will never be as abundant pound for pound as aluminum. I'm pretty confident of that. And not all that gold is available. It's not all gettable and minable. But that's a function of technology, and you never know. The technology can change.

I hope that answers your question. I don't think aluminum and gold and silver are the same in that regard. But it's an interesting question. Thank you for it.

Next is Anthony H. He says, "Longtime listener and brand-new subscriber to Extreme Value. Love the show." Well, welcome to Extreme Value, first of all, Anthony, and thank you so much. I hope it's the beginning of a long and fruitful relationship for you and I.

Then he continues. He says, "You touched on it in the previous week's mailbag, but really struggling to see how gold will surge over coming years and feel like the rally is over. Without extreme fear, what would make gold rise? Is bitcoin really taking the place of gold? The Fed will never admit to inflation despite all the evidence around us.

I realize no one has a crystal ball, but what catalyst do you see for rising gold? Keep up the good work. Anthony H."

Anthony, we don't need lots of fear for gold. I don't know right up to this minute, but on a previous show I looked at the long term, ever since the gold standard was officially, finally completely ended in August 1971 by Richard Nixon, and from that $35-an-ounce price to recent prices, I think we said it was a 50-bagger or a 40-bagger, some huge bagger, right?

It certainly never saw $35 again, right? And from the bottom in 1999, we're not going to see $250 again, and even the more recent bottom in it must have been, what, 2011 to 2012? I'm sorry, not 2011 to 2012. That was the peak. The bottom would have been late 2015, early 2016, right around the turn of the year, as I recall, around $1,000, a little bit over $1,000.

So over time, gold is doing what we expect it to do. We don't need the Fed to admit inflation. We just need reality to acknowledge – reality will acknowledge inflation, and it has. That's why gold is close to $2,000. It's $1,700, $1,800 lately. So the evidence is all around us that there is inflation because gold keeps rising over the long term, even if it doesn't in this very cyclical way.

And I said, "I realize no one has a crystal ball, but what catalyst?" You're looking for a catalyst. Inflation is the catalyst, the ongoing degradation of the U.S. dollar. They printed $3 trillion of them last year. They're debating a $1.9 trillion new stimulus package in Congress, and it's not anything mostly to do with the COVID virus.

It's a bunch of the current administration and the current ruling parties' pet projects that have nothing to do with COVID. They're paying off the teachers union because that's their biggest constituency, and they're doing a whole bunch of other stuff.

But that money has to come from somewhere, and it doesn't all come from taxes. We don't pay that much in taxes. So they print it. The government sells Treasury securities to the Fed, and then the Fed prints the money to buy them.

That, over time, will continue to make gold go up, and I feel like the – gold went to $2,000. Then it backed off, and we've been in the I think $1,700s lately. Obviously, I'm not up on the minute-to-minute price of gold. I don't worry about it at all.

But, yeah, sure, it backed off from its all-time high above $2,000. I don't think we're anywhere – it's anywhere near over. I think we're looking at five to 10 years of higher gold prices, and I think it'll probably culminate in a big blow-off where gold will soar. Gold-related equities will look like – they'll look like tech stocks did over the past year. They'll go ballistic.

Great question, though. Glad you asked it. I feel like it's kind of a softball because I'm really into gold. Thank you.

Dave B. is next. He says, "Hey, Dan. Love your show. I've been a listener and subscriber to your and Sjuggerud," that's Steve Sjuggerud's True Wealth letter probably, "... for a couple years. Real quick," he says, "... people don't realize that Berkshire Hathaway owns a few jewelry chains, and I was in there the other day. Lots and lots of it is precious metals, at least in the store I was in.

I would find it hard to believe if Buffett has not told them to load up on gold, silver, platinum, etc., at the same time he bought stock in Barrick. He could do so in secrecy and not be broadcasting that position. That's it. Again, love the show. God bless, and be well. Dave B."

Thank you, Dave. I love your kind words about the show. Keep listening. As far as Buffett telling – we're speculating here. I've just got to say that upfront. We're speculating. We don't know.

I would kind of doubt that Buffett went to his jewelry chains and said, "Load up on gold, silver, platinum, etc." because I bet you he knows that those people know the precious metals markets 10 times better than he ever will, right?

He may have economic views that they don't share or something, but I would bet that there's more than one gold bug in those jewelry stores running Berkshire Hathaway's jewelry stores.

So I probably would disagree with you. I would bet that he didn't say anything and didn't have to because they probably already knew. Maybe they told him.

But it's a good question. It's a good thought. It's an interesting thing. I don't know. Who knows what Buffett is telling the management? Generally, he's pretty hands-off, and he makes that clear. Every annual meeting and sometimes in the annual letter, which just came out recently.

Well, that's another mailbag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did.

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Until next week, I'm Dan Ferris. Thanks for listening.

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