As a new investor, it’s easy to feel intimidated by the sheer volume of financial data that’s out there…
But the truth is, you can make a ton of money in the stock market, without spending hours per day researching stocks… or reading hundreds of books on different investment strategies…
On this week’s episode, Dan invites Harris Kupperman onto the show to explain how.
Harris is the founder of Praetorian Capital, a hedge fund based in Florida with a long track record of market beating performance. He’s also the Chief Adventurer at AdventuresInCapitalism.com, an investment blog uncovering unique opportunities around the world.
Today, he visits to talk about his shockingly simple way of investing that has a long history of producing incredible gains…
Harris says he doesn’t concern himself with interest rates…
He doesn’t care where the next 50 BPS on the 10-year treasury yield is going…
Or what the Forex rate is going to be…
Instead, he looks for microtrends that are happening in society – ones that are obvious once you spot them – and then he identifies the safest, highest upside way to play them.
And he’s not going for 20% or 50% gains… Harris is looking for stocks with the potential to go up 5x to 10x higher…
During the interview, Harris shares two stocks with Dan that he’s identified that are poised to grow rapidly, thanks to some of these microtrends happening today.
When he explains the microtrends, and the stock that are positioned to benefit, you’ll be surprised that these stories aren’t front page news…
Founder of Praetorian Captial
Harris Kupperman is the founder of Praetorian Capital, a hedge fund focused on using micro trends to guide stock selection. Harris is also the chief adventurer at AdventuresInCapitalism.com a website that details his investments and travels. Additionally, Harris is the Chairman and CEO of publicly traded Mongolia Growth Group.
1:31 – Dan asks the question, “What does it really mean to be a long-term investor?”
6:12 – “An investor has to tell himself the right story at the right time, and it has to be the opposite of what journalists, and people who sell books, and people on CNBC, and people all over the internet are telling you…”
8:52 – Dan shares some wise words from Warren Buffett on this episode’s quote of the week… “I wouldn’t buy any stocks I wouldn’t be happy owning if they stopped trading it for three years. If you can find companies that you will want to be an investor for in 5 or 10 years, you’ll probably do reasonably well.”
11:30 – This week Dan invites repeat-guest Harris Kupperman onto the show for another great interview. Harris is the founder of Praetorian Capital, a hedge fund focused on using microtrends to guide stock selection. Harris is also the co-founder of Mongolia Growth Group, and the Chief Adventurer at AdventuresInCapitalism.com, an investment blog uncovering unique opportunities around the world.
15:22 – Harris and Dan discuss some of the microtrends that are most intriguing today… “People my age had their kids 10 years later than the last generation…”
21:02 – “I have no view on interest rates. I don’t know which direction the next 50 BPS is in the 10-year… I don’t know what the FX rate is going to be. I like the really low-hanging fruit, the easy ones…”
24:59 – The two discuss some of the long-term implications of ESG investing… “ESG is kind of a tax on society in a way… What it’s going to do is cut off capital to a lot of industries that are desperately needed.”
35:04 – Finding the right microtrends is critical… but Harris says identifying how you’ll play the trend is just as important… “I started buying gold when it was trading at $300, and here we are, gold is $1,800. It’s gone up 6 times and GDX has gone nowhere…”
40:47 – “Once you find your trend, you have to really think it all through how you’re going to play that trend. A lot of times you’re able to play that trend with a lot of upside and really minimal risk…”
42:35 – Harris explains why he typically likes to take a concentrated approach in his portfolios… “I usually run with 6 to 12 themes, so a theme could be an individual stock or a basket of stocks… and my top 5 themes are usually 50% of the portfolio, and sometimes as much as 75% of the portfolio…”
43:30 – Harris shares a stock he really loves right now… “The name to look at is Saint Joe, one of the largest landowners in the state of Florida…”
47:50 – “I’m pretty big on energy services… I’ll point you to a company called Valaris, they’re the largest owner of off-shore rigs in the world…”
51:29 – Harris leaves the listeners with one final thought as the interview closes… “I would say that people come into the market too scared…”
56:08 – On the mailbag this week, Dan fields a ton of great questions from listeners. One listener writes in and presents a persuasive argument against electric vehicles… Another asks about which books discuss recognizing and controlling risk in your investments… And another asks some in-depth questions about Dan’s service, Extreme Value… Dan responds to these questions and many more on this week’s episode.
Announcer: Broadcasting from the Investor Hour studios and all around the world. You’re listening to the Stansberry Investor Hour. 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 portfolio manager/entrepreneur Harris Kupperman. We know him as "Kuppy." Kuppy always has some good stock ideas to share and he comes at the market with a really smart, contrarian viewpoint.
This week in the mailbag, longtime listener and regular correspondent Ludvig H. wants to know one sector where you can make a thousand times your money in 10 years. I’ll give you two. And remember, the mailbag is a conversation, so talk to me. Call me up, leave me a message on our listener feedback line, 800-381-2357, and hear your voice on the show.
In my opening rant this week, hey, are you really a long-term investor? I’ll give you a little story about that. We’ll talk about that and more right now on the Stansberry Investor Hour.
OK, let’s give a little example here and talk about what it really means to be a long-term investor. So, I got a bunch of books recently, and one of them is called Dot Con: The Greatest Story Ever Told, by John Cassidy. It was published in 2002, at the bottom of the dot-com bust.
And I’ve just dipped into it. Haven’t read it. I’ve just dipped into the prologue, and he’s got a whole bit about the company now called Booking. Booking Holdings, the ticker symbol’s BKNG. It used to be Priceline, OK? Priceline.com. And he points out the thing IPO’d and then it went to like, I think it IPO’d in March of ’99. It went to like $150 and then crashed to like $2, OK?
And so he’s telling the story of the bust, you know. After the things have crashed to $2 from $150. And he paints a picture of a company that everybody should have known was not worth, I think it was like 20-odd billion at the peak. And that’s right, you know.
The thing was way, way overvalued, and indeed, in their first year, they sold something like $35 million worth of airline tickets. You know, it’s an online booking site. And they paid $36-and-a-half million for those tickets, so they were losing money. And that didn’t include the money that they spent marketing and paying people which took the total loss to $54 million.
Right, so this was a loss-making company. And the market cap was way too high. The dot-com bubble had everyone way too excited about the Internet and way too excited about any company with dot com in the name. And he’s right. And there’s probably some great anecdotes. He’s got a whole book here of stories about the dot-com bubble.
But I’m going to take issue with this, because actually, as a journalist, he did the right thing. He put out a book about the dot-com bust and made it seem like you should have known it all along and told these obvious stories at exactly the moment when you can sell a book like that. But as an investor, the time to talk about the fact that it’s a loss-making company in a bubble is when it’s, you know, in 1999 or 2000 at the peak when it’s $150 a share, right?
When it was $2 a share, that’s when you start talking about hey, wait a minute, maybe we have something here. Because at that price, you know, it’s $2,200 a share now. So they did something right at some point. And if you look at the financials, it’s like, billions of dollars of operating cash flow a year with just tens or hundreds of millions of capital expenditures. So it’s a phenomenal cash -gushing business.
Of course, it got murdered in 2020 by the COVID episode. But overall, travel has come back. I think travel is like, airline bookings are above pre-COVID levels. So, it turned out to be a phenomenal business. It was a phenomenal bet when this guy was putting out a book at the bottom of the dot-com crash.
It’s like writing about Amazon at that time and saying, "You see? We were right all along. It’s a terrible bet." And of course it’s one of the great, you know, greatest bets you could have made ever in your life, was to buy Amazon. You could have bought it at the peak of the dot-com bubble and held on today and gotten a huge multibagger out of it.
So, the question here is, like, how are you doing investing? It’s good to avoid things at the peak. Don’t get me wrong. I’ve made the point several times that even the best businesses, the cash-gushing, great businesses, are terrible deals at the peak of a bubble, you know? They can get creamed 50%, 60%, 80% just like everything else.
And I usually use Cisco as the example because it went from 80 to eight. And it was a cash gushing great business, continued to be one. It continued to grow and be a great cash gusher. But terrible bet when it was 80 bucks, right?
And it hasn’t gotten back to that level, so you would have had to, if you had bought it at the peak and you were a long-term investor, you would have had to buy a lot more, you know, and average across the years to come out ahead on that.
And that’s really the point here. The point is, there’s a couple points. First of all, the time to talk about stuff being a bad bet, a loss-making thing that’s way too overvalued, is when it’s way too overvalued. But when it sinks to $2 a share, that’s when you say, "Hm, this could be something. This could turn out well, right?"
You have, an investor has to tell himself the right story at the right time. And it has to be the opposite of what journalists and people who sell books and people on CNBC and all over the Internet are telling, right? Everybody’s telling a story of how great stocks are and how great companies are and how great the results are and how the world’s opening back up and you know, the vaccine is making everything better.
And people want to say, "Well, you know, the overall market’s expensive." Barron’s had an article. The overall market’s expensive, but the average stock is not overpriced. Whatever. The case, you know, it’s still the truth I think that the S&P 500 is more expensive than it’s ever been in history, and we’re going to get a massive bear market or huge correction of some kind at some point here.
And that’s, you know, it’s when you tell these stories, and when you're thinking about things in terms of fear or greed. I was talking with someone just yesterday. We shot a little video presentation. It’s going to be available soon. We’ll talk about it.
And one of the guys who was filming, you know, who was doing the audio. He said "wow, you talked a lot about fear and greed. That’s really important, isn’t it?" And yeah, people are, it’s really fear all the time. Because at the top, greed is just the fear of not getting in. It’s the fear of lack, right? It’s the fear of loss. It’s the fear of not getting rich along with all your friends.
Or not participating. I don’t even think it’s the fear of not getting rich. I think it’s the fear of not participating and feeling like you’re doing something different from the crowd. And at the bottom, of course, it’s the fear of losing even more.
So fear controls a lot of people’s actions at a lot of times when it shouldn’t. And you’ve got to learn to get around that, when everybody’s scared at the bottom, because you know, we’ll just stay with Priceline. When Priceline sunk from $150 to $2, the thing to do there was not be afraid, and to learn to look at the value and the business proposition, and what the growth prospects were.
All right, so you know, what kind of an investor are you? Are you really a long-term investor or are you being dominated by fear? Fear of losing more when things get cheap and you know, fear of not participating when they’re way too expensive. It’s a good question to ask yourself.
In that same light, I have a quote about long-term thinking from Warren Buffett. It was Money magazine, 1987. My quote of the week. It was actually quoted by Simon Reynolds in his little book, Thoughts of Chairman Buffett, which is a nice little book of Buffett quotes. And the quote is, "I wouldn’t buy any stocks I would not be happy owning if they stopped trading it for three years. If you can find companies that you will want to be an investor for in five or 10 years, you’ll probably do reasonably well."
I’d go even farther. You can do really awesomely well if you stick with them, you know, for five, 10, 20 years. Right? Equity is a long-term, it’s long-term capital. It’s permanent capital. You put your equity in, and the business takes it and runs with it and gives you a return on equity. That’s what, you know, over time your returns should converge to that number, that return on equity.
So, you get a great business that’s doing 20%, 30% on equity and stick with it for a long, long time, and it continues to do those numbers, you should make that much. And if you’re willing to, like Buffett says, if you’re happy owning if it’s stopped trading at all for three years, that’s a long-term investor. And that’s how you’ll do reasonably well.
All right, let’s talk with Kuppy. Let’s talk with Harris Kupperman. Let’s do it right now. [Music]
Last week, I invited visionary tech analyst, crypto guru, overall smart guy, and my friend Eric Wade onto the show. We talked about an array of topics, including the volatility in cryptos. If you missed last week’s episode, you can catch it at investorhour.com.
But today, I want to let you in on something Eric just discovered. It’s this super-trend fueling one of the biggest transfers of capital the world has ever seen. Right now, the smartest minds at Tesla and Apple are working to upgrade American energy using this radical innovation that Eric is calling "freedom fuel."
It could lead to the single largest creation of wealth of your lifetime, worth $16 trillion. Imagine an energy innovation so powerful that it will strengthen our nation’s electric grid, help replace gasoline and U.S. dependence on oil, fuel the economy, and power every home in America.
At the moment, it’s rolling out to more than 35 states from California to Texas to New York. Get the full story at usafreedomenergy.com, and find out how this technology is set to explode 250,000% by 2027 according to the World Economic Forum. That website again is usafreedomenergy.com. [Music]
Today’s guest is Harris Kupperman. Harris Kupperman is the founder of Praetorian Capital, a hedge fund focused on using microtrends, we’ll talk about that, to guide stock selection. Harris is also the co-founder of Mongolia Growth Group and has been the CEO and president of the company since 2011.
Additionally, Harris is the chief adventurer at adventuresincapitalism.com, an investment blog uncovering unique opportunities around the world, and let’s face it man, that’s why we love having him on the show. Kuppy, welcome back to the show. Glad to have you again.
Harris Kupperman: Hey, thanks for inviting me back.
Dan Ferris: So I, like I said, when I read your introduction here, let’s talk about microtrends because I’m pretty sure I know my listener well enough that as soon as I say "microtrends," he’s going to go, what is that?
Harris Kupperman: Sure. So I think everybody knows what global macro is. That’s interest rates and currency and that’s a very competitive place to play. There’s a lot of really smart people and most of them get it wrong.
What I like to look at is second, third-tier trends. Stuff that people aren’t really looking at, where it’s not priced in. So if you get it wrong you get your money back. If you get it right, you have multibaggers.
And a lot of these are pretty obvious trends. You know, it’s stuff that when I tell you the trend, you’d say, "Yeah, that makes sense. That’s happening." You know, you’re not guessing what the currency rate is six months or a year from today or interest rates.
You’re just saying, that’s in motion, that’s going to stay in motion, I can see it. Then you figure out, how do you express that view through public securities, where you don’t have too much risk, you know?
Usually, I’m trying to get here right when the inflection starts so I’m early in the process. I’m buying it cheap on cash flow or balance sheet or whatever else it is. And then I stay with the trend either until the trend gets discovered and valuation goes to fair value or something changes in the trend.
Dan Ferris: OK, so I love what you had to say about global macro. Super competitive, lots of smart people and most of them get it wrong. I mean, that’s hilarious to me, anyway. It’s a good joke to me. And I want to talk about that a little bit, because one of your recent blog posts was really kind of making fun of one of the big sort-of global macro targets, which is the Federal Reserve.
And you were talking about you know, there was a press conference, and some dots were moved around on a piece of paper and the chairman of the Federal Reserve, you know, threatened a few basis points of yield in a year or two. Like it has any meaning at all. It’s just a story he’s telling.
Harris Kupperman: Yeah, it’s a story. He’s trapped. They can’t raise rates because it will crash the economy. They can’t stop stimulating because it will crash the economy. And he’s the buyer of last resort for U.S. government debt. He really can’t pull back. He can lock it lower and he smacked gold for $100, which you know, makes it look like oh, there’s no more inflation. Or he can threaten the stock market. He can move the dollar. He can do some things at the margins. But at the end, he’s kind of trapped.
And let’s say they do raise rates 50 basis points. Like, what’s that going to change in anyone’s life? You know, if you’re a yield curve trader and you have some levered book, it’s probably going to blow up. Because every time the Federal Reserve does something, some over levered you know, financial institution blows up. But when you look at the real economy, which is where I invest, it’s not going to matter. Let’s talk about one of these trends if you want, one of these microtrends.
So I’m 40. I just turned 40 this year. A lot of my friends are I don’t know, my age, give or take a few years. Everyone kind of put off having kids because we were too busy with work. We all like living in our 800-foot condos. You know, mine’s a little bigger.
But you know, we liked being in the city center, going out every night, and having fun and suddenly kids start popping out and you don’t fit in the house. And so my friends are all realizing they’re going to have to move to the suburbs, because it’s too expensive to buy a three bedroom in downtown.
And this is a trend. If you look at it demographically, which is what drives a lot of these trends. People my age had their kids 10 years later than the last generation. And so it should be obvious that household formation and single-family home demand is all pushed back a bit.
And now it’s coming, and there’s a huge demographic move of people out of the cities, into the suburbs. You have people leaving high-tax Northeastern and California states, and they’re moving to lower-cost states. They’re moving to places with better job opportunities. There’s actually a lot of population move right now in the United States.
And you know, I think when I tell you this, it all makes sense. I mean, the data’s there. The question is, you know, will it continue? I think it does. And then how do you make money? Where there’s a gap right now is in low-income housing. I mean, affordable housing, I guess you’d call it.
The home developers like the million-dollar homes, because they’re profitable. But they haven’t been building entry-level stuff for my friends. You know, I think you play it by owning the guys that make the components. I don’t have to guess which state wins. I don’t have to guess anything.
I just have to guess that the guys who make siding and make vinyl windows and make roofing supply, make plumbing, all this stuff that’s needed in a home especially on the lower end. Those guys, I mean, they have so much demand they can’t fill all the orders. That’s the best place to be in business when you have unlimited demand. You just can’t figure out how to ramp up fast enough. The problem in business is when no one wants your stuff.
And so these guys are going to have some problems in ramping up and hiring people, and there’ll be some margin pressure and all the other problems. But you know, the demand is there and it’s going to keep going. And I don’t think this trend changes if they raise rates 50 bps. I don’t think it changes if they raise rates 100 bps.
You know, in the end, what does that mean? It’s $100 more each month on your mortgage? I don’t think that’s going to change anything, because you can’t fit two kids in a single-bedroom apartment anymore, you know? It’s just, it’ll solve itself.
And so these are the sort of trends I like. And you know, I don't think anyone would ever push back and say, "Kuppy, this trend isn’t a good one, because I think it’s a very good one." You know, it’s more a question of how long it’s going to last and what’s the valuation and is it priced in. And those are questions that I think educated people can debate.
Dan Ferris: And insomuch as you believe it will continue, it may be a prediction. But it’s really not a prediction, right? You’re just looking at what’s happening.
Harris Kupperman: Well, it is continuing. I think you had a trend in motion that started a few years ago, actually. And COVID really accelerated it. Especially the demographic movement. Because work-from-home means you don’t have to live in a high-priced city. You can live in the suburbs. You can commute in one, two days a week now. And so you can get a lot more real estate for the same price. So it’s really changed the dynamic for families. And I don’t think it’s going to go back. I think people really like the new rules.
Dan Ferris: Yeah, what’s not to like. That’s right. And you get to live in a place that, I’ve seen exactly what you’re describing. I’ve seen people moving, we actually moved. We moved from the city –
Harris Kupperman: Really?
Dan Ferris: Yeah. We moved from the city. We moved in March. We moved from the Portland area where they were like, we were actually concerned. They were burning things every night for like six, seven months on end.
Harris Kupperman: Well, that’s another reason to leave. I think those sort of problems are not going to end. I think they’re just starting, and they’re going to keep ramping up from here.
Dan Ferris: Yeah, that’s what we were afraid of too. So we came back from where we had moved from previously, which is a rural area. I mean, it’s small, small, small town. Like you know, a four-digit population kind of thing. And we feel, there was a palpable sense of kind of setting the suitcases down and breathing a sigh of relief when we got here. And we don’t regret it at all.
But yeah, I see a lot of people doing this. And you also mentioned, you know, you can get more real estate. And I noticed especially young people wanting to do that. So, we have this trend solidly in place. You’ve got a name for me, or what?
Harris Kupperman: No, I just, demographic migration. You have people who are basically heading south and north. They’re heading somewhat to the middle. But in the end, you just have people moving around. And there’s another one I’ve got for you.
I think the state of Florida is going to do quite well. They were the first ones to cancel mask mandates. They were probably the best of all 50 states. You know, it’s a booming state. The economy’s absolutely booming. It’s zero tax, so there’s a lot of companies relocating. I think you want to be among Florida for a very long time. It’s been a strong bull market for decades. So this isn’t a new thesis.
But I think it’s accelerating now. And so you want to move on Florida. I own a company that owns a lot of real estate in Florida. I don’t think any of these are particularly contentious theses. It’s more that people just aren’t thinking on their heads. They’re looking at other stuff or they’re trying to guess on stuff. They’re looking at macro.
You know, I just have no view on interest rates. I don’t know which direction the next 50 bps is in the 10-year. I don’t know what the FX rate’s going to be. I like the really low-hanging fruit, the easy ones.
Dan Ferris: Would you call it, what kind of investor would you call yourself? Would you call yourself "deep value" or no?
Harris Kupperman: Oh, absolutely. I’m deep value, but I’m an inflection investor. There’s a lot of cheap companies out there in this world. And we’ve known they were cheap for years and years, and they’ve plodded along. And the earnings don’t grow. The earnings don’t shrink. You know, there’s asset value. It’s just, it’s a company that’s kind of asleep.
And then something changes and it starts prospering. And sometimes the change is in the, you know, the business sector itself that the company’s in. You know, housing was pretty terrible for 10, 12 years coming out of the GFC, because they overbuilt housing.
And coming out of the GFC, everyone downsized. They all went into apartments. It was just a bad place to be. There were a lot of cheap companies, but it was a bad place to be. You know, so there’s a lot of cheap stocks, and everyone looks and says, "Yeah, that’s cheap," but no one cares. You need that catalyst, that inflection.
And like I said, the inflection could be in the sector itself, or the inflection could be some corporate action that unlocks value. It could be a new CEO with a new vision for the company. New capital allocation policies. Lots of things that can inflect the business, or at least, the thing I care about which is the share price.
But just finding a cheap stock doesn’t help. But once you fund, your theme is I’m not going to play unless it’s really cheap. And when I say "really cheap," I’m usually buying huge discounts for replacement value. Or I’m buying single-digit cash flow. I’m not even buying sort of single-digit. I’m usually below five times cash flow you know, out a year or two.
Dan Ferris: Wow. So you are mostly it sounds like, buying really, really small companies.
Harris Kupperman: No, no, I started my career buying small companies because small companies were the ones that were undiscovered and unknown and unloved. A lot of these small companies because of the illiquidity and the lack of analyst coverage, they’re actually very good businesses growing very fast. And you could buy a rapidly growing consumer products company for five times earnings.
But that’s changed. You know, there’s too many people out there on Twitter or on some of these blogs. Stuff gets discovered a lot faster now, so you don’t see that sort of stuff. What you see more is the stuff that’s just forgotten about, it’s boring.
So the advantage is: find that inflection and getting there one or two quarters before it starts showing up in the financials. And then staying with it as it gets noticed and explored. Because remember, most of the world is, I mean, most of the finance now is done with kind of a quantitative approach. So as long as quarter over quarter things are getting better, they just keep buying it. And then it gets into the indexes, and they keep buying. You end up with a lot of people that have to keep buying it.
So once it gets going, these trends in motion tend to stay in motion, and keep accelerating. But no, we’re not looking at small companies. I’d say the sweet spot for us is kind of in this 200 to about 2 billion range. And really it’s around 300, 400 million, kind of right at the cusp of Russell 2000 membership, is really where I see the most opportunity. Because you get escape velocity the year after it’s added to the Russell.
Dan Ferris: Ah. Interesting. Yeah, I’ve heard similar from others. But your emphasis on the microtrends. Like, nobody else tells me they’re looking for microtrends. Let’s talk about another one. Would you consider – I know you wrote a blog post about ESG and you said that it stood for Energy Stops Growing, which I thought was funny. Tell me about that.
Harris Kupperman: Well, I mean, you just gave the punchline away.
Dan Ferris: Oh, sorry. Right.
Harris Kupperman: Look, ESG, I think is kind of a tax on society in a way. And what it’s going to do is it’s going to cut off capital to a lot of industries that are really desperately needed. So ESG doesn’t like energy, for instance. It doesn’t like oil and gas. Well, that’s great that they take a fundamental view on oil and gas being bad for society. That’s not something I want to debate here.
What I will tell you is that demand for oil and gas is going to go up next year. So if they don’t produce more of it, you’re going to have an energy crisis. And I don’t think that’s open for debate. You know, if they’re going to cut off other industries that are vital to society, the price will go up because the demand is still there and there’s no supply response.
And you look at lots of sectors of the economy that are probably going to suffer, and potentially suffer badly. And I’m not here to debate what’s right or wrong. I’m here to make a bunch of money for my clients. And if you have some people out there that are focused on cutting off the supply while demand keeps going, and the demand might even accelerate with all the government stimulus, then I want to belong to the thing that they don’t want produced anymore.
I think one of the real key moments in this whole debate, and it’s kind of been going on for a while now, about ESG investing, is when BlackRock decided that they’re going to throw their hat in the ring. And they’re going to stop just trying to become an asset aggregator, where you know, their business model is "get a lot of assets, earn some fees."
And they’re going to take a political stance on certain issues that management felt fondly about. And one of them obviously was energy. But if you’re going to go out there and fire board members who are trying to do their job and help their company produce more oil, then no one’s going to produce more oil.
Because Larry Fink at BlackRock has a lot of the votes. He’s kind of a swing guy. And if he partners with CalPERS and a few of his other buddies, they’ll fire all the board members. So if you’re a board member you’ve got to be pretty scared because it’s a pretty cushy job being a board member. They pay you way too much money. You get some stock options. You don’t really do much of anything.
So, I see a situation where CEOs go to these board members and say, "Let’s go drill some more wells next year. The price of oil is up." And the board members say, "No, no, no, we can’t do that. Larry Fink’s going to fire me." So I think the second order of facts are going to last with us for a long time. And I think it’ll be surprising the ramifications, and if you can think through these ramifications there’s a lot of money to be made.
All throughout all sorts of industries that ESG doesn’t like. I mean, look at thermal coal. People have been telling me that it’s going to disappear. They’ve been telling me this for years. Here we are, and thermal coal is at 10-year-high prices, because they stopped producing enough of it and the demand’s still there. I mean, I didn’t even think thermal coal would go to 10-year highs. But here we are.
And so, you look at this in a lot of sectors. And probably thermal coal demand keeps growing for another decade or two, because you see the power plants they’re building. And you know, it’s great to tell the banks to stop lending to thermal coal producers and it’s great to have you know, the shareholders vote out the board members.
But you know, in the end, the world needs more thermal coal next year. And it has to come from somewhere or the price will go up to fix the problem. And I think the price will go up to fix the problem.
Dan Ferris: Yeah, I’ve interviewed a fellow named Rick Rule who knows a lot about energy. And he’s long uranium for similar reasons. He says you know, two things are going to happen: The lights are going to go out, or the price is going to go up. And you know, which one do you think?
Harris Kupperman: He’s probably right. No, Rick’s a very smart guy. I had a little bit of uranium participation, just a little bit. But you know, one thing I want to say, and I think this doesn’t get enough attention, is that if you have a view that the price of a commodity’s going up, there’s a lot of ways to express that view.
You can do something very basic like buy the physical commodity. You can buy futures. You can buy options in the futures. You can buy something like uranium participation because the futures aren’t very liquid. It’s an entity that holds uranium physical. You can buy producers. You can buy service companies. I own a lot of energy services companies. This is a whole ecosystem of ways to express that view. And I feel a lot of people express the view the wrong way.
Dan Ferris: What’s the wrong way?
Harris Kupperman: Well, they go buy little junior uranium stocks. That seems like the wrong way to me. You take a lot of risk. You know, most people aren’t geologists. I’m not a geologist. I don’t know what I’m looking at. Most of the guys are lying to you because they need capital. Most of the money goes into the ground because they drill holes to produce press releases. I mean, that’s the main product they produce. They never produce any uranium.
There’s a lot of delusion nonstop, and when you’re buying a junior company, you’re taking a very concentrated view. And at some point in the next six to 12 months, the price of uranium’s going to go much higher. And this company that no one’s ever heard of will have leverage to that, because other people will show up and gamble on some $0.20 stock.
You know, you have the most upside. Those $0.20 stocks become $2 all the time. I’ve seen it many times in my career. I don’t want to tell you that’s a dumb way to do it. It’s just the wrong way for me. You know, I think when it comes to uranium, if you really think uranium’s going to 100, and I don’t know if that’s the right number. I’m just naming a number.
Well, the uranium participation’s a triple. And a triple’s pretty good if it happens in a two- or three-year period. The trade-off is that I don’t think uranium’s probably going down much, because during the worst of the bear market, it was in the 20s.
So, you know, you’re risking five bucks, $10 at most on the price of uranium. Plus, you know, a little bit of carry because there’s some fees to pay at UPC. So you’re really not risking that much to the downside if nothing happens. And most likely in these, sort of, theses where it’s a supply/demand imbalance, and there’s really no catalyst. And in the case of uranium there is no catalyst.
One day they’ll work through the oversupply, and the price will go up. In a situation like that, you don’t really want to be betting on the when. And when you’re in one of these little companies that has to keep that diluting you, you’re really betting on the when.
And then finally, you know, a lot of these little companies, they’re never going to build the mine. There’s actually enough mines mothballed today that if they just turn the mines back on, there’s a glut again. I mean, that’s how they got into the spot that we’re in today. There was a glut.
So, these little assets have no real strategic value because the guys who produce the stuff have existing assets to turn back on. Or there’s assets floating around that could be turned on in a year or two. So I just don’t see some mine that takes 10 years to build ever being you know, security.
But that doesn’t mean that you can’t just gamble on it. And like I said, $0.20 stocks become $2 stocks, and $1 stocks become $5 stocks all the time. But they also go to zero and you end up with a billion shares outstanding.
So I have a very nuanced way I think about this stuff. And to me, I don’t want to lose money, because the No. 1 rule of investing is don’t lose your money. So I just like the little risk play of UPC. When it comes to something like oil, I mean, it’s a super active futures contract. There’s all sorts of stuff you can do with that futures contract.
You can buy call options, which is what I’ve done. You can buy futures, which I’ve done. But I’m out a few years in the curve. I mean, if you look at it, the front of that curve is at 73 right now, we’re talking on a Tuesday. But go out a few years in the curve, we’re in the mid-50s.
It’s kind of the same thesis as with a UPC. During the worst of this when the front of the curve went negative, and think about that. It went negative. The back of the curve was in the 40s. So, I’m kind of risking like 10 bucks in my head, you know. At least until the back of the curve becomes the front of the curve.
So you know, as long as it’s six months and nine months or a year deferred, and I’m out in a few years, I’m risking 10 bucks in my head. And the upside could be a hundred. Maybe it’s 200. Who knows. I like those sort of trades. I don’t need to buy small-cap E&P and hope the geology works, hope the capital allocation works, hope that the pipeline base and differentials don’t blow out of, the hedging program works. That there’s no new taxes on oil or anything else.
I actually think government interference in the production of oil is why the price of oil’s going to go up. So if the government is, thesis is the government’s going to interfere, why do you want the geyser to get interfered with? It makes no sense. Sorry, I’m rambling. But I just think there’s a better way to do all this stuff.
Dan Ferris: No, no, I like your rambles. They’re good rambles. And the point, but the original point you make is great. Because look, we can debate about the difference between uranium participation or a tiny little mining stock. And we can say well, technically speaking, it’s not wrong, but it sure is a hell of a lot riskier. And it’s a totally different bet. It’s not really a bet on uranium price.
You know, and let’s face it. Like you say, there’s 5,000 of those little companies and there are maybe a hundred of them that anyone should ever go near, right? Literally. I think that’s about literally true. That’s the right –
Harris Kupperman: Yeah, I’m not sure there’s 5,000 uranium. There’s 5,000 junior miners definitely.
Dan Ferris: No, no. Yeah, that’s what I meant. Junior miners, worldwide, right? so 5,000 tiny little mining companies worldwide, and there’s maybe 100 you should ever go near.
Harris Kupperman: Maybe.
Dan Ferris: You make a good point though–
Harris Kupperman: Maybe.
Dan Ferris: In just saying there’s a wrong way – yeah, maybe. Maybe a hundred.
Harris Kupperman: If you can buy the physical, and I mean, I just think back to the last cycle. I mean, look. I started buying gold, and I own a bunch of gold personally. But I started buying gold when it was trading at $300. And here we are, and gold is $1,800. It’s gone up six times. And GGX has gone nowhere. You know? It kind of tells you how this works.
I mean, it had zero leverage in any way to what happened to the price of gold. You know, in the end, gold mining is an earth-moving operation, and you’re kind of beholden to the price of diesel and steel and labor and taxes and regulations.
You’re beholden to everything except gold. If you were bullish gold like I was, you should have just bought a bunch of gold at 300 like I did. Or you should put on some sort of trade. You know, some cross-bred trade. There’s a ton of ways you can play in one of these assets that has a liquid option chain, to give yourself a whole lot of upside leverage, you know, without too much downside risk. And you know, your ability to craft weird spreads is the only thing holding you back.
Dan Ferris: Well, that’s, that does hold a lot of people back, I’m sure. But you don’t need to, right? What we’re saying is really, ultimately, you don’t need to craft weird spreads. You can just belong. And in a much more conservative, safer, direct way that gets you straight to the commodity rather than you know, some roundabout riskier thing that most people don’t know anything about, right?
Harris Kupperman: Right. And this applies to every one of these trends. I mean, identifying the trend is the easy part. Let’s go back to housing, we just talked about it. I think everyone knows that there’s a demographic move going on. Then the question is how do you play it.
And that’s where you have to go into your toolbox and figure out the best way to do it where you’re taking the right ratio of risk and upside. You know, a lot of people bought homebuilders, which always boggled my mind. I mean, that’s probably the worst thing you want to own. You have a –
Dan Ferris: Right.
Harris Kupperman: Well, it’s super capital intensive, which you never want. You have a business where you’re locking up land. I mean basically, they have call options on land, and they’re spec-ing over the next few years on the price of land, the next two to three years.
So if you time the cycle wrong, you end up with land purchase options that go out worthless. You end up with built inventory that no one really wants. You know, you have these boom/bust cycles that oftentimes a lot of homeowners go broke in the bust cycle, or at least they take vast impairments.
Right now you have this funny scenario where times are so good for homebuilders that they can’t get labor. They can’t get skilled employees. Component pricing is up. Everyone’s talked about the price of lumber. But you know, valves and everything else are up too.
So they promised Mr. Johnson that he’s going to get a home in six months, and suddenly the price of all the pieces went up, and they’re going to lose money producing that home. It’s kind of crazy when you think that when things are good, they still lose money. Or at least they get squeezed on the margins side.
I just don’t want to be in an industry like that. One of the advantages I have is I’ve been doing this for over 20 years. I’ve seen a few of these cycles. And I’ve learned who makes money and who doesn’t. You know, the guy building the homes is not the one making the money. They’re taking all the risks with only a little of the upside.
They’re making some money, I don’t want to tell you the wrong thing. But the guy who’s going to make the most money is the guy who’s making that pipe fitting where suddenly four homebuilders say you’re only producing X number of units this week. We don’t want it. And they say who’ll pay the most, you know? It’s just a better place to be.
Dan Ferris: Yeah. Levi Strauss, outfitting the gold miners.
Harris Kupperman: Exactly. Or the guy who owns the land. Because when you have the scarce commodity, people pay up. You don’t want to be the guy with you know, a 180-day build window where you have to time all the inputs and the sale price. That’s just a terrible place to be.
Dan Ferris: Little more color on our move. I said we moved in March, but we didn’t get into our house until the first week in June, because they kept pushing us out farther and farther and farther. It was a new house, and you know, you can’t occupy until you get the certificate of occupation from the local whoever.
And so, we were waiting on appliances, right? The home is technically legally not occupiable, so they told me, without the appliances in it. So, we’re waiting and waiting and waiting and waiting. And you know, I guess I’d rather be the appliance maker at that point than the homebuilder.
Because he committed to a price back in February. And my homebuilder son said, "Hey, you know, this guy, he’s already, he could have gotten $50,000 more if things had worked out better, and he’d waited until now."
Harris Kupperman: But it’s not just the $50,000 more. His costs might have gone up $100,000. He doesn’t know what the cost of labor, or lumber. I mean, you sort of hedge it but not really. There’s actually a really good survey out last week. It’s put together by the U.S. government and our tax money at work, surveying builders. And they’re actually suffering quite badly. It’s funny. You have the best year for housing in 13 years, and builder sentiment is awful because they’re all losing money at this.
Dan Ferris: Yep. They’re paying a hell of a lot more for lumber. And the, you know, my stepson was telling me, sure, in the futures market you can see lumber prices falling but that isn't anywhere near. He says that’s nowhere near me yet. So they’re still paying through the nose.
Harris Kupperman: Yeah, absolutely. So I just want to go back to the point I’m trying to make. Once you find your trend, you’ve got to really think it all through as how you’re going to play that trend. And a lot of times you play that trend with a lot of upside and really minimal risk.
I mean, the company I’m playing in the components industry for housing. I mean, I bought it I think at about three times this year’s cash flow. I bought it last year. And there’s just not that much risk at that sort of cash flow number. You know, stocks, it’s up three times since I bought it.
I think it might go up another three or five, depending how many years this cycle goes. I mean, it’s still a single-digit cash flow number. And their biggest problem is they can’t find enough workers to run the machines to produce the windows and siding and you know, gutters and all the stuff they produce.
Dan Ferris: Nice. Up three times, maybe got another three times in it.
Harris Kupperman: Well that’s the ballgame. I mean, people focus too much on "Hey, I found this stock at 20... I think it’s going to 25." And if you’re only trying to make 25%, you’re taking too much risk. Every day I’m showing up to work, I’m saying what can I buy that can go up three to five times the next two years.
Because every day you put money out to work for you, you’re taking a lot of risk. And if you’re not getting those five-baggers, it’s not going to make up for the mistakes you make. Because you’re going to make mistakes.
Dan Ferris: You know, feel free to give us a name if you want to. Or not. We understand, some people don’t want to give away their book. But how many names are we talking about in your current portfolio?
Harris Kupperman: Well, I run a very concentrated book. I really do believe that your best ideas should be expressed with the most size. It’s not really that many great ideas out there. And if you’re not watching closely, you’re going to make mistakes. I usually run with six to twelve themes. So, a theme could be an individual stock or it could be a basket of stocks.
But I usually run with six to twelve themes. And my top five themes are usually 50% of the portfolio and sometimes as much as 75% of the portfolio. I like to play really big. And you know what that means, is it’s going to be volatile.
It means that you have to have a strong stomach, because you can have some bad down days. But if you believe in what you own, you kind of just close your eyes and don’t really think too much about it. But it also means that when you’re right, you’re really, really right. And the past year and change, we’ve been very right around here.
Dan Ferris: Nice. Yeah, a lot of people had a fantastic year in the past year.
Harris Kupperman: Oh, it’s been great. It’s been surprisingly good. If you want some names, I mean, we talked about housing. I would say the name to look at is St. Joe. They’re one of the largest landowners in the state of Florida. They’re focused on the panhandle where housing is a bit cheaper in the interior areas.
You know, they’re focused on two of the fastest-growing counties in the United States. Up on the ocean, they own basically what is the Hamptons of the South. You wouldn’t believe the prices down there. But it’s the one percent that are coming from Atlanta and Houston and New Orleans.
I believe the Federal Reserve will keep interest rates suppressed and let inflation run hot. And so what do you do when mortgage rates are really cheap and inflation is screaming? You buy houses. Because your second home is going to appreciate 25% a year. You’re going to fund it at three. It’s a great trade.
I think a lot of people are going to buy second and third homes, and I think it’s a great place to be. Plus a lot of people want to retire to the panhandle, because their primary source of income is their investments and no one wants to pay tax on their investments.
You know, once you’re mobile because you’re retired, you’re going to go somewhere with low taxes and beautiful beaches. And so I think Joe is going to check both these boxes and be a home run. Q2 earnings were up, Q2 revenue was up 120% year over year, which shows you what sort of growth they’re getting. And they’re getting great pricing power on this too.
So that’s my biggest possession. They have a great balance sheet. They own 175,000 acres of land. So you have a really long run with them to execute. And I think the land is worth a few times today’s quotes, so you get all the cash flow from the business for free. So that’s my biggest possession. That’s one of the two ways I’m playing housing.
Dan Ferris: That is an interesting name. I stayed long, St. Joe, too long into the crisis years and years ago.
Harris Kupperman: It was a very different business back then. Back then the business was really about selling off some lots along the water and hoping for the best. Now they have a new management team in place, and they’re really focused on sustainable revenue and sustainability of the cash flow. So they’re building commercial real estate. They’re building hotel and office and multi-fam.
So it’s really about sustainability, but it’s also about taking their land that’s, you know, a few miles inland and you’re not going to sell it as ocean land. How to make that land into communities that people want. They’ve created the Margaritaville of retirement communities, which it seems really popular. People want to go be retired and be drunk and stoned all day.
They put their first year of inventory on the market, and it all sold out the first day. There’s actually a lottery to sign up to buy one of these homes. And once again, I like being in businesses where the demand is infinite and the problem is they can’t figure out how to produce it fast enough. So they’ll figure out how to produce this faster.
It will take a year or two to ramp up, but the demand is there. Any time you can take an acre of forestry land that’s worth about a thousand bucks and turn it into an acre that’s worth about 500 to a million, that’s a good return on your capital. And they’re just going to keep doing that for all their acres.
Dan Ferris: Nice. Thanks for that. You got any more you want to share with us?
Harris Kupperman: Let me think what else. In terms of you know, core long possessions. I’m pretty big in energy services right here. You know, last year as we know, oil went negative and everyone stopped drilling. And this year, oil is $73 and people are starting to drill. They’re just starting because they’re gun-shy. They’re timid. They don’t know what OPEC’s going to do. They don’t know what the price of oil’s going to do. They almost went bankrupt last time.
Shareholders want dividends and buybacks. So it’s going slow, but the important thing is that the rate count is going up month after month, and it’s up year over year. And what Wall Street likes the most is sequential growth. Wall Streets like when the first derivative’s positive and when the second derivative’s positive.
And so you have growth starting to accelerate now, in terms of spending on the energy. And so, I’ve gone all throughout the supply chain, and I’ve bought a lot of these companies. Quite a lot of them went bankrupt because energy production is very capital intensive. It uses a lot of equipment, and guys levered up. And then the demand wasn’t there, and they went bankrupt.
And so they came out of bankruptcy with good balance sheets. I’d point you to a company called Valaris. It’s the largest owner of offshore rigs in the world. It came out of bankruptcy, and it had a hundred million more cash than debts. And you’re buying a bunch of equipment for $0.10, $0.15 on replacement costs. And at the top of the cycle, it usually trades for two to three times replacement costs.
And so there’s a long way to go from the bottom to the top. They’re slightly cash flow positive. They have a current contract backlog. There’s not much of a backlog starting next year, but they keep announcing new contracts almost every week. They’ve cut a lot of costs out of the structure in bankruptcy, bankruptcy lets you cut costs. That’s kind of the point of bankruptcy.
So, you know, they have a good balance sheet. They have cash flow. They have some visibility for the next six to 12 months on orders. If oil stays where it is, they’re probably going to get some more contracts, and it’s probably going to keep trading up. If oil goes down, they have enough staying power to make it through.
It’s kind of like myriad participation. It doesn’t have the most torque, but you know, you don’t need a lot of torque if you think this is going to trade at two times replacement cost. So it’s point one five now. I bought mine at point one. That’s a 20-bagger. You don’t need tomatoes in your ear to do a lot of damage.
And maybe to take a second here, just to give a quick shout out to a little newsletter service that I have called Event Driven Monitor, Kuppy’s Event Driven Monitor. You can go find us at kedm.com, and you can sign up for a four-week free trial. But what we do is we flag these sort of corporate events like when Valaris came out of bankruptcy.
It came out of bankruptcy, and bankruptcy is one of those corporate events that creates a lot of opportunity, because the company comes out of bankruptcy, and all the bondholders, they don’t really want to own an off-shore energy company. That’s not the business they’re in. Maybe they’re not even allowed to label it. So as soon as they have a chance, they sell the shares.
And so you have a situation where a lot of guys that sell and there’s no investment bankers, no research coverage. No one even knows it happens. It just starts trading one day. And so they tend to come out of bankruptcy undervalued, especially because management often gets their compensation package, their options, struck based on where it’s trading in the first couple of weeks.
So management keeps their mouth shut too. And so, we’ve seen a lot of these that came out of bankruptcy and have done, do surprisingly well. Really outperformed the market over the last few years. And so it’s one of the data sets we track in KEDM, KEDM tracks about two dozen data sets, and it kind of flags the most interesting stuff.
And so we flagged Valaris when it was at 21, and here we are at 29 about a month later, which is a pretty good return in anyone’s book. I think there’s a lot more upside here still. But I would just say, if you want to start tracking some of these corporate events, go to kedm.com and sign up, and you know, give it a test drive for four weeks.
But you know, I think these energy services companies, and a few other ones that came out of bankruptcy, I think there’s a lot of upside. Because at $73 oil, people start drilling. And you know last year, there’s almost no exploration done. So, almost anything is incrementally positive, and the market likes a story that gets better over time.
And these things, you’re still buying equipment at pennies on the dollar because no one believes the recovery is sustainable. Yet when you look at the rate count, it looks pretty sustainable to me.
Dan Ferris: Nice. All right. We’ve been talking for a while, and it’s time for my final question, which is the same final question I ask every guest on the podcast. It’s simply, with a single, if you could leave our listener with a single thought today, what would that be?
Harris Kupperman: I would say that people come onto the market too scared. And they’re worried, you’d be amazed how many people I know that aren’t professionals. Or even when they are professionals. And they’re asking me, Kuppy, what happens in this, and this, and how are you hedging, and what are you doing?
Look, shorting isn’t working. Anyone who’s been shorted has been obliterated in the last year and a half. Hedges don’t work because the market doesn’t go down. The government’s already told you, they will print money and they will prop up anything that happens in the economy. And I don’t always want to trust the government, but they’ve been doing this for 30 years and I think they’re going to keep doing it.
And the lesson that they’ve learned from every mini-crisis is that you step in faster with more firepower and that way you don’t even have the first down week. And so, everyone keeps telling me, what are you worried about? What are you doing to hedge? How are you shorting? And all my friends are losing money.
I’m just standing here long. I’m not levered long. I actually have a little bit of cash in the balance sheet because I like optionality. But I have this view called Project Zimbabwe, and that’s because in Zimbabwe the stock market went straight up. And any time you have too much stimulus and too much money printing, the stock market mostly goes up.
And I want to be long stuff that goes up. I’m not scared of anything, because I know my stocks. I know the values and I know the balance sheets. And it stops me from doing dumb things when the market gets a little wobbly.
And remember, every couple of months you can have the market drop 10%. That’s life. And once a year, it might drop 20 and every five years it’s going to drop by 30 or 40. But if you show up scared all day, you’re probably going to give money away. Especially right now when the government’s told you it’s not going down.
So I think the thing you should be most worried about is you're not long enough. That’s just my personal opinion.
Dan Ferris: Good stuff. That was a great last idea. That was really good. All right, listen, thanks so much for coming back. And you’ll definitely be getting another invite in several months’ time.
Harris Kupperman: Sure, happy to be on.
Dan Ferris: Thanks again. We’ll talk to you in the future.
Harris Kupperman: Take care. Talk soon.
Dan Ferris: You know, there are some guests where you just know they’re going to nail it. Lots of great ideas, couple of great stock picks. Kind of a different view on some things, and a really great, you know, final thought. And I know Kuppy is always going to check those boxes for me. Really great guy. I really enjoy talking with him. And I will be shocked if I get any e-mails that say otherwise.
All right. Let’s do the mailbag. Let’s do it right now. [Music] I’ve talked about inflation plenty on my show, with crazy government spending, and frankly how the government could care less about you and your financial situation. But today, I have to share a truly unsettling fact.
Thanks to actions taken by the U.S. government, 40% of U.S. dollars in existence right now were printed in the last 12 months alone. Let me say that again. 40% of all the U.S. dollars in existence right now were printed in the last 12 months alone.
This is astounding. There is an astounding 29 trillion in U.S. debt outstanding. It’s hard to even imagine what that means. Let’s put it in context. If you made $1 every second it would take you 32 years to reach a billion dollars. But it would take you another 31,000 years before you reached a trillion. If you make a dollar every second.
This is incomprehensible. And yet, our political leaders talk about trillions of dollars in new additional programs without batting an eye. People are waking up to the reality that the government is not interested in protecting the value of your savings, and you should too.
There’s a brand new interview that you should watch if you’re concerned about inflation in the U.S. dollar. Just go online to inflationinterview.com. Again, that website is inflationinterview.com. Check it out.
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 to [email protected]. I read as many e-mails as time allows and respond to as many as possible. You can call our listener feedback line at 800-381-2357. Tell us what’s on your mind and hear your voice on the show.
Some good stuff this week. First is George O. And George O. says, "Hi Dan, I’m a devoted listener. Love your show." And he’s talking about electric cars and the environment. He says, "There is little question that electric motors are phenomenal. They pull all of our trains, for instance. Electric cars and especially big trucks are totally impractical. The problem isn’t the motor, it’s the electricity supply that’s the problem.
"Given that a Tesla can go about 300 miles on a charge is impressive, but currently it takes five hours to charge the battery again. For a big semi, the problem can only be greater. I live in Florida, and not having AC is a non-starter. Adding this load results in a drastic loss to motor current for the car. I often drive on trips over 300 miles. Contemplate having to stop for five hours to charge your car versus 10 to 15 minutes to stop for gasoline and a bathroom break.
"I don’t think that leads to those current vehicles taking over petroleum-driven vehicles. Love your show. You’re my kind of guy. Keep up the great work. Thanks for your great work. George O."
Well, thank you, George O. And I include George just because anytime anybody has a perspective on something like that, I like to throw it out there. So, I’m just letting George O.’s words hang in the air. Call us on the feedback line, or write to us at [email protected] if you have a comment.
All right, next comes Levi N. Levi N. says, "Hi Dan. Just finished Friday’s Digest 'Are You a Hedgehog or a Fox?' Really enjoyed it. In the Digest, you wrote it’s absolutely impossible to succeed as an investor without learning to recognize, understand, and control risk. Can you recommend books that address recognizing, understanding and/or controlling risk. Thanks as always, Levi N."
For those of you who don’t subscribe to anything by Stansberry, all of our paying subscribers get our daily Digest. And most weeks, I write the Friday Digest. And my last one was called “Are You a Hedgehog or a Fox?” and I talked about those ideas last week on the show.
So Levi’s asking about books that address recognizing, understanding, and controlling risk. And Levi, those three things, I stole that from Howard Marks. Those are chapters five, six, and seven of his book, The Most Important Thing.
And I remarked before on how the idea behind the book is that every time he sat down with a client, he said the most important thing is this, and there were eight, you know, he was saying something different to every client. There were 18 most important things.
However, three of the 18 are risk. So it’s a really super important topic. And I got the order, the order is chapter five is understanding risk, chapter six is recognizing risk, chapter seven is controlling risk. So that’s your book. Those are your three on that specific topic.
Also, I have to say the best books on risk, just thinking about risk from many different angles, are Nassim Taleb’s books Fooled by Randomness, The Black Swan, Antifragile, Skin in the Game, and even The Bed of Procrustes. I’d throw that in there too. Just read them all. He calls it the "Incerto," which is Latin for uncertainty.
And they’re great. They’re incredible. Like, there’s nothing like those five books. So there you go, Levi. There are some books on risk.
Next comes Josh C. And Josh C. says, "Love your show, and the access to your thinking each week. I’ve been a fan if not a subscriber since I subscribed to your real estate shareholder way back when. Wow, that was a long time ago. And so happy to now be a lifetime Extreme Value subscriber. Thank you so much for that, Josh."
And Josh has several nagging questions. Hope these aren’t discourteous. Not at all. They’re not discourteous, Josh. The first one is approximately how many subscribers are there to Extreme Value? I realize numbers like these are proprietary, etc
So, I can’t give you, you also ask what percentage might be lifetime. I’m not sure if I’m allowed to tell you that or not. But we did do, I just finished yesterday a video presentation that will be available so anybody in the whole world can watch it. And during that video presentation, we did note that there are over 40,000 subscribers to Extreme Value.
And that includes everything. That includes the Stansberry Alliance members, lifetime members. Just regular, you know, subscribers who renew each year. And so it’s over 40,000.
Your next question: "Is there a published bio for Mike Barrett? What other investing coverage does he produce beyond Extreme Value?" Mike contributes in all different ways. He contributes to other publications. He’s got a million ideas. Mike is excellent, he’s a good system builder.
He runs our Price Implied Expectations model that we use to evaluate Extreme Value stocks. You know, he’s really great at that. He spent his entire career doing bottom-up valuation work on specific assets. Real estate, equities, all kinds of stuff. And all different kinds of real estate. Like everything from raw land to income-producing, you know, buildings.
Your third question, final question from Josh here, is: "In the Extreme Value disclaimers, Stansberry Research forbids its writer from having a financial interest in any security they recommend. Does that mean you’re prohibited from taking investments in any of the recommendations?"
The rules, Josh, are that I can’t trade in any of the stocks I recommend in Extreme Value. But I am allowed, after a certain period of time. I think it’s like 72 hours, I am allowed to take the advice of other Stansberry publications. So when, just say Steve Sjuggerud’s True Wealth puts out a new pick, 72 hours later I can buy it if I would like to. OK?
So, and we put out a lot of stock picks every year, so there’s a lot for me to choose from. And I can still eat our own cooking that way. "Many thanks for your years of great analysis and service. Best, Josh C." Thank you, Josh. Thanks for the kind words.
Finally, we have regular correspondent, probably the most regular correspondent that we have here at the podcast. And longtime listener Ludvig H. And he just, he’s got a great question here. He says, "I have a question. I think you’ll like this one. When I put a gun to your head, I want one idea, one sector, to invest money in. In 10 years, it must have increased at least a thousand times. Which sector is it, and why?"
Oh, Ludvig, this is tough, man. I’m not going to be able to do the gun to my head one sector. But I’ll give you two ideas, OK? Hopefully that’s, you know, narrow enough to get you in the ballpark here. So gun to my head. Two places where you can make 1,000 times.
OK, first of all, the problem with this is, like to put, you know, $1 in and make $1,000? I can’t do that. What I can do is point you to a sector where some of the stocks are just about definitely going to go a thousand to one. That’s the best I can do.
I can’t, you know, just say, this whole sector is going to go up 1,000 times. Hopefully you’re not looking for that, because there’s no way I can do that. But, you know, the small-cap... nano-cap mining industry. I mean, I’ve heard stories of people buying stocks for a penny and hanging on until they were 10 bucks, so. You know. And within a decade or so.
So yeah, you can be like these folks. We’ve had Rick Rule on the program. He’s the best person I know at this. He’s spent his entire career, decades and decades, being one of the smartest guys in the world at evaluating all these tiny little mining exploration stocks that are usually traded in Vancouver, London, Toronto, whatever.
And I mean, you’ve got to be ferocious, man. You’ve got to be a real ferocious streetfighter to play in that space and get it right over the years and make a fortune. So that’s it. That’s one.
The other one is, you’ve got to find like you know, the next Amazon. And the way to do that is somehow get your money into one of these venture capital outfits in California, that is looking for literally you know, the next Amazon or the next Facebook or something.
And those are the two that come readily to mind. If I looked around some more. Maybe something like biotech might contain something like that. But I don’t really know if, how likely you are to get a thousand to one over a decade there.
And that’s all I’ve got for you, Ludvig. But it’s a great question. I think it’s an excellent question, in fact. And thank you for it. So that’s another mailbag and that’s another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want. Scroll all the way down, and click on the word transcript and enjoy.
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This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research, and is copyrighted by the Stansberry Radio Network.
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