Episodes

[Music plays in background]

Dan Ferris:                 Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin:    And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today, we talk with Stansberry Research analyst Mike Barrett who, Dan, you know pretty well.

Dan Ferris:                 I do. I've worked with Mike Barrett for more than a decade now. He is the editor of Select Value Opportunities and he's been my partner in crime at Extreme Value for more than a decade. And he's got tons of experience. Before he came to us, had tons of experience valuing real estate properties – just like, flying around in helicopters and looking at properties and just analyzing stacks and stacks of data on each property.

                                    It's incredible what he was up to before he came to us. And that skill and that experience has really – it's been a great thing for us and for Extreme Value. He found Extreme Value's biggest winner – a company called Constellation Brands, which was up almost 700% the first time we recommended it – and we've got it back in the portfolio again. So, he's really a valuable guy, highly skilled, highly knowledgeable, and just a really nice guy. He lives on a pecan plantation.

                                    He's got his own golf course. It's really – there's a lot to talk about when you get Mike Barrett on the line. So, let's do that. Let's talk with Mike Barrett. Let's do it right now.

[Music fades]

 

                                    Mike, welcome back to the show. Good to see you again.

Mike Barrett:              Great to be here, Dan. Been a while.

Dan Ferris:                 It has been a while. It's been, what? It's been a year or more.

Mike Barrett:              Three years. No, no, no. They told me it's been about three years. So, y'all finally made your way back around to me.

Corey McLaughlin:    Before my time on the podcast. Yeah.

                                    [Laughter]

 

Mike Barrett:              That's right.

Dan Ferris:                 Yeah. All right. Well, time flies when you're getting old so, that doesn't surprise me that it was three and I thought it was one. And a lot's happened since then but, of course, the most important thing that we need an update on is the pecan plantation and the golf course.

                                    [Laughter]

 

                                    So, let's start with pecans. How's that venture coming along?

Mike Barrett:              Well, you know, gosh, it's not going so good anymore, unfortunately. I'm thinking back – we last were on this in '21 – I think probably November/December of '21. We had a really bad hurricane come through – if you remember, the one that hit Fort Meyers in '22. It was vicious. That storm ended up coming across the state.

                                    The eye of the storm came right over my place, and I still got several trees – pine trees – that are permanently doing this. But it dropped about 15 inches of rain on us. My home became an island. I didn't think – I never knew what island living was going to be like, but I learned that quickly what it was. It's not so much fun.

                                    And that high water table just was more than a lot of the trees could withstand. They're still out there, but they're just not doing so well. So, the good news is, I guess, what I've learned about life – there's always two sides, right? The bad news is is that pecan business isn't as good as it once was. The good news is – I'm spending more time playing golf out there.

                                    The golf course part of it is great. So, yeah, I've got about nine holes that I can play three times a week. I don't have to worry about standing in line behind somebody else. If I'm not doing well that day, I just pick my ball up and go in to – go back to the house. So, yeah, it works out great.

                                    It's really more like a – I call it a redneck top golf course because I've got markers set up to hit to. But yeah, it's fun.

Dan Ferris:                 Mike, I love the way you just – you describe everything as redneck. Like, the odds are, when I e-mail Mike, he's going to say "redneck". The response is going to contain the word "redneck."

Corey McLaughlin:    You have your own golf course or is just near your house?

Mike Barrett:              No. What I've done is I have a 22-acre farmstead, and I've got pecan trees on about 6 acres of that. Over the course of that, about 12 acres of it I carved out a little golf course just for myself and friends that come over and play. And I get just – I get two hours of exercise a day, and this is a great way to supplement my exercise – just go out there and hit about 30 balls. Takes me about an hour/hour and a half to get around the course and then, come back in and do the rest of my exercise.

                                    So, yeah, it's been great. And I get to enjoy – you know, one of the things I love is birds. In the winter time, we've got all the migratory birds that you can imagine that come in to Central Florida and I get to be out there with them and hear them and just experience wildlife, just walking a peaceful environment for a couple of hours.

Corey McLaughlin:    That's great.

Dan Ferris:                 So, on our golf course – we live on a golf course as well, and of course, the geese are like – they're not just regular geese. They're like, attack geese, you know? Tasmanian devil geese or whatever, you know what I'm saying? They're aggressive. Do you get the aggressive geese on your course?

Mike Barrett:              We don't have geese but what we do have are sand cranes. That's a protected species, but boy, you wouldn't know it around here. They love my place because we keep the grass cut down close. Obviously, you can't play golf unless the grass is cut close. And they're bug feeders so, let me tell you, they're all over this place.

                                    They don't know the risk that they're taking when they're out there on the golf course and I'm hitting the ball.

Dan Ferris:                 Yeah. We've had a few balls hit the house.

Mike Barrett:              Oh, no.

Dan Ferris:                 Yeah. It's just –

Mike Barrett:              Part of it.

Dan Ferris:                 – par for the course. Bad pun. So, great. I mean, like you say, when the pecans aren't working, you can still play golf. That's a good thing.

                                    I still need to get to your place. I still haven't been to your place. I need to get down there and check it out maybe.

Mike Barrett:              Well, you got close just a couple weeks ago, right? You were down at Boca?

Dan Ferris:                 Yeah. I was in Boca for –

Mike Barrett:              About four hours. It's about four hours away. It's worlds apart from where I am but it's about four hours away.

Dan Ferris:                 Oh, I bet. Yeah. Boca's great. I love the coastal areas in Florida but I'm dying to get there. I'm dying to go up to your place and see it.

Mike Barrett:              I've even got a set of golf clubs here from the Goodwill – the local Goodwill that we keep on hand for folks that come from out of town. So, you can come. You can play golf with me.

Dan Ferris:                 All right. It's funny, because Lori got me a set of clubs – I never used them, and then, she got rid of them. Who knows? Might be the same set. So, let's get a little serious.

                                    Things have changed for you here at Stansberry, too, haven't they, in the past couple of years? Of course, you've been with Extreme Value. You've been my partner in crime with Extreme Value, and, basically, you're the heart of Extreme Value. I don't know if everybody knows that, but Mike – Mike runs the model. Like, when I want to know what stock we might do in Extreme Value, he's the first person I ask, unless I've got an idea that I'm just chomping at the bit to get out to you.

                                    Besides that, Mike does other things. What other things are you doing with Stansberry these days?

Mike Barrett:              Well, after we talked last in 2021, since then, we've launched the Select Value Opportunities product back in August of '22. So, it's been almost two yeas now that that's been in place. I was writing 10x Investor, as well. That's been folded into – we just consolidated at the end of last year so, both of those products are housed under one now. And that publishes weekly and it's only for Alliance members so, that keeps me pretty busy working on that on a weekly basis. It publishes every Wednesday.

Dan Ferris:                 Weekly. I know what it's like to have weekly. Weekly is tough and weekly is tough for when you have to – are you picking a stock a week?

Mike Barrett:              Potentially. You know, it's interesting. The nice thing bout the product is we go with the flow. I mean, it's really more of a – I'm not going to call it a "trading service" but it has an atmosphere around it. Last year – October of '22 was a major market low.

                                    I anticipated that at the time. And over the next – probably the next 12 months, I think we made 18 picks of so – probably double what you would typically do on a monthly service. Now, interestingly, as valuation's got high and there weren't as many things to choose from – we haven't made as many this years as things got really out of control. We've just started, in the last couple of weeks, adding new ideas. But the nice thing about doing it weekly is I'm under no pressure to add picks.

                                    I add them when they make sense. And if we go a long period of time without making a pick, then we go a long period without making a pick.

Dan Ferris:                 Right. And you have tools. I've seen people refer to it as a tool, too – the different filters that you have in there as that, too, right?

Mike Barrett:              Right. Yeah. That's true. Yeah. It's more than just a get a newsletter each week.

                                    You know, when we started the thing two years ago, the idea was to find a way to consistently beat the market and to do that by taking less risk. And I'm proud to say that we've been able to accomplish that. I've updated the statistics as of yesterday – which is July 18th. Our average return is about 14.5%. That beats our benchmark by six percentage points.

                                    And I'm also happy to report that since I started tracking the statistics, the first week of January of 2023, we've got nearly 80 consecutive weeks with about performance. So, what I wanted to accomplish we've been able to accomplish. And it's been kind of a wild ride the last couple of years. There's been some crazy highs and some crazy lows so, I'm very happy about that and looking forward to more of that in the future.

                                    [Crosstalk]

 

                                    To go back to – I'm sorry, Dan – to go back to Corey's point about it being a system, one of things that we do is we focus on – and one of the reasons for the outperformance – is we focus on 100 stocks. That's all we recommend – is 100 stocks – our curated list of 100 stocks – that are the best of the best. They constitute about 50% of the S&P 500 and about 65% of the Nasdaq 100. These are well-known names – Google, Amazon, Honeywell, Roper, Dollar General, Walmart. You get the picture.

                                    And so, what we do is I update the valuations of these things four times a year. Every time earnings come out, I update valuation. And we track the prices of them daily in relation to those values. So, each day, we get a new – subscribers get access to a new ranking – from 1 to 100 – from the most undervalued stock all the way down to the most overvalued stock. And it shows you what we think about each of these in terms of their valuation in relation to their price.

                                    And one of the other things that I mention about that is – you know, one – I was thinking back as we were going to do this, about the catalyst for this whole thing really was the idea that, as you know, the best stocks in the market often times only become undervalued for short periods of time. And you can't always tell when that's going to happen. I mean, often times, it happens when there's a big market downturn, but often times, it's also a function of investors not understanding the growth opportunities or the upside in the growth part of the story. And so, I figured out, pretty quickly, that the only way to find these things and the right time to get into them when they were undervalued, was to begin monitoring them on a daily basis. And so, let me put out a kudos to the IT team that has built this system and monitors on a daily basis.

                                    It is absolutely fantastic to be able to go in and see these stocks re-ranked every day – 1 to 100 – and to maintain all of the data that goes in behind the scenes into this system that I've put into it. It's really phenomenal what they've done. And I think subscribers get a lot out of it.

Dan Ferris:                 And I have to say, of course – like, we've worked together for a long time and stuff, but still, I have to tell the listener that as Mike gives kudos to the IT, I give them to him because he had a whole career valuing real estate before he came to us. Like, he's like, Mister Intrinsic Value across all Stansberry as far as I'm concerned. Like, he does things that I can't do. I guess I could if I worked as hard as he does, but frankly, I don't have his experience is what I'm really trying to say. And he came in and he built this core kind of engine that we use in Extreme Value, and obviously, he's done the same thing for Select Value Opportunities.

                                    It's like my personal valuation guru. He's right there. And that's a really super valuable thing to have now. All this talk about value, people are "Oh, value doesn't – " well, you know, like Mike said, it is often – very often, these days – about misunderstood growth opportunities. In fact, as soon as you said that, Mike, I was like, "It's mostly that."

                                    Like, that's really what we are doing in Extreme Value for the past several years, right? We're looking at the share price in the current market valuation and saying, "The market thinks this stock is not going to grow at all or maybe is going to grow 1% or 3% or something, and we think it's more like, five to seven." You know, just ballpark numbers. Something like that, right?

                                    It's become more about that than finding something – we don't do stocks like trading at discounts to book value and that old style stuff. We're doing this. This is what value means today.

Mike Barrett:              And one of the greatest things about the system that we use is it's based on expectations, right? I mean, what people – I want listeners to remember and to understand is that valuation's about what's going to happen in the future. It's not about what's happened in the past. It's about quantifying the expectations of what's to come still. It's about modeling those cash flows that are still ahead.

                                    And, for me, that was easy, because I spent – as you mentioned – a career valuing hotels and shopping centers and multirise office buildings and so forth. In the good old days, I would get a couple of bankers boxes filled with – stacked with leases – you know, 40-50 page leases – that I'd have to go through and manually put into spreadsheets and understand what those cash flows – those contract cash flows – were going to be over the next 5 to 10 to 15 years, understand what the market rents were, and condense that all into a sense of what the future looked like for that particular property. It's easier to do all of that in the equity space because of all the data we have access to through FactSet and other things. But because I've had that long career modeling cash flows, this is second nature for me, and that's really what it's all about. But the point I wanted to make is – we can quickly ascertain what the expectations are that are implied in a given stock price.

                                    That is really important, because once you understand – something else I've mentioned – intrinsic value is mostly about revenue growth, operating margins, and pre [Inaudible] margins. So, when a stock is rising day after day, week after week, month after month, what's that telling you is that investors are raising, dramatically, expectations for those three things. The reality is, at some point, there's going to be a disappointment, because they just get far beyond. And so, when you can understand where the stock is today in relation to those expectations and what a more realistic view of those expectations is, it gives you a leg up on most investors.

Dan Ferris:                 Oh. Well said. Yeah. And my sort of nutshell explanation of what you do in SBO – to a great extent of what we do in Extreme Value – is the old style would be to – essentially, when you forecast those cash flows and margins, you're looking ahead and kind of making a prediction about growth. But what you're talking about in what we do, it kind of flips that on its head and it looks at the current valuation and says, "What's baked into that?" And then, we compare what we think is more realistic to that.

                                    And I'm saying "we-we-we" – Mike does 80-90-95 – sometimes 100% of this. So, it's that simple. You're like, "If you know about this kind of cash flow – " we're sort of – rather than projecting out into the future and saying, "What does that value look like today?" We say, "What's the market value today? And what do you have to project to get to that? And what do we think that – is that pessimistic? Is it optimistic? Is it somewhere in between? Is there an opportunity here based on that gauge of pessimism to optimism."

                                    It's just a superior way of looking at things. And I probably tell this story every time we talk to you, but I'm going to tell it anyway. This started for our Extreme Value newsletter when I sent Mike a book called Expectations Investing by Alfred Rappaport and Michael Mauboussin – the latter of whom we've had on the show. And he just kind of ran with it. Like, I said, "Yeah. Let's do this."

                                    And I started clunking together some spreadsheets and I would do 1 and Mike would 10 of them and I was like, "OK. Well, I'm not going to compete with this guy. So, Mike, you're in charge. You do that and I'll do whatever else is left, if anything."

Mike Barrett:              Well, that was great, Dan. You know, it's funny, because I talked to – I've talked to Porter's intern this summer – earlier this week – and he was asking me – one of the questions he had for me was, "Was there a defining moment in your investing career?" And I told him. I said, "The moment that I got that book from you –" you sent that book to me. It came in an Amazon package. I had no clue what it was.

                                    I opened it up. I saw the book and said, "Hmm. OK. Interesting." I started reading it and immediately, it crystalized in my mind that all of the work that I'd been doing all those years in real estate valuation can be done the same way in the equity space, but even superior to that.

                                    And what I've done in addition to the valuation model that you've talked about – and I've run through that thousands of times – is in the real estate world, it's malpractice to use anything less than two or three approaches to value. Most analysts in the stock space, they just look at multiples. They say, "Stock's trading at $10. 10 times [Inaudible]. Peers are trading at 8 and 10."

                                    So, it's fairly – we do something totally different. We do this expectation's analysis, but in addition to that, what I do is I actually look at closed transactions for public companies and I look at what the expectations were that were in place at the time of that deal, and I understand what those expectations are. They're baked into those multiples. And I've got a spreadsheet with about 350 transactions on it that I use to test the reasonableness of. So, we go through this long income approach.

                                    We come up with a number and then, we can test that against what the market's telling us buyers and sellers have transacted deals at to – in terms of a multiple as a way of testing, "OK. Is this really for real?" And so, to me, that's a really important part of this process as well.

Dan Ferris:                 You said something interesting that's kind of stuck in my head now and I'm really curious about it. You said that when you read about expectations investing in the book, that it crystalized, and it was even superior to the process you used in real estate. And, immediately, I wanted to know – superior how?

Mike Barrett:              Well, superior – and maybe "superior" is not the right word, but the sense – the reality that we have access – because you're dealing in public markets, and the real estate, you're dealing in private markets. And, you know, it's funny – I would appraise a hotel, and it would take weeks and cost tens of thousands of dollars because I had to go out and understand what people were paying for similar properties. I had to understand what the room rates were. I had to – were there issues that were going to affect the development potential of nearby properties? It's a long, involved, private process.

                                    And, in equities, all of that happens transparently. Basically, we get – through FactSet and Bloomberg and other sources – we can understand what the estimates are – the consensus estimates that are being put out there by analysts, what they expect in the future, and what our belief is. Is it similar to that? Is it not? We've got all this information at our hands.

                                    I guess that's my point. In real estate, it takes you weeks and months to gather that information sometimes.

Dan Ferris:                 Right. OK. Yeah. I can see that. Yeah.

                                    It's really cool what you've done. I just – and the tool aspect that Corey mentioned about an SVO – in other words, it's not just a stock pick... it's a real tool for investors. Can we talk about that a little bit more? Because that's really, really important. It used to be, in our business, that you just – you found a stock pick, you write up your idea, you do your research and write it up, and you send it to your reader, and that's pretty much it.

                                    But, in the age of the Internet, there's a lot more potential for interactivity. So, how has SVO – Select Value Opportunities – more of a tool than merely a stock pick service?

Mike Barrett:              You know, I talk about this in the welcome letter – the fact that if you're going to go out and buy a car this afternoon, what are you going to do before you go buy it? Let's say you're going to buy a new Tesla. You're going to go on Car Gurus or whatever one of these sites and you're going to look up that car, right? And you're going to get all the information on – you're going to understand what other people are paying for. All of that information has been consolidated into that website.

                                    It gives you perfect –as perfect information as you can get at that moment to make your decision. Zillow does the same thing with housing, right? You know you can punch in your address right now and immediately know this is what Zillow thinks your house is worth in relation to other properties that have come on the market. So, my idea was, "Let's do the same thing for valuations." Now, understand that stock valuations are much more – as we talked about – much more sophisticated than simply looking at what a house down the street has recently sold for or a car recently traded for. You've got to look into the future.

                                    You've got to understand cash flows and all these things. But by basically democratizing value and putting it out there on a daily basis, in an instant – within five minutes – somebody can go through this list and say, "OK. Well, here are some ideas for opportunities and here's where I know absolutely there is no opportunity from a valuation standpoint." Something else very important that I need to mention here – Select Value Opportunities requires two things. It has to be undervalued before we can make a pick.

                                    It also has to trigger a momentum buy signal. So, we're not just about value. It has to be about momentum, too. Because a stock can be undervalued for months – if not years – before ever triggering a momentum buy signal. So, that's really, really important.

                                    Those are the two things we require. We don't require that the momentum aspect of in Extreme Value, although, in many cases, that is the case – it just happens to be that it probably is triggering a momentum signal. But it absolutely has to be in place in order to make a recommendation in Select Value.

Dan Ferris:                 Yeah. You're giving me shades of Marc Chaikin now – combining value and momentum.

Corey McLaughlin:    Yeah. And I would say, if any Alliance members haven't –

Dan Ferris:                 And it makes sense.

Corey McLaughlin:    – for some reason, haven't checked out Select Value Opportunities yet, you should. I mean, if go on, you can type in the ticker and get the ranking that Mike mentioned from 1 through 100. You have a simple list, too there – Top Five Undervalued Stocks – with the discount to its intrinsic  value, and then, top five overvalued stocks with the premium to your intrinsic value. So, it's right there on the front. And, like I – that could give you a nice – I mean, if nothing else, it gives you a nice kind of just snapshot on the list of things to think about.

                                    And you can get in there way more detail, obviously, and get Mike's take on the – you do some macro in there, too. I know I read the analysis you do each week – obviously, because it's a weekly – so, you're writing up what's actually happening in the economy, in the markets, too, and what may be ahead. So, yeah. It's –

Mike Barrett:              You know, one of the things – now that you said that, Corey – one of the things I wanted to mention today that's fascinating to me is to track, over time, how the distribution of fairly valued, undervalued, and overvalued for these hundred stocks. When the service first went out – and through the first year or so – the distribution was basically about 75% of the stocks were, at any given day, were fairly valued, about 20% were undervalued, and about 5% were overvalued. So, 75, 20, 5. That's completely flipped in the last 12 months. Now – I just checked it yesterday or this morning – 60% fairly valued, 10% undervalued, 30% overvalued. 30% of the stocks that I track on a daily basis are trading at dramatic premiums, in some cases, to the values that we have assigned to them.

                                    It's – I mean, it's really unprecedented. And it's a warning sign. And so, a lot of the services value, in my view, is to help people understand, "Hey, I'm thinking about Google. I'm thinking about A&D or whatever. Go see what I think about the value in relation to the current price and it may give you an insight that you didn't have before."

                                    Because, to me, at the end of the day, once you know value and you have a convictioning value, you've got a valuable piece of information, because you know something that a lot of other people don't know, and it stops you from making bad decisions. I mean, if you knew for a fact that the house that you wanted to buy for $250,000 was not worth more than $125,000, would you go pay it? Of course not. But people do it all the time in the stock market because they have this – they don't know. They don't understand what the value is.

                                    They don't have a strong enough conviction in the value so, they say, "The talking head on CNBC said he's buying in video or whatever." So, they run out and buy it. But they don't understand what it's really intrinsically worth and so – then, they're running for the hills when it turns down. So, that's really important.

Dan Ferris:                 Yeah. That's a really great point because if – we've been in this business a long time and we've seen a lot of feedback from readers. I've talked to many of them – probably hundreds at this point – over the many years at various conferences – including our own annual conference – and the big mistakes are not sticking with something that's really great over the long term. I mean, there's a big mistake that I've made, you know? It's a standard kind of human foible.

                                    But I get the most – you get the most conviction, generally, from what you're talking about. Understanding the value, understanding the business. And also, Mike, what you've done that I just want to point out is you've – before you get to any other work that you do on these companies, you've pre-vetted 100 companies that you're saying, "These are better businesses. These are the good businesses." And that, alone, is a source of enormous conviction, you know? We had a huge winner in Extreme Value with Constellation Brands, which I think was – was it the very stock you ever brought to me when –

Mike Barrett:              It was.

Dan Ferris:                 Yeah. And dopey me like, whiffed on it for I don't know how many months before I was "Yeah. This is good. Let's do this, you know?" And it's fantastic.

                                    It's exactly what you want. It's a cash gushing, brand name, alcoholic beverage company. I mean, I've been drinking the same beer for decades. People don't – you know, they don't change, right? So –

Corey McLaughlin:    I started to a little bit.

Dan Ferris:                 It was a fantastic idea. Turned out really well. Yeah. That's right. Turned out really well.

                                    And part of the reason we held on for so long was because we had the conviction that it's such an excellent business. And there were major breaks in the share price. Like, there was a – it went through this volatile MNA period, which turns out to be a complicated thing that really benefited the company in the end, but at one point, the deal was sort of off or whatever, and the share price was tanked really hard. And one of the best things we ever did at Extreme Value was say, "Don't sell this thing, man. It's still a great business."

                                    And then, we came out the other side with even bigger returns. So, this idea of a sense of conviction by knowing what you own – I would almost say it's like one of the best things about Stansberry. And it comes from the top down. Like, Porter learned, some time ago when he started his research on capital efficient businesses, that a really great business is the most important thing. And then, from there, you decide what the valuation is and whether or not you want to buy it right now and all that.

                                    But starting with a high-quality business is the thing. And, like Mike said, you've really got to know it ahead of time because they don't get cheap. When they get cheap, it's not that often. It's usually not for that long, right?

Mike Barrett:              That's right. And you know, I remember –

Dan Ferris:                 All these ingredients come together.

Mike Barrett:              I remember, years ago when I first was involved with EVI and doing the searching for stock ideas, and I'd come across a great idea, but I was two weeks late because it had already moved dramatically from that undervalued. And so, that was what triggered me to say, "Hey – we've got to come up with a system that solves this problem." And that's what Select Value has done.

Dan Ferris:                 Yeah. I can remember at least once or twice over the years – the newsletter comes out on a Friday so, obviously, we're doing a bunch of work before that. Friday, the thing would open up 20%. Friday morning, we'd get up ready to publish this thing, say it's really under value, and the market opens, and the thing is up 25% or something. It's just – oh, you know. We're like, literally hours late with this recommendation, which is really frustrating.

                                    But it's a great idea. I was about to say – all those elements come together. High quality businesses, forget all the garbage, understand the value, and even add in momentum as Mike and others have done, and it's really powerful. Because, you know, you can get the timing right, and you can get the valuation right, and you can get the conviction to hold over the long term with all these elements in place. It's really powerful.

                                    It's very similar to – it's just generally similar to what Marc Chaikin does. It's – the work behind the scenes is actually totally different because you're building valuations. You're building bottom-up valuations and he's using some valuation metrics. And, frankly, I think what you do in terms of valuation – it's like, the most powerful valuation model in all of Stansberry like, by a mile, because we know what the other folks do, and nobody does what you do.

Mike Barrett:              We've had people –

Dan Ferris:                 You've got a job for as long as you want one.

Mike Barrett:              We've had subscribers ask about expanding the list to 150-200 whatever, which would be great, but the reality is, unfortunately, that it's really – it takes a lot of time to update these valuations four times a year. It's not an easy process. And I got a sense for this when we had – for a while, I had an intern – well, not an intern, but I had somebody working with me – another analyst here in the company that didn't know anything about valuation – and trying to help him understand the nuances of this system was very challenging. It was going to take a long time. So, what happens is you forget, over the course of time, how much you understand about something that someone else doesn't because of all the work you've put into it over the course of time.

                                    And so, yeah, I just think it helps people from making bad decisions. When you know what the value is, you can relax, because you're not going to buy – it doesn't mean you're always going to get it right. I don't always get it right. I can tell you that. But most of the time, you're going to avoid the big mistakes and be there to take advantage of the opportunities when they present themselves.

Dan Ferris:                 Right. Corey mentioned, rightly so, that you do macro commentary in Select Value Opportunities, and you and I have exchanged a few words now and then about the macro environment. Everybody knows my spiel on that right now so, let's not do that, but what do you see when you look at the overall stock market, the level of interest rates, these big sort of macro markers? How do you think about the current environment?

Mike Barrett:              That's a good question. I have a couple of different things that I do. I have studies, for decades, cycle history, and I'm a very firm believer in market cycles. To me, the most important ones are the four-year cycle that occurs from bottom to bottom. Generally speaking, it's about four years.

                                    Sometimes, it's a little bit shorter... sometimes it's a little bit longer. And then, the annual or seasonal cycle, which is about 12 months. So, I stay very attuned to those two cycles where we are. I try not to get too far out ahead and make big predictions about what's coming or what isn't coming. I try to focus on "Here are the two cycles that we – where are we on these two cycles?"

                                    And then, I just try to stay a week or two or three ahead of the market and understand – anticipate what inflation and – to me – we're talking about macro – I've said this for a least a couple of months – I think that inflation is becoming less of an issue. I want people to remember that the fed has a dual mandate. Maximum employment and stability in pricing. Pricing stability is becoming less of an issue. Maximum employment is going to be the big deal and I'm starting to see this crop up in the Wall Street Journal and Blue Market Socialist.

                                    'Cause I've been tracking these unemployment numbers and employment figures for some time now. This is going to be the issue. And this is why I think, personally, the gold and silver are near all-time highs – because they anticipate that the fed may cut rates, but that doesn't mean that inflation is going to diminish from 3% to 2%. And it means that real rates are going to decline from here. And, as real rates decline, you're going to see gold and silver really take off [Inaudible].

Dan Ferris:                 Yeah. That makes sense. I still have a feeling like this strong, strong anticipation that lower interest rates, an impending fed cut, that people are way too – it's monotone, right? They're just thinking, "Well, that's wildly bullish and that's all there is to it. So, buy stocks hand over fist" and you wind up ignoring other things.

                                    And we're on the same page there for sure as far as gold and silver are concerned because –

Mike Barrett:              Well, I've talked about the fact that just because interest rates are declining does not necessarily mean good news, right? I mean, go back to 2008. And that's why I say we have to keep an eye on employment because in 2008, inflation was not declining. Actually, it was increasing. But the fed did not hesitate to cut rates because unemployment was beginning to soar.

                                    And, as it continued to get worse, that's what's going to set the stage for gold to move higher here – is if they have to cut because employment is worsening, even if inflation isn't improving, they're going to have to cut to keep that mandate of maximum employment.

Dan Ferris:                 Right. And the latest in this narrative, of course, is the fed, through Jerome Powell, of course, is saying, "Well, we're not going to wait for inflation to get down to 2% necessarily before we start to cut rates." Which the market loved, right? And I find that really incredible, primarily because nobody seems to acknowledge – it's rarely acknowledged how insane the 2% target is. It's like saying, "We're going to see to it that the consumer's screwed about 2% worth a year. In our opinion, it's OK to screw the consumer 2% a year."

                                    And the 2%, of course, is very obviously a kind of suppressed number because people are paying a lot more than 2% more for a bunch of important stuff. And energy and food are considered non-core. I mean, we'll die without them, but they're non-core. I don't get it.

Corey McLaughlin:    Nonessential. Yeah.

Dan Ferris:                 All of this narrative around these very popular, widely accepted data points is a bit insane to me. And I'll tell ya man, I sold some gold once and it was the dumbest thing – one of the dumbest things I ever did. I'm not doing that again. Not with all this insanity and these popular data points and, as you said, the likelihood of higher prices for gold and silver. It's a weird, weird, world that we live in.

Corey McLaughlin:    Yeah, Dan, to me, too.

Dan Ferris:                 How do they get away with it? I don't know.

Corey McLaughlin:    To me, the end outcome of what Mike's describing – which, I totally agree, that unemployment's starting to pick up and inflation is becoming a past concern. Now, it's going to be unemployment as far as the fed is concerned. To me, that just ends up in the more inflation down the road territory, which – and then, we get into that whole – well, Dan, what me and you have talked about plenty of times – like, that longer term cycle of rates likely going up but maybe this is a cut within a longer-term rate cycle. So, I don't know if you have any thoughts on that, Mike, too, but –

Mike Barrett:              Well, you know, it's something that we haven't talked about yet is with regard to CPI. About 45% of the contribution is housing. And housing inflation's running 4.5%. Now, it's improved a little bit, but if interest rates start to go down – which they're doing as bond yield's lower and interest rates go down – I think you see where I'm going with this, right? People are going to run back out there and they're going to start buying homes and pushing prices up.

                                    What's going to happen to that 45% of CPI that's related to housing? It's not going to go down. And so, my view is – again, I think this is what gold and silver are telling us. Inflation is not going to move much off 3%. And they're going to have to – they're absolutely going to have to cut rates if unemployment becomes more of an issue.

                                    And I think it is an issue. I think when you look at the number of job openings, I hear, anecdotally, the stories of people out looking for jobs and they're not finding them. Reading Bloomberg and the Wall Street Journal – the good reporting that's been done about people out looking for jobs – and what they're finding is that in many cases, the higher paying jobs are going away. Job growth is in the lower paying jobs. And when you put all these anecdotes together, you begin to sense that the employment picture's not really as great as maybe the big data is telling us. But when that scenario hits the big data – the nonforeign payrolls report that comes out monthly – they're going to have to cut whether that inflation rate's at 3% or 3.2% or whatever.

                                    And, again, what's going to happen? Real rates are going to plunge and gold and silver are going to soar. That's the backdrop that I think we have to be prepared for.

Dan Ferris:                 Yeah. Totally agree. Must prepare for that. Yeah. I've been thinking a bit about housing lately and it's a head scratcher, except that the fundamentals underneath it kind of remain the same.

                                    And if you look at the longer-term picture – like, I've been thinking about other countries – Australia, Canada, specifically... places where Chinese people had bought a lot of homes over the past several years – and you could say, "Well, the Chinese market itself is just in horrible shape so, they're going to have to sell something and they still own plenty of homes in these areas." On the other hand, the real picture for real demand for housing – just stick to the United States versus the supply – it's still pretty robust, even with everything that's happened. And I think that may keep prices elevated. As you say, the rates go down. It could give another shot in the arm.

                                    And the backdrop – the regulatory backdrop – it's not great in North America. In America, we have NIMBY sentiment, right? Not In My Backyard. So, there's a lot of regulatory issues. It's expensive to build housing.

                                    There's a great article in the New York Times about building multifamily housing is so expensive because elevators cost five times more in the U.S. than say in Europe or other places. And then, you go to a place like Canada and it's not NIMBY. The sentiment is BANANA – Build Absolutely Nothing Anywhere Near Anything. BANANA. So, housing is a really interesting play.

                                    I've exited early but with substantial profits in the Parish report letter. Maybe quite a bit early. I'll have to see what I think over the next few months. But, overall, it's a very, very interesting backdrop there. So, Mike, you actually – I had two more questions for you.

                                    One was – what haven't we mentioned? And you mentioned that. And the next one, of course, is our final question, which you've answered before. It's the same question for absolutely every guest no matter what the topic. Even if it's nonfinancial topic, I still ask them the identical question.

                                    And if you've already mentioned your answer, by all means, feel free to repeat it. The question is simply this – if you could leave our listener with a single idea or a single thought today, what would it be?

Mike Barrett:              You know, it's funny, Dan, I remember that there was a last question, and it was something along these lines, and I couldn't remember exactly what it was, but I said, "You've got to be ready for it."

                                    [Laughter]

 

                                    I'm not ready for it, but you know –

Dan Ferris:                 Nobody is. I think it works better that way.

Mike Barrett:              Actually, that's not true. I have given it some thought, and my answer will make sense. Earlier, I mentioned that Select Value has had a good run. We've outperformed the market for a long period of time and substantially. So, the question, of course, is why?

                                    Why has that happened? What are the underlying causes of that? We've talked about it. One of them is, of course, we're sticking to elite competence – the best of the best. That's a big part of it.

                                    We're waiting until they're priced properly and we're only buying them when they trigger momentum signals. But what I haven't mentioned that I want the listener to take away from this today is the other ingredient that's really important is aggressively managing your portfolio. Now, if you're somebody – like, at Extreme Value, we tend to buy stocks for the long term. If a stock goes down 15%, we're not as uptight about that as we are in Select Value because we've got a shorter time period. We've got a different mandate.

                                    But here's what I wanted to mention. I did address it earlier – this idea that you let your winners run and you cut your losers has been a very powerful source of performance for Select Value. We don't take losses. We abhor losses. And so, when a stock moves against us, we don't wait until it's down 25% or 20%.

                                    We cut that bad boy quickly before it gets out of control. Now, yes, do we sometimes cut and then, a month later, it takes off? Absolutely. That happened with Nvidia. Last August, we had Nvidia.

                                    Nobody else thought it was undervalued. I'd pounded the table for it for six months. We ended up closing about a 60% profit in eight months in it before it stopped us out. But I want to make the point that don't be shy of cutting your losers and letting your winners run. It's not as easy as it sounds, but it has absolutely been a source of outperformance for Select Value, particularly during down periods.

                                    So, yeah, that's what I wanted to mention.

Dan Ferris:                 Excellent. That is a wonderful message. We're interviewed turtle traders and all kinds of other folks, and that message aligns extremely well with some people who have gotten extraordinary returns of long periods of time. So, thanks for that and thanks for being here, Mike. Always great to talk with you.

Mike Barrett:              Yes, sir.

Dan Ferris:                 I can't believe – we've known each other all this time and we almost never talk on the phone. It's like, five words by e-mail every month or something.

Mike Barrett:              Well, we're just kindred spirits at this point, Dan.

Corey McLaughlin:    Well, we'll have to get you together again soon here on here then.

Mike Barrett:              Sounds good.

Dan Ferris:                 Yep. And I am coming to Florida. In fact, I might just show up at your door one day. If my schedule allows, it's going to be like, [Knocking] "Hello?" "Honey, Dan's here. He's got his own clubs."

Corey McLaughlin:    Bring a seven iron.

Mike Barrett:              That's right. You don't need anything too big. We get it done.

Dan Ferris:                 All right.

Mike Barrett:              All right. Take care, guys.

Dan Ferris:                 All right. Thanks a lot, Mike.

[Musical burst]

 

                                    Well, it's always good to talk with my old friend, Mike Barrett. As you can tell, he's a real gentleman. He's a true southern gentleman and a great family man and a brilliant analyst. He's my person value – intrinsic value guru. He does it better than I do it.

                                    I just – as soon as we hired him, I was like, "Wow. This guy's really good." And then, after a while or so, I just thought, "He's not only good, he's better at it than me so, I'm just going to set him loose and let him do his thing." And that was one of the best decisions I ever made in my life. As you probably guessed, just by hearing him talk, right?

Corey McLaughlin:    Yes. Sounds like a wise decision to me for you to do that. And yeah, I want to go to his golf course, first of all.

Dan Ferris:                 Yeah.

Corey McLaughlin:    I hope his pecan trees rebound a little bit as well. And yeah, as far as stocks and valuing stocks, obviously, his – it's also interesting, his background in real estate clearly translates directly into valuing stocks. And it's just funny. It reminds me of all the different ways we've talked about different investors approach the market. Your background informs how you do it.

                                    And he's another one, which I wasn't fully aware of. I'd heard that a little bit, but I wasn't fully aware of just how deep that went and how he was – one of the bigger moments for him was the book that you sent him where the lightbulb clicked for him as far as like, "Oh. Wait. All of this stuff that I have to gather in the private market myself is available in the public market to some degree" and was able to build models around that. I think that's sort of a moment that a lot of people get to one way or another.

Dan Ferris:                 Yeah. That's right. That's not a controversial thing to realize that, but it is something that I'm glad our listeners understand now, and they heard it from the one guy that you would really trust to make that observation – given lots of experience in real estate and now, lots of experience in equity. So, if anybody knows that it's Mike Barrett. I, too, would like to play on the golf course and visit the plantation and just sort of drink it all in.

                                    I haven't done that all this time. Mike and I, we barely talk anymore. We used to talk regularly and e-mail regularly, but when you have a guy who's that good, like I said, you just kind of set him loose and let him do his thing. So, I'm glad that – I'm just glad our listeners got a chance to hear the thought process and the ideas of, in my opinion, the one guy in all of Stansberry Research who understands how to calculate bottom-up intrinsic value for an asset better than anybody else. I'm really glad they got to hear that.

Corey McLaughlin:    Yeah. Whenever I read his stuff, I realize how much I don't know – in Select Value Opportunities. And just the models that are available, like I mentioned, to Alliance members, too. I mean, if you haven't checked it out – I know we haven't really promoted it too widely, but you should go check it out on our website if you haven’t yet.

Dan Ferris:                 Yeah. And, of course, like, Marc Chaikin during the interview because, in Select Value Opportunities, Mike uses all of his intrinsic value, knowledge, and research, but he also uses momentum indicators. And, of course, Marc Chaikin has combined those two things as well. So, we're always very excited to talk to Marc, but I feel like we haven't – it's been a while since we've had Mike on and I think he's been on once before – before your time even, as we discussed. So, I'm glad that they got to hear another version of that, and I hope people will check out Select Value Opportunities.

                                    I'm not trying to sell it to you, but Mike is a smart guy and some of the – what happens with Select Value is that he picks stocks there as a trade, but the basic idea is that these are great companies we're watching, and when they get cheap enough and the momentum is right, it's a good SVO pick. But when the longer-term picture is right and it's cheap enough and stuff, it's a good Extreme Value pick, too. So, we've – occasionally – I think once or twice, not a lot – we've occasionally overlapped, and he's gotten a good trade out of the SVO pick and then, we get a good longer-term return out of the Extreme Value pick. So, it's just really cool to have a guy who took the idea of intrinsic value and ran with it and came up with all these good ideas that benefit our subscribers. And it's just fun to work with a smart guy, isn't it, frankly?

Corey McLaughlin:    Yeah. I also like his point about avoiding the losers – like, how his strategy just – again, like, we get back to these common things, but avoiding the losers. How valuing companies just help you do that. When he said about the hundred stocks that are in his value opportunity system now and like, 30 of them are overvalued right now compared to like, 5 whenever the previous time period was. That's something I'm going to start to look at a little bit more when I'm looking at kind of macro in general – check out that list and see, "All right. These high-quality companies, how overvalued are they right now or not?"

                                    The ones that are already picked – selected, window down, that are good companies and factor that in to whatever your analysis may be.

Dan Ferris:                 Right. Because it's a good bottom-up – these are real bottom-up valuations. It's not just like, some kind of market benchmark like the PE or the Cape ratio that I use for the S&P 500. This is a different take on that and has a chance to be really valuable because it's – the values are based on the fundamentals as assessed from the bottom up by a guy who knows how to do it. So, it's pretty cool.

                                    Yeah. I agree with you. That one thing there is really a super valuable thing. It's probably only valuable like, when it gets to the extremes. You're not going to ride the market up and down on it.

                                    But when it gets to the extremes, it's like, "Pay attention. Warning sign." Yeah. All right. Yeah.

                                    Lots of good stuff in a conversation with Mike Barrett. And I promise, listeners, we won't three or four years or whatever it's been since the last time we had him, all right? He's too good. We're not going to wait that long next time. So, that was a great – I really enjoyed that.

                                    That was a great interview. I hope you enjoyed it as much as we did – as much as we truly did. We're talking to our friend here. Of course we truly did. We do provide a transcript for every episode.

Just go to www.InvestorHour.com. Click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you like this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com, please, and also, do me a favor – subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And, while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram.

Our handle is @InvestorHour. On Twitter, our handle is @Investor_Hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line – 800-381-2357. Tell us what's on your mind and hear your voice on the show.

For my co-host, Corey McLaughlin, 'til next week, I'm Dan Ferris. Thanks for listening.

Recording:                  Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to InvestorHour.com and enter your e-mail. Have a question for Dan? Send him an e-mail – [email protected]. This broadcast is for entertainment purposes only and should not be considered personalized advice.

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