This week, Dan Ferris speaks with Herb Greenberg. A renowned investigative financial journalist and now the senior editor for Empire Financial Research, Herb has had a storied, 40-plus-year career in the financial markets.
His diverse work spans a multitude of heavy-hitter media outfits such as CNBC, Fortune magazine, the Wall Street Journal, MarketWatch, TheStreet.com, and the Chicago Tribune, to name a few. And during his 10 years at the San Francisco Chronicle, his daily business columns were even mailed weekly to Warren Buffett.
Throughout his years of trawling the markets and rooting for information, Herb’s investigations have landed CEOs in jail, led people to steal his phone records, and even prompted death threats. In this interview, he wows Dan with what he calls “the best death threat I ever got,” which – spoiler alert – involves the FBI and the finance minister of Canada.
These days, Herb uses his knack for unearthing information and doing deep-dive analysis to help readers at Empire navigate and explain the markets.
For years, he had a “short” bias. But now, he’s going long. In particular, he’s interested in how the current pullback is creating buying opportunities in broken initial public offerings (“IPOs”) and special purpose acquisition companies (“SPACs”). He says, “Buy the dip, but buy it intelligently.”
Herb discusses plans to launch a brand-new, long-only research service. He shares his process for empowering and educating the everyday investor, as well as what goes into researching the best companies for his readers. And in his answer to Dan’s traditional Final Question, he describes one of the biggest changes he has made in his own life – a change that he urges all listeners to make as well: eliminate toxicity…
Senior Editor at Empire Financial Research
Herb Greenberg is a senior editor at Empire Financial Research. Previously, he was the co-founder of Pacific Square Research and Greenberg Meritz Research & Analytics - both independent, short-biased investment research firms.
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 Herb Greenberg. Herb is well known, has been around a long time. He's well known for short ideas.
Now he's turning his research to the long side. We'll talk about that today. In the mailbag today, questions about value stocks, banks, gold, and more. Big mailbag this week. Well done, folks.
And remember, you can call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my opening rant this week, I'll talk about return on equity, AMC, gold, and apes. That and more right now on the Stansberry Investor Hour.
Very quickly, let's talk about the last of our "Five Financial Clues" as I promised I would. So we talked about free cash flow, consistent profit margins, good balance sheet, shareholder rewards, and the last one is return on equity. Now, return on equity is really just income over equity as a percentage. So a high return on equity is good. But again, a consistent return on equity is best.
A consistently high return on equity is really what you look for. Now equity is influenced by debt. So if you have a tiny little slice of shareholder's equity, your return on equity number is going to be through the roof. Most of the stocks that I like don't have a lot of debt, right? But if they do have more debt, we have to think about other return metrics that make sense like return on assets or return on invested capital sometimes.
There are different return metrics we use, but return on equity is the one for equity investors [laughs] I think, right? You want a return on the equity, on the money that you put into the business. So this is good because you need some way of determining if the capital that you're putting into a business is being used productively enough and getting a high-enough return. So that's why I use return on equity or assets and other return metrics. You just want to say, hm, is this the most productive use of my capital or could I put it elsewhere and compound at a higher rate?
Return on equity, I like to say, is like if a business were a bank account, return on equity is the return you get on all the cash you leave in it, and businesses don't necessarily reinvest all the cash they generate. But whatever cash they do leave in the business that they don't pay out in shareholder rewards like buybacks or dividends, the equity that they leave in the business. That's what that return on equity number is all about.
And I just like a consistently high one. You know, 20% and above is great. So there are a lot of business like – I guess the easiest one is like software. You find a really great software company and the returns on equity, they can get stupid-crazy ridiculous. I mean, 40%, 50%, 60%, 70%. It can be insane.
And if they can keep that up for a long period of time – I saw Chris Mayer posted on Twitter recently about a Canadian company called Constellation. The ticker symbol in Canada is CSU. And it's like one of the most incredible, hundred-bagger, unbelievable – it might even be a thousand-bagger. It's just been a huge, huge winner. And it's hardly ever had a big drawdown.
I don't think it's ever had a 30% drawdown. And it's because if you can just keep acquiring software companies, and you do it right and you know what you're doing, you'll get huge returns on equity and it'll generate more cash than you'll ever know what to do with and you can buy back the stock or pay off dividends or buy more software companies. And it can be a lollapalooza, as Charlie Munger would say.
That's a great example of one of those companies. Huge return business. Massive compounder. Huge home run for anybody who bought it long enough ago. So that's my bit about return on equity. I need to talk about something else though because for some time now – well, since the beginning of the year the stock market has generally been falling, although it's come up a little bit lately.
So we haven't really talked so much about the speculative frenzy that I would have been focused on for most of the last year and a half. But it's still there, and we got a huge piece of evidence recently when the movie theater company AMC Entertainment Holdings, that owns all the movie theaters, announced that they were going to buy 22% of a company called Hycroft Mining... 22% of a gold mine because all they own s the Hycroft Gold Mine in Nevada.
It's near a little town called Beatty, Nevada, which is near a ghost town called Rhyolite, Nevada that was used in a film called The Island with Ewan McGregor and Scarlett Johansson. That's like the closest connection I think most normal people will ever have with this Hycroft gold mine. Out in the desert in Nevada, right? And so AMC, this movie theater company – of course, this is one of the meme stocks, right?
It went from like $3 to $70, and now it's crashed back to about $14 or so because it's such a crappy business. Even before COVID, movie theaters were in secular decline for a decade. And then COVID hit and the revenues went from – they had gone from like $7 billion or so to $5 billion, and then they went from $5 billion to $1.2 billion or $1.5 billion or something like that. And now they've come back to I think maybe $2.5 billion or something.
I'm not looking at the numbers. These are ballpark numbers. But that's about what it's done. And it hasn't made a profit since 2018, AMC. But what it has done, it attracted all these crazy speculators who rammed the price up from some single-digit number. It depends on where in time you want to peg the beginning of this thing, but you could just call it $2 or $3 I think, and that'd be fair enough, or $4.
Something like that. Up to $72. And it happened in a few days. So now this dying business – and they have $10 billion, almost $11 billion in debt. They're dying. They're toast. So they were heavily shorted by big hedge funds, and somehow all these little speculators who were stuck at home during COVID, they got stimulus checks, they all bought the crap out of AMC and it took off like a rocket ship.
Of course, now it's crashed back. These meme stocks have all crashed like 70%, 80%, 90%. And AMC is down – it was down about 80% from its meme stock all-time high, right? But they were able to raise money when the stock was way up high. So now they have $1.6 billion in cash. They raised $1.6 billion in cash.
So now they've got kind of a new life. And even though the thing is down 80%, it's still way overvalued. It trades at 45 times enterprise value over EBITDA, which is a really crappy cash flow. It's a generous cash-flow metric. So here is this thing. It shouldn't exist. It should've been out of business by now, but the apes ran the price up and they were able to raise enough money to save themselves.
And what are they doing with it? They bought 22% of a gold mine. And the thing about this gold mine that makes this hilarious is that it's not operating. They shut it down in November. They had this program to make the mine productive again.
Because it was a decent mine in the 1980s, 1990s, but it's not working right. It's no longer an economic resource to mine. And Hycroft had this procedure, what they called this novel procedure. Let's not get into the details. You can read about it all you want in the Hycroft Mining disclosures.
But they had this novel procedure that they were going to use to make the mine economic again. It didn't work. They stopped. They shut it all down and fired half the workforce, about 100 people, and it's just been burning cash. And the thing went bankrupt.
It went bankrupt in 2015, and it only went public again in 2020 via a SPAC transaction. So it's just burning cash. It burned $110 million of cash last year, and it's not operating. But they say, "Oh, we have 15 million ounces of gold," and I forget, I think 600 million ounces – you know, "hundreds of millions of ounces of silver. It's the greatest gold mine in North America."
Yeah, but it's been mined out for years and nobody can make it work right. If you know anything about mining, and I've been lucky enough to know a lot of people in the mining industry and the mining investment industry, you know it's a crappy business even when you get a good ore body that you can easily mine, easily mine. As if that's not an oxymoron.
But these guys bought a gold mine. It's so stupid. It reminds me of during the dot-com era when all the failing gold miners were changing their name to dot com. Or a few years ago all these crappy little microcap stocks changed their name to something, something blockchain, and it made the stock price go up real quick, and then the stock price crashed.
Now this is more substantial than that because they invested like $56 million. They invested real money. And they invested alongside a very famous, successful mining investor named Eric Sprott. Eric is a very wealthy man. He's made his money investing in all kinds of risky gold mines.
He knows what he's doing, right? The thing is you can't just ride along with somebody like that. We know darn well nobody at AMC knows anything about mining because any geologist of any worth will look at Hycroft Mine and say, "You know something? They're never going to mine it economically, it's a piece of garbage."
And these guys just poured – AMC put $28 million and Eric Sprott put $28 million into it, so $56 million altogether. And then – and it gets worse – the day that they announce that Eric Sprott and AMC had each invested $28 million, they very quietly, with no announcement, put in a filing that said they could sell up to $500 million worth of shares at any time. [Laughs] Like 10 times as much, and five times as much as the current market cap at that time.
And before the announcement of AMC and Eric Sprott's investment, like in the days before that, the shares took off like a rocket ship. It was 6X. So somebody find out about it and bought a bunch of options and a bunch of shares, and the thing went up like a rocket. And then when the thing's up like a rocket they announce this thing from Eric Sprott and AMC and quietly file to sell as much as $500 million of new shares.
Now you tell me nothing shady is going on here. It's ridiculous. This situation is ridiculous. It's a crap mining company. AMC's CEO is from the hospitality industry. He was the CEO of like Vail Resorts. He worked for Hyatt Hotels, United Airlines. They know nothing about mining.
It's insane. The speculative froth is alive. It's out there. The speculative frenzy is alive and well. I wrote about this in the Stansberry Digest, but I couldn't not tell you about it because I know not all of you are subscribers to Stansberry and you don't all get to read the Digest.
But this is too much, man. It's insane. And these people buying AMC and GameStop and all the meme stocks, they're going to get so completely obliterated when reality comes back and hits the share prices of these companies. There's no way AMC is worth $7 billion, or even $1 billion.
You know, it's probably not worth more than a couple hundred million. It's worth pennies or something. It's worth sub-$1. And here it is with all these crazy apes saying, "I'm not leaving, I'm not selling my AMC shares." Well, you know, having a good shareholder base is quite an asset.
I mentioned Constellation Software in my opening bit about return in equity, and one of their strengths is that they have a shareholder base that just won't go away because they know it's such a fantastic business and so brilliantly run, right? So maybe AMC – you know, it's a terrible business. Obviously they don't know what to do with this $1.6 billion that they raised from all these apes running the stock price up, and yet the shareholders won't go away so it's still worth $7 billion.
They can even do something this dumb and the stock doesn't fall apart. Ugh. I could talk more about this, but you get the point. It's crazy. All right. [Laughs] Let's talk with Herb Greenberg. Let's do it right now.
Something strange is happening in the financial system, and it's prompted Dr. Steve Sjuggerud, a former hedge-fund manager and finance Ph.D., and a friend and colleague of mine, to issue an urgent new warning, especially during current market conditions. You see, Steve has built a reputation as one of the most trusted financial analysts in the world by sharing a series of eerie predictions, many of which have bene proven correct. For instance, in January of 2000, he wrote, "We are at the peak of most likely the greatest financial mania that will ever be seen in our lifetimes."
Right after that, the Nasdaq fell more than 75%. But his latest prediction has caught many Americans completely off guard. He believes that over the next year or so there's going to be a massive frenzy in the market, but not the kind most people are expecting right now. It's got nothing to do with cryptocurrency, Russia, interest rates or real estate. And history has shown this type of situation only plays out two or three times every century.
I'll warn you what Dr. Sjuggerud has to say is controversial and isn't being talked about in the mainstream media. His brand-new presentation is available to watch for a limited time online if you visit 2022Prediction.com. Again, that's 2-0-2-2-prediction, all one word. 2022Prediction.com.
It's time for our interview, and today's guest is Herb Greenberg. Herb has been a financial journalist for nearly 40 years, where he worked for the Chicago Tribune, San Francisco Chronicle, Fortune, TheStreet.com, MarketWatch, the Wall Street Journal, and CNBC opposite Jim Cramer for years. For years, he was a short seller and even launched his own short-biased research firm. But for the first time he's going long. In particular, he's interested in how the current pullback is creating some phenomenal buying opportunities, particularly in broken IPOs and SPACs.
I like the sound of that already. He says, "Buy the dip, but buy it intelligently." Thank you for that. [Laughs] His exposes as a financial investigative journalist landed CEOs in jail – yeah – had people steal his phone records, and even prompted death threats. Herb, welcome to the show. Death threats? I didn't know that.
Herb Greenberg: Oh, [laughs] when you do what I did for a living you get some people a little bit angry with you. But I have to point out one thing. I was never a short seller. Came close to being a short seller. I did short research for years, but I never quite pulled the trigger on that.
So some people sometimes get that confused, and I always say, "Whoa, whoa, whoa, I'm just the guy who does a lot of research and has done a lot of research on it." I have short bias as a journalist and with my research firm. Yeah, the death threats. Yes.
Dan Ferris: Wow.
Herb Greenberg: Death threats would come my way. But there's one story, the best death threat I ever got.
Dan Ferris: [Laughs]
Herb Greenberg: And there are different ones. I mean, look, the best death threat I ever got was a guy – there was this guy back in the AOL days, back in the old days, and he had posted – I was working at the San Francisco Chronicle, I think – and he'd posted something and he said on a message board with his real name, which was the problem, "you ought to look under your car the next time you go outside."
So we went out and contacted the FBI, and the FBI basically went to the guys house in Shreveport, Louisiana where he was a stockbroker, knocked on his door and said, "Don't you ever do this again or you're going to have a problem." Fast forward many, many, many years, and I get a call from the Justice Department, from the DoJ in Shreveport. Hey, there's this guy and he's threatned the finance minister of Canada. And he had threatened you too many years earlier. Would you come and testify?
So I went and testified. And the funny thing is, the key FBI agent was retired, but he said, "Yeah, I told the guy if he ever does this again he's going to have a problem." And he went to jail. But there are just people who for the nature of what you do don't like it. So there's a story I tell, another one, that's just one of my fun ones.
It wasn't a death threat, but it just sort of illustrates what this is like. I'm walking down the street in New York, 42nd Street. I'm with a guy named Jeff Mackie who's a friend of mine, does a lot of retail stuff. And walking. And when you've been in the media for a long time, you sort of know when people are looking at you. So there's out of the corner of my eye, I can see some guy sort of pacing us.
And he's sort of a schlumpy-looking guy, and he's got an overcoat on. Finally he gets up the nerve to come up and say, "Herb Greenberg?" And I go, "Hi." You know, I do what I always do. I turn around, put out my hand, go to shake it, and he goes, "You're the worst. You're the worst, I tell you. The worst, the worst!"
And I just started laughing. [Laughs] Then he just walked away muttering, "You're the worst." But between that and the hostile e-mails you get, and this thing that I always joke about that I've had for many years that I called the "hostile react-o-meter," which is something I made up, but it's actually – other people have used it since. Because certainly until meme time came, but even then you could argue it's the same thing, the angrier responses – and there are exceptions to every rule, right – but the angrier the responses the closer to being right on target you are, especially with sort of a shady company. So yeah, that's what I did for a living for many years.
Dan Ferris: So this is definitely on this podcast the first time anybody ever said the best death threat I ever got. [Laughs] That's not a phrase you hear very often at all.
Herb Greenberg: Yeah. And by the way, I don't want to get any more death threats. I've had my share in life, so I'd rather not have any. But yes, it comes with the territory.
Dan Ferris: Wow. Yeah. We had Gad Saad on the program from Concordia University, and he's gotten his share as well, but he's in the political sphere with a lot of his commentary, so somehow it shouldn't be more understandable but it is. But all that's behind you now. This is the interesting thing about you because for years somebody would say Herb Greenberg and I'd say, "Oh sure, that guy with all the great short ideas."
So, you know, when somebody says, "Yeah, Herb's going to come out with his own new research service and it's going to be long-only," I was like, what? So at some point along the way there had to be an epiphany, right? I mean, what happened? [Laughs] What happened? Was it the death threats?
Herb Greenberg: Well, no. It was a confluence of a lot of things, and it was a moment in life where – you know, COVID had occurred. Think about it. I had a short-biased research firm that I started with a friend, a forensic accountant, and we were in business for close to seven years. But when you started into 2019, the market – you know, everything we did, you just felt like everything, even if it was good, it just went against you.
And that sort of starts playing games with your head and it starts defeating you to some extent. But you move on. This was my business. We had had some very good years. And 2019 came along and it was rough, but we were doing OK. And then COVID hit. But right before COVID hit, I had heart surgery.
And it was something I knew I was going to have to have. It was my aortic valve and my aortic root and my ascending aorta. And I've followed this for years and it was quite a journey. I went to Cleveland had a, I will say, great operation, and it was really quite a journey and an experience.
And I went through it, and I came back to work into COVID. We landed in LA, rode down to San Diego when COVID had just hit. You know, my wife had to go scrounge – try to find food at the grocery store. There was not much there. So we landed into COVID. But I was in the hospital – I was in Cleveland for 10 days, in the hospital for eight days.
When I came home, the day after I got home I was sitting at my desk writing reports. You know, we really didn't skip a beat. Even though I had a nine-inch incision that had been in my chest and all that, I sat down – I was tired. I almost fell asleep at my desk sometimes, but – while the recovery, but the recovery was very uneventful. And we started working.
Then the market started going higher and higher and higher, and it was like – you say to yourself – and we're losing customers. Subscribers are getting fired. These are hedge funds that are getting fired. And I just developed a very bleak outlook for the kind of business we were in, meaning the end market for short selling just seemed like it wasn't going to get much better. Our revenues had taken a very big hit, and it had taken us a while to get up to where they were.
It just didn't feel like we could ever go back to those days. And I'm a believer in, hey, when things – if you have a business and it was up here, you want to say it can be up here again because that's the way I think. You know, it's not a lucky moment. But the reality was hedge funds – the research budgets were getting challenged. We had people say to us, "Hey, the good news is we're keeping you, the bad news is we've got to pay you less."
And I just – it just started defeating me. And then you start looking at the work you're doing. It's really good work and the stocks are just going up, and it was hard to do, hard to find the right names. So here I am hardly even realizing how thankful I should be that I got through this surgery as well as I did, and I never even gave it almost a second thought. Two months later I was back doing everything I ever did before.
But we had COVID hit. I was getting very bored. I was really bored. I was just, what am I doing? And then I was on a podcast with this guy named Dan David, and he says, "Have you thought about doing active as short selling?" And I thought, yeah, but I don't want to get sued, so that draws the line.
He said, "No, you'd be really good at it. You'd be really good at it." So I thought, you know what? What do I have to lose? And those were the guys who were still making money. They were still actually – you could do very well on active as shorting until, of course, I went there, right? I am the – my timing for most things is just exquisite, right?
It's fantastic. So I get there, and no sooner do I get there and I'm about to open up my own research firm Herb Greenberg Research, I have a guy working with an analyst who's really good, but you make no money doing this. You don't make money until you have – [laughs] until you do something right, and you're working through a hedge fund that's sort of your one client. And it ended up after a few months – my wife's saying, "When are you going to make – where's the money?"
And I said, "Well, at some point I'm sure there'll be some." And she said, "That's not a good answer." Then I started having more time and I started thinking about what I'd gone through, and I thought about the heart surgery, and I thought about how thankful I should be. And then it really hit me – I'm 70.
I keep thinking I'm 45. So two months earlier Enrique had called me right after I left the research firm. Enrique had called me and said, "Hey, you know, we have this thing," and Enrique and I have kept up over the years – you know, this Empire thing. You're working so hard. There's another way to do things.
And I started putting it all together, and I thought, you know, I spent so many years just being negative, having people angry at me, being a public face of that, and I really gave I an audit. I thought, what do I want to do for the remainder, right? I still want to work, and I like working and I would hate to be fully retired. That would be a horrific thing to do.
I couldn't handle that. And so I went back to Enrique and I started really having discussions because he's high energy, and Gabe Marshank who works with him is incredibly brilliant and high energy, and Berna I've known for a million years, and Whitney used to be a subscriber to my first research service. So I had a talk with Whitney Tilson, and it just sort of just dawned on me. Why not do something very, very different and try to go out – almost like going full circle, where I started as a newspaper journalist, business reporter, writing for the average person.
That was my market. And when I had my column in San Francisco, that's where I really – even though I started doing short-biased things there, my end market there, it was institutions obviously, but it was people. And I'm almost coming full circle in while a newsletter's not a newspaper it's another way to do the same thing. Because I used to write about companies whose stocks would go up. I used to do that when I'd interview money managers back before the Internet and back when you actually could have edge doing that. You'd interview all these people.
So come back, and I always wanted to work – I liked working, like with my research service, with my sources, working with a forensic accountant, working with the CFA. I like that. And now I'm back doing that with the team we have here and with the newsletter that we'll be launching that his multiple things because there's two parts of the newsletter. One part of the newsletter is a very straightforward – by the way, I may not be doing negative things, so to speak, but you can never take the skeptic out of me. It's a "never worry" portfolio we like to call it, but you have to always worry.
But it's the kind of thing where I said I don't want to be in my car driving up to the Bay Area to see my grandson and having to think, oh my gosh, what's in my portfolio? What's in my retirement portfolio? I don't want to go through that. I want a portfolio that I don't have to think about, generally speaking. That's the main portfolio. The promotion and the second part of it is just the backdoor way into broken SPACs, broken IPOs
Because with the SPAC world – and I'll quite Enrique again, Enrique Abeyta, who's a big part of Empire – Enrique would be the first to say, and he always says that SPACs were not an asset class. It was a way companies went public. And we could, I think, all agree that many of these companies never should've gone public. Some of them are going to just disappear.
Dan Ferris: Yeah. Most of them.
Herb Greenberg: Right. Most of them. But I know people who are putting together funds right now to start sifting through the rubble and finding companies that now that they're public they're fair game, and they're fair game obviously to be shorted, but they're also fair game to be bought at lower prices because they do have real businesses or they will be acquired because now it's too bad. They're public and they may not have a choice. So we think there's something interesting there, and it's a way that the average guy can sort of stick it to Wall Street.
Because if you got at the $10 you were playing the Wall Street game – or you bought at $10, maybe $12, maybe $13, maybe $14 where SPAC went, or if you buy an IPO, you know, you get caught up in that moment and you just buy it. There's one company, C3 AI. It went public at like – I think that was the one that went public – I don't know if it went public at $45 or whatever.
First day, it traded at $100 and change. Now it's like $20-something. So it's a way not to play the game and come in, as we say, through the back door. And we try to find a few good names, and the few of us working together on this project are coming up with some good things. So that's how I got here, Dan, and I'm pretty excited about it.
Dan Ferris: Quite the journey. A lot of drama. I'm not surprised. I can't say I'm surprised because, you know, you've done so many things.
Herb Greenberg: [Laughs]
Dan Ferris: But I'll tell you what also I'm not surprised, is that you're at Empire because this whole business, everything under the market-wise banner, it's just become this wonderful place to collect guys like you and Enrique and all kinds of – Berna, Whitney, whoever – all kinds of people. And it just gets better and better and better and better every year for that reason. And it's really exciting, you know?
Somebody said Herb Greenberg, and I was like, really? For Empire? That's awesome. You know?
Herb Greenberg: Well what I love about Empire, what Empire has – I have to say this – what Empire has is different, and it's not it's different from other parts of Stansberry, but what I like about the Empire group is it's very much the group that I sold to. It's very much the type of people who were either my sources or my end market, and/or. So I think what Empire has is it has these people who have institutional knowledge in a different way, and these are guys who really worked for some really serious hedge funds.
And here's the part I really love though: they all are short-biased. So each one of them, even Enrique who is a growth-biased guy, he loved shorting stocks, and so each one of them has that DNA flaw.
The genetic flaw that basically causes them to still have that in them. And I think that sometimes helps you avoid a problem because – it's like one guy I know who during the market craziness, he was working for a hedge fund and he had to go – his fund wanted him to shift off the short book that he ran to be a long analyst. And he said the biggest problem he had versus the long analyst, is he spent way too much time doing research, and that's the thing because as a short you have to come in and you want to know every detail. You want to know everything.
You don't want any surprises. You know, you need to know it all. And longs, it's a little different. You just want to make sure – you want to do the work, you want to make sure you're not surprised, not that you won't be because everybody gets surprised, shorts and longs both, but that's the issue when a short turns to long, is that they can end up having to – you know, it's harder from that perspective.
Dan Ferris: Yeah, it's hard to –
Herb Greenberg: Just because you want to try to double check things.
Dan Ferris: That's right. It's hard to chill out and not be quite as paranoid. Because let's face it, you know, structurally, just in the marketplace, it's just kind of easier to be long-biased, right? It just is.
Herb Greenberg: Yeah, that's – well of course, and that's how everything's structured and that's why I ended up becoming a short-biased journalist because I looked around and everybody was only writing things – when I was a columnist, everybody was writing things that were going up. When I landed in San Francisco in 1988, the first thing I did was call these guys called the Feshbach Brothers. They were the biggest short fund at the time. They were in Palo Alto.
And I thought, man – you know, I'd seen then quoted places in the press and I thought, well, that's interesting. So I just carved it out that way.
Dan Ferris: Right. I also like the fact that you're interested in SPACs and busted IPOs because it's interesting. It's like we had these kind of multiple bubbles going into early 2021, and some of them – and I would say cannabis is another one – have just gotten so obliterated that they've become really – I mean, they're value plays practically, right? There's really interesting things to do. And not only that, but the survivors in SPAC land is another thing because a lot of really sketchy companies go public via SPAC, and some of them are found out rather quickly, to put it mildly, and wind up trading below the SPAC price pretty quick.
Herb Greenberg: Yeah. And I think what you find is – you know, it's funny. Gabe and I are going through – Gabe works pretty closely with me on this, and I value his just general institutional knowledge of just everything, and he's brilliant besides the point. You know, when you look at broken IPOs, when you look down the list, it's harder sometimes to find a really good one. They're broken for a reason.
Were they a castoff of PE private equity? Loaded with debt? It was the perfect time to exist because things and prices and valuations were so high. Were they a castoff of venture capital? Which could even be arguably worse because venture capital, this is one of their dogs, and this was a perfect ability to get rid of one. Or were they just seizing the moment, right?
And we were talking about one today. It's an amazing company. It's been around forever. A little not everybody's cup of tea type of company. It's probably going to be in our portfolio. And it's broken. It's one of those names that came public.
It was part of another entity. It's pretty darn interesting and it's a solid company. And that's the thing, if you're looking at an IPO or if you're looking, say, at the broken SPACs, one of the broken SPACs we're looking at is still an emerging company, but it's got hundreds of millions of dollars in revenue, it's raised its guidance, it's currently profitable. I say currently because it probably won't be all the time through.
It has a fascinating business model. I think the CEO's genuine. You know, I'm a little nervous about – I'm always nervous about those. And then we're almost ready to pull the trigger on making sure – we'll see what – they're going to report earnings on Monday and they're going to be at the Roth conference on Monday. So those kind of things, if anything blows it up at that point it could come right out of the portfolio. But that's the kind of stuff that's out there too, the companies that actually are doing well.
And there are some – Enrique and Gabe have the Empire SPAC investor, and in that there are several that are really fantastic that are just really – you know, that's how they came public. Yeah.
Dan Ferris: Very cool. Herb, before we go, and I'm sure our listeners right now are saying, "OK, well what's Herb's new service called? What's this newsletter I need to get?"
Herb Greenberg: [Laughs] Now this is going to surprise you, what it's called. It's called Herb Greenberg's Investment Opportunities. So it's HGIO, but we're specifically – one thing I said to the folks at Empire when they wanted to hire me, and I was very adamant about this just based on my personality, I said, "Look, I have an IRA, I have a 401(k). I have a type of retirement account of a bunch of different things that I've put together over the years."
And I said, "I want this to have the kind of things I want to own." I don't mind having a highflier or two because I like highfliers or two. I like a little lottery ticket fun in my life. But most of it I want solid, I want things that are going to grow, that are going to be two to five years. These are not razzle dazzle. And hopefully, if we're really doing it right, they are companies everyone isn't paying attention to.
And it's not going to say we're not going to have one of those, but that's the goal. And as I look at the companies we're pulling in right now because we're going to launch with five to seven in the main portfolio, these are companies that I can tell you some people go, "Huh? Never heard of that company, or, oh boy, that one? That's interesting. Forgot about that."
You know, one of those type of things. So they're not names that you're – I call them TV names. They're not names that pop up every day on the air.
Dan Ferris: That's good because people love that. You know, I've been doing this for 20-plus years and it's one thing if you recommend Berkshire Hathaway or something and it's another if you find company XYZ that no one has ever heard of and it turns out to be this amazing winner, and everybody goes, "Wow, Dan Ferris or Herb Greenberg or whoever's the only person I ever heard talking about this thing." I can't wait to read this. I really can't, just because I've read your stuff for years.
Herb Greenberg: Well, I hope you give it some good feedback. Yeah. It's going to be – you know, it's a little different. It's different than what I did at the research service. More like what I did at newspapers. The narrative is what we did at newspapers with a little – with the financials thrown in.
But yeah, I'm excited about getting going with it, and I think we – you know, look, there are thousands of companies in the market, right? There are thousands of public companies. And I'm always surprised every day somebody mentions a company and I go, "I never heard of that company." [Laughs] And you want to almost be embarrassed. But the good news about aging is that you can say, "Very little embarrasses me anymore."
So you can ask stupid questions, and you say, "Where did that company come from?" And you realize it's got a market value of several billion dollars and it just wasn't in my – there's so many companies. You can't see them all, you can't know them all, and that's the beauty of it and that's what keeps my brain functioning looking at some of these and trying to find some good ones.
Dan Ferris: So the process has got to be different. I mean, you've already talked about the mistake that folks make when they switch from being short-focused to long-focused. Presumably, you're working on not making that mistake, so your process has to be somewhat different now, doesn't it? What are some of the biggest, most important differences between the way you used to operate a short-biased and the way you operate now as long-biased?
Herb Greenberg: Well, the first difference is instead of saying how low can it go –
– we're sort of flipping that on its head. But we are actually – you know because of my bias, look, I always looked at a proxy statement, and I still look at a proxy statement. One of the first things I always do when I look at a proxy statement is to look at how the CEO or management is compensated. And this is not a fool-proof method of doing anything other than if there's a problem or there's going to be a problem and you see that someone is compensated by just earnings-per-share or just an adjusted number, one or two metrics. That's a red flag to me.
That said, I think one or two that we're adding I wish they had better, but like I've got another one we're adding and, man, management has to jump through such hoops to get a bonus, you know, return on invested capital plus two other things. When you see that you get excited, and then you see that management really is – the board, it's a good board and they're holding management's feet to the fire. So when I was on short-biased, I would automatically look at it and say, "Oh, these guys, their motive –" because I always look what's the motive to stretch, what's the motive to commit fraud.
And the motive would be that we can easily strike our bonus and the culture of the company is to be as aggressive as possible, and management just wants to make as much money for itself every year and by the easiest way and the board will let them do it the easiest way. So short-biased, that would be one of the first things I'd look at because I always worked with a team of people who did the numbers, right? These were the experts, the financial – I always had the analyst and the forensic accountant.
This time, we're coming at it a little differently because we're looking at the business. And if I look at areas where I've seen short sellers get it wrong – and I have great respect for short sellers. I think it's the hardest thing in the world to do. And I look at things we got wrong in the research side, things short sellers got wrong, sometimes it's where there is a good business, an emerging business. Their financials may be a little aggressive.
That can be a false negative or a false positive. But the management is executed so well. So it boils down to, you know, you're looking far more seriously at management and you're looking really at the strategy. Do you believe the strategy? And does the strategy make sense? What's the competition?
And you're looking at it just – again, it's upside down. And then the numbers. Do the numbers make sense? And one thing we're looking for is we want businesses that are just throwing off great – everyone wants these, right? Good, free cash flow.
Dan Ferris: Yep.
Herb Greenberg: We want a balance sheet that's a strong balance sheet. Again, these are all holy grails. Our current companies all have them. But profitability is really important. You know, valuation is less important, as is usually the case, but it's more important for us.
It's like the minute I said to – [laughs] I was looking at one of these SPACs and I said to Gabe, I said, "You know, this thing's at two times sales, it should be at four times sales." He said, "I do not want to hear any multiple of sales."
Dan Ferris: [Laughs]
Herb Greenberg: Please don't go there, which is the right answer.
Dan Ferris: Yep.
Herb Greenberg: Because that's the way everybody played things in the height of the market. So instead, you're looking at companies that are selling at a discount to the market, that could grow faster than the market if all goes well, and if they're not growing faster than the market they're generating huge amounts of cash and they're great capital allocators that will ultimately return cash to shareholders through dividends, through buybacks, through growth via acquisitions if done properly because we all know that can be a trap too. So that's the kind of stuff we're looking at.
And again, we're bouncing it back and forth in the team because everybody has institutional knowledge. We also want companies that we enjoy working on. So there's that component too. You can only have so many boring companies in your life.
Dan Ferris: [Laughs] Right. If anybody is interested in learning a whole lot more about Herb, and I'll give this URL more than once, but let me just tell you, you can go to HerbEvent.com, H-E-R-B event dot com, and sign up for a really great event where you're going to learn a whole lot more about what Herb is doing. So I wonder, Herb – I understand if you can't do this, but is it possible – can you throw a name out for us or would you prefer to just keep them all for your paying subscribers?
Herb Greenberg: Yeah, I want to keep them all for our paying subscribers.
Dan Ferris: Sure. OK.
Herb Greenberg: At this point. I think we want to just keep everything out there. But I will say, you know, one of the companies we're working on is a company – this is one of the things. One of the themes we're doing is we're calling it the Herb method of picking stocks. Now you know how this is, everybody has a – you know, they love the acronyms.
And I thought about it, and part of me thought do I really want to do that? But then I thought, well what do we stand for? What do we have? So the "H" is "hiding in plain sight," and the "E" is "eclectic," and the "R" is "real," we want real companies, and the "B" is just a "balanced approach to financials." Bs are really hard to find, let me tell you that.
Because I didn't want to put balance sheet because depending on the company it might have a little bit of a stretched balance sheet. There might be something going on, but they might have fantastic cash flow or something. So we just try to be a little different, especially with the SPACs. They can be a little more difficult on some of that, which gets us the eclectic.
Dan Ferris: Right.
Herb Greenberg: But this one company is such a "hiding in plain sight." And what I love is it's one of those companies that every single person who you mention it to goes, "Oh yeah, they do X." Well, while nobody was looking, this company that has a great capital allocator has great cash flow, very solid business." Has literally diversified way from X.
But X generates the cash that supports the growth as it moves into these other areas, and it's really fascinating. And management is just very conservative and very disciplined, and that's our approach. So it's sort of like, you know, the – it's a situation that – the kind of business – I love that kind of situation where people just weren't paying attention. So that's one of them, and it's a big company. It's large. It's a multibillion-dollar market cap. It's a nice business.
Dan Ferris: In other words, and you actually see this more often – I've seen this more often over the years than I could believe – with some people who are really great analysts they'll say, "Oh yeah, that's the company that does this or that," and you think to yourself, yeah, but that's not quite the story. You know, it's not what it appears on the outside. And when you just sort of lift up the hood and look underneath, there's something even better going on inside. I can't wait to find out what that name is. I'm going to HerbEvent.com and signing up.
Herb Greenberg: Yeah, you know the name.
Dan Ferris: Oh, OK. All right.
Herb Greenberg: [Laughs]
Dan Ferris: How about that? So we'll recognize it, and yet – those are the ones. You recognize the name, and yet there's something more going on than you thought. Really looking forward to finding out what that is because those can be wonderful – that's a characteristic of a potentially wonderful situation. Great.
Herb Greenberg: Yeah.
Dan Ferris: Is there anything else that you'd like to sort of describe in the abstract? Don't give us a name. That's for your subscribers. But anything else that you can sort of tease us with?
Herb Greenberg: No. I think we're in the process of just trying to button up the portfolio, and I think that the – you know, I look at some of these and I'm just thinking through the list, and I think – I'm just thinking. No, no, there's nothing I can really tease you with. I think I just want to get settled on these. We still have a lot of work ahead of us in terms of just putting the reports – finishing up some of the reports. Yeah. I wish I could –
Dan Ferris: No, that's cool. That's –
Herb Greenberg: – shed more insight, but yeah.
Dan Ferris: Hey, that's cool. I get it. Believe me, I get it all day long. So Herb, I actually – I have this special final question that I ask all guests. And before I do that, I do want to say one more time go to HerbEvent.com, sign up for Herb's webinar, find out all this great stuff, and sign up for his product.
I haven't known Herb for years and years, but I've known his work for years and years, and it's excellent. He has a fantastic reputation. Sterling. But Herb, my final question though for you is the same for every guest, even when we're not talking about finance, and you don't have to confine yourself to finance in your answer. And the final question is if you could leave our listener with a single thought today, besides going to HerbEvent.com, what would it be?
Herb Greenberg: Oh, man. What would be a single thought?
Dan Ferris: Yeah.
Herb Greenberg: You know, it's trite and it's cliché-ish, but it's what I've learned and I've gone through these past few years is really that life is too short to surround yourself with toxicity. And I have made a very concerted effort to try to remove toxicity from my life. With social media, there's a lot of toxicity, there's a lot of divisiveness, there's a lot of anger, there's a lot of trolling, and I think it pollutes your brain. I've always tried to stay above the fray.
I try to never make things personal in my entire career because even when I'm going after a company people have families and people have – you know, they're people, right? And people make mistakes. Some people intentionally make mistakes and they deserve to be outed. But the rest of this is just nonsense. So I just think the best you can do to remove yourself from toxicity, it's extraordinarily important, I think especially right now.
So with everything that's been going on in the world it's certainly one of the big changes in in my life as I've tried to make these changes, is to just try to enjoy life a little more, but certainly to just try to control the inflow so you're just not as polluted. So there.
Dan Ferris: Well said. And I hear you. You know, it may sound a little trite, but those things become that way because they're true and they're repeated all the time, [laughs] so I think you're spot on, and thank you for that. I have to tell you, man, once again, I hope I haven't said this too much, but I'm really glad that Empire has Herb Greenberg, and that you're kind of part of the fold now. Really happy about that.
Herb Greenberg: Great. Well, I'm glad to be here, and hopefully next time you're down in San Diego we'll have dinner.
Dan Ferris: Absolutely, man. Absolutely. Next time I'm anywhere near that place I'm giving you a ring.
Herb Greenberg: [Laughs] OK.
Dan Ferris: All right, Herb. Thanks a lot, and you'll be getting a call or an e-mail from us in six or 12 months and we'll be checking back in with you for sure.
Herb Greenberg: Any time. My pleasure.
Dan Ferris: All right. Thanks, man.
All right, so at the risk of repeating myself, [laughs] go to HerbEvent.com and check it out. And I mean it. I'm being very sincere here. We have just attracted some wonderful people, and Herb mentioned Enrique Abeyta and Berna Barshay, who are both part of Empire Financial, the group that Herb works with now.
And he's right, they're just stellar, high-quality people with some really great insights. And he didn't say this, but I'll say it, he's one of them. I've read his work on and off over many, many years, like 20-plus years. He was one of the first people I ever heard about when I got into the business of doing research for readers, and he's just been a steady stream of really good mostly short ideas, but now he's on the long side.
So please do check him out. I promise you'll get something that's very high quality. HerbEvent.com. Check it out. All right. Let's take a look at the mailbag. Let's do it right now.
Marc Chaikin, who I've had on my show more than once, someone who spent 50 years on Wall Street, is sharing his newest prediction for an event in 2022, and his video has gone viral with 1.5 million views. Have you watched it yet? You see, according to Chaikin, a historic event in 2022 will cause a massive shift in the wealth divide. This will affect everyone who owns stocks. And unfortunately, most people will never see it coming for the simple and sad reason that nobody wants this to happen.
You see, Marc Chaikin predicts a new form of technology will disrupt everything, and it's all a direct result of 2020. Chaikin, a popular guest on Jim Cramer's Mad Money, has never shied away from sharing his controversial predictions. This event will affect everyone from Apple to Amazon, and the best way to prepare is to simply get the facts for yourself and see what's coming. In fact, 11 of the world's best-known billionaires are getting ready for the shift right now. To learn more, visit StrangeDay2022.com. That website again is StrangeDay2022.com.
In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Send questions, comments, and politely worded criticisms to [email protected]. I read as many e-mails as time allows, and I respond to as many as possible. You can also call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show.
First up this week – and by the way, folks, fantastic job. Huge mailbag. Lots of good stuff. First up this week is Don S., and he says, "Dan, great work. Your ideas about a value growth cycle make a lot of sense to me. Can you discuss what to look for in a good value fund or ETF and perhaps give some examples of funds/ETFs that match your criteria? Thanks." Don S.
Don, it's not hard. I don't need to give examples. There's a whole bunch of value funds out there, all right? There's too many, frankly. [Laughs] Just look through and make a decision about what you're looking for because there's all kinds of ways to come at this. You know, there's mid-cap value, small-cap value, big-cap value, every kind of value you can think of.
There's a Japan value fund. There's probably European value. I mean, I was looking through a list this morning and it was too long. I couldn't finish looking at it in response to your question. But just make sure you look at things like what the expense ratio is. I checked out one Vanguard fund.
You know, the expense ratio on Vanguard is tiny. It was like 0.07%. And that's good. But basically what I want to do is personally have like – you know, I want emerging markets value and I want a little bit of Japan value, I want some European value, and I want to capture the effect over time. That's what I'm looking to do. So if you look at maybe something like a Russell 3000 value fund, it will capture the affect over time, but I notice that it overlaps a lot with the growth fund because you can wind up picking some of the same stocks using different criteria.
So Don, I'm sorry it's not a satisfying answer, but look at the expense ratios, think about how you want to put it together. I told you how I wanted to put it together, Don. Just think about how you'd like to put it together. Do you want to have all the stuff I said? Do you want Japan and emerging markets and Europe and whatever else? Mid cap, small cap, big cap.
I've personally stayed away from big-cap value funds. I just want the smaller cap because I want a little more juice to it if the cycle really gets cooking. So, you know, just make some decisions about it and look at those expense ratios. I'm sure if you just stick with it over time you'll capture the affect quite well.
Next comes Mark R., Stansberry Alliance member Mark R. And Mark says, "Dan, really enjoy The Investor Hour. I used to struggle to understand inflation the way many of your listeners do until I heard Dr. Lacy Hunt. He corrects the past definition of inflation as an increase in M1 to the correct definition as M1 times velocity. In 2008/2009, there was no velocity because when the Fed simply pumped fiat currency into the banks' balance sheets it went nowhere.
Bank lending is one-way fiat gets velocity in the market. When Mnuchin and Powell dumped fiat directly into our checking accounts, inflation took off like a jackrabbit at a greyhound show. I would like to hear Dr. Hunt as a guest on the Investor Hour. He's brilliant and explains economics in a simple, down-to-earth style." Yeah, I would like to have him on the show too, Mark.
He says, "Thanks for the IPP, the Inflation Protection Portfolio," that we put out recently. "I am sleeping well at night and part of the afternoon too." [Laughs] Stansberry Alliance member Mark R. I'm just going to let your comment stand. It's a different way of saying what we've said, right?
The bank reserves get placed into member reserve accounts basically, and you're right, they don't go anywhere. I've said this a bunch of times. They need to get lent and spent in order to create real inflation. And when they get dumped straight in the checking account, yeah, then they can cause inflation.
Next is Ludvig H., our longtime listener and faithful correspondent. Ludvig, you had so many questions this week. I'm sorry, I just – I'm a little overwhelmed, so I'm just going to take one of them. "Would you favor gold or silver and why? I'm considering acquiring 50 kilograms of silver bars. I could spend the same amount on gold. Thinking about what to do to save some profits." Ludvig H.
Ludvig, to me I think of gold and silver as one thing. So when I buy gold, I always want to buy some silver too, generally speaking. It's just – you know, I think of silver – it can act like gold on steroids. If you look at the long-term silver chart, it gets these spikes in it. Like it hasn't hit a new high as gold almost did recently and did a couple years ago, but it does have this spiky tendency.
So it's kind of good to hold some silver, and even silver equities I think, to take advantage of those, and you can sell into those spikes. But really, for me, gold and silver, physical gold and silver that you're talking about, I just buy them and I don't sell them. I told you all I sold some gold, what was it, a couple years ago or something because I used it to buy gold stocks, and I still – the gold stocks did OK. They actually did well, but I still regret not having the gold. I'll never do it again. I'll never sell gold or silver again. All right.
Steve L. is next. "Trying to find a website for the update mentioned in this morning's podcast when you spoke about gold, something that you suspect will move up 1,500%. Thank you." Steve L. Steve L., it's called DanUpdate.com. DanUpdate.com.
Next, and no, not last – there's a bunch more [laughs] – next this week is Kieran M., and Kieran says, "Hi, Dan. I recently heard someone arguing for a model of banking where banks take equity stakes in small and medium enterprises." He said SMEs. I assume that's small and medium enterprises.
"That they extend credit to rather than the current model of low capped upside and up to 100% downside, which Nassim Taleb often inveighs about in his books as the opposite of optionality, and thus being an undesirable business model. I heard in your latest podcast talking about how money creation really works with banks, given that banks are normally incentivized to extend credit against far less productive assets such as property so they can seize in the event of a default. Is this preventing a lot of firms from getting a start and thus giving up easy economic growth in the process?
I know there's private equity venture capital companies, but they can't create money themselves and might not be interested in small, fledgling businesses anyway. What do you think of this potential new model?" So you're talking about a model of banking where they take equity stakes in small and medium-sized enterprises, to which they also extend credit. I think they've taken plenty of risk extending the credit.
They don't need more risk taking the equity stake. The equity is what gets wiped out before the credit, right? So they don't want to go buying insurance. You're like selling an insurance policy, right? If you're paying out – when you lose your equity, you've paid out, so you don't want to go selling insurance policies on the thing you're lending money to.
It doesn't make any sense at all to me. My thing about banking is, you know, this 10-to-1 fiat currency fractional reserve system is inherently risky, as Nassim Taleb rightly identifies. You know, 100% downside, limited upside, and if they're big enough they get bailed out by the Federal Reserve, so they don't have any incentive to behave particularly well. I think that banks should be like any other business.
They shouldn't be backed up by the government or the Federal Reserve or the printing of money, and they should be responsible to their shareholders and responsible to their depositors. They shouldn't be lending out your deposits 10 to 1, and they shouldn't be so levered up. It just seems a little insane. They shouldn't be allowed to throw money around the way they do. They should be lending out their own capital and taking good care of their depositors and shareholders, and they should live and die by how well they do those things.
But it's a good question. I'm glad you asked. We should talk about banking every now and then because it's an insane business.
Next comes Aussie Stu from Down Under with another question. I'll tell you... when it rains it pours. Bring on the questions, Stu, I love it. He says, "Good day, Dan. I have so many questions right now, but I'll try to limit them.
Dan, for a long time now you have pointed out that we are, in fact, in a bubble, and stocks by nearly all measures are overvalued. Well done, by the way. You have been one of the few people to warn us. But in the last month or two, I believe over half of Nasdaq stocks have lost over 50% of their value. Some are down 60% or more, and those that are down are not all rubbish.
Some are quality stocks. Dan, my question is this – is this the sort of damage you were preparing for? How nasty do you see this getting? I know you don't predict, but I'd appreciate you telling me the future so I can plan accordingly, ha, ha."
I'll answer that before I take on your second question. Yeah, a quality stock down 50% or 60%, yes Stu, that is exactly what I'm talking about. And no, I don't care about the performance of the index necessarily. That's kind of a benchmark. I've referred to them often, but it's only to express the idea that I think a whole bunch of stocks are overvalued and I think a whole bunch of them are going to fall, and a whole bunch of them have.
So yes, if you find something of value in that down 50%, down 60% cohort, over half of Nasdaq stocks that you mentioned, that's exactly what I'm talking about buying. And that's exactly the type of performance that I was worried would happen, but ultimately excited for because it's an opportunity. OK, Stu continues, "my second question relates to holding stocks without a stop loss. Many forever stocks and crown jewels are down considerably.
What is the mindset here? Do you hold on knowing that they will rebound in time or do you add to the positions and take advantage? It really is tough to watch any stock drop and not use a stop loss. But with a best business, maybe I should not be so concerned. Love your thoughts. Keep up the good work," Aussie Stu.
Oh, Stu. You ask the best questions, and I'm so afraid that the answers will be unsatisfying. You want me to say, yes, do this, do that, but no one can give advice of that kind. We can give you the tools, right? Use a stop loss or don't use a stop loss. If you don't use a stop loss and you're wrong, you'll lose a lot of money on that position.
If you have a whole bunch of positions and they do well in the aggregate, hey, maybe you're OK. If you do use a stop loss, maybe you stop out and the stock turns around and performs great. These are all real risks, things that can happen. Nobody can give you off-the-shelf, simple financial advice that will just work all the time. It just doesn't work like that. But what stop losses will do for you is prevent you from incurring a catastrophic loss.
Because you say, well – let's say your stop loss is 25%. You sell automatically when you're down 25% for fear that this is the kind of business that could be down 80% and never come back. Now technically speaking, any company can do that, but do you really think that Costco is suddenly going to turn into a crappy business if it's down 50% or 60% or something? I don't know. At that point, you'd have to reevaluate Costco, but it sure looks like a fantastic, durable business model to me.
And you do the same thing with Berkshire Hathaway or any great business. We have a whole list of them in Extreme Value so I don't want to mention – I mentioned Starbucks before and Waste Management and maybe Home Depot that we've recommended, but I don't want to mention anymore because we have subscribers. But you get the idea. You have some thinking to do when the stock is down a certain amount, and before you buy it, you should decide whether or not it's a stop-loss stock or a hold forever stock or whatever you're doing.
And your strategy – like I can't possibly know your risk tolerance. Maybe you're the kind of person who just gets so nervous and you can't handle it, and if you can't handle it you should sell when you're down 20% because if you're down 50% you're not going to be able to sleep, right? But maybe you're the kind of person who really, truly is a long-term investor, who really, truly can sit through a bear market and not sell great businesses and maybe add to them, as you suggest.
There's no simple answers here, Stu. I'm sorry. It's just the way it is. But we should ask the questions constantly for that very reason.
OK, finally last this week is Steve M., and Steve M. says, "Hi there, Dan, and any of the Stansberry Digest editors. In short, what's your prognosis for the dollar as the world's reserve currency? It's my understanding hegemony of the U.S. dollar rests upon the strength of our economy, respect for our leadership, skillful deployment of our military, restraint in dollar creation, and use of the dollar-based exchange systems powered with respect for other nations. Thanks. Steve M."
So we recently, in the Digest – I think it was Corey McLaughlin published a chart that we have published from time to time that shows you throughout history that every 100 years or so the world's reserve currency changes. You know, it changed from Portugal to Spain to the Netherlands to, what, the U.K. – I think I might be missing one in there – and then to the dollar roughly 100 years ago, right around the time of World War I. So it's been 100 years, people are getting nervous, a lot of dollars have been created, we're seeing inflation. This is a good question to ask.
And not only that, but did you notice that we could basically cut off an entire country's access to their foreign exchange like that? The banking system just cut off Russia's access to its foreign exchange like that. [Laughs] Wow. OK. That's interesting. And you said, you know, the hegemony of the U.S. dollar rests on strength of our economy – well, it won't be strong forever, will it?
And it's not going to be as strong as it was when it was younger. Respect for our leadership. God, who has that? Skillful deployment of our military. We go around the world whacking at hornets' nests and creating reasons for people to hate us and terrorize us.
Restraint in dollar creation. Ha! [Laughs] No such thing. And use of the dollar-based exchange system's power. Well, that's still there, right? Eighty percent of global transactions, almost 60% of global foreign exchange, like it's really still very hard to sell anything without buying dollars. And as long as that's true you can't say the world's reserve currency is doomed.
It probably is doomed because all fiat currencies are doomed. And as we pointed out historically, it's just the way of things for this to change. The problem is not figuring out the world's reserve currency is doomed, it's figuring out what to do about it. Right, Steve? That should be the ultimate goal with a question like this.
What do I do about it? And aside from buying gold, silver, bitcoin, and great businesses which can produce a really great return and fight inflation, I don't really – you know, I don't know what else to tell you, man. Land, real estate in a politically stable place, whatever politically stable means in the year 2022. It's not an easy thing to deal with. You know, you've got to be ready for some pain if you think that the world's reserve currency is really in big trouble.
I'm not sure that it is, but eventually we know it's doomed. [Laughs] So it's kind of imminent – you know, is it imminent – because we know it's inevitable. I don't know if it's imminent. It's a great question, Steve. I could probably sit here rambling on about it for half an hour and nobody wants to hear that. But thank you, Steve.
These are questions – you guys asked such good questions this week because these are things that are difficult. There's no pat answers to a lot of this stuff. Great job, guys. Can't wait to read next week's mailbag.
Well that's another mailbag and that's another episode of The Stansberry Investor Hour. I hope you enjoyed it as much as I did. And I really did! We provide a transcript for every episode. Just go to InvestorHour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy.
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