In This Episode

On the heels of a new report warning GE is a bigger fraud than Enron, to the latest unjustifiable IPO of a flashy tech star, to the testing of autonomous vehicles, there’s a lot to unpack this week.

Dan then gets to this week’s special guest, John Doody.

John Doody brings a unique perspective to gold stock analysis. With a BA in Economics from Columbia, an MBA in Finance from Boston University, where he also did his PhD-Economics course work, he became interested in gold due to an innate distrust of politicians and concern over their habit of debasing the currency via inflationary economic policies. 

John’s newsletters cover only producers or near-producers that have an independent feasibility study validating its reserves are economic to produce. Success with this method of finding undervalued gold mining stocks led him to leave teaching and start Gold Stock Analyst late in 1994 to make his research available to everyone.

The results to date have been spectacular: through 2012, the GSA Top 10 Stocks portfolio has a cumulative gain of 530% through 2018. 

With gold beginning a bull market most investors are just now waking up to, we can’t think of a better voice to point the way forward in this precious metals boom.

Stansberry Investor Hour Listener Special Offer www.investorhourgoldrush.com


Featured Guests

John Doody
John Doody
John Doody brings a unique perspective to gold stock analysis. With a BA in Economics from Columbia, an MBA in Finance from Boston University, where he also did his PhD-Economics course work, Doody has no formal “rock” studies beyond “Introductory Geology” at Columbia, taught by the University’s School of Mines. 
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Episode Extras

NOTES & LINKS

  • To receive your special discount on John’s new gold research service, click here.
  • To follow Dan’s most recent work at Extreme Value, click here.

SHOW HIGHLIGHTS

1:54: The “Prudent Man Fiduciary Tradition” goes back a couple hundred years and used to set the standard for wealth managers – until, as Dan explains, Wall Street wore it down.

14:36: The global bond bubble just hit $16.4 trillion according to Bloomberg – but there’s one fact in particular that worries Dan.

21:55: Smile Direct’s filing for an IPO is giving Dan pause thanks to one business feature – and there’s its $53 million loss last year, to boot.

28:20: With the newest rash of autonomous cars being tested, Dan shares the reason why technology moves at a glacier’s pace when it comes to auto technology.

25:52: Dan introduces John Doody, this week’s podcast guest. His gold investing research service has been on a tear: through 2012, the GSA Top 10 Stocks portfolio has a cumulative gain of 530% through 2018.

31:15: John shares the dirty secret of gold mining companies – that 95% of them aren’t worth anything – and that of the approximately 100 worthy companies left, “they all make the same thing.”

36:47: Dan asks John about the metrics he uses for silver companies compared to gold, and John explains how silver is much more difficult as a byproduct.

39:20: John likes to call silver “gold on steroids” thanks to its extreme volatility – here’s why he bothers with silver despite the industry being so capital-intensive.

42:50: Royalty companies are extremely profitable for one big reason – here’s why John says 90% of revenues falls straight to the bottom line.

1:06:00: Dan shares how listeners can try John’s work – “like rocket fuel for your portfolio” at investorhour.goldrush.com.

1:08:40 Dan answers a mailbag question from Brett. R., who asks about buy/up to recommendation prices in Dan’s research service.


Transcript

Announcer:                 Broadcasting from Baltimore, Maryland all around the world, you're listening to the Stansberry Investor Hour.

[Music plays]

Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here is your host, Dan Ferris.

Dan Ferris:                 Hello and welcome to another episode of the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value. That's a value-investing service published by Stansberry Research. I'm excited about this show. I'm going to get right to it now.

So, the rant this week is a continuation of last week, OK? What I've done here is I've added kind of another chapter to the story. So last week I talked to you about the way that Wall Street turns conservative investment vehicles into pure toxic waste is what I'm calling it [laughs]. And I mentioned two examples, right? The investment trusts, starting in the late 19th century, ending in the 1929 crash, and the U.S. 30-year mortgage, around the time of the financial crisis, maybe from around 2002 through just say 2009. This week I want to talk a little bit about mutual funds in that same light, OK? And the story begins with something called the Prudent Man ruling of 1830. We're getting in the weeds here, folks [laughs]. There's a lot of material here.

So the Prudent Man fiduciary tradition in American law and in American finance goes back a couple hundred years before the 1960s when the mutual funds kind of  blew up in the way that I'm about to describe. But there was this one particular decision in 1830 in a case called Harvard College v. Amory. You can Google that and learn the details of that. I'm not going to talk about it. I'll just mention a quote from the decision that was made at that time.

Here's the quote from the decision which outlined the Prudent Man Rule. So these are the words of Judge Samuel Putnam in 1830. "All that can be required of a trustee is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital to be invested." That's a lot of stuff there. But the salient points are prudence, discretion, intelligence, probable income, probable safety of the capital. So this is what's known as the Prudent Man Rule. It's still alive today, though you'd probably be hard pressed to find very many true practitioners.

The decision was made in a Boston court. It became the ruling principle of, among others, a whole class of money managers that we'll call the Yankee trustees. They were the living essence of the Prudent Man Rule and they viewed the avoidance of losses as more important than achieving gains. Very conservative.

So, in Boston, almost 100 years after the Prudent Man ruling, the first open-ended mutual fund was created in 1924. And it was very much a product of the trustee culture, right? People who took care of trusts and were these Yankee trustees who used the Prudent Man Rule and invested very conservatively. It was called the Massachusetts Investors Trust, and it was different because it didn't have a fixed number of shares like all the funds before it. It sold shares to the public based on demand, and investors could sell them right back to the company at whatever the current price was, right? That's an open-end mutual fund as we know it today.

So as a product of the Boston Prudent Man culture, it was so conservatively run – it came out in 1924, right? Just when the '20s were kind of getting cooking. And it was seen as being out of step with the times, sort of like Warren Buffett in 1999. And it did all kinds of things. It issued detailed quarterly reports listing all its holdings and transactions and costs. That was the exact opposite policy of at that time the new investment trusts of the era, which refused to tell investors what was in them and turned out, as we said last week, to be toxic waste.

  1. Now you fast forward a little bit and you go to 1943. Edward Crosby Johnson II is a lawyer who takes over the Fidelity fund. Fidelity, the company we know as Fidelity. It's got like $2.5 trillion of assets under management today. Well, he took over this Boston mutual fund operation called Fidelity. At the time they managed $3 million. It was hardly anything. That was even a small amount at that time, in 1943. Now, in his book, The Go-Go Years, author John Brooks noted of that event, "The man who turned the Fidelity organization over to him refused to take a nickel for it, in keeping with the traditional Boston concept of a trusteeship as a sacred charge rather than a vested interest to be bought and sold."

Books continued, "The notion of a mutual fund as a trust was deeply ingrained in State Street," sort of like Wall Street in Boston. "Deeply ingrained in State Street at that time and would remain so until about 1955." So the laws governing mutual funds and trusts were different. But until the mid-'50s, according to Brooks, mutual funds felt like trusts. It wasn't seen as an opportunity to get rich speculating with other people's money. Far from it. It was a sacred charge.

But Johnson – eventually he left those old conservative ways behind. It's a necessary step in turning something into toxic waste. He was a fan of Jesse Livermore. Johnson loved Jesse Livermore. That's what got him interested in the stock market to begin with. Of course Livermore was the famous trader who made and lost, if I'm not mistaken, four fortunes speculating on stocks, including in the '20s, and eventually shot himself in the head in 1940 in the cloak room of the Sherry Netherland Hotel in New York.

So with this one transaction of taking over the Fidelity fund, the old conservative way of the Yankee trustee was kind of taken out back and shot in the head. Johnson grew the business by trading stocks. Now, the Dow rose about 150% between 1943, the year he took over, and 1952, the year Johnson met a man named Gerald Tsai, who was a Chinese fellow. His last name was Tsai: T-S-A-I. Tsai was born in Shanghai, China, in 1928, came to the U.S. in 1947 to go to college, got a bachelor and master's degree from Boston University and stuck around. So these guys met in 1952 and they were both inclined more towards market timing and rapid-fire trading in large positions. No diversification, no long-term view. Neither had a trace of the Prudent Man in him.

Johnson let Tsai start his own fund in 1957, the Fidelity Capital fund. I'm sorry. I left out: Tsai went to work for Johnson when they met. And he started his own fund in 1957, the Fidelity Capital fund. From 1958 to 1965, the fund returned 296% according to John Bogle's forward to a book called Supermoney by Adam Smith, aka George Goodman. Good book. You should read those Adam Smith books. Along the way, Tsai had to deal with the crash of 1962. That year the Dow Jones average fell 27%. And most of the downward move, which was really from kind of January 1 until June 26 of that year – most of that downward move happened in two months between April 24 and June 26, with a drop of 22.5%. So it was short and sharp and kind of brutal.

John Brooks noted how well the mutual fund industry weathered the storm: "The great rising giant of American finance, the mutual fund industry, had come out with honors. Cash-heavy, still conservatively managed in the prudent fiduciary tradition, the funds had bought on balance in the falling market of Monday and had sold on balance in the rising market of Thursday. Thus, besides protecting their shareholders from excessive risk, they had perhaps actually done something to stabilize the market." Apparently there's one particular – if you look at the chart of that time, there's one particular week that was pretty brutal, right around the time it bottomed out. And I think that's what he's talking about there.

Tsai's Fidelity Capital fund was down by May of that year but he recovered and the fund rose 68% in the last three months of the year. So a few years later in 1965, big year for Gerald Tsai. That year his fund was up almost 50%. Of course the turnover was 120%, right? So a turnover of 100%  means you held everything for a year basically. Like you sold every share you bought that year. So he sold – 120% implies an even shorter period. So a 100% turnover would be if you bought on January 1, sold on December 31, every share. And 120% is like, I don't know, maybe he sold it all by November, let's just say. But really what happened was he was just constantly turning over daily.

By then, by 1965, Gerald Tsai owned 20% of Fidelity. Instead of picking Tsai as his successor to run Fidelity, Ed Johnson picked his son, Ned Johnson, who actually was a pretty good stock picker too. In a bull market, everybody looks good. Tsai left Fidelity immediately and started his own fund called the Manhattan Fund. It started with around $247 million in assets. "The biggest offering investment company history," according to The New York Times. By mid-'68, it had $560 million in it.

The fund didn't do so well that year though, and Tsai sold his company to CNA Financial Corporation for $30 million. He got out at the top. Pretty smart. A year later, it fell 90%. Whew. That was close, huh? So by December 31, 1974, near the bottom of a brutal bear market, the Manhattan Fund had the single worst eight-year track record of any existing fund at the time, a cumulative loss of 70% of all the capital that had gone into it. Wow. Manhattan Fund wasn't the only one. There were other kind of go-go funds of the era. I remember one called the Enterprise Fund was up like 600% at the top and down by more than half or so at the bottom.

But Tsai was the most famous money manager of his time. He was really the first kind of celebrity financial – major financial guy. He would later lie to an Institutional Investor magazine interview when he said, "We had one bad year in 1968 and I've been killed in the press ever since. I don't think it's fair" [laughs]. One bad year. How about the worst eight years ever at that time?

Tsai's career didn't end there. He later worked for an insurance company that bought American Can, a tin-can manufacturer. And he turned that business into a financial services company called Primerica. You may've heard of Primerica. Which he sold to a guy named Sanford Weill in 1988. It's the company that became Citigroup. Short story there. From Primerica to Citigroup. So Tsai's fingerprints are still on American finance today.

So that's the short version of how Ed Johnson, and even more so, Gerald Tsai, turned mutual funds, this thing born out of the conservative Boston Yankee trustee culture – they turned it into toxic waste, into these rapid-fire trading vehicles in the 1950s and '60s. So mutual funds began life in America as a conservatively managed, sacred charge of the prudent man, the Yankee trustee, and they ended up as the new go-go mutual funds of the Gerald Tsai era, taking huge positions in highly speculative stocks, trading in and out quickly. And Tsai's Manhattan Fund was just the most famous and most disastrous example, but there were others, as I said. And they took these huge positions. They weren't diversified.

And the brokers hated it. But they couldn't not do it because Tsai was a big deal. He was the biggest thing in finance at that time. That $247 million deal – it was the biggest deal. It was like 15% of all the offerings that year in mutual funds. So the brokers had to deal with him. They had to play along with these huge positions that he was taking even though they didn't like it. Because it looked dangerous to them. And traded in and out very quickly. It's just like the investment trust of the late 19th and early 20th centuries, and it's just like what they did to the 30-year mortgage with mortgage-backed securities and CDOs and the housing bubbles. Housing bubble. Singular [laughs]. We only had one of those.

Wall Street takes these conservative vehicles and turns them into toxic waste. Every year is a little bit different. Every bubble has its own characteristics. And of course today. What are we seeing today? The very biggest bubble in the history of the world, the global bond bubble, featuring, at least count, according to data compiled on Bloomberg – they keep track of it. If you have Bloomberg, you can log in and get the latest chart of the world's negative-yielding debt. It's over $16 trillion, about $16.4 trillion, according to Bloomberg. It's insane. It can't end well. These things never ever ever do.

The thing that worries me about this – and of course I have to give credit where it's due. Wall Street had less to do with this than central banks. Central banks did this one. This one's on them. Of course they're clearly taking a page – I don't know: did Wall Street take a page from them? Wall Street was around before central banks, right? At least before the Federal Reserve certainly. So I think we have to say that the central banks have taken a page from Wall Street and turned – you know, the conservative thing – most of these negative-yielding debt is sovereign debt. And they've turned it into toxic waste guaranteed to lose you money if you hold it to maturity. Insane. That's the rant for this week. If you liked it or didn't like it or have a question or comment, write into [email protected]

Let's see what's new in the world.

[Music plays]

What is new in the world? Well, there's a lot of stuff. I think probably the one thing that folks have actually written into me this past week about – a couple folks did – is GE. A guy named Harry Markopolos says, "GE is a bigger fraud than Enron." And he didn't just say it. He put out a 175-page report, which is really an enormous slide deck with a report attached to it that shows you why he thinks GE is a bigger fraud than Enron. And I haven't read the whole thing. I've looked at some of the slides. And he's even got the Enron playbook. He's got six or eight slides on the Enron playbook. And so the Enron playbook is fake revenues, fake earnings, hidden losses, opaque, unreadable financial statements. Boy, I can attest to that one. Off-balance sheet entities, hidden debt, minimal or misleading disclosures, overuse of non-GAAP operating results.

And then the next slide he says, "GE has been running a decades-long accounting fraud by only providing topline revenue and bottom-line profits for business units and getting away with leaving out costs of goods sold, SG&A, research and development, and corporate overhead allegations. To make it impossible to compare GE's numbers across multi-year time periods, GE changes its financial statement reporting formats every few years." And then it says at the bottom of this slide, "This is only detectable by reading at least 10 years' worth of 10Ks back to back. We read 17 years, from 2002 to 2018, and that's how we spotted it."

So this is a massive project. I can tell you I tried to read the GE 10K one year, many years ago. I was like, "This is ridiculous." Long-time Stansberry readers know that Porter Stansberry himself has been on this story like white on rice from the beginning. In fact, even before there was such a thing as Stansberry Research but when I met Porter in the late '90s, he was talking about GE then. And I remember at one point we were – I forget where we were. I think we were at some kind of a cocktail party or something and there were other folks in the business around. And he said, "The only position I have right now is short GE." It was close to the top of the dot-com bubble.

And of course GE at that time – that was a big deal to be short GE. Because of course Jack Welch is the famous CEO, was the famous chairman and CEO from 1981 to 2001, right? A period that just so happens to correspond with one of the biggest bull markets in history from '82 to 2000. And the value of the company increased like 4,000% over that time. You got an amazing return if you were in GE for all those years. And you probably thought Jack Welch was God. A lot of people thought he was God. It's amazing. What he really was was an earnings manager, right? You talk to anybody who worked during that period, and they'll all tell you that Welch said, "Just make your numbers or you're gone," basically. You had to make your quarterly numbers. Everybody had to make the company look like it was endlessly growing earnings.

They actually spend more – and this is covered in the report that Markopolos put out that you can get at GEFraud.com. They spent more on share repurchases than they had in earnings. Like a lot more. It was like $20 billion versus $15 billion, something like that. I mean, a lot more. And now of course you know already GE's share price is way down, right? That's what you know. Those are some of the early slides in Markopolos' presentation. He says, "What you know: GE's $53.5 billion in negative surprises in 2017 and 2018." And then he lists a bunch of them, right? Adverse LTC. That's long-term care. A lot of this is about long-term care insurance. They did a lot of research into long-term care insurance for this project. Adverse LTC claims, dividend to the parent company suspended, October 2017. There's a whole list of stuff. I won't go through it all. But you know what's happened, right?

GE's gotten murdered. They wrote down $22 billion in goodwill from the purchase of Alstom, which was a terrible acquisition. That was one of the big problems with GE, right? Jeff "Two Jets" Immelt bought – what did he buy? He bought Baker Hughes and Alstom. And he paid way too much and bought them just in time to get cyclically destroyed. $53.5 billion in negative accounting surprises destroyed over $130 billion in market capitalization. So July 20, 2017 to July 31, 2019, share price decreased 57%.

I can sit here and read every slide to you and you'd be like, "Wow. Wow. Wow. Wow." But you should go to GEFraud.com and check it out. And a lot of people – some of the folks who wrote in were saying – their questions sort of implied if I thought maybe this was getting to be an Extreme Value. Oh, it's extreme all right [laughs]. I don't know if I'd ever buy it. But it's pretty extreme. It's not extremely – it may be extremely cheap by headline numbers or something but it's not. If they're hiding an additional $38 billion in losses, according to Markopolos' report, maybe it's not a good deal yet. This could not be a good deal for a very long time. OK? So that's sort of the big news this week.

There's this other thing. It's kind of a little item. But I'll point it out anyway. This company SmileDirect is having its IPO. They've filed for an IPO. SmileDirect is – you may've seen these commercials for SmileDirect. It's like a direct-to-consumer teeth straightening. From what I gather on the commercials – and I haven't read the filing. I just saw this news item and it clicked because I've seen the commercials. And so they send you the teeth-straightening apparatus, sort of like the Invisalign-type-looking things, in the mail. You do everything through the mail. That feels a little weird to me.

I made a visit to the orthodontist recently because I don't like the way my crooked-ass bottom teeth look. And I asked them about it. And from what he told me – I didn't ask him about SmileDirect. I just asked him about Invisalign. And he said, "Well, in your case Invisalign would probably take longer and it would be more expensive," and really there was no reason to do it. And if you look at Align Technologies, the Invisalign company, I think the stock is down like 50%. So the people who are selling this stuff through real orthodontists can't do it. And the press stories are that China is creating a problem for that company. They're unable to sell in China. But I just think it's really weird to go through the mail like this.

Maybe one day things will be like that. It'll be like we're living in the Starship Enterprise and you press a button and get a gourmet meal out of a hole in the wall and you sit down and have a robot fix your teeth for you or something. Or through the mail, whatever. But it just seems kind of weird to me. And of course on $374 million in revenue, they lost $53 million last year. So I don't know if you've seen any of the TV ads or maybe on the subway in New York or someplace. But the costs for sales and marketing have more than doubled in the past year to more than $200 million. And we'll see if all that works out. I kind of doubt it.

Next item here is a little bit – it's something that may be on your mind and got a lot of press. So the CEOs of nearly 200 companies in this group called the Business Roundtable – and they're huge companies like JPMorgan and Amazon. All of the Business Roundtable companies together have like $7 trillion in revenue. And they got together recently and they announced in a very grand way that shareholder value is no longer their main objective. They put out a statement about the new definition, the purpose of a corporation. And it's a little weird. They said that now instead of simply being driven by shareholder value that they put shareholders as one of five stakeholders. So there's shareholders, customers, workers, suppliers, and communities that they work in.

Now, to me this feels like a marketing effort, and it's exactly what – not what you want to see but what you expect to find at the end of a long cycle. And this is the longest bull market in history, longest stretch without a 20% decline in history. Certainly going back to 1900 at least I know. And so at the end of these cycles, people start to be critical of business and capitalism and people who made a lot of money when they haven't made a lot of money maybe. So corporations try to get ahead of this. And I think that's all this is. It's kind of a – I don't know. It seems kind of flimsy to me is all I'm going to say.

One more thing and then we'll get onto a really great interview with a guy who I haven't talked to in a while, today, looking forward to it. So, UPS, the big package delivery company, they've joined up with a company called TuSimple. And TuSimple is an autonomous trucking company. So they have this fleet of autonomous vehicles. Trucks with no drivers, right? They're just driverless vehicles. Now, right now they're testing this between Tucson, Arizona and Phoenix, Arizona. And that makes sense to me, right? Out in the desert. Nice flat, straight highway. And they have these trucks but there are people in them right now. The trucks are autonomous. They're working autonomously. But there are people in them. There are two guys in the truck every time it goes out.

And they think over the next year or more, maybe, they'll finally do it and they'll finally get rid of the people in there and drive – UPS will be delivering packages, probably between distribution centers or something, with these driverless semi-trucks. And I'll tell you the first thing I thought of when I saw this was my father. He doesn't drive much anymore. He'll be 94 in a couple months here. But I heard him many times growing up talking about: "Those damn trucks." I'm sure most truck drivers are very safe people. But you can understand: if you're in a car and a giant truck cuts you off, you could experience a very bad problem there. You could be crushed or whatever. A little car's no match for a big truck. I could just hear him. I hope he doesn't find out about this because I can just hear him talking about it.

Anyway, the mail has been doing this, by the way. The U.S. mail – they started in May with self-driving trucks. And they started in the same area of the country, between Phoenix and Dallas, using these autonomous semi-trucks by TuSimple, same company. So it's pretty interesting. I'm not sure where I come down on autonomous vehicles. I've had some interesting discussions with people a lot smarter than me about it. And I don't know. Technology doesn't change very fast in automobiles. The automobile came out and cars and trucks have been pretty much the same animal. They're more modern now but we're still just driving the roads in cars and trucks the way we have been since the very beginning. And this would be such a major change.

And the first time one of these semi-trucks – suppose it runs into somebody or something. The first time that happens, it's going to be like the 737s and Boeings: they're going to ground them all and everything's going to come to a grinding halt, and who knows how soon they'll be back on the road after that? Anyway, let's get to our interview.

[Music plays]

All right. It's time for our interview. I'm very excited to speak with Mr. John Doody. Haven't talked to John in a while. John Doody brings a unique perspective to gold stock analysis. With a BA in Economics from Columbia, an MBA in Finance from Boston University, where he also did his PhD economics course work, Doody has no formal rock studies beyond Introductory Geology at Columbia, taught by the University's School of Mines. An economics professor for almost two decades, Doody became interested in gold due to an innate distrust of politicians and concern over their habit of debasing the currency via inflationary economic policies. Amen, brother.

Doody's newsletters cover only producers or near-producers that have an independent feasibility study validating reserves as economic to produce. Success with this method of finding undervalued gold-mining stocks led Doody to leave teaching and start Gold Stock Analyst, his newsletter, late in 1994 so he could make his research available to everyone. The results to date have been spectacular: through 2018, the GSA Top 10 Stocks portfolio has a cumulative gain of over 530%. Whoa. Gold stocks. Amazing. So, John Doody, welcome to the program. It's nice to hear your voice again, sir.

John Doody:               Hi, Dan. It's great to be with you.

Dan Ferris:                 So, before we talk about what you do in your newsletter and specifics of how you do what you do, I'm interested in – of course you were an economics professor. You studied finance in college. When did you first – were you bit by an investing bug that was not related to gold at some point earlier in your life? Were you already doing stock analysis before you got into gold?

John Doody:               Not really. Obviously played around with it a little bit with other stocks. But what got me interested in gold was not only that gold was the ultimate money but that there was no really good way to evaluate them on a comparative basis. There's about 1,000 gold-mining companies. Ninety percent are not worth anything. They're explorers. They're trying to mine investors to get money to keep drilling. But of the universe that remains, about 100, they all make the same thing. Or there are near-producers going to make the same thing. That's gold. An ounce of gold – doesn't matter where it came from, what mine. Which is kind of unique. Most companies, most stocks try to tell you why their Coke is better than your Pepsi or whatever, that they're trying to make a comparative difference.

Here, every gold-mining company deals with the same product and they sell it at the same price. So the sales end, the marketing end of it is all set. So it seemed to me that there should be a way to evaluate stocks based upon what they've got in terms of: what do they produce? What do they have still in the ground? What do they make for an operating cash flow? What are the metrics that you can use to evaluate these? And of course the only reason you buy a gold stock is you think gold is going to go up. Because they're not big dividend yields. The best gold stocks, the royalty producers, might earn a dividend of 1%. So you really buy them for appreciation. So you want to know which stocks have the best chance of appreciating.

I didn't need a geology background for this because it was really a financial comparison. We're looking at companies that have independent feasibility studies telling us how many ounces are there. So it wasn't a matter that you had to be able to understand the geology. Of course I understand now, after 25 years – I understand a lot of geology. But in the beginning it was really just doing the numbers. And nobody was taking an approach like this. Back when I got started, people were talking about gold, god, and guns, and get to the mountains because the apocalypse is coming. Or they were getting paid to write what they write.

One of my basic principles, still held to up until now and forever, will be that companies don't pay for coverage. That's really unusual in the gold business. We don't charge companies anything to write about them. That makes us totally independent. We can say whatever we want about them. And I've had companies offer me money not to cover them because we told it like it was. But in any case, it lets us be independent. And I think that's pretty essential in this business. Because Mark Twain said a gold mine is a hole in the ground with a liar standing next to it.

So, anyway, I got started in late 1994. And it hasn't always been straight up, but it's done very well. And we've got thousands of subscribers now and we're expecting more. And so far this year the top 10 stocks – we run it like a portfolio. At the beginning of the year you should have equal amounts of each stock, and we readjust at the end of each year so that you start off the new year with an equal dollar amount of each stock. But so far we're up 36%. That's more than double how gold has gone up. And it's more than any of the other funds or ETFs or gold indexes. We beat everybody consistently over the years.

Dan Ferris:                 Wow. That's amazing. You actually mentioned, John, one of the things that I wanted to talk about, which is: most investors look at these stocks – even the producers, even the very best producers, they look at them all as vehicles for speculating on higher gold prices. But your analysis, it sounds like from the very beginning, does something unusual: it treats them as a real business. And I guess you know more than anybody that it's not a great business [laughs].

John Doody:               Well, the market is inefficient. It doesn't value – even though they all make exactly the same stuff, all the companies have different numbers of shares outstanding, different production levels, different balance sheets. Everything's different about them. But we standardize everything into three metrics. One is: when you're buying a share of stock, what are you paying for an ounce of their gold, their proven and probable reserves? What are you paying for an ounce of their production? And what is the multiple of the operating cash flow that you're paying? And these are the three most important metrics for the stocks.

And we've found that even during down years for gold, we can do well because the market doesn't efficiently value every stock properly all the time. So we look for undervalued stocks, and undervalued stocks can go up on their own if gold is doing nothing, but they can go up more if gold is going up like it is now. Gold is in a bull market. It's up more than 20% from the low. And the undervalued stocks do even better.

Dan Ferris:                 I see. And, John, I just want to be clear: you only cover companies that produce, what, gold and silver, is that correct? There's no copper miners or anything else. Is that right?

John Doody:               Right. But there are some mines that produce copper as a byproduct. Gold and copper are often found together. And so the byproduct is sold and taken as a reduction in cost. And of course we have two newsletters. One focuses on gold and the other focuses on the silver stocks. And the silver stocks are even better. They're up over 60% this year. From the gold we find a Top 10 and for the silver we find a favorite five. And the silvers are up. I'm looking at the results right now. Year to date they're up 64%.

Dan Ferris:                 Nice. Do you use the same three metrics for silver as you do for gold?

John Doody:               Yes. Silver's much more difficult because silver is always a byproduct. There's very few pure silver mines. They're mostly – the byproduct comes from lead and zinc production. And so it takes a more detailed evaluation. And that's what my right-hand man – Garrett Goggin does that. He's got dual finance degrees. So we spend a lot of time on the silver companies. But it pays off. Look at the results.

Dan Ferris:                 Right. I'm sort of moving towards an ultimate question here, and that question is this: since we've acknowledged that gold and silver – silver even more so than gold – are often produced in mines that produce other metals that are not silver and not gold, do you have a cutoff? Is a gold producer a company that produces 50% or more of its production in gold? Or what's the cutoff? Because there's have to be something, right?

John Doody:               Yeah. But for gold it would be by dollar value. But I don't think there's any gold mines that say produce 50% gold, 50% copper. There may be a gold mine that produces 80% gold and 20% copper. But there's none on that 50/50 break-even. So they pretty easily separate themselves. Silver, on the other hand: there's a lot of silver companies that, since a silver mine can not only have some gold byproduct, it can have some copper byproduct; it can have some lead and some zinc. These polymetallic deposits – you could have a silver mine that only has 30% of its revenues in silver but still be a good silver company.

Dan Ferris:                 I see. So that 30% producer: that could still make it into your silver portfolio.

John Doody:               For silver, yep.

Dan Ferris:                 And I guess I wasn't even thinking at the level of individual mine, but just companies. So maybe what you're telling me is that there just aren't many companies that just produce 50% gold and 50% something else. It's pretty clear-cut in most cases apparently. Is that correct?

John Doody:               The silver miners are muddying the water. Silver's so volatile. We like to call it gold on steroids. Silver can go up and down so much in price that the silver miners have migrated towards buying gold mines. Hecla, probably the oldest name in silver, has bought a couple  of gold mines over the last couple of years. And that's to give its production more balance and more stability. Because gold, while it's volatile, it's not nearly as volatile as silver. So, more and more, the silver miners are acquiring gold mines. And so then we have a decision to make: should we cover this in the gold letter or should we cover it in the silver letter? And when it gets to over 50% we move it into the gold letter. Even though people may still think of it as a silver stock.

Dan Ferris:                 It strikes me as very interesting that you focus only on producers and near-producers. Because the business is so difficult. It's so capital-intensive. And the margins are all over the map over the cycle. It's a difficult business. And there are other more efficient ways to get at leverage to gold like royalty companies. Do you buy royalty companies?

John Doody:               Oh yeah. We cover all the major royalty companies. I think there's eight of them that we cover. And have a couple of recommended ones. Basically they get a piece of the action on anywhere from 10 to 30 different mines. So they're more stable and they basically – there's two ways they get paid. One is where they get a royalty, which is like a sales tax. And they may get 2% or 1% of gross sales. And that's pretty stable. Even if the price goes up and down of the metal, the royalty income doesn't go up nearly as much as it could, as the profits of the miner could. And then they also do these deals called streams where they pay X amount of money up front and the company agrees to sell them Y number of ounces per year at a fixed price which is usually well below the market price.

For example, there's still a lot of streams out there owned by Royal Gold and Franco-Nevada and others that are based on $400 gold even though now the gold price is $1,500. So, for example, a royalty company, a stream company – they're the same; they both do streams and royalties – could've done a deal with a miner to buy 30% of its gold production for forever until the gold runs out, and they might've done that at $400 an ounce. And for that privilege – say it was a 100,000-ounce-a-year mine – they might've paid $100 million for that privilege. And the profit that they get is the difference between the gold price now, $1,500, and the price they're paying the miner, $400. So there's an $1,100 profit.

But essentially that difference, what the miner got for selling that stream, might've been what allowed it to build the mine. It might've been the $100 million it needed to build the mine. So it's a simpatico kind of relationship. And it gives a lot more leverage to the stream owner. Because there's no work the stream owner – the Franco or the Royal doesn't have to do anything for it other than audit production. So it's very profitable. Royalty companies are exceedingly profitable. Often 90%of revenues falls right to the bottom line.

Dan Ferris:                 So, just hearing you talk makes me wonder: from the point of view of a producer, how do they choose between selling a stream and selling a royalty? How does that get done? How does that decision get made?

John Doody:               Well, it gets made first because they need the money. And if they didn't need the money they wouldn't do either. Because basically they both reduce future profits. But usually the royalties get sold for smaller numbers, $5 million, $10 million. Oftentimes the money comes over a couple of years. They're often used to explore, to drill. And it's for more drilling. In order to sell a royalty, you  have to do some initial drilling to get a royalty company interested. And then once you've got their interest, they might be willing to help you fund more drilling. And for that you'd give a little piece of sales, maybe 0.5% this year for whatever the number is, or 1% for a number.

So once you've got a deposit established though – and the royalties on a deposit can add up to as high as 5%. In fact, the best royalty that ever existed was the royalty that Franco owns on the Goldstrike property of Barrick. And that was a 5%  NSR sales royalty plus a profit royalty on top of that. And NPI. So Goldstrike paid Franco-Nevada $20, $30, $40 million a year for years. Not so much now because the production is falling. But it was really a fantastic royalty. And I think Franco paid $2 or $3 million for that back when Barrick needed the money to drill, before Barrick had anything. And it was just fantastic.

Dan Ferris:                 Yeah. One of the all-time great home runs in the resource sector.

John Doody:               Yeah. It was a company maker. That mine made Barrick and the royalty made Franco.

Dan Ferris:                 So tell me, John, about – I keep coming back to this with you. So many people – like I said, investors, they want to speculate on price. But it leads them into all kinds of other vehicles besides producers: the royalty companies or the exploration companies. And the focus on producers – it just seems so unique. And the fact that you've gotten such a great track record out of it is remarkable to me because I tend to think of these companies as horrible businesses. Capital-intensive, highly cyclical. They employ armies of union workers. It's just like a disaster waiting to happen. But you have done something remarkable with it. I don't know. Help me out here. How have you seen a way to do this that no one else has seen?

John Doody:               Well, it's a lot easier to sell a product or a mine or a mining company when there's nothing, when it's all just hot air. So most newsletters focus on these hot-air companies. And they get paid under the table in various options and whatever way. And most newsletters are in that end of the business. And that doesn't mean they're all bad people. That's a really difficult end of the market. Because there you have to be a geologist and you have to go to the ground. You have to get an idea of what's really happening. You have to be able to trust the management that's involved there. And these are all things that we eliminated basically, or we minimized, by looking at producers. Because they have to report revenues to the SEC and they've got feasibility studies and real work done on their properties. That eliminates a lot of the risk.

Now, we don't have a 100% gainer though all the time. We've had a couple of years when the whole portfolio's been up 100%, all the top 10 up 100%. But the typical year is really one for hitting singles and doubles: we're up 10%; we're up 30% kind of stuff. But that adds up over time. And by doing that, we eliminate a lot of the risk of – well, first, by having 10, you eliminate a lot of the risk that comes in mining. Because if you lose one stock because something happens – the mine caves in or the permits are denied by the government or something – you still have 90% going.

Most people when they buy a gold stock, they think: "I've got exposure to gold. I bought one stock." Well, that may be true if you bought Newmont or Barrick, which has a whole bunch of mines. But if you're typically buying some stock because somebody told you about it at a cocktail party, it's probably not even a producer. And you have no way to compare what you're buying to whatever's out there. And so I think the comparisons that we make between companies – we see how the market evaluates some companies versus other companies. The market – the pricing is a collective knowledge of the marketplace. And sometimes that collective knowledge is wrong and we can identify these stocks as being undervalued, and sometimes it's correct.

And there are stocks that are worth the premium. Franco-Nevada is worth the premium. And there are mining companies that are the same. But you have to really dig in. And the biggest winner in the portfolio right now – I'm not going to tell you because I want people to subscribe – is up 500% from what we recommended it. It was a $7.60 stock when we recommended it. And now it's at $46 or higher now. And a lot of gold investors don't want to buy a $7 stock. They want to buy a $0.70 stock. Well, in the mining business, you often get what you pay for. And if you buy a $0.70 stock, you may be able to buy more of it at $0.70. So it preys on people's fantasies about: "I bought 100,000 shares of this $0.70 stock and it's going to go to $70 a share, and, honey, we're going to get a huge yacht and a place on the water." Well, most of the time it doesn't work that way.

Dan Ferris:                 No, it doesn't. Let's just talk about the gold cycle for a second. What do you expect over the next five or 10 years? Are we in a solid gold bull market here? Do you like the prospects for gold over the next five, 10 years?

John Doody:               I do. For a lot of reasons. First, the modern history of gold started in 1971 in August when Nixon took the U.S. off the gold standard. So while gold has had value for forever, it's really only had a price history that wasn't controlled by the government since 1971. And look at everything the government's done since 1971. We're now running trillion-dollar deficits every year as far as the eye can see. All of this QE that was dumped into the market by the Federal Reserve is still out there. There's still $4 trillion of money floating around and it hasn't been removed even though they intended to. Because removing it will create a recession. It'd be pulling money outta the system. So that money floating around is what's driving stock prices higher. Probably what's driving home prices higher.

And what I like to tell people is that – they say, "Gee, gold's up to $1,500." And I say, "Yeah, that's an indicator, that's a thermometer for the value of your money. Has gold gone up to $1,500 from $35 50 years ago or has the dollar gone down so that it now takes 1,500 of them to buy what could be bought for $35 50 years ago?" And I think the dollar's gone down because we've put so much money out into the system from deficit spending and QE and all these financial tools.

And the nature of politics is that you want to get re-elected. I don't know why anybody would want to be a politician to begin with. But apparently the perks that we don't see, we don't know about, are so good that you want to keep doing it. So that means that the politicians are always trying to get more out of the economy than it can really produce. They want to get nine slices out of an eight-slice pizza. And the way they do that is they dilute the money supply.

Dan Ferris:                 Right. It's a wonder the gold price isn't even higher.

John Doody:               Yeah. I think it's going to go higher. And right now we've got a perfect storm for gold. Because the yield curve has inverted. The short-term Treasuries, three-month Treasuries, now even the two-year Treasuries, are yielding less than the 30-year Treasuries. That's only happened six times since gold was set free in 1971. And every one of those has led to a gold bull market except one.

And the only one it didn't happen was in 1980 when Volcker came in. We had the huge inflation, and Volcker came in to stop the inflation, and he raised interest rates to 20%. That killed the stock market. It killed the gold market. Why would you want to own a stock or gold when you can get 20%on your money from U.S. Treasuries? You wouldn't. So that stopped it. But every time since then, or before then, that the inversion of the yield curve has always been a harbinger of higher gold. And this time the yield curve inverted in May, May 23. And the gold price was a lot lower then than it is now. And it's going to continue inversion. Inversions often run for a year. And so I think that gold will probably run for a year.

And I'm on record as predicting $2,500 gold. I've never made a prediction for gold on the price. Never ever. Because I always said we're going to deal with whatever the stocks were at the current gold price. But I'm so convinced based upon the past history of how gold has gone up, based on the past history after these yield-curve inversions, that I have predicted in public $2,500 gold, $1,000 higher than here.

Dan Ferris:                 How long you think that'll take, John?

John Doody:               Oh, it won't be tomorrow. But it could be a year or two. Can you wait?

Dan Ferris:                 Wow. A year or two? I can wait. Yeah, I can wait a year or two for $2,500 gold. I bet your portfolio will scream if that happens.

John Doody:               Absolutely. I mean, there's no question we're going to have $2,500 gold in the next 10 years or 20 years. I mean, that's just the normal progression of higher-priced gold because of all the inflation out there. But I think this market – nobody realizes that we're in a gold bull market. Nobody's writing about it. Nobody's talking about it. The media doesn't talk about it. When people get excited about gold, when they finally realize – even though a lot of big hedge funds are invested heavily in gold, like Bridgewater Associates, Ray Dalio's company, Gundlach's fund. The smart guys are invested. But the people who aren't paying any attention because their brokers, the people that they talk to, aren't paying any attention – they're going to catch up and come on board and send the price higher. I think $2,500 is reachable within the next year or two.

Dan Ferris:                 Let me ask you a question, John. Is $1,500 a good price for the producers? Are a lot of them making money at $1,500?

John Doody:               Yeah. Everybody makes money at $1,500. The average cost of producing gold has fallen from over $1,000 to just under $1,000 an ounce. So they've all cut back. Now, they're all going to get sloppy again. They're all going to be buying jets again. But they got rid of all the extraneous stuff that they didn't need. It's easy to make a case if you have mines all over the world to own a big jet to go see them, right? Rather than having to take commercial. I was invited to go to see a mine in Brazil. It's not that far away but it's remote in Brazil. And it's one of my favorite companies. I'd love to go see it. It's a 33-hour trip to go see it. It's only 1,200 miles away or something from Miami but the only way to get there is to hopscotch around Brazil. So I decided not to go. So you can make a case for that company – and they have other mines. But you can make a case for that company buying at least a propeller-driven plane. Be a shorter trip.

Dan Ferris:                 Wow. I have a thought for you, John. I want you to weigh in on something for me. For a long time railroads were a difficult business and then they consolidated and got disciplined and became a better business. And for a long time airlines were a terrible business and they consolidated and got a little bit of discipline on pricing and things and became a better business. Do you see that happening in gold mining today?

John Doody:               To an extent it's happened. You have companies like Barrick and Newmont. They have 15 or 20-mine portfolios. But there's always going to be the exploration that's always going to find new mines. So railroads have barriers to entry. You just can't put a railroad track out there. You had to consolidate if you wanted to get bigger. And the same is almost true with airlines, not quite the same. But you can always find a new gold mine somewhere where nobody's looked before or you get a different idea about where it might be.

And ultimately, at some price, it'll be profitable to mine the gold in the ocean. There's millions of ounces of dissolved gold in the ocean. I don't know what the price is, $100,000 an ounce maybe? But at some price it'll be profitable to start sucking that ocean water up and finding the gold in it. I mean, they already get salt out of it so why not just take another step further and get the gold? It's just not profitable to do it yet. So I don't see the – yes, there're always going to be mergers and acquisitions in the gold business. Just because that's the nature of – people want to get bigger and they want to get bigger faster, and you can't find mines fast enough. But there's always going to be new mines coming along that are going to be interesting and give opportunity to entrepreneurs who want to look for them.

Dan Ferris:                 Now, John, we're getting towards the end of our time here, and I want to talk a little bit about what you do each month in your newsletters, Gold Stock Analyst Pro and Gold Stock Analyst Silver. What do you do each month in Gold Stock Analyst Pro? What do we get when we subscribe to it?

John Doody:               OK. Well, we cover just under 50 gold miners and royalty companies. And so there's about 10 covered each issue. The full one-to-three page report talks about the company, its mines, what's going on, updating it and so forth. And we write more about the top 10. Maybe an ordinary company might just get – a not-recommended stock might get only one page whereas a top 10 would get two or three pages. The only way to know who's undervalued in an industry is if you study everybody.

If somebody tells me that "I bought this gold-mining company because it's undervalued," I always say, "On what basis? Who did you compare it to? What was the industry database that you looked at?" They don't exist. We have that database. For 25 years we compiled all this production and reserve data and what the market price is telling us; what's the market cap for an ounce of gold production? What's the market cap for an ounce of gold reserves? What's the market cap multiple of their operating cash flow?

So it takes five issues to go through the whole roughly 50-stock cycle. And then we start again. And then every issue had a lead article that discusses one thing or another about the gold industry, what's happening, what our analysis is telling us. And we do essentially the same thing for silver. Although silver covers only 25 stocks. To be truthful, there aren't 25 silver miners that are worth covering. But we cover them because there's a possibility some might pop up and do better. But a couple of the worst ones are really just terrible companies who've stolen their people's money legally.

But anyway, we cover five a month on that and we come up with the favorite five. So we have five silvers and 10 golds. And the silver stock letter is doing great this year. It's up 65%. And its two benchmarks that we judge it against is – one is up 13%and one is up 10%. There's so man dogs in the silver industry that you should avoid. And the good ones almost select themselves.

Dan Ferris:                 I'm so jealous of you, John. My universe is probably about 1,000 or 1,500 names. I wish it were 50. I'm really jealous.

John Doody:               Yeah. I don't know how you do it, Dan. I could never deal with 50. Well, there is 1,000 gold miners but it's easy to get rid of 90% because they're just explorers. So just forget them. Which is what we do.

Dan Ferris:                 All right. So we got a special deal. It's really been great to talk with you, John. I want to tell our listeners about a special deal we have on your two newsletters, Gold Stock Analyst Pro and Gold Stock Analyst Silver. And it's just for Investor Hour. So if you go to www.InvestorHourGoldRush.com, there's a couple of deals. One of them is basically two newsletters for the price of one. You can get both of them for one year for $2,500. Or you can do a lifetime subscription for $4,500. Which is pretty cool, considering the amazing track record that you developed. And this is the track record near the bottom of the cycle, right? Sort of bouncing off the bottom of the cycle. At the top of the cycle in 2012 it was like 1,200%, right?

John Doody:               Yeah. Obviously we go up and down. But over time we beat the S&P 500 by 3 times and gold by 2 times over the 18 years that we've been having these – and these are audited numbers. Independently audited. We pay an independent company every year to come in and audit our records. It's pretty easy because we only make two to six trades a year. But they still have to verify all the prices and so forth.

Dan Ferris:                 I just got a new pang of jealousy. Two to six trades a year. Man. Fifty stocks, two to six trades? I could deal with that, John. That sounds awesome. You must know these things like the back of your hand. That tells me a lot about you. That's really cool. But with a downturn in the market coming any time, you want to own some gold. And I have to tell you, everyone, at Stansberry we've known about John for a long time. And I knew about him even before Stansberry even existed because I was covering resource stocks a long time ago, 20 years ago. And couldn't cover them without subscribing to John's work because there was absolutely nothing like it anywhere. And there still is nothing like it anywhere today, which is incredible. Why doesn't someone imitate you, John? I don't get it. Nobody imitates you.

John Doody:               It's too much work I think. It's too much work for most people.

Dan Ferris:                 That's right. It's easier to just sell things than it is to actually do the work, isn't it?

John Doody:               Yeah. It is. And until you have a subscriber base, how are you going to pay your bills? So a lot of these newsletter guys, they succumb to the siren song of: "Let me pay you for a write-up." Because it's easier to get paid for your work than it is to do the work and have subscribers pay for you. It takes two or three years to build a gold mine. Well, it's the same kind of thing: it takes two or three years to build a publication that's honest and pure that doesn't rely on money beyond its subscribers. So I guess other people just can't wait it out.

Dan Ferris:                 Yup. I run into those guys who get paid at the conferences. And I'm cordial. I'm not rude. But, man, to me that's just an awful business model. I would never do that to a reader. Yeah. So, everybody, go to InvestorHourGoldRush.com and you get this special deal. There's nobody like – I don't even know what I can add to this. There is no one doing anything like this. And certainly nobody getting these kind of results year after year over the full cycle the way John has. John, if I could ask you to leave our readers with one thought, what might it be?

John Doody:              Buy gold. Buy gold stocks. We're in the perfect storm. Next couple of years are going to be great for gold and gold stocks.

Dan Ferris:                 Wow. Very simple, powerful message. Thank you for that. And I hope you'll come back – when gold hits $2,500, I want to get you back on the program. How's that sound?

John Doody:               OK. I'll put it on my calendar.

Dan Ferris:                 Yeah [laughs]. I wish I could know exactly when that is on your calendar. That'd be nice too, wouldn't it?

John Doody:               Well, I'm not going to put it on a certain date. Two years from now, Dan [laughs].

Dan Ferris:                 All right. I'll hold you to it. Thank you very much, John. We will talk to you soon.

John Doody:               Thanks. Great talking to you, Dan.

Dan Ferris:                 All right, John. Bye-bye.

That was a lot of fun. I love John Doody to death and it's great to talk to him. He's been around the gold stocks forever. He knows them like nobody else. And it's funny because you hear a guy like me talk and I'll never buy a gold miner in my newsletter, Extreme Value, because, frankly, one way to look at it is: I'm not John Doody. I'll complain about them the way I would complain about an airline or a railroad. But obviously there have been good times to buy those stocks in the past. And you know what you know and you don't know what you don't know. The mining business – analyzing mining stocks is kind of outside my circle of competence by choice. And it's way in – it is John's whole circle of competence. Like he knows gold and silver and mining and gold stocks like nobody else.

So, InvestorHourGoldRush.com. I want to make a special plea for you to try John's work because I have to tell you: I think he's right. You know I've been talking about gold for well over a year certainly. But I've been really pounding the table on it and saying, "Buy gold, buy gold, buy gold." I still feel that way. And I think John's right: we're going to see higher prices in the next few years. And you heard him talking: they're all making money now so they'll all be making tons of money at higher prices.

And it's tough to bring a new mine – competition is hard to create because new mines don't grow on trees. The full cycle from discovery, from exploration to discovery and development and everything else to production – it can take 30 years. When you get in the right cyclical moment, it's rocket fuel for your portfolio. And John Doody is rocket fuel for your portfolio as well. So, double rocket fuel: gold and John Doody. InvestorHourGoldRush.com.

All right. Let's move on and talk about the mailbag.

[Music plays]

I love the mailbag. The mailbag is where you and I get to converse. You write in, I respond. It's all wonderful. I love it. This is one of the best parts of my week, frankly. I read every single e-mail that you send, even the Russian spam. I know you're not sending it. But I read everything. And I try to respond to – I do respond to absolutely as many as I can. And I read every single one. So: [email protected] with questions, comments, politely worded criticisms. And last week we were just deluged with feedback. This week it's a little lighter. So I think I have just two or three really.

So the first one here is from Brett R. And Brett R. says, "I have been a listener since the inception of the podcast and have been a fan of yours since joining as an Alliance member. Like the companies you search for, I believe your work is greatly undervalued." Well, thank you, Brett R. Thank you. Brett continues, "My question pertains to your buy-up-to recommendations in your letters. I've noticed over the years that you don't often adjust them. By theory, if a company is returning ten percent to its shareholders, shouldn't its stock value reflect that? Why would the buy-up-to recommendation then stay stagnant for years? Thanks so much for what you do. I've enjoyed and appreciated reading the evolution of your value assessments through the years."

Well, thank you, Brett R., for being an Extreme Value subscriber for many years. I'm really grateful to you and everybody else who makes it possible for me to live this amazing life. As far as the buy-up-to prices, you heard it here: I am lazy about this. And I'll tell you why. We look for undervalued stocks. And we're looking for things that we think should trade at higher valuations. Not just a higher share price; a higher valuation. And generally speaking, when we get a winner, it's because it's no longer cheap. So it makes sense that there would be a lower ceiling in that maximum buy price that I publish for each stock.

You see what I'm saying? It's only cheap enough up to a certain point. It may run hundreds of percent above that level and, hopefully, cross your fingers, we'll hang onto it long enough to get some of that return. But it makes sense that the buy price would really seriously lag, especially on a winner, right? A good winner, the buy price is definitely going to lag. I hope that explains it. And you're right: I'm lazy about it. There are some that I should have raised maybe a lot sooner and didn't. But that's why I'm lazy about it. Good question.

The next one is from Brendan K. "Hi, Mr. Ferris. As always, thank you for all the work you do for us week in and week out. Your podcast is one of my favorites to listen to each week. As a personal investor, investing is more like a hobby than a job. On weeks when the opportunity rises, I hope to spend five hours reading reports and performing analyses on new ideas as well as checking up on the current holdings in my portfolio. For the personal investor listening to your show, what do you think is an appropriate number of holdings one should have in his or her portfolio? Obviously it'll depend on how much time each investor has to focus.

"But I think it'd help if you shined some light on the subject, maybe even the number of positions in a portfolio regardless of time. I'm in the 10-to-15 holdings range and I'm starting to consider adding to the positions I currently hold when the price is right instead of adding new securities to portfolio." When the price is right for new securities I guess he means. "Any and all advice is appreciated. Best regards, Brendan K."

Thank you for the question and for listening to us week in and week out. So this is not an objective thing. Let's talk about folks like yourself, though. If it's not your full-time gig, you might need to figure out some way to be – you should always be sufficiently diversified. Things like stocks, gold, cash, real estate, real true diversification. But in your equity holdings, 10 to 15 holdings for somebody who has a full-time gig and can only spend 5 – I can't give you individual advice. But if that's how many you can follow, that's how many you can follow. You see? You're giving me the answer with your question basically.

And I agree with the general answer. I can't agree to the specific answer because I can't give you individual advice. But the general answer that you're implying, which is: how much time do you have? What kind of a commitment can you make to keeping up with these things? Those are good questions. So your head is in the right space. Whether 10 to 15 is the right number for you – only you can determine that. But the basic idea that somebody who is a professional can follow more names than someone who is a part-time individual investor is certainly – I think it's very obviously sound. Good question.

Last one, very short question here from John T. John T. says, "I am informed that I cannot use stop-loss or trailing stop-loss orders on mutual funds. So how can I _____ against drops? John T." OK, John, there's another question baked in here. And my answer is that I don't think you should put stop-loss or trailing stop-loss orders in the market. You should keep those numbers to yourself. And say you own a mutual fund and you're down 20%  and you've decided that that's your stop-loss point, and the thing closes down 20.01% one day and your stop-loss is hit and you sell. You just have to keep track of that number. Don't put a stop-loss order in the market.

Because what happens? Stansberry has thousands and thousands and thousands and thousands of readers. And they all get the recommendation around the same time. So their trailing stop, if they're following our advice, is going to be around the same number. So all of a sudden thousands of stop-loss orders are going to be entered. Well, it's like the force of gravity. Those stop-loss orders kind of exert a gravitational pull if there's enough of them. And with the many thousands of readers that we have at Stansberry, there could conceivably be enough of them like on a smaller-cap stock or something. So kind of not a great idea to put those orders in the market.

So that's how you do it: you just keep track of the numbers yourself and you sell when your stop is hit. Good question. Glad you asked so I could reiterate what I think is a very very important point about trailing stop losses and how to execute them.

All right, folks. That concludes another episode of the Stansberry Investor Hour. Once again, it's been my privilege to come to you, as it is each week. Be sure to check out our website where you can listen to all of our episodes and see transcripts of every episode going all the way back to the first one. And you can enter your e-mail address and ensure that you get all the latest updates on every episode. Just go to InvestorHour.com. That's it for this week. Thank you so much. I will talk to you next week. Bye-bye.

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