Dan opens this week’s show ranting about good thinking versus bad thinking. And then he goes off on a listener who emailed in with some bad thinking.
Then on this week’s interview, Dan welcomes guest Aaron Edelheit on to the show. Aaron is an author, value investor, and the CEO and Founder of Mindset Capital. Aaron is a repeat guest to the podcast who has been featured and quoted in the Wall Street Journal, the New York Times, Bloomberg, CNBC, among many others.
During the interview, Aaron does a deep dive into one of his favorite value stocks that has been beaten down for several years. It’s a household name that everyone has heard of, it has a massive base of millions of engaged users, and dozens of ways to monetize that base going forward. Could a new incoming management team be all it takes to send this stock soaring?
And finally on the mailbag, several listeners have questions about alternatives to Bitcoin or possible Bitcoin copycats. Dan reads a response from Eric Wade, Stansberry’s biggest crypto expert, to help address these concerns. Plus, one physician writes in to tell Dan that he cringes every time Dan talks about coronavirus.
Listen to Dan’s response here on this week’s episode.
CEO and Founder of Mindset Capital
NOTES & LINKS
3:45 – Dan starts the show ranting about the society’s tendency to want to label one side as good and one side as evil, “It’s a little silly, because the world isn’t really that way, is it?”
7:05 – Dan doesn’t hold back and rips a listener for their flawed argument, “…it’s stupid and wrong, and an investor sure as hell can’t afford to think this way!”
13:06 – Dan has a conversation with today’s guest, Aaron Edelheit, the CEO and Founder of Mindset Capital, a private investment firm. Aaron has started several successful businesses and been featured and quoted in the Wall Street Journal, the New York Times, Bloomberg, CNBC, among many others. He has also given lectures on entrepreneurship and investments all over the US, Canada, and South Africa.
17:50 – Aaron tells Dan why he left his past ventures to get back into investing in equities, “…I just see tremendous opportunity in small and medium and even some large cap stocks…”
23:50 – Aaron details what he focuses on before every investment. “I really want to take the risk on the upside, I don’t want to take much downside risk…”
29:25 – Aaron shares the name of a forgotten stock that could be an incredible value. “It’s a pretty amazing service and at the same time, they’re just not monetizing it properly.”
35:30 – Aaron and Dan discuss how a new management team is likely to turn things around for this company, so they start generating serious cash. Aaron dives in deep and gives Dan a ton of specific examples to monetize their wide base.
46:35 – When Dan asks Aaron what his final thought is, he makes one final pitch for his favorite undervalued stock… but also gives broader advice about where to look at investing in the future.
49:01 – On this week’s episode of the mailbag… what do you think about GTBC as an alternative to Bitcoin? Is there truly a limited finite amount of Bitcoin or could a copycat create more? Should you use trailing stops or just “buy right and sit tight?”
Announcer: Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour. [Music playing] 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 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 value investor and author Aaron Edelheit. Aaron will tell us one of his favorite stocks right now. It's a familiar name, but I bet you've never heard anyone talk about it like this. This week in the mail bag, more questions about crypto. And once again, I'll reach out to the boss of my crypto posse, Eric Wade, for some answers. What he said will not disappoint.
Also, questions about trailing stocks and physician and listener Lincoln B says he cringes when I talk about COVID19. In my opening rant this week, I'll talk about good guys and bad guys versus good thinking and bad thinking. Heavy stuff, but very useful for investors. That and more right now on the Stansberry Investor Hour. Okay. Let's talk about good guys and bad guys versus good thinking and bad thinking. Now, first thing I want to tell you is, I recognize there is such a thing in this world as bad guys and good guys. My point today is going to be that these labels apply far, far, far less often than I believe most people apply them today.
And I'll give a really good example of that to show you what I mean. Then we're going to get away from that, and we're going to talk about the difference between good thinking and bad thinking. And I didn't have to look any farther than our own mail bag for two excellent examples. Okay. Let's not get into good guys. All right? Because that's for another day. But there is such a thing as bad guys. I was reading a book called, "The Road." It's a novel. I read it on Sunday. It's by Cormac McCarthy. It's really good. It won a Pulitzer Prize. It's a post-apocalyptic vision of the world. I won't get into it I won't spoil it for you.
But one thing is like, the bad guys in that are really bad. They'll kill you and eat you. Okay? That's the bad guys. [Laughs] And to me, that's a bad guy; a truly bad guy. I'm sure there are bad guys who are a little less bad than that, but I just want to make the point in a very extreme way. And short of cannibalism, you know, you should be careful, I think...you know, cannibalism and other horrible, horrible crimes against human beings. Right? You should be careful about labeling people good and bad.
And I think the very obvious example in our culture, in our society today, is politics. I live on the left coast of the United States. You can't show up at a cocktail party and push anything but hard lefty, liberal ideas without kind of being – people, they'll sort of look at you funny. And the worst conversation, they'll shout you down and treat you like your ideas are not allowed to be heard. And you've seen this. We see this in social media. You see it on all the big news networks. You know? You look at like CNN versus Fox. One's right, one's left. Whatever. It's a little silly because the world isn't really that way, is it? Everyone is not morally evil on the left. That's what the right will tell you. And then, the left will tell you, "Everyone on the right is morally evil." That's a bad, bad way of looking at things.
And I'm going to give you an example of that kind of thinking in a minute here. The problem there is, if you're really thinking about things – if you're a mature, adult human being who's really thinking – you know that life is filled with tradeoffs. Everything isn't all black and white and good and bad. Everything is tradeoffs. Okay? And that is – I think that's the proper way to look at life, rather than to look at everything as an exercise in moral superiority and black-and-white thinking. So I believe we're infected to a great degree in our time – and maybe in other times, but definitely in our own time. We're infected to a great degree. And this affects investors too. People got this way about tobacco stocks and tobacco companies.
And some people are this way about like Facebook or even like Google or something. I don't think they're evil companies. And you say, "Well, Tobacco. You know, they lied about how bad cigarette smoking was," and all this stuff. Look. You got nothing to tell me about that. My mother smoked for – it was like 50 years. She started when she was 14, and I don’t think she stopped until she was in her early '60s. She's 93 now. She has COPD. You know, without oxygen tanks she would've been gone some time ago. You know? She needs that oxygen to live. So I get it. I get it. It has bad effects. But you know what? For a couple of decades before she actually quit, she had seven children and a husband saying, "You're really shouldn't do that. You really shouldn't do that."
And she chose to do that anyway. She made the tradeoff. And you know what? When we said, "You shouldn't do that," she said, "I know." Okay? So she made the tradeoff. And I'm not saying it's easy to quit either. Okay? Don't write in and say, "You don't get it, man. It's a – they're addictive. It's hard to quit." No. She quit. So you should think in terms of making tradeoffs, not moral superiority. And like I said. It gets into things like tobacco companies which, in the end, were selling a product that people wanted to consume. And even after their big master settlement agreement in 1998, I think the first 25 years of that agreement they paid, you know...they're scheduled to pay something like a total of $200 billion out. Insane.
And if you really want to get moralistic, you should look at the municipalities that they're paying it out to who are like securitizing the debt and [laughs] loading your town up with debt. Another topic. Anyway. I think it's a mistake to say, "Well, tobacco companies are evil." Look. Some people want to smoke. Other people want to buy the stock. It's none of your damn business if you don't want to do it. Right? Same with like Facebook. You say, "Facebook is bad for my kids. I took it off all the computers. It shouldn't be allowed to exist," blah-blah-blah. Well, people want to use it. Facebook wants to provide it. Some people want to own the stock. None of your business. It's between them, not you.
You see what I'm getting at? If you have a moralistic version of the world where you're always trying to foist your view – that's the problem. We politically try to foist our view on people, and it doesn’t work. Here's an example of this thinking in the mail bag. Deb H writes in and said, "I have enjoyed reading some of your articles. However, I will not be reading anymore if you promote a person who supposedly gave George Soros investment advice" – she's referring to our interview with Rupal Bhansali who was brilliant. It was a wonderful interview last week. You should listen to it if you haven't already. And then, she continues. "I know he is a billionaire. He uses his money to promote racist socialist agendas. He is funding the violence disguised as Black Lives Matters protests by paying agitators to ignite violence in what may have been a reasonable, peaceful protest."
And then she says, "Do you also support this effort/agenda? Are you trying to tear America apart? I wouldn't trust a thing you say now." That is bad thinking. So she deems Soros morally evil. I don't know if he is or not, and frankly I don't care. So Rupal Bhansali, therefore, is morally evil. Why? 'Cause she worked for him for a few years. Guess what? Austin Root of Stansberry worked for him for a few years too, and he worked for Steve Cowan too. Austin is a wonderful guy. He's a fine human being. Deb H, this is bad thinking. You can't go through life this way. I guess you can go through life this way, but you're just truncating your enjoyment of life. You're truncating your ability to think. Every time you think this way, you're reducing yourself by 5 or 10 IQ points. You know? It's just stupid and wrong.
And investors sure as hell cannot afford to think this way. You can't afford to say, "Well, these are wonderful cash-gushing companies that are probably going opt be wonderful cash-gushing businesses for a long time. But I'm not going to own them 'cause they're evil." You should get the hell out of the stock market. Okay? You should get out of the stock market [laughs] if that's the way you want to think. I promise you, you will find something to cop a moral superiority attitude about to almost every company. It's ridiculous. Okay? That's an example of what I think is really bad thinking. An example of good thinking is from a listener who was also one of our previous guests – Kevin Duffy.
And Kevin Duffy says, "Hi, Dan. Another great interview with Rupal Bhansali. Loved her comments on Apple and risk management. You talked about sentiment indicators, particularly AAII and COT on stock index futures. This is a long conversation, but the cliff notes version of it is: numbers impressed, statistics lie, and all sentiment indicators should be taken with a grain of salt. With so many floating around, it's easy to succumb to confirmation bias. It just so happens that the two you cited are notoriously poor indicators. Whenever I hear them trot it out, I am immediately suspicious. Meanwhile, more reliable indicators – investor's intelligence and AAIM equity fund cash levels margin debt – are all flashing red."
And then he continues some more in this vein. And I'm okay with him criticizing me. Kevin's been a good critic. He's a very thoughtful guy, and I think he's generally been right. I think the real point here about the sentiment indicators is that if you use two of them, you should cite like five or six of them. 'Cause he's right. He says in this E-mail, "The sentiment indicator landscape is rarely black and white." Right? Which, you know, that's the theme of this rant here today. Right? So if I made a mistake, that really is the mistake that I made. I only gave you two sentiment indicators when really it's a whole landscape of them, and they rarely all line up in the same direction. And, you know, I don't know that those others are any necessarily better. But that's good thinking. It's analytical thinking. It's not moralistic. It's just, "This works. This doesn't. Maybe this is a good idea." And the overall idea that – sentiment indicators are flaky.
So you really should look at all of them at once 'cause they're rarely all black-and-white. That is an excellent point. All investors need to understand that if they're going to look at sentiment. You see the difference? Deb H moralized and said, "Nothing I ever say" – she won't trust a thing I say now. Right? It's like saying, "I'll never trust a thing Mark Zuckerberg says." Well, he's the guy who created Facebook. And that's one of the greatest businesses of all time. It gushes free cashflow. And I think the free cashflow margin last year was like 30 percent. If you screen for that, you'll find about five or ten companies. Okay? It's incredible.
And the people who use it...they use it. They know what they're doing. You shouldn't moralize about them and try to, "Well, you know, this thing shouldn't exist." When you say the thing shouldn't exist, you're saying the people don't know what they're doing. You know? You're better than they are, and you know how society ought to be rearranged. And you're okay with the investment implications of that. You're okay with wiping out billions of dollars of investment. I think that's all I have to say about that. Okay? Let's move on, and let's talk with Aaron Edelheit, who's one of the smartest investors I've ever met in my life. I can't wait to talk to him.
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We have new show here at Stansberry Research. It's a weekly recap inside Stansberry Research and the world. Our financial correspondent, Jessica Stone, hosted each Friday at 5:00 PM. And hope you'll give it a listen. Find it everywhere you listen to podcasts, including stansberryinsiderweekly.com. today's guess is Aaron Edelheit. Aaron Edelheit is the CEO and founder of Mindset Capital, a private investment firm. After being one of their first investors, Aaron was also the Chief Strategy Officer of Floe Technologies and helped the company grow from a pre-revenue startup to raising $28 million in launching over 5 million Home Depot stores.
In his previous role as CEO of the America Home, Aaron founded and grew a company from 16 rental homes to one that owned 2,500 single-family rental homes and was sold in April, 2015 to a publicly-traded Real Estate investment trust. He's also the founder and ran a successful money management firm called Saber Value Management from 1998 to 2011. In 2018, Idea Press published Aaron's first book, "The Hard Break: the Case for a 24/6 lifestyle." The book makes the case for taking one day a week off from work, E-mail and Smartphones for a more productive, healthier and more creative life. Aaron has also been featured and quoted in the Wall Street Journal, New York Times, Bloomberg, CNBC among others and has given lectures on business and entrepreneurship in the US, Canada and South Africa. Aaron, welcome back to the program sir.
Aaron Edelheit: Thanks for having me, Dan.
Dan Ferris: So last time, we talked about your book, which is a really cool book. It's kind of the resource on taking a day off each week. And, you know, we talked about your start as an investor. But this time around, you're back into equity analysis and investing in equities again. Like, I saw you talking about this on Twitter. And I was like, "Wow. I didn't expect that." What is it specifically that has you so excited? Let's get into that today.
Aaron Edelheit: Sure. Sure. So one thing I will say is, like, this week is a wonderful example. I'm so excited for my Sabbath and my day off tomorrow. I cannot tell you. But that's a little side note. With all the nuttiness of the world, I still make my plug for everyone trying to unplug. So what I would say first off is that I've always been an investor. I don’t know why. I've been reading the Wall Street Journal from a very young age; fascinated by researching investments, the business world.
And I realized earlier this year that I really missed spending most, if not all, of my time researching companies and finding investments that were publicly-traded and decided to refocus. And I have a small friends and family money management partnership that I launched. And frankly, I'm having a blast. I realized that it's one of the great loves of my life. What I found pretty weird is, I just love researching companies and diving in and finding either companies that are misunderstood, companies people have never heard of or companies in the midst of a turnaround. Or all three.
And so, you know, I took about a nine-year break from 2012 while I decided to focus on The American Home and grew that, you know – as you mentioned – from 16 rental homes to 2,500 and then joined a friend's startup. And I really – the way I view it is, I'm getting back to kind of one of my first loves, really as research and investing. And it's just such an incredible time to do it even though it's distraught with risk, and there's so much uncertainty. Mainly because there's such a dispersion of values. And everyone looks at the industries and says, "Oh, my gosh. The market's so expensive. The market's so high" – and not really realizing that if you strip away the top five companies...I think now represent about 1/4 of the S&P 500. And I bet if you were to take the top 50, they would represent most of it. But it's even more dramatic, um, kind of when you go down into a small-cap and micro-cap.
And now that I'm back kind of spending a lot of time, I just see tremendous opportunity with small, medium – and even some large-caps that I think are misunderstood. But I think it's just, this is this kind of moment...everyone's so focused on; the virus and politics and emotions are enflamed. And Federal Reserve is pumping lots of money in. There's just – this is the – this is the opportunity for, in my view, a fundamental catalyst to come in. Put your head down and really invest in companies that, frankly, have really bright outlooks or no one's ever heard of or have been unfairly beaten down.
Dan Ferris: So there aren't a lot of people talking about companies being beaten down right now. I hear more people talking about whether or not they want to speculate on the market going higher or not and talking about the general overvaluation of like the S&P 500. But there aren't a lot of people like you talking about this. And for a little context, you Tweeted that you think this period is like around, you know, maybe August 1998 – the long-term capital crisis. How is today like then?
Aaron Edelheit: Yeah. It just struck me that...you know, people have been coming to look for analogs; how to view this market and how to view what was going on. And I actually got my start...I'll never forget. I literally started above my parent's garage managing one person's money. I had a friend from college...sold his business and knew that I loved this and trusted me when I don't know if anyone should've trusted me. I was so young and naïve. But the investment – he gave me the money, and I decided to try to make a go of it. And I started in June of '98. And it was actually a horrible time. Horrible – but just a great time to start.
And in the first three months, I was down 20, 25 percent. And what happened is, long-term capital managers levered itself to its eyeballs and was doing a lot of crazy things and blew up. Federal Reserve had to step in, basically get all the banks and everybody together at the table and bail the market out. But liquidities moved up. And what happened is, they then pumped enormous amounts of liquidity into the market. And what you then had was the '99, 2000 bubble. And I'll never forget that because – I'm a contrarian at heart. I'm really looking for orphan or misunderstood companies or stuff that no one's ever heard of.
And so, I had a good year. And even though I'm down 25 percent in the first three months, I rebounded to be positive for the year. But then in '99, I had a really good year. Like, nothing like the Nasdaq. But then when the Nasdaq broke, all of the – all of the high valuation and speculation was really happening in the technology sector. And there was a great dispersion of value. And I remember finding a spinoff that was trading for its cash value where the parent company had claws in the S&P filing that if anyone tried to buy it out, they would have to pay them 3 times the market cap at that point.
And finding an oil tank company that was trading, you know, like for some...half of book value – and remember, oil was never going to come back. There's a lot of parallels. And what happened is, when the Nasdaq broke the rest of the market actually was perfectly fine, and the valuations were so low that I then went on to compound at 25 percent a year for like four years. And honestly, I felt like I was a golden God only to be humbled by the market in 2003. But that's another story. And so, when I'm looking at the analog for this market – when I look, I see we have this kind of crisis. The Federal Reserve and the government pumping lots of money in the market.
And you have a certain sector of the economy in a certain part of the economy – again, technology-fast companies – that are trading at very, very high valuations. And some of the probably justified. And small-cap value and value kind of companies are literally being called like dead assets, and they're being called...that this time is different. And frankly, I find it – and again. They may be right with some industries in some sectors. But I'm finding what I believe is just, like, world-class values. And the tax with values for – companies that are down, frankly, 70 percent from their highs. And it's just really fascinating, to me, the analog of the – to me, valuations risk. Not volatility.
So I don’t think...I may be taking short-term volatility risk. But in the long run, in terms of impairment of capital, I don't believe we're taking much in the way of risk right now in the market. And I have optionality on the upside. And this is really kind of my everything kind of philosophy of my new kind of management firm; which is that, I really want to take the risk on the upside. I don't want to take much downside risk. I'm happy to go into situations where the upside is uncertain, but the downside as well. Worst case, I just break even or I don't much money. And it's just disappointing. I'm happy with disappointing.
Dan Ferris: You're happy with disappointing, meaning the upside disappoints but you didn't lose anything. So who cares? Move on.
Aaron Edelheit: That's exactly right. And my best is, if I build the portfolios, these together, some of them are going to hit. And the upside is so uncertain. The upside on some of them could be multiples of my investment. And then overall, the portfolio will do quite well. And some of them may disappoint or just be flat. And so, I'm building together this kind of low downside, uncertain upside portfolio. And I'm just really – I’m just frankly...it's weird to say this in such a tumultuous time when so many people are having problems, and there's so many like real issues; economy, politics, et cetera. But I’m frankly finding I’m having a blast researching companies that I think actually could have quite a bright future. And I'm not paid very much for that professional...
Dan Ferris: That's really cool. And it's so different from the sort of mainstream stuff. You know? We see all these articles and news stories about Robinhood traders speculating in crazy bankrupt companies and, you know, experimenting with options and futures. And your message is like the opposite. [Laughs]
Aaron Edelheit: Yeah. The other thing that I see is just these money managers. I just got a letter the other day. Like, very smart. Some of them are doing very well. I'm not an epidemiologist. I'm not a doctor. I'm not a politician. I'm not an economist. Like, my goal is not to...I can try, and I have read a tremendous amount about COVID. I can tell you the goal to an investor is to – in my view – is to invest an evaluation that if the worst case happens, that truly won't be that bad for you. And unfortunately, you can't really find that in a lot of the high-flying companies.
And a lot of the company – and that's why I think a lot of money managers are...or they're taking on a lot of risk. They see a lot of upside, but they're taking on a lot of risk. And so, they feel compelled to make the case that either the virus isn't that bad. "It's not going to have much of an impact. And we have to focus on the trend." To me, I want my head down and I really want to try to find these" – but again. That just fits with my own personality. I'm just trying to find companies where if they do down, I can sleep at night. They're not going away. And in some cases, some of them are doing quite well.
Dan Ferris: That is really cool. And, you know, you're not the only person we've interviewed recently who said this. But overall, it's not a popular message. And I wonder how money managers like yourself...I assume you're managing other people's money at Mindset. And how do you find people who want to hear a message like this at a time like this? It must be very hard.
Aaron Edelheit: Well, it's just – frankly, it's just friends and family. I’m not marketing this at all. I'm managing my own money and some friends and family. And I'm doing what I love.
Dan Ferris: Right. But, Aaron. The friends and the family are the ones who call you up.
Aaron Edelheit: No, that's true. Well, I didn't say all my family or all my friends.
Dan Ferris: [Laughs] Right.
Aaron Edelheit: This is one of the lessons that I learned from 2008, is, I'll never forget friends who came into my office in March of 2009 and begged for their money when I was 100-percent wrong and I had no choice. And I told them, "Please. This is not a good time. Please don't. Please don't do this." But they asked for it. And because they were friends, I wasn't required to give...but I gave them their money. And they represented about 10 percent of my fund. And so, I'll never forget what that was like; what that felt like.
And so, you either share how I'm investing or don't invest. I'm doing what I love. Whatever comes of my money management firm comes...you know, however it works out, if people want to invest that's great. But I really want to focus on people really understand what I'm trying to do. And if they're bothered by volatility or they're bothered by the market, are they going to talk to me...you know, I launched this on April 1st, and not one of my clients has asked me how I'm doing. And it's a small group. So it's kind of a curated group of people. Which lets me do what I love, and I'm grateful for that.
Dan Ferris: It's a nice position to be in. So, I mean, do you feel like getting specific with any of your favorite names at all? I mean, if you don't want to, I understand how people are about-
Aaron Edelheit: Yeah. No. One of the ones that I kind of, you know, send out that – it was publicly – was kind of a value investor's case of Twitter; which is a pretty large company. It's like an $18-billion enterprise value company, and it's an example of what I knew as just kind of a misunderstood company – that maybe it wouldn't traditionally screen as value investment. But I believe that, you know, Twitter is the most powerful news and curation tool in the world. And it's more valuable to its Users now than ever before. But you wouldn't know it by looking at the financials of the stock price. It's almost the same price as its IPO seven years ago. But the value of its network has kind of grown exponentially. And it's just fascinating to watch, you know, kind of people misunderstand. I happen to love Twitter. You know, as someone who's curious and wants to research, I think it's just the most amazing curation and manning tool I've ever encountered.
And I'm not the only one that's said that. Bill Gurley of, you know – the famous Venture Capitalist investor member said basically, it's the most amazing learning network." That was Bill. And I think people don't really understand...you know, people who are new to Twitter don't understand it. But the people that use it all the time constantly say, "I can't believe this is free. I can't believe this service is free." You see this, you know, if not every day, multiple times a week from people that I Follow. And the problem is – the problem with Twitter is, they've struggled with their adverté time and technology. Their CEO has been distracted. Jack Dorsey. He runs two different companies, Square and Twitter.
And they kind of have a – they've had, to date, a back-win strategy kind of ignoring their power Users, of which I am one of them. And so, what's really remarkable is, like...just to show you the value of Twitter, I felt like I was weeks ahead, if not a couple days ahead, of the COVID news when things started breaking in February. And not only did it allow me to prepare my family and make multiple Costco runs and stock up and make sure that we had extra medicine, et cetera, but I was able to position my portfolio because I was worried about what was coming.
Because you start hearing news stories, and I could immediately start following epidemiologists – the world-class epidemiologists around the world. And people in Italy, in Asia, who were reporting about what was going on and understand the risk of what was coming. And it's kind of the same thing of, you know, a couple of weeks ago learning that people are like, "Hey. There's going to be a – if people aren't wearing masks, you're going to have a second kind of surge in these places that aren't encouraging." And I remember kind of hearing of friends saying no one in Phoenix was wearing a mask. And they were acting like everything was normal. That was three-and-a-half weeks ago. I said, "Well, I'm not a rocket scientist, but I can figure out what that means if it's easily transmitted."
So these are just like small examples...the power of Twitter. You know, every politician is on it. Every journalist is on it. Political Twitter's very powerful. The economist train of Twitter is really big. Academia, it's become more and more important. And they found that there's – you have 50-percnet more citations of your work in future work if you're on Twitter in academia. Finance and Twit, they call it...it's just incredible for sourcing of news, Following things. You know, I was really interested earlier in what was going on in this oil tankers and dry boat shipping. And I was able to Follow and reaching to hear the analysts to share research with friends. And also, be able to get daily quotes of what the rates were. That's just like – and then Follow both bulls and bears on both sides. That's just a pretty – it's a pretty amazing service. And at the same time, they're just not monetizing properly because of a distracted management.
And you say – you ask, "Well, why is now different? Like, what's to stop management from just keep either being distracted or not focused?" And what happened is, you had an activist to active. Elliot Associates earlier this year. And then, a private equity partner came in as well. And there's like a three-way negotiation. And what happened is, one of the world-class technology private equity investors, Joe Blake, and the CEO – Egon Durban – and a representative from Elliot Associates – Jessie Cowan – both joined the board. And so, you have two board members join independent. And basically, I believe that now you're at a point where the management team is going to perform. Or you're going to have a change in management.
Dan Ferris: Cool. Yeah. I agree. I use Twitter all the time. And I learn – it's amazing. I go on there every day. I'm on there every day, and I always learn something. That's like my primary news feed now.
Aaron Edelheit: That's exactly right. It's like, there's so much opportunity just in news. Like, this is where news breaks. This is where people, you know, follow news. Just the news itself. And you know what's so interesting is, part of my thesis is that Twitter should start experimenting with subscriptions. Like monetize – there's a service called...it's really a shame. And this is part of the distracting...you know, TikTok is really big right now, putting on a short video to music. Twitter had this like seven years ago with Vine and just ignored it.
You know, there's another service called Substack which Sends subscription newsletters. It's super easy. Like, that could be Twitter. Twitter should acquire them in my humble opinion. They're all being – but the craziest thing is, there's people out there who have stock recommendations like newsletters and service fees and have what's called locked accounts. Now on Twitter, what you can do is lock your account and only those people that you invite and accept can Follow your Feed. Okay? It can – so that it isn't public. You can saw what you want, et cetera, or you can just use it for the market timing or the recommendation and then Following this one guy.
And the guy will – and this one guy says, "Well, go to my website and sign up for my service. Pay me, and then once I get your E-mail, I'll invite you to my Twitter Feed." And I'm just thinking to myself, "How is this happening outside of the Twitter ecosystem?" Like, "How is this possible?" And it just strikes me that there are a lot of different options that could be – there's tower-Users like me that, frankly, if you would give me a little more functionality and a little more tools, I would pay...I would happily pay for a Twitter Premium service. Which also what I’m saying is, you have all these corporations and blue check-marks, either...they're at five people. Many of the corporations use Twitter for customer service. They use Twitter to just create marketing for free. Right? There's many of them that have over 100,000 Followers.
And it's amazing to me – there's 58...here's a stat. 58 percent of the top brands have over 100,000 followers. And 80 percent of Twitter Users have mentioned a brand. Do you know how much these brands pay for that kind of verified account – that blue check-mark? They pay 0. They pay nothing. I saw a mention by, I think, Professor Scott Dalaway that one of the, you know...God. I'm blanking on the name. One of the Kardashians, like, literally will get paid 1/4 of a million – yeah. Yeah. Yeah. Like 1/4 of a million or $500,000 to Send out a Tweet. And she pays nothing to Twitter for that or to keep her Twitter account. Like, what would you pay for a monthly fee to have access?
And what you also see is, you know...stories of like Donald Trump or other people would get, upset at Twitter. But they can never leave Twitter. One, it's addictive. And two, there's nothing like it to give you a direct platform right to your audience and practice your narrative. And so, that's why Alan Munsch – he literally got in trouble with the SEC if...basically broke a law and is part of the SEC settlement has to get someone to basically oversee his Tweets. And he still can't stop Tweeting. It's really an amazing thing. And how is it that there's so much power and has so much power that the government wants to regulate it? But they can't monetize. The stock price is the same as it was seven years ago.
Dan Ferris: [Laughs] It's insane. It's as if the New York Times wasn't getting paid.
Aaron Edelheit: Yeah. Yeah. New York Times', like, all-time-high. Right? They're cashing in on this like crazy. They're loving this environment. But I look at Twitter, and I say to myself – you know, again. Going back to the philosophy...by the way. Multiple companies have tried to acquire Twitter before or have discussed it. Almost every major company out there. And so, I look at it, and you have Silver Lake that just invested $1 billion with Convertible Note that is like...pays less than 1-percent interest and converts at $41.50 a share. The stock's at 29.
By the way. They made $5 billion in Skype and $10 billion bringing Dell private and then public again. These guys are very, very sophisticated. Much, much smarter than I am. And so, you know, I look at this and I say...you know, the downside is limited. Everybody knows that they struggle. Right? What happens if they stop struggling? Monetarily. What I mean by that is, User engagement is through the roof. The power, you know, in April...internet traffic to Twitter was the third-fastest-growing; up 39 percent – higher than Facebook's 26 percent. By some estimates, Twitter only earns 1/3 of what Facebook earns on its Ads even though Twitter Users are more educated and wealthier. Like, it's really kind of remarkable how much is already kind of in the stock price and in the valuation. And just as an example, Facebook has like a $600-billion valuation. Twitter is, you know, $18, $19 billion. Like not even in the same ballpark.
And yet, for some reason this network is always in the news, always breaking news and people cannot get enough of it. And so, if I go to Mindset's philosophy of low downside, I see the company has no debt. Lots of cash. It has no net debt. You know? It, you know...you have these two activists from the board. It's very, very clear something is going to happen. [Laughs] Something has to change or improve. And, you know, we look in terms of like the analyst coverage and how people view it, and it's remarkable how negative everyone is. You know? Of the 44 analysts who cover Twitter, 30 have a hold recommendation. Which is – you and both know is a sell. 4 have the stats.
So 34 of the 44 analysts basically say, "Don't own this." Only 10 have buys. Now compared to Facebook, has 42 buyer recommendations and 4 holds. So when I see things like that, I say, "Well, there's a lot of negativity around the company. The downside's relatively low usage, and demand for its service is really, really...the real question is around execution and whether management can kind of turn around how they monetize the service. And I'm not saying that that's an easy task. I'm just saying that the downside's probably pretty low from here considering the amount of takeover interest in the past. If it continues to struggle, at least monetizing the service.
And the upside is simply – while, very uncertain – is enormous if they start to execute. Simply enormous. Or imagine if they just bring in, you know, John Legere from T-Mobile. He's a free agent now. Guy took like, what, the 1/4 – one of the worst, you know, cellphone companies – telecom companies out there – and completely turned them around; provided investors with a rock star, you'd imagine. They brought in someone who's full focus was this. I mean, the stock basically – I mean, it might go 50 percent in a day. And so, this is the kind of, you know...if it is well-known, to me Twitter is misunderstood what it is. And things are starting to change where people aren't necessarily paying attention. And now that you have the activist trend there, the clock is ticking.
Dan Ferris: Wow. Thank you for the impromptu, deepish dive...I mean, for a podcast, pretty deep dive on Twitter.
Aaron Edelheit: Yeah. No. This is part of the thing. So for me, it's like Twitter's going to be valuable whether COVID goes on or not. In a time of uncertainty, it's like usage is going to be even greater. So you have sports returning and – so what I'm trying to do is invest in these companies that I think are doing well and misunderstood regardless. What you won't hear...this is the first time in our – like when I've been talking about Twitter – I even mentioned the virus. Right? It's because, to me it's like it's all about the opportunities all in the deep dive and the fundamental research right now.
Dan Ferris: I'm glad I let you do that, but we're sort of at the end of our time. I would like to ask you my usual question here at the end. Because in your case, as excited as you are, I'm really curious to hear your answer. And what I ask all my guests at the end is, if you could leave our listeners with just one thought today, what would that be?
Aaron Edelheit: If you don't use Twitter, I would Sign on and I would start Following people, and I would start using the service. And I'll give you a second, free one. And that is, I think the opportunity today is in small-cap value and fundamental research while everyone is paying attention to the macro and the craziness of what's going on and try to get turned.
Dan Ferris: Oh. Beautiful message. Thank you for that, a second one. Thank you. All right. Aaron. Look. We're going to have you back on, I hope – sooner rather than later. We really love talking with you.
Aaron Edelheit: I really appreciate it. It's an honor to be on the podcast. Thanks for having me.
Dan Ferris: Oh, you bet. We'll see you sometime soon.
Aaron Edelheit: Sounds great, Dan. Thank you.
Dan Ferris: Bye-bye, Aaron. Wow. That was a lot of fun. Man. Aaron always delivers a great idea. Who knew Twitter was such a fantastic idea? I've heard it from other analysts, but I haven't heard it, frankly, just without much depth and passion. And I asked him for one idea, and he said, "Get on Twitter." I thought that was pretty cool. I mean, he just really believes in it. Wow. A very fruitful interview for you as a listener. I hope you feel that way. Sounded that way to me. All right. Let's see what's in the mail bag. Are you being left behind? Most Americans are – and like we've never seen before. The gap between rich and poor is growing at exponential levels and speed. Thousands of our country ascend into millionaire status; meanwhile, surveys show 60 percent of Americans have less than $1,000 in savings.
That's why for the first time ever, one of America's ultra-successful multi-millionaires has gone on camera to explain the real reason for America's huge wealth gap, plus the three steps you must take immediately to make sure you are on the right side of this trend. Get the facts for yourself for a better understanding of how this new economy works. Watch this multi-millionaire's important new video and learn the three important steps to take today free. Go online to www.growingwealthgap.com. Visit growingwealthgap.com now. In the mail bag each week, you and I get to have an honest conversation about investing or whatever's on your mind. Just Send your questions, comments and politely-worded criticisms to [email protected] I read every word of every E-mail you Send me, and I respond to as many as possible. Lots of good stuff this week. Bitcoin.
So the first Bitcoin question – I think there's two of them here – is from John M. And John M says, "What do you think of GBTC as an alternative to buying Bitcoin itself? I realize it trades at a premium to the actual asset, but it is also easier and more liquid. You don't have to worry about opening and funding an account, maintaining a wallet, losing the key, et cetera. Is it worth it? John M." John, I have no use for GBTC besides the premium to the asset. I just buy the asset. It's so easy. And you can store it offline. The point is not to, like, trade a stock. So the easier, more liquid...eh. It's not really worth that much to me. And Bitcoin is plenty liquid. If you want to sell your Bitcoin, you can do it in a second. Okay? Literally a second.
So the liquidity issue for me is not a problem at all. And even the ease of use – you said it's easier and more liquid. It's really easy to open up a coin-based account and transfer some money and buy some Bitcoin. And you said, like, you don't have to worry about opening and funding an account, maintaining an account, losing the wallet, losing the key...I mean, if all that's a problem – I don't think all that's a big hassle. So maybe you and I don't see eye-to-eye on this. I don't buy GBTC. Why would I buy something that trades at a premium like that? The thing I don't like about it is, it doesn’t give me real diversification. When everybody's selling every stock in a big drawdown, I think they'll probably sell that one too. I want to keep my Bitcoin away from the stock market. It's like gold to me. Outside of the financial system. I don't want to financialize it by buying a stock. All right? Good question, though. Good question. Okay. Here's a fantastic question. We're going to spend a little time on this 'cause it's really important.
Dave M says, "Long-time listener. Thanks for the great perspective you provide. I have a question about Bitcoin. Lots of discussion today is around the limited supply and thus the hardness of Bitcoin. However, I'm not sure cryptos aren't just as fragile as any other Fiat currency system which can print with just a few keystrokes. There's a limited supply of Bitcoin – 21 million coins. But tomorrow, I can decide to print more cryptocurrency by introducing Bitcoin 2. Then next year, I can create Bitcoin 3, as long as I can find a way of making each new Bitcoin clone attractive to people, how is that not the equivalent of printing more dollars? All of a sudden, there are 61 million Bitcoins. 1, 2 and 3 instead of the original 21 million." It would actually be 63 million. But okay. Help me understand where this thinking is wrong. Dave M." So I reached out to Eric Wade. He's the boss man of our crypto posse around Stansberry. And I always defer to him on these technical Bitcoin questions. He has mined cryptocurrency. He's been there and done that. He knows cryptos better than anybody I know.
And he says, "Fair question. There's a long and short answer to it. The short answer to it is, yes, you can create Bitcoin too. However, when you ask the next natural question, the value of Bitcoin 1, becomes more apparent. And the next question is, 'How do I get my Bitcoin 2 into everyone's hands? How do I catch up with Bitcoin 1 such that people may replace them or mistake them for each other?' Because," Eric says, "initially Bitcoin 2 is infinite inflation of itself. It's not Bitcoin 1. Bitcoin is, in fact, brand-new, free money. If you give it away, it's free money. You can make people work for it. If you can make people work for it, Bitcoin 1 has an 11-plus-year head start."
And then for me, this is kind of the key here. He says, "Bitcoin 1 is old, well-distributed, millions of Users and some people have fought, bled, innovated, thought, argued, invested, mined, protested on their way to acquire Bitcoin 1. Bitcoin 2 will have none of that. So what if you make Bitcoin 2 literally down to the last digit identical to Bitcoin 1? Note: you can. It's open source software. Congratulations. You just joined the back of the Bitcoin 1 line, and you will need to overpower the most powerful computer network of all time to be in charge." [Laughs] Okay?
Then moving on, he says, "The interesting thing about this question is, there's already plenty of Bitcoin 2 and 3's out there. One of them – Bitcoin Cash has been around three years, spent millions on marketing and partnerships and so forth and even misinformation campaigns trying to convince investors it's the real Bitcoin. After all that, Bitcoin Cash hasn't even capture 2.5 percent of Bitcoin's market cap, and that number's likely inflated. Here's the thing. Bitcoin isn't just a few lines of software. It's an infrastructure. There are miners in more than 100 countries. There are easy ways to buy it, store it and trade it."
"More than 300 developers around the world who have continued to contribute code to the project. 10,000 nodes maintained in every corner of the globe, 100 percent by volunteers. Bitcoin startups have received billions of dollars in investments, and some of the biggest players in money are moving to support it; including Fidelity, PayPal, Chicago Board Options Exchange, Internet Continental Exchange" – which owns the New York Stock Exchange. "With every day that passes, Bitcoin's mode as the leading store of value in crypto gets larger. Just like anyone can make up their own paper bills and pass them off as a new form of money, anyone can make their own Bitcoin. That doesn’t mean people will use it. It all comes down to Users. Bitcoin has virtually all of the Users right now and adds more every day."
Okay. I’m going to let Eric's comments stand on their own. He's the man, and good question. Thank you very much. Next comes Paul P. And he says, "I hope you and your family are well. I really enjoy the podcast. The format and the learning opportunities for the listener. I would appreciate your opinion, please. Would you compare the concepts "buy right and sit tight" with using stop losses, be it trailing or hard stop if the story behind the investment has not changed? Thank you for your help. Paul P." This is a fantastic question because I, for years, never used trailing stops.
Then I was shown some data that said, "Hey, Dan. Your portfolio would've done better if you'd have used trailing stops." I think I made all my mistakes around, you know, big events; like not selling soon enough in, you know, 2007 or -08 or something. Or selling during the event rather than riding it out. That kind of thing. So if you're going to do that – if you're going to sell at the bottom or something or, you know, during a big selloff – sure. Trailing stops are going to help you. And we use some trailing stops in Extreme Value now. And so far, so good. However, we also have some pics where we say we're not going to use a stop. And we have a handful of those now because we think we understand the business, and we think it's so good you can just buy it and hold it forever.
And if it goes down 30 or 40 percent, big deal. It'll be back up, you know, and you'll make plenty of money over the long-term. So yeah. Paul, I think that's the best I can do for you. It's up to you to decide when to use stops and when not to. I think stops help people who trade too much and who really have no business trading too much. They should just index or buy, you know, Porter Stansberry's Forever Stocks and forget they own them for ten years. But they won't do that, see? And that really is like...the pioneer of trailing stops in Stansberry was not Porter. It was Steve Sjuggerud. Years and years ago, before Stansberry Research existed.
And so, he did it because his experience as a broker – like, he just saw people selling out at the bottom again and again and again, and it broke his heart. So he thought, "You know, if you just use trailing stops you'll lost a lot less, and therefore you'll make a lot more over time." So I hope that's a good answer, Paul. [Laughs] That's all I got for you. All right. Finally, we get to Lincoln B. MD. Lincoln wrote a very long E-mail. I can't read all of it. I'll just read a little bit of it. He says, "Some of your comments on COVID19 distress me. I cringe whenever I hear anyone imply that it might turn out to be not that bad, or the issue is overblown. I am not trying to quote you, but this is the sense that I get from you and some of your colleagues. Porter, for instance. Even Doc I to some extent." And then, really long E-mail.
And then at the end, he says, "So I ask that you reconsider and moderate your position at least supporting government-mandated public mask use and also emphatically communicate how serious this pandemic is and how supremely selfish it is not to wear a mask in public. Lincoln B, MD." I don't know if I need to change my opinion here, Lincoln. I think that everybody should make their own decision. I did note an article about Japan in regard to wearing masks in public. And it made the point that Japan is the kind of society where you wear a mask in public out of politeness and deference to your fellow man. It would be downright rude not to wear a mask when you know you could potentially make someone ill.
And I liked the sound of that. You know? I like the sound of that as a feature of a culture and a feature of just, you know, the way this entire country lives its life every day rather than, you know, the government mandate. But you know something? Look. I try not to be dogmatic about politics. And so, I have to go the other way too. If you're not dogmatic about politics, it doesn't mean that the government has no place ever doing anything. It means that if the government ought to do something that will really be a lot better for everybody, then maybe it ought to do it. I think what those of us who are skeptical might say to that is, the government never stops there. Right? They never stop at saying everybody needs to wear a mask. That's the problem.
You know? The little bit of service that government provides that really makes life a lot better, everyone looks at that and says, "Oh, that's great. Let's do a lot more with government," and then that's a disaster. Everything they touch turns to crap. But I hear you, Lincoln. It's not a bad point. Not sure I'd go as far as a government mandate. But if nothing else, you know, just out of respect for your fellow man maybe you should wear a mask in public. People who say, "Screw you. I'm not wearing a mask," I don't know if I like that guy very much. He's not a bad guy, you know. [Laughs] I was talking about good guys and bad guys. He's not a bad guy but, you know, I think he might be wrong about this.
I'm torn. Sometimes I wear a mask in public if I go into a crowded place, and sometimes I don't. You know? When I go to pick up sushi, everybody in the sushi place...like, I'm the only guy in there, and everybody in there has a face mask or like one of those shields. And they've got this big plastic thing you have to reach underneath to hand them your credit card or whatever. And you don't even hand them the credit card. You just put it in the machine and pull it back out. You pull a pan out, you sign the thing and you take your dirty pen and you put it in the dirty pen pile. And they go, and they sanitize all the pens at some point.
So I tend to think that – even with this – to say everybody has to do it, "It's all one way or all the other" – to me, that is usually the mistake. But it's a good question obviously. You heard me kind of waffling and thinking out loud. That means it's a really good question, in my opinion. All right. That's another episode of the Stansberry Investor Hour. Hope you enjoyed it as much as I did. Do me a favor. Subscribe to the show on iTunes, Google Play or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. You can also Follow us on Facebook and Instagram our handle is @investorhour. Also, Follow us on Twitter where our handle is @investor_hour. Have a guest you want me to interview? Drop us a note at [email protected] Till next week. I'm Dan Ferris. Thanks for listening.
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