Is gold just another “greater fool” investment?
Warren Buffett seems to think so. Or at least, he’s said as much in his 2011 letter to investors, when he compared gold to the tulip bulb mania.
On this week’s rant, Dan examines this point of view and explains what Buffett doesn’t seem to grasp when it comes to gold…
Then on this week’s interview, Dan invites Gregg Fisher onto the show. Gregg is the founder and portfolio manager of Quent Capital, an asset management firm focused on systematically investing in global innovation.
Many guests on the show fell in love with finance and investing later in life… but that’s not the case with Gregg. Gregg was born into the investment business and well on his way by the time he was a teenager. By the time he left college, Gregg helped pioneer some of the quant trading strategies that are so common in the industry today.
During their discussion, Gregg explains why so many small innovative companies are often overlooked. But he stresses that if you’re willing to do a little extra leg work, many innovative small caps present a massive opportunity.
By the time the interview is over, Dan is left questioning if he has enough money in small cap stocks.
Then on the mailbag, Dan fields several questions from listeners about gold, including one listener who gives a fantastic real-world demonstration of gold’s long term value. Another listener writes in and shares a story of remorse for selling his Bitcoin a little too soon. Dan gives him some words of wisdom and reassures him that “we’ve all been there.”
Listen to Dan’s response to these questions and more on this week’s episode.
Founder and Portfolio Manager of Quent Capital
Gregg Fisher is founder and portfolio manager at Quent Capital, an asset management firm focused on systematically investing in global innovation. Gregg founded Gerstein Fisher as well, an asset management and advisor firm, which he sold to People's Bank.
He is now back in the game focusing on a quant strategy that seeks to screen out global innovators. Gregg is great on the macro picture, why innovation is more important than ever before, the markets, and investing in general.
2:19 – In the past, Warren Buffett has famously compared gold to tulip bulbs. Is gold really another greater fool investment?
8:02 – Dan explains where he agrees with Buffett and where their views differ… “The unproductiveness of gold is not a reason not to own it… it’s why we can’t resist it.”
10:17 – This week’s quote is from Eric Hoffer’s book First Things, Last Things… “Man is a luxury-loving animal. Take away play, fancies, and luxuries, and you will turn him into a dull, sluggish creature, barely energetic enough to obtain a bare subsistence. A society becomes stagnant when its people are too rational or too serious to be tempted by baubles.”
13:20 – On this week’s interview, Dan invites Gregg Fisher onto the show. Gregg is the founder and portfolio manager at Quent Capital, an asset management firm focused on systematically investing in global innovation.
15:55 – Gregg tells the story of how his job at 12 years old sparked his interest in finance and set him on his current career path.
23:19 – What was quant trading like in the early days? “…what I found is that quants across the globe, that were doing quantitative investing, were largely doing value investing…”
29:05 – Why are some of the most innovative companies overlooked? “When you invest in research and development, it doesn’t make you look good on Wall Street because it reduces your quarterly earnings, it’s not in your book value. Anybody sorting their stocks on price-to-book or by price-to-earnings will skip right over you…”
33:55 – Gregg says there’s approximately 20,000 securities that have less than 3 analysts covering them. “If you’re willing to do the work in this one area, there’s an opportunity to possibly add some value.”
39:03 – When it comes to small caps, Dan stresses you must be diversified, “That small cap premium effect, I mean 100% of that effect is in like 5 or 6% of the companies…”
42:15 – Gregg shares some opportunities for small company innovative investing he’s seeing that didn’t exist years ago. “When we look back 10 years from now, it is very likely that small company public equity outperforms small company private equity…”
47:12 – Gregg articulates why trying to imitate other successful strategies can often backfire… “If you imitate after the fact, you’re probably buying things at high prices. Because if it did well the last 10 years… ya know, things that have done well have high prices. And things with high prices have low expected returns.”
50:19 – Gregg leaves the listeners with some sound advice… “Add up everything you have in business, public and private equity, determine what percentage of that is in small companies, and make sure you’re satisfied with the percentage because it’s been my observation and experience that the majority of investors I meet are under allocated to small company investments…”
52:22 – On the mailbag, Dan fields some questions from listeners about gold… is Basel III implementation and NSFR a reason for a gold price increase? A second listener shares a great example that demonstrates gold’s value long term versus various other currencies. And another listener shares a story of remorse for selling his Bitcoin a little too soon. Dan reassures him that ‘we’ve all been there’ and gives him some words of wisdom.
Announcer: Broadcasting from the Investor Hour Studios and all around the world, you're listening to the Stansberry Investor Hour. [Music plays] Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value published by Stansberry Research. Today, we'll talk with Gregg Fisher from Quent Capital. Gregg was born into the investing business and was well on his way as a teenager. I promise you'll come away from this interview wanting to own more small-cap stocks. This week in the mail bag, we promised to talk about listener Lance K. last week and forgot to do it. I'll fix that little slipup today. Listener John A. is afraid he made a mistake, but I'm not so sure.
And listener H.B.S has a story to tell about gold. Speaking of gold, in my opening rant this week, I want to talk about why I agree and disagree with Warren Buffett's discussion of gold in his 2011 shareholder letter. That and more right now on the Stansberry Investor Hour. Gold... Warren Buffett... What's the deal? OK. The reason I'm talking about this is because I wrote about it recently in the Stansberry Digest, and folks wrote in – including listener John A., who asked another question that we'll deal with a little later. He said, "Wow. I really like this. You know, we should talk about this more."
So I'm going to do that because there's a viewpoint that I have about this that I don't think – I'm going to doubt that you've heard it before. I'll just put it that way. So the first thing we do is, we look at what Warren Buffett said in his 2011 shareholder letter about gold. And he basically [laughs] says, "Gold," – he put it in the same category as tulip bulbs – he said, "These assets will never produce anything. They're purchased, and the buyers hope that someone else, who also knows the assets will be forever unproductive, will pay more for them in the future." So he's got the Greater Fool Theory. Like, the only reason people buy gold is because of the Greater Fool Theory.
Now, I want you to think about this. So for 5,000 years, mankind has used gold and silver as a store of value. They've used gold as a store of value for 5,000 years. Banks have it. You know, the government has it. But now, Warren Buffett's going to come along and say, "Oh, all that's untrue." You know what this is like? This is just like when they told us eating red meat is bad for you. Right? Like some food that we've been eating literally since we existed is now all of a sudden causing these new ailments – old food causing new ailments. That doesn't make any sense. And of course, it all turned out to be baloney, too.
And the funny thing is – I said I agree and disagree with Buffett. I agree. No one can disagree with the fact that gold is unproductive. It just sits there. And he even makes this point in his letter. He says, you know, you'll buy your gold and leave it for a century, and all you'll have is the gold you bought 100 years later. I mean, duh. That's the point. Right? But he compares it to – and this was in 2011 – he said, you know, if you spent let's just call it $10 trillion to buy all the gold in the world, you wait 100 years, you'll just have this gold you bought. And at that time, that amount of money would've bought like all the farmland in the U.S., and I think it was 16 Exxon Mobils. And then, he'd have $1 trillion left over for spending money.
And he said, you know, if you bought that, after 100 years, you would have all of the income, all of the farm production, all of the dividends, and all of the oil production – everything from all the Exxon Mobils you bought. And none of this is the least bit controversial. Of course, that's how it works. He's right on both counts. But to say that that's a reason why you should never own any gold does not follow at all. Because those are not the choices anyone is presented with. Put all your money in gold or put all your money into so-called productive assets... That is not the choice that anyone is presented with.
So he set up a – it was a typical kind of strong man argument. And I think he's just all wet on this. Although, he is right on target to say that gold is an unproductive asset. It just sits there. And, in fact, if you're a chemist, you know what about gold? It's chemically inert. It just sits there [laughs]. You could put it under water for 100 years, and it just sits there and doesn't change. Gold doesn’t change. Something that doesn't change – to find something in this universe, in this world, that doesn't change and can be a store of value for 100 years or 1,000 years... I mean, that is wonderful.
And so, Buffett's conclusion – he's all wet in my opinion. And what I have to add to this is simply that the fact that it's an unproductive asset is why we love it. The fact that it's this beautiful, shiny object that is, you know, it's difficult to produce, and it's rare within the Earth's crust. We talked about that recently on a recent podcast episode. That's why we love it. It's this unproductive bauble, I call it. It's like a bauble or an art object. And that speaks exactly – this is part and partial of your humanity. You can't be a human being without wanting to own some unproductive assets, without wanting to own baubles.
I mean, look around you. Go into any home in the country, in the world. You'll find knickknacks and art objects and baubles and gold and silver and all these things. We work our productive assets, and we work our careers, and we make as much income and as much capital gains as we can so that we can own those types of things. And the reason that gold is such a fantastic store of value – besides the chemical property, I mean, and its divisibility and all these things – is that it's the perfect unproductive super attractive asset, super attractive object for a human being. You can't separate your desire for gold or whatever you like from it.
And bitcoin is in the same category. What's it for? [Laughs] We kind of don't know yet. Not really. We don't really know yet. But I think you should own a little bit because, in this world of digital almost everything, it makes sense that some type of purely digital currency, some type of currency or store of value – whatever it winds up being or something else, I don't know – it makes sense that it would have a pure digital existence and that would be useful in this world or in the world five, 10, 20, or 50 years from now. Whatever.
So you see, the unproductiveness of gold is not a reason not to own it. It's why we can't resist it. I should leave it there, but I just love this subject so much I can't get away from it. And I will admit I haven't found the perfect formulation of this. I still feel like I'm dancing around it a little bit. And I'll figure it out eventually, but this is sort of where I am with it right now. The inability of gold to produce anything is why we love it. Buffett says, "You can fondle your gold, but it will not respond." No, it will not. It will never change. It will always be this beautiful, shiny object that we'd love to have.
And that – among the physical characteristics – is what makes it the perfect money for human beings. Right? We human beings can't be satisfied with mere subsistence. We can't be satisfied with only doing things that are practical and only owning things that have practical value. That won't do for a human being. Buffett is – he seems ignorant. I said in my Digest piece that he spits in the eye of humanity and shows us how poorly he understands gold and human nature when he says, "You can fondle the gold, but it won't respond." All right. I think I've covered it. I suspect we'll talk more about this, and I bet you'll have a reaction to it.
So write into [email protected] and let me know what you think. One guy said I was way off the mark with this. But most folks really enjoy the piece that I wrote about it. So I do have a quote of the week that follows right along. In fact, I included this quote in the Digest piece that I wrote a couple weeks ago. I think it was the February 26 piece, which it's outside of the pay wall, so you can get it for free. You can find it at stansberryresearch.com. All right. The quote of the week is from Eric Hoffer. I love Eric Hoffer. I own all his books. I'm looking at most of my library in dozens and dozens of boxes packed up because we're moving.
But I've kept a selection of 100 books or so out that I will be taking with me. And while we're having this stored, we're having a house built. We're going to have to live in temporary. It's a big to-do. But among those 100 books or so is every Eric Hoffer book. To me, they're must, must-reads. And this quote is from his 1971 book, First Things, Last Things. And he says, "Man is a luxury-loving animal. Take away play, fancies, and luxuries and you will turn him into a dull, sluggish creature barely energetic enough to obtain a bare subsistence. A society becomes stagnant when its people are too rational or too serious to be tempted by baubles."
You get it? We're human, man. Don't deny your humanity. Figure out what you are and then do it on purpose. I think Dolly Parton said that, actually. Figure out who you are and do it on purpose. And part of who you are is, you love baubles. You love these unproductive little knickknacks and art objects and things. And gold, I believe, is in that category. All right. That's enough of that. Let's talk with Gregg Fisher. Let's do it right now. [Music plays and stops] If you've been listening to this podcast for any length of time, you know I don't make a lot of recommendations on investments. However, for a short time, I will be sharing not just any recommendation but my No. 1 recommendation right now.
This is the one where if you said, "Dan. I’m going to put a gun to your head. You got to put all your money in one stock. What would it be?" it would be this one, easy. It would be the easy decision. Now, my Extreme Value newsletter readers are the only people who can get access to this recommendation. But I did do a video recently to share my story about this company and one of the main people behind it. So if you're interested, we've sat me down in my house and they put a camera and a microphone in front of me... so if you want to see me get really, really worked up about one of my investment [laughs] ideas on camera, this is your chance.
And I am worked up. It's an incredibly cheap stock. I think it can return something like 10 times your money over the long term. Like over the next five to 10 years. Something like that. And I'll tell you in the video why I think it's the perfect moment for this stock. It's just the right stock at the right moment with the right management team, right business model. It's awesome. So if you want to see the video we did, visit extremevaluevideo.com. You got to get in before it's too late. The video won't be up forever. It won't be up very long at all. Again, this is the one stock I'd put all my money into if you made me do it. The website, again, is extremevaluevideo.com. Check it out. [Music plays and stops]
Today's guest is Gregg Fisher. Gregg Fisher is the founder and portfolio manager at Quent Capital, an asset management firm focused on systematically investing in global innovation. Gregg founded Gerstein Fisher as well, an asset management and advisor firm which he sold to People's Bank. Cha-ching. He is now back in the game focusing on a quant strategy that seeks to screen out global innovators. Gregg is great on the macro picture – why innovation is more important than ever before, markets, and investing in general. So let's talk with him. Gregg, welcome to the program.
Gregg Fisher: Thank you so much, Dan. It's great to be here. I appreciate it.
Dan Ferris: So, Gregg, I just want to talk about you a little bit. Are you one of these guys who started investing in stocks when you were like 10 years old, or did you find your way to the business later on?
Gregg Fisher: It's a good question. Sometimes I get asked, "You know, how long have you been doing this?" Meaning investing and thinking about markets and research. And my answer is always, "Ever since I came out of my mother's stomach."
Dan Ferris: That's great. [Laughs]
Gregg Fisher: And I actually got that quote form a guy in Italy who cooked me a great meal in Bologna. I asked him that question about how long he had been cooking. So if I knew his name, I'd give him the credit for it. But yeah, I grew up in the industry in the 1970s and early 1980s when I was a young kid and teenager. My family started a financial-services business in Brooklyn, New York. And I was one of the sort of first generation of home computer users.
And because of that experience, I got very interested in finance and beta and financial markets and really never wavered, always thought about being in the investment business. But unlike a lot of people in the '70s and '80s, I went down this quant path where I was fascinated with how to use academic research, computers, technology, empirical data to think about building portfolios as opposed to what, at that time, was more traditional active management or more of a judgement-based approach.
Dan Ferris: Wow. So you were thinking that way, did you say, in the '70s?
Gregg Fisher: Well, yeah. I mean, really early '80s. I was born in 1970. I turned 50 recently. But yeah. I mean, I grew up in the business like working – a little more backstory... so in the 1970s, my uncle started a tax preparation business in Brooklyn, New York. And my job in the early '80s when I was 12, 13, 14 years old was to basically do the Schedule D of everyone's tax return.
And for those of you who are familiar with that, it's basically four pieces of information for every investment transaction that you put on your Schedule D. The date you purchased the investment, the date you sold it, what you paid for it, and what you sold it for. And back then, in New York City, our clients were working with all the usual investment firms. Maybe each person had like 10 transactions. It's about four boxes for every transaction. So that's roughly 40 boxes per person. We had about 1,000 clients. So that's, you know, 40,000 boxes.
And then, we started calling them Lotus cells and later Excel cells. And ultimately – by the time I went off to college after six, seven years of doing this over and over and over again – I had hundreds of thousands of Lotus cells where I was able to look at things like average holding periods, what people were buying, what they were selling. And I got just fascinated in what I thought were patterns or statistical information. I learned a lot about what was working and what wasn't and how people were doing things. And I realized that there needed to be a better approach. And that's how I got interested in finance.
Dan Ferris: Wow. So that's before you went off to college. I just want our listeners to know this is who you're competing with. [Laughs] OK? This guy had all this in his head before he went off to college. So basically, you're a teenager and this is what you're doing. You know? I'm like trying to learn Led Zeppelin tunes and chase girls, and you're doing this. And I'm competing with you.
Gregg Fisher: Well, actually, it's a good point – Led Zeppelin, actually. So the name of my firm, Quent, is a blend between the word "quant" and "entrepreneur." And I do see myself as a portfolio manager and a quant but also an entrepreneur, and like you, I was into music. Actually, I was a drummer growing up. I think part of why I got interested in math was because of that. They say there's this connection between drumming and people who are good at math or whatever. So counting a lot.
But actually, I started my first business when I got out of college by selling the drum set my father bought me for $900 bucks. I bought a computer. Remember, it was Gateway 2000 if you guys remember that company way back when.... And I set up shop. So I financed the beginning of my investment career in business by selling the drum set my father gave me for $900. So I was also into Led Zeppelin and still am.
Dan Ferris: All right. Yeah. I love Led Zeppelin. I think I always will. So that's cool. So then, you go off to college and what study a lot of math, I assume? And then you come out, and you're on your way?
Gregg Fisher: Yeah. And another thing about that time... So now, it's 1988, 1989. And that was really like the beginning of what many of us would think of as modern finance, really. This was a period of time where we had just gone through this 10 years where all of a sudden access to computers and access to financial data became available to a lot of people across universities and industry. And it really wasn’t until like the '70s where we had financial data to study the history and behavior of security prices.
And then, it wasn't until like really the '80s where people could afford to have computers to study these things. So now I'm going to college, and I'm reading all these academic papers coming out, you know, Fama, French, Sharpe, Tidman, Trainer, Carhart. You know, there's a huge plethora of financial market data that was really describing what we now think of as factor investing. It was looking back at security prices and trying to better understand the kinds of things, the signals, the factors, the characteristics – whatever we call them – that did a good job explaining the difference in market returns.
You know, we learned that small companies did better than large over long periods of time. We learned that, at least at that moment, value investing – stocks with low prices relative to their fundamentals – outperformed growth stocks. We learned that momentum securities – you know, securities that are growing faster than their peers – continued to grow faster than their peers for some period of time. And then, out came things like behavioral finance and what we now think of as indexing.
So when I started my business in 1992 building investment portfolios for investors, I immediately gravitated towards these sort of evidence-based empirically organized... you know, what we now think of as quantitative strategies. And that was how I really started the business. I think a lot of life is about the year you were born and the random things that happened to you if my family owned a pizza shop, maybe I would've been in the restaurant business.
But, you know, this is just the way life is. It takes you on these turns that are sometimes feeling a bit accidental. But I got interested in quant finance and so on. And back in 1992 when I started, there were no ETFs. There was no text messaging. There was no Internet to speak of. There was no e-mail. And there was like one index fund that basically nobody used. And I was just this weird, young guy in New York City that was embracing all these ideas surrounded by older, traditional investment shops. So I was bringing what at that time – no longer today, but back then – was sort of a unique way to invest and a unique way to think about investing.
Dan Ferris: OK. So, Gregg, you have a great story. I just have to say. But I want to fast-forward a little bit... I want to fast-forward to Quent Capital. And let's talk about the firm and what you do. But what kind of investor are you? Because you've got this portmanteau of Quent, of quantitative entrepreneurial. And then, on your website, you say it's a new vision for investing in global innovation. One of the things that I would like to get to is the intersection of all that – of quantitative, entrepreneurial innovation. But if I asked you – if we were sitting having a beer and I asked you, "What kind of investor are you?" how would that discussion go?
Gregg Fisher: It's a great question. And I'm going to answer that a little bit about what I'm doing now and this idea about innovation, global innovators, and Quent. But I'm going to back up just a little bit more and just continue where we left off because it'll help understand what I'm doing now and why. So about a little less than 15 years ago, I had trademarked this term "multifactor" in the use of mutual fund investing. The idea, again – back to my early story – was building portfolios where we had these evidence-based characteristics that did a good job explaining the difference in returns across securities.
And back around 15 years ago, I didn't invent factor investing. These were things that were invented in the '70s and '80s by academics in different universities, maybe Merton or Miller or Ross or a few others. But I trademarked this term "multifactor." And what I found is that quants across the globe that were doing quantitative investing were largely doing value investing. You know, they were doing things like small-cap value or dividend tilts or fundamental indexing. And there were very few quants that were doing this kind of work in growth stocks or in asset classes that were more ambiguous about their valuation.
So from there, I launched a bunch of growth funds. I eventually launched a global REIT fund. These funds that I was managing for a long time did quite well that were invested in asset classes where I was using quantitative methods, but there's a lot of ambiguity about valuation. And largely, I was investing in these companies – now when I say ambiguity about valuation, when you buy like small growth companies, it's very difficult... If you put 100 analysts in a room, we're all going to come up with a pretty different number around what we think the thing is worth because a lot of their assets are intangible assets.
They're not like things you could put in book value easily or things you could add up how many widgets somebody has or how may sewing machines are on the floor or how many buildings do they own. Intangible assets are things like, how many patents do I have filed? And will any of them play out? How many H1B visas do I have for future engineers I want to hire? How much money am I spending on my brand, and how valuable is my brand? Or, how much money do I spend on the people who work for me? How do I treat the people who work for me? How do I treat the customers that I serve?
These intangibles that we know prove to be extremely valuable for companies to do a good job and earn good returns – they're very difficult to measure. They're like nowhere on financial statements. As a matter of fact, if you invest $1 million in a building, it's pretty clear it goes in your book value, and there it is. If you invest $1 million in your brand, that $1 million gets written off against your earnings. So your earnings relative to your price looks bad. And it's not on your balance sheet. It's not an asset. It's like vapor.
So what I was learning back then and what I've still focused on now is understanding that for these small-growing, innovative businesses – particularly in the last 10 years and even more so in the last five – a large amount of what they're doing are investing in things that are very difficult to value. And that ambiguity is part of what has me feeling very interested about these small, innovative businesses because I think there's an ability to add value. Now, "add value" meaning doing the work on the analysis of these securities and the difference between, you know – the returns across these small-company growth stocks can be quite significant.
Now, that's coming from a guy who's basically been involved in many forms of indexing for the last 30 years, that I watched indexing go from 0 to 100. Or said another way, from no ETF's and like barely one index fund throughout my career to now – depending on who you ask – something like 50%, 60% of all assets out there now being indexed, meaning there's a lot of dollars in passive portfolios where there's no work being done on the value of securities. And in this particular space – global, small, growing innovators – the difference between the winners and the losers can be significant because the valuations are quite ambiguous.
Dan Ferris: Yeah. Ambiguous. You know something, Gregg? I would just go all the way and say "unknowable." You know?
Gregg Fisher: Yeah. That's right.
Dan Ferris: It seems to me that such companies are – you know, you can't assign a multiple because a multiple is either you're comping the peers or you're short-cutting the discounted cash-flow process. And it just doesn't mean anything. It's early days. They might not have earnings. And people look at price to sales. Again, it's just you're trying to put a multiple on it. So you just have to throw all that out and assess those – I agree – totally substantial intangibles. You know, it's a completely different game at that level.
Gregg Fisher: That's right.
Dan Ferris: But please continue. I interrupted. Yes.
Gregg Fisher: No, that's exactly the point. And now, you combine that – this sort of ambiguity – with this unknown. There are some things we do know, though. And it comes back to this sort of evidence-based investing. And there are some things we can know. For example, there's been plenty of research done that shows conditions on the size of certain businesses in sectors. You know, you got to organize things a bit. But generally speaking, companies that spend more money on research and development relative to their price or assets outperform companies that spend less on research and development relative to their price or total assets.
You know, again, if they're organized by sectors and industries, you can compare apples to apples. But all else equal, when you're buying these small growth companies we can look back at the data and see that these sort of entrepreneurial, founder-led, true-purpose, knock-the-cover-off-the-ball, "We're going to really make a difference in the world" type companies... when they take a long-term view – you know, because when you invest in research and development, it doesn't make you look good on Wall Street because it reduces your quarterly earnings, it's not in your book value. Anybody sorting their stocks on price to book or price to earnings is going to skip right over you.
So as an entrepreneurial founder who's sitting there making these long-term investments, you know generally speaking, it's not going to make you look good in the short term. So you have to take this long-term view. But what we can know and what we've seen in the data is companies that are investing heavily in these things outperform those that don't. And there are some similar things with other intangibles. I just use R&D. I think one of the earliest research papers I've seen on that was in the mid-'90s from a professor with the last name of McConnell-Shaw who was also in the investment industry.
And I remember seeing that. And I've been incorporating things like that in my investment strategies for years. But in this sort of entrepreneurial revolution we're seeing now – particularly this year through 2020 and COVID – we're watching all these businesses that didn't exist five years ago that are now taking over entire industries, making those long-term investments in these intangibles are critical.
Dan Ferris: Right. So that becomes kind of a screen for you, then?
Gregg Fisher: That's right. Yeah. That one's an easy one. You sort of double-click on the income statement, look at SG&A, find R&D. I mean, there are some other things that are a little harder to go find, but that one's a relatively easy one. And it's powerful.
Dan Ferris: All right. I think I'm certain at this moment, like, listeners are doing this. Like, they're bringing up their screen, and they're trying to figure out how to run this screen right now. [Laughs] Which is great. You know? Yeah. Teaching them how to fish, right? Instead of giving them fish.
Gregg Fisher: If you're interested though, one of my advisors and friends – he's a professor named Fang Gu – and his co-author from NYU – Baruch Lev – wrote a book called The End of Accounting. And they sort of talk a little bit about how financial statements have become far less relevant in the last 30 years because of this issue of intangibles. And the book's great, and it tells you a lot about this concept we're now talking about. I recommend that. There's another one called Capitalism Without Capital. And these are examples of books that are recent that are written on this theme.
Dan Ferris: Great. Yeah. I have The End of Accounting on the shelf somewhere around here. Actually, it's probably in a box. We're moving, and I'm sitting here looking at dozens of boxes full of my [laughs] library. But yeah, I'm glad to hear the endorsement. I'm going to jump on that. So the first one was The End of Accounting. I'm sorry. What was the second title?
Gregg Fisher: Capitalism Without Capital.
Dan Ferris: Oh, Capitalism Without Capital.
Gregg Fisher: That's right. I think I picked up that one from like that Bill Gates list, if I remember correctly. But that was another good one. It's written by Haskel and Westlake.
Dan Ferris: Oh, OK.
Gregg Fisher: So those two were probably relevant for what we were talking about, just to understand the efficacy of a strategy that does some sorts and filters on intangibles and how important that is. You know, there's a lot of data that shows, in the old days, back in like the '50s and '60s when Buffett and Graham and Dodd and value investing first became popular, you do a simple sort on price to book or price to earnings and have a little more in the ones with low prices relative to their book or earnings and a little less in ones with higher prices relative to their book to earnings.
You just did that, and you did really well. But each decade that's gone by, that's worth less – decade after decade – to the point where it's like barely working now because, particularly, again, for small growth businesses – because the information in book value and earnings is not quite as precise – you kind of just have to do an adjustment these days. And so much of what we do in a service economy in a brand – like economies invest in these things. If I can just add one more thing about, you know, you asked like, "What would I say in a bar having a drink about our strategy?" These are the things I'd say.
But the other thing is, my analyst – I’m an analyst. I'm proud to be an analyst, and I learned a ton going through that program as an analyst. But back in the early '90s, the idea was like, there's so many analysts out there spending an enormous amount of money and time on trying to identify mispriced securities. And since on average there's so much money and time spent on that, why bother doing your own work? You might as well just accept the market price. And that made a lot of sense to me at the time. It's kind of the efficient market story. You know, fast-forward to today, and there's been a huge decline in the number of analysts covering small-company stocks.
Last time I looked at this, I think I saw something like 20,000 securities that had fewer than three analysts covering them. So I have this other idea that, with fewer analysts covering small companies and the incentives for doing so being down because of the popularity of indexing, once again, this is probably an environment where if you're willing to do the work in this one area there's an opportunity to possibly add some value. I'll never argue against the indexing model.
I think it's a wonderful model, and it's got to be a good – it can't ever be bad just because of the way markets work. But I think this is a place where I believe we could have an edge, or an investor could have an edge because of the decline in analysts, a lack of incentive for analysts, and what's sort of going on around this intangible issue. You put those things together, and that's where a lot of my research is focused right now.
Dan Ferris: Yeah. And just generically, if you look at the manager of the moment – Cathie Wood – what does she do? You know, she's actually a great entrepreneur, I think. You know, she kept that firm alive for three years. She started talking about disruptive innovation. You know, when it just started to be cool kind of. And here she is. I mean, she [laughs] may wind up being a sign of the top in the end, but she's a great success story in the midst of the rise of indexing. Right? People talk about when we are going to be able to actively manage again, or something like that – and like it's not happening. And meanwhile, people like her, and now you, are doing exactly that. So I consider that really cool. It's like there's a way forward here between folks like you and her.
Gregg Fisher: Absolutely. Thank you. Yeah. And I think what she's doing is interesting. And maybe she is a sign of the top or not. But, you know, it's kind of like the top in late '90s, 2000. I think if everyone held on to those companies that they owned back then and we looked at them today... sure, the Nasdaq lost 85% of its value, and a lot of people got wiped out. But imagine if you just still held on to all that stuff from back then today. I think you actually would've done quite well.
Dan Ferris: Yeah. Yeah. I mean, look. We all know by now, you could've bought Amazon at the top, [Laughs] and you'd have a major, major multibagger. And speaking of that, one of the cool things about what we're talking about with these small, innovative entrepreneurial kinds of companies is just that. You can have a huge portfolio of them, and all you need is one. Right? And it can amortize all the losses from everything else or all the mediocre returns from everybody else and leave you with an incredible return.
Gregg Fisher: That's true. I think that you could think about it in that way, that if you diversify properly – and for me, it's across geography, across themes and sectors, across industries and so on – that, sure, on average, you might do well if handfuls of them just do incredibly well and handfuls of them don't. But on the average, you should do well. And it reminds me of another point about just small-company innovative investing.
There are other things that's come out of academia, which is basically this idea that there's this small-cap premium – that if you diversity properly, you own enough small-company stocks, and you diversify away the business-specific risk – which we were just talking about – and you have enough small companies, you should expect to earn a return that's just simply better than the S&P 500 in that example because, on average, small companies should earn better returns than big companies.
And we see that in the data. Over the last 90-plus years, small-cap stocks have outperformed large companies by roughly 2% per year. Now, that's a lot. So in 90 years – and there have been times when that's not been the case, like in the last 10 years. Actually, in the last 10 years, small-cap stocks have underperformed large companies by roughly the same 2% a year. So, like, statistically you'd imagine that sooner or later, these things would catch up. And we're actually seeing that in the recent few months where small-cap stocks for the first time in a decade have done better than large cap by a lot.
But I think if you just build a diversified portfolio of these small, innovative, disruptive businesses and have enough of them that you would expect to earn good returns just because you have exposure to the small-company stock premium. It's like underrated – this buy-and-hold thing that we're talking about – you know, the idea of like buying things and holding them for 20 years, it's very difficult to do. Most people can't do it.
Dan Ferris: That's true. And I think it's worth repeating ourselves about having enough of them. Because that small-cap premium effect... I mean, 100% of that effect is in something like 5% or 6% of the companies. So you really must have enough of them. You must be sufficiently diversified among them.
Gregg Fisher: That's exactly right. But it's in those companies that you will largely find these small, entrepreneurial-style businesses that just happen to be traded publicly – as opposed to private equity, which is back to your question about like, how are we thinking about things? What are you doing today? So if you put the word "private" in front of "equity," it's still equity. Actually, a friend of mine, who's an incredible researcher and practitioner, whose name is Andrew Ang, in a book he wrote he said that, "Nobody stuck out for me." You know, equity is equity. You want to buy small businesses, is what we're talking about. You want to have some exposure to innovation globally. And it's very difficult for large businesses to innovate. I mean, some of them do it.
But as you get larger and larger, and organizations get more and more institutionalized, it's very difficult for them to innovate. Some companies can't, and they end up acquiring growth in order to innovate. But I think a lot of the innovation tends to happen in these smaller companies. So people have been like really caught up in private equity in the last 10 years. And private equity's done extremely well for a number of reasons. But it's interesting, what I've watched happen over the last 10 years – I'm really more of a public equity person – but I've seen a few things happen. Because of the popularity of private equity, so much money has come into private equity.
It used to be the case that if you were a private equity investor, you'd go out and find a small, private business. It was like a little bit of a secret. Nobody knew it existed. You bought it at a good price. It was a very inefficient market. And you got paid for that inefficiency that you found this diamond in the rough. These days, if you want to sell a private company, there are hundreds of PE firms that are going to bid on your project to some degree of your sale. To some degree, it's even more efficient than the public markets are. You know, many, many eyeballs all bidding for your business.
So that inefficiency premium that private equity used to have I think is largely gone. Then there was the control premium where you buy this business that only you knew about, you found it. You got the inefficiency premium. But you come in for the control premium, meaning you own 51% of the business, you bring in very experienced operators, like kick the entrepreneur off to the side as if they added no value whatsoever, bring in your professional management, and make the business better. And in fact, you were paid for this control premium. And that control premium largely still makes sense.
However, in these bidding wars, the private equity firms are bidding up the prices to the point where the control premium is sort of gone. You know, it's still there, but you're paying so much for it that the return's not there. And then finally, the liquidity premium. The idea that when you buy a small, private business, since it's illiquid and you might have to hold it for 10 years, you should be paid for giving up the liquidity, as compared to a comparable business in the public markets that you can sell at any moment. And, again, I would say there's evidence showing that liquidity premium's gone.
So there was a research paper done analyzing this recently by a guy named Eric Stafford. But I've seen this in my own research as well. And just practically speaking, it makes sense to me. So I believe there's an opportunity for small-company innovative investing in the public markets today that perhaps maybe didn't exist to some degree 10 years ago because of this private equity wave. I think the expected returns on small-cap public equity may be – nothing's guaranteed, of course – but may be better than when we look back at them 10 years from now than small-company private equity investing for the reasons I just described.
Dan Ferris: OK. I'm going to ask you to repeat that last part just so I have it clear, if you wouldn't mind, Gregg.
Gregg Fisher: No problem. So it's my belief that when we look back 10 years from now, that it's very likely that small-company public equity outperforms small-company private equity, all else equal, because I believe the cost of capital adjustments that are happening in these markets are creating an opportunity for public small-company investing versus private equity investing. And of course, that may or may not happen. But based on everything I've just shared, I believe the possibility of that happening is high.
Dan Ferris: OK. But Gregg, I'm going to be devil's advocate here. You know, money is cheap, though. Interest rates are low. So doesn't that mean that – yeah, I mean, the private equity guys, they all like to borrow money to do their deals. Shouldn't they be able to, you know – they're paying less for money, shouldn't they be able to get a plenty decent enough return?
Gregg Fisher: Let me restate your question to demonstrate my understanding. What you're saying is, OK, you've got this private/public equity concept I've just shared. But the private equity folks can use leverage to lever their returns when interest rates are low. Shouldn’t that have them outperform? Is that the question?
Dan Ferris: Exactly. Yes.
Gregg Fisher: Terrific. Well, first we know interest rates are rising a little as we speak. I don't know if that trend will continue. But for the first time in a decade, we're hearing about possibilities for inflation and the 10-year bonds going up and who knows? But I would say, yes, leverage does magnify returns and of course magnifies the downside also. And one of the benefits of private investing is, you can apply leverage. There's been research done on this as well. And my answer to that is, if you want to lever your returns, you could lever your public equities also. You can borrow against your investment account – maybe 20%, 30% – so the likelihood of a margin call is not high.
You can even borrow against your home and invest. So you can get leverage at reasonable costs and just lever your small-cap public equity. And you should be able to replicate the private equity experience with the leverage by just putting leverage on your small-cap public equity as well. So I think you can replicate that experience. I'm not suggesting that your listeners should replicate that experience because it comes with a lot of risk. But if you wanted to replicate that experience, you could.
Dan Ferris: Right. And once again, Gregg, I would go farther and I would say, you know, in practical terms, most investors – if you're trying to match like the private equity 10-year lockup scenario, you got lots of leverage and you're in for at least 10 years, most people just aren't going to stomach that. They're going to sell out and lose money.
Gregg Fisher: I think that's right.
Dan Ferris: Just in practical terms, it's really... yeah.
Gregg Fisher: I think what's important about that is the investor behavior element. Like I have a view on this which is interesting in that I think private equity does a really good service for investors, which is it locks your money up for 10 years, and you're not allowed to see it, know what it's worth, or have it back. And I actually see that as a good thing because the reality is, most investors – if they were in a similar sort of small-cap-levered portfolio – the volatility on their statements every month would cause them to want to sell at least five or six or 10 times over the 10 years.
They may not stick it out. I think a lot of endowments and institutions and foundations and family offices often invest in private real estate and private equity for the illusion of low correlation and a lack of volatility when the reality is these things are equally volatile and equally risky. It just feels safer because you're not getting a statement every month telling you what the market thinks it's worth.
Dan Ferris: Right. I feel like we should just sort of at least kind of footnote. The best among those investors that you name will sort of, you know, they'll allocate to value in those sectors. Right? So when they get really beat up, that's when they're in.
Gregg Fisher: Yeah.
Dan Ferris: Whereas, the imitator of the success of those strategies is going to wind up with the exact opposite. And he's [laughs] going to be the one putting up with all the volatility. Right?
Gregg Fisher: That's right.
Dan Ferris: I've actually seen that happen, right? People trying to imitate Harvard or Yale or whoever. Right?
Gregg Fisher: Yeah. If you imitate after the fact, you're probably buying things at high prices. Because if it did well the last 10 years... things that have done well have high prices. And things that have high prices have low expected returns. So you sort of want to imitate but look for the things with lower prices. There's more to it than that, of course. But that's the basic idea.
Dan Ferris: OK. So if you don't mind, I want to get back. We've actually been talking for quite a while. But I do have one more question before my final question, which is the same for all my guests. So my penultimate question is, I asked you about like the intersection of innovation and entrepreneurial and quantitative. I just want to make sure – it sounds like the intersection is simply that the entrepreneurial and innovative part of it is just the types of businesses you're looking for. And you've been a quant since you were a kid. Hence, that's just about all there is to it. That's the whole intersection I was looking for.
Gregg Fisher: I think so. And I'll just add that the "ent" in "Quent" is the part that has some judgment, although I'm using systematic methods and data to organize this. I think being an operator and an entrepreneur has also made me a better investor. I know how important it is to have an incredibly engaged team around you. I know how important it is to have an incredibly robust operational infrastructure and sales organization. I know how important brand is. I know how important customer service is. Like, there's an obsession with customer service.
And I know that I can't afford as an entrepreneur to buy growth, and I have to build it organically and create strategic relationships and partnerships. I know that having a founder in a small company adds value to a certain point. And so on and so on. So the size, the culture, the entrepreneurial behavior – there's a lot around this entrepreneurial sentiment that I think is this intersection between quantitative methods and my experience as an entrepreneur operator and using a lot of the new data sources that exist in the world to blend those things together in order to search for and build a portfolio of these small-company innovative businesses.
Dan Ferris: OK. [Laughs] Sounds good to me.
Gregg Fisher: Thank you.
Dan Ferris: Here's my final question. But before I tell you, I just want to say I really enjoyed this. And I feel like you've kind of taken us on a really nice journey here from your origins through to what you're doing today and even sort of through our readers a little suggestion on what to screen for. And it's just sort of been really great.
Gregg Fisher: Thank you, Dan. I've enjoyed it, too. I'm particularly happy that we got to the Led Zeppelin part of the discussion, too. That was fun.
Dan Ferris: [Laughs] Yeah. Yep. So my final question, same for every guest, is this. If you could leave our listener today with just a single thought, what would it be?
Gregg Fisher: Add up everything you have in business – public and private equities – determine what percentage of that is in small companies and make sure you're satisfied with the percentage. Because it's been my observations and experience that the majority of investors I meet are under-allocated to small-company investments and are over-allocated to large, big, familiar names instead.
Dan Ferris: Amen. Sounds good to me. Thanks for that. And thanks for being here, Gregg. Certainly hope that six or 12 months on the board you'll come back and talk with us again.
Gregg Fisher: I'd love the opportunity, Dan. And thanks for what you do. I think educating investors is critical so that people have a good experience. And you're doing a great job of that. Thank you for inviting me here today.
Dan Ferris: Oh, you bet. Thanks for the kudos. Thanks a lot. I really enjoyed it.
Gregg Fisher: Yeah, man. See you soon. Thank you.
Dan Ferris: OK. That was very cool. I feel like this discussion just put Gregg and Quent Capital on my radar forever. You know? And I look forward to like learning more about him and his firm. And I'll tell you also [laughs], write into [email protected] and tell me if Gregg Fisher – the guest we just spoke with – didn't put a serious bug in your ear about making sure you own enough small, innovative companies. And you know me. I'm bearish, and I've talked about signs of the top and all this stuff. But I feel like a really knowledgeable, successful guy. We didn't even talk about the firm that he sold to People's Bank.
Right? A really knowledgeable, successful guy just said, "Hey, make sure you own enough of these small companies." And we covered that topic a couple different ways. So yeah. Write into [email protected] and tell me about that. All right. Let's look at the mail bag. [Music plays and stops] In the mail bag each week, you and I have an honest conversation about investing or whatever is on your mind. Just send your questions, comments, and politely worded criticisms to [email protected] I read as many e-mails as time allows, and I respond to as many as possible.
Or you can give us a call at our new listener feedback line. Call us at 800-381-2357 and tell us what you're thinking. That's 800-381-2357. This week, I'm going to put the gold e-mails up front. We got two of them pertaining to gold. And given the rant today, I just thought, hey, let's start with gold. Our first e-mail is a brief e-mail. Thank you very much for that [laughs] – from Anthony H. And Anthony H. says, "Is Basel III implementation and NSFR a reason for a gold price increase forecast? If so, what makes you so sure it will be implemented with the continued deferrals and delay? Thanks again. Anthony H."
So there's a lot of gobbledygook here. Basel III is just a set of international banking regulations that was created in the wake of the financial crisis. It was created – I think they agreed on all the rules or something in like 2010, and it's still not implemented, and they keep pushing it out and pushing it out and pushing it out. And, you know, it's just banking stuff, like capital requirements and leverage ratios and all that kind of stuff. And part of that buried in there is something called the net stable funding ratio. And the net stable funding ratio – it's an attempt to measure how assets are most likely to perform during a panic, I think, is one way to put it.
And then, they assign this number called a required stable funding number which, among other things, tells you how much it costs to hang on to this asset. Right? And how risky it is, too, is another thing. And the example on this one website I was looking – and I just read around the Internet about it – the example said, "Cash has a 0% required stable funding number, and 30-year mortgages have 100% required stable funding." So, you know, it's kind of the full risk spectrum. And they say gold has a 50% number and that if Basel III is implemented that it might go up to 85% or something, so making it more expensive than for banks to hold gold.
So, Anthony, I'm not sure that this is any reason to be bullish on gold at all. I don’t think it's a reason to be bearish, necessarily, but I don't think it's a reason to be bullish on it. Good question, though. Technical stuff. The next thing – I'm not going to read all this. H.B.S. is the listener's name. He wrote in about gold. Really nice, long e-mail here, H.B.S. I really appreciate it. Can't do the whole thing. I'm going to sum it up, and then I'll read toward the end. You had a nice ending there. So what H.B.S. says is, he worked in Columbia. The country Columbia. And he says, if you landed there, as he did, on November 23, 1963 – the day after President Kennedy was assassinated – and he had a 10-year career... H.B.S. did. And he worked and lived in Columbia and Mexico.
But he says, what if he had gone to the bank – his city bank branch there in Columbia – and he deposited three items... 3,500 crisp $1 bills, with a $3,500 value, $35,000 Columbian pesos, which also had a $3,500 value at the time, and 100 ounces of gold at $35 an ounce for $3,500 value? So the total value of all those three things would be $10,500. And he said, Assume that he left it there all this time, and now he wants to take it out. Well, in practical terms, no matter what you think of the value of the U.S. dollar, you take your dollars out, and you'd have $3,500 in your hands. Right? And never mind that inflation may have reduced the value of it. So you have $3,500."
He says, "Your Columbian pesos would be worth less than $10. But your gold would be worth around $170,000 at recent prices." And I think that's a nice illustration of exactly what I've talked about before when people say gold doesn't hold its value, and it's a terrible inflation hedge, and all of this stuff. Well, over the long term, I think it's been a brilliant store of value and a brilliant inflation hedge. And I think H.B.S. gets it, you know, when he covers this long period of 58 years. That's what we're talking about.
And he simply says, "My wife, small son, and I were living in Cali" – the city in Columbia – "less than two years when one night we went to bed with the exchange rate of the Columbian peso to U.S. dollar of 10 to 1 and woke up the next morning with the news on the radio that the rate of exchange was now 20 to 1 – a 100% devaluation overnight. Now age 83, I am grateful that those many years ago I learned firsthand how the value of paper currency can be very fleeting, just when one is probably most unable to do anything about it."
Thank you, H.B.S. Brilliant e-mail. Really appreciate it. OK. Now let's get to John A. John, first of all, thank you for writing in about my gold piece in the Digest. That's what really inspired me to do today's rant, so I appreciated that. Second of all, John A. says, "Love the length of your podcast and you allowing your guest to explain their ideas in detail. I ended up getting a few bitcoin last year after hearing you talk about it for several months. When the total value became a larger percentage of my investments than I was comfortable with, I sold one to reduce my cost of the remaining ones to $5,000 each. After that, I slept a lot better, not having to care about the wild fluctuations in price. But now that bitcoin is up to $50,000-plus, I'm starting to kick myself. Any words of wisdom? John A."
Yes, John A. [Laughs] Believe me. Everyone within the sound of my voice gets it. We've all been there. All I have to say is that you appear to have achieved your goal. It doesn’t matter if bitcoin went up or down after that because you sold to reduce your position size because you were uncomfortable with it. I did the same thing with my Ethereum position recently. I reduced it by 75%. I mean, the thing went from like, you know, it was less than $100 not too terribly long ago.
And I forget what I paid for it. I think I paid a few hundred bucks. Like maybe $100 or $200 or something like that. And then all of a sudden, it's $2,000. So what do you think I’m going to do? I took three-fourths of my Ethereum position off the table. I haven't recommended that in any newsletter or anything. I don't even think I've mentioned it before. But I just want you to know – and actually, since I did take it off the table, I think it might be about flat. You know, it went down, it came back up.
But look, it's normal and human to kick yourself and say, "Darn it. Should've held on." But what would you say if it had fallen and you hadn't sold? You would say, "I should've sold." So it appears to me that you had a goal, and you achieved it. Boom. Done. That's it. Doesn’t matter if it went up or down after that. That's what I have to say, John. I hope it helps. Next comes Andy L. And Andy L. says, "I keep hearing commentary about the importance of holding on at present because in meltups the biggest gains happen at the end."
So Andy L. is talking about holding on to stocks here. He continues. "It seems that a lot of people excited about what lies ahead repeat endlessly that in the last year, the dot-com melt up, the Nasdaq doubled. Fair enough. But from the March 2020 bottom to the February 2021 top, the Nasdaq more than doubled in under 11 months. Hard not to wonder if that was the markets going vertical phase that most of us still seem to be waiting for. Incidentally, though I concede that the governmental response to COVID dramatically accelerated many trends as has been interminably discussed, and though I think that in February 2020 the market was ripe for a correction, I view the bulk of the 35% COVID crash as akin to a geological fault line shifting – permanently realigning the ley of the land.
In other words, if not for the COVID crash I think the markets might still have peaked in February 2021. But maybe around 25% higher than they actually reached. Love the show. Curious to hear your thoughts. Thanks, Andy L." That makes sense to me, Andy. I think you're probably right. It was a really toppy moment, and it was a good time to get really cautious. And I completely agree. The COVID crash, it was just this weird animal that has changed a lot of things for a lot of people. You know, I think we buy a lot more stuff online, and we – I know my wife and I get a lot more food delivered [laughs] than we ever did. We get groceries delivered and prepared food delivered. I mean, I'm pretty sure we've had McDonald's delivered at some point in the last year. You know? So that's really different for us, I can tell you. I agree.
Next is Tabish R. Tabish is a fairly regular correspondent. He says, "I get that one should have plenty of cash accumulated to get back in the market for bargain prices when a correction happens. But given the extent of the drawdown in tech companies in 1999, 2000 – 80% to 90% in some cases – at what point in the next big correction would one buy the tech FANG stocks? I would want to own these companies as I believe they're good businesses, but current valuation is just way too high. Even if I dollar-cost the average, at what point will I star buying in a big correction? -30%? -50%? I may buy a tech company at 30% discount, but going by the history of the tech bubble, the stock might go down as much as 90%. Also, a lot of the companies never reached tech bubble highs after the crash. Any ideas would be appreciated. P.S. I'm not asking personal financial advice, just a general hypothetical question. Regards, Tabish R."
Yeah. It's a general question, and there's no formula here. In fact, this kind of falls hard upon John A.'s question about, you know, he sold, and the thing went up and, darn it, you know, should he have held on? And all that stuff. It's the same thing. Look, if you own stocks that you believe could fall 80%, 90% and you're not willing – you don't want to sell now, but you don't want to hold on through a 90% drawdown, then you have to do something, Tabish. I won't even tell you what to do. I know at Stansberry, every single editor recommends some kind of a trailing stop. I'm pretty sure that's true at this point. In the Extreme Value letter that Mike Barrett and I write, we don't recommend a trailing stop with every stock, but with many of them we do.
So that's basically saying, you know, at 25% or 30% down – or whatever it is we choose to use – the pain's too great. We don’t want to risk further loss. We're going to cut losses now, and that's how we're going to handle it. And that's – I don't know that that's the best you can do. Maybe you're really a savvy guy. You've written in many times. You've had a lot of good ideas. Maybe you're a savvy guy who's been around a while, and you'd be comfortable with owning some put options every now and then, something like that. Right? I don't know. I can't speak to your personal situation. But the basic proposition that you present to us is, "I own stocks. I don't want to sell now, but I don't want to wake up down 90% one day."
Well, there's no magic here, Tabish. If you're still holding and you're down 90%, then you would've been a lot happier selling when you were down 80% or 70% or 60% or 50%, 40%, 30%, 10%... I don’t know. I don't know what your number is. That's all I got. I hope it helps. Just want to demystify that for you a little bit. All right. Lastly, this week in the mail bag – so I started out last week's opening segment, and I mentioned Lance K. And then, for whatever reason, we didn't get to it. I think I just didn't want to talk about it. But I'm going to talk about it. And thanks to Gary S. – he wrote in and pointed out that I mentioned Lance K.'s e-mail in the beginning of the show, and we didn't get to it.
So Lance K. writes in, and he says, "Hi, Dan. This is unrelated to a specific show. It's about you." Lance, first of all, that's my favorite topic. So you're firing on all cylinders here. He continues. "I got the Stansberry e-mail about the one stock to buy promo." So this is a video presentation that I did. They came to the house, put a camera and a microphone in front of me. I've talked about it, mentioned it, on the show. And I talked about my No. 1 stock recommendation of the last 20-plus years, which I think is a decent buy lately. Although, it's lately above my maximum buy price. So I wouldn’t chase it up. Anyway. That's what he's talking about.
And he said, "I will say it was nice to put a face with your voice." Then he says, "I am saddened you allowed Stansberry to play off your good name and reputation. This is just another Stansberry sales pitch, and they sucked you in. I personally thought of you as being a bit apart from the salesman schtick of Stansberry. No longer. I listen weekly. It is surprising to me how many people you interview comment on how prepared you are, what a great interviewer you are, and they genuinely thank you. You must have a reputation as a classy, prepared, professional host in the financial world. I say well-deserved. But this? Stansberry's using your good reputation for their salesman purposes. I know you work for Stansberry, but you were always separate and different to me, at least. It's disappointing to me. I continue to listen. I will never see you the same again. Love your interviews. Lance K."
Lance, there are a couple things that you just have completely wrong and kind of backwards. I am like a decent painting hanging in the Louvre museum. If I were hanging in any other museum, no one would ever see me or hear from me. It is only because I am able to exploit Stansberry's good, extremely widespread reputation throughout the entire world among investors that I am able to be here and make a living and that you're hearing me. You wouldn't hear my words were it not for Stansberry. And I love Stansberry to death. I think it's one of the most wonderful businesses I've ever seen in my life, and I'm happy and proud to be a part of it.
And I feel super lucky to have met Porter very early on – we shared an apartment years and years ago – and get to know him a little bit. And he got to know me and hired me for his business. I've been at Stansberry longer than anyone but Porter, in fact [laughs]. So I am playing off of their good name and reputation, and it does not sully my name one bit. Maybe in your eyes but, you know, in nobody else's. I have thousands and thousands of subscribers who looked at this presentation, they sign up, and they're still with us years later.
So I just, you know – I urge you to reconsider here, Lance. [Laughs] Also, I need to say quite clearly. Some people have written in and suggest that I should've given away the name and ticker symbol of this stock for free. That's not what I do, folks. The thing that we do is sell research and recommendations on specific stocks. If you knew the work that we go through to recommend one stock in Extreme Value, you'd wonder why we don't charge 10 times as much. And I'm not joking. That's not a joke. That's serious. I believe Extreme Value is a bargain for what we put into it.
I mean, what Mike Barrett does... We basically had to hire a second guy for me because the valuation that we do is true bottom-up business valuation. It's unlike anything anyone at Stansberry does or anything most, you know, newsletter-type services do. I've never seen anybody who does anything like it. So I'm proud to be here, proud to be a part of Extreme Value and the Stansberry Investor Hour. I'm very grateful, and I'm very lucky. And I hope we can change your mind a little bit in that you won't be too disappointed with me for too long, Lance. And thank you for writing in. It was a heartfelt note. You said good things about us. I appreciate it.
So that's another mail bag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. If you're listening to this episode and you really enjoyed it, send someone else a link to the podcast so that we can continue to grow. Anyone you know who might also enjoy the show, just tell them to check it out on their podcast app or at investorhour.com. 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 follow us on Facebook and Instagram. Our handle is @InvestorHour. You can follow us on Twitter. Our handle there is @Investor_Hour. If you have a guest you want us to interview, drop me a note at [email protected] or give us a call at the new listener feedback line: 800-381-2357. That's 800-381-2357. And tell us what's on your mind. Till next week. I'm Dan Ferris. Thanks for listening.
Announcer: Thank you for listening to this episode of the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail – [email protected] This broadcast is for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decisions based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.
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