Episodes

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 Daniel Fields, who runs a concentrated portfolio of high-quality growth companies for Polen Capital. I know the words "high-quality growth companies" caught your ear – you want to pay attention. In the mailbag today, questions about the PEG ratio, infrastructure investments, and carbon credits.

And remember, the mailbag is a conversation, so talk to me. Call the listener feedback line, 800-381-2357, and hear your voice on the show. For my opening rant this week, new highs are imminent. We may have made new highs in stocks by the time you're hearing the sound of my voice, and we've made new highs in bitcoin, what I think of all this. Here we go again. That and more, right now, on the Stansberry Investor Hour.

Well, here we are. Bitcoin is above $66,000, making new highs, making it officially my second- or third-best recommendation of my career in the Extreme Value newsletter. It's up close to 600%. And that includes the open recommendation of ADP, which is up 700 and some. And then we closed our pick of constellation brands, which was up, I think 620 or something like that percent.

And if bitcoin performs like I think it will, it's going to blow those other two away, eventually, like within the next few years here. What does it all mean? Well, first of all, look, stocks making new high and bitcoin making new highs, I think it's the same phenomenon, and I really do.

I've said this before. I will say it again. I will say it until I am either obviously wrong or have been proven obviously right. OK? But I'll be obnoxious. Until then, bitcoin is a risk-on asset. It trades like a biotech stock.

You can't fail to ignore this. I'm a bitcoin bull. I love the idea behind it. I love the way it's executed. Pretty much, it's not perfect, but I like it. And I've told my readers to buy it and to hang onto it for the long term. OK? So don't get me wrong here. I'm not trying to talk it down. I love it.

But you cannot let your bias get in the way of reality. And reality is the thing trades risk on, risk off, with all the other speculative risky stuff that's going up or down, depending on what's happening in the market over the last couple years, right? You can't ignore that. You can't turn away from the truth.

So, where will bitcoin be a year from now? Six months? One month? No idea. Ten years? Oh, I think quite a bit higher. And as for stocks, look, my tune doesn't change until the facts change.

We are bumping up against – the very peak valuation of the S&P 500 was on September 2. I mean, we're looking down a gnat's rear end here. I'm not even kidding. It was more than 3 times sales on the S&P 500. It was like three-point – yeah, I'm going to look on my chart right now – it's like 3.13 times sales on the S&P 500 on September 2. Right?

Then we had a sell-off. Right? And now we're right back, pushing up where it's like – I'm not kidding you. The reading on my computer screen right this minute is 3.12. So we're within one basis point of absolutely the most expensive stock market in the history of U.S. stocks, full stop. That's it. This is it. Right? The most expensive moment in history. And that's not the only thing. I mean, you can look anywhere else for an extreme, right?

If you look at M&A transaction values, mergers and acquisitions, they go way the heck up in a bull market and crash in a bear market. And so, the last really high peak was in, when else? 2007. We did get another peak in 2015... had some unpleasantness in the market after that.

But now, the current highs of mergers and acquisitions in deal value and number of deals and everything is higher than ever. Higher than any time in the – well, the Bloomberg data that I'm looking at goes back to 1999. And you can look at the Goldman Sachs Financial Conditions, right?

Financial conditions are better. They improved dramatically, and they're best at the bottom of a bear market, right? So the market's down like 50% or more like it was in late 2002 or early 2009. Those are when the financial conditions are best. OK?

And right now, the Goldman Sachs Financial Conditions Index going all the way back, I think to its inception in 1982, is at its lowest ever. Below the dot-com peak, below the housing bubble peak. And these aren't the only measures. I've talked about John Hussman's work at hussmanfunds.com and other measures.

Just the fact that bond prices, bond yields, whatever you want to – Bond yields are scraping their lowest-ever lows in 5,000 years of data. Right? If you look at the yield book, Sidney Homer's yield book, 5,000-year lows were scraping. That's 5,000-year highs in bond prices, right? Because yield and price travel in opposite directions.

So look, it feels great and I get it. And I'm not selling my stocks, right? I mean, I own some put options as always, but they're losing money, they're doing crappy. But I'm not selling my stocks. And I've never said, "Hey, sell everything, because everything's too expensive." Nobody can make that kind of a call, right? That's why I'm always saying what? What am I always saying?

You have to be diversified. You have to have plenty of cash. You keep your stocks because you want to participate in the endless upward growth of mankind. And own some gold, own some silver, own some bitcoin, right? And bitcoin is like stocks. We don't really know how it looks in five or 10 years. It's supposed to be a store of value in a currency. So maybe you buy it as the same reason you buy gold or something. And people are always pairing it to gold which is dumb.

And I get that, but it's too young to really know. And all we know is, it's this highly innovative thing, so you're definitely buying a stake in innovation. As Eric Wade says, "You're buying a place in line." And you're also buying possibly a new currency or an alternative to gold and silver or wherever you put your safe money to keep it safe across long periods of time.

So that's where we are, man. My tune has not changed. I love what's happening because I make money. Stocks go up... my wife and I make money, my readers make money. Bitcoin goes up...my wife and I make money, my readers and listeners – people who follow my advice – make money.

It's great, but cycles happen. And I just spout it off... a couple of random indicators like mergers and acquisitions and financial conditions that are really looking super, duper, duper toppy. And, of course, the market is more expensive. Just about more expensive than it's ever been, ever in history.

So here we are... we're back here. After stocks beat, we're really attractive, we're pounding the table... April of 2020... March of 2020... and now we're back at the top again.

I'm not calling the top. I'm not saying, "Well, it's going to crash from here because nobody can make that kind of call." But there's risk – there's more risk with stocks at these levels than at lower levels. All right, let's move on to the quote of the week. It actually comes from Twitter.

And I have to give a shoutout to Kevin Duffy once again, he pointed this one out. It's from Jeff Bezos, the founder and CEO of Amazon, and it's from October 10 on Twitter. And Bezos was funny... He published this quote with a picture of an old Barron's cover from many, many years ago. And the Barron's cover says "Amazon.bomb," right?

And it's got Bezos' picture inside a little round bomb with a lit fuse like Amazon's going to blow up or something. Of course, it's one of the greatest businesses that's ever been created in the history of human commerce. And Bezos says, on Twitter, "Listen and be open, but don't let anybody tell you who you are. This was just one of the many stories telling us all the ways we were going to fail." He's referring to the Barron's story.

Then he says, "Today, Amazon is one of the world's most successful companies and has revolutionized two entirely different industries. Don't let anybody tell you who you are." Don't let anybody tell you who you are. It's great. Great idea.

And one that I embrace more and more, "When I was a kid, I was too worried about being respectable and making money. And now I'm worried about not letting anybody tell me who I am." I hear you, Jeff. I just want you to know I hear you. And now our listeners do too.

All right. This is going to be a great talk. Let's talk with Daniel Fields from Polen Capital. Let's do it right now. On October 20, during what I can only call Stansberry's most highly anticipated event of the year, our newest analyst at Stansberry, Matt McCall, made a shocking new prediction. And he said despite everything you see in the news like the supply shortages, talk about inflation – and the things I say about the aging bull market – and just everything else, he said there's an even bigger story that he believes most investors are missing.

I mean, that gets my attention. I think it should get yours, too. So for a short while longer, you can see exactly what Matt is predicting and what he thinks you should do in response. Plus, when you check out the replay of the event, you can also get the name of a tiny little stock that he thinks could go up like huge, like 50-bagger, maybe a 100-bagger in the years ahead.

A hundred times your money is worth paying attention to. So to hear Matt's big prediction for yourself and learn how to get at the names of Matt's three favorite crypto plays, simply head to www.mattbroadcast.com. Again, that's www.mattbroadcast.com. Go check it out right now.

Time for our interview... today's guest is Daniel Fields. Mr. Fields joined Polen Capital in 2017 and is responsible for the day-to-day portfolio management and investment analysis for the international growth fund. Prior to joining Polen Capital, Mr. Fields spent eight years in Hong Kong, where he worked for Gavekal Capital and Washoe Ways LLP as a research analyst, evaluating Asian growth companies. So Daniel Fields, welcome to the show, sir. I'm glad you could be here with us.

Daniel Fields:             Thank you, Dan. I'm happy to be here. I always enjoy having conversation with other thoughtful investors. So again, thanks for having me on today.

Dan Ferris:                 Great. Tell me about your time in Hong Kong. Did you get anything – Did you learn anything about investing from being in Hong Kong? I mean, just from being there versus the analysis that you did, you know what I'm saying?

Daniel Fields:             Yeah. So prior to moving to Hong Kong, I worked in San Francisco for a company called Fisher Investments and I was researching emerging markets companies. And I had been outside the U.S. a bit. I'd been to China and Hong Kong before, but had never really spent significant time there.

And so moving to Hong Kong, you really get a whole different perspective on how businesses work in China and in Asia more broadly. And so you learn a lot about the intricacies and some of the things that you maybe didn't want to know on how the sausage is made really. So yeah, my time there was really invaluable.

Dan Ferris:                 Cool. And so really, mostly what we want to talk about today, of course, is Polen. I was just curious about the time you spent in Hong Kong. But if I just sort of said, what kind of investors are Polen? I mean, I looked on the website, you're growth investors all day long, but if you had to fill it out for me, what kind of investors are you guys?

Daniel Fields:             Yeah. So Polen Capital, we're a boutique investment firm. Our longest strategy, our U.S. Focus Growth strategy, has a little over 30 years of track record now. And we've been gradually and thoughtfully building out other strategies, including the international growth strategy, which I manage along with my partner Todd Morris.

So Polen Capital, we really have a few pillars of our philosophy. And those are concentration, quality, long holding periods, and growth investing. And those are really prevalent throughout all of our strategies you'll see.

What we're trying to do with the international strategy is the same thing that we've been doing with our U.S. Focus Growth strategy now for 30-plus years. And that is to create a concentrated portfolio. Typically about 25 companies in our portfolio of the highest-quality companies that we can find based outside the U.S.

And then we try to construct that portfolio in a way that the portfolio has aggregate earnings growth of roughly 15% annually over a five-year period. So some companies will be growing a little bit faster, some a little bit slower, but in aggregate, that portfolio should be growing at roughly 15%.

And then we try to hold those companies for long periods of time, typically somewhere in the five- to 10-year average holding period. The idea there is that we want to let the companies do the hard work of generating economic value, generating earnings growth. And we just try to sit on our hands and hold onto them for as long as we can.

Dan Ferris:                 Yeah, man, that is low-hanging fruit, isn't it? Just holding on as long as you can. There's real magic in that, isn't there?

Daniel Fields:             Yeah. Sometimes it's harder than it sounds. Inevitably, these companies are going to face times where things don't look great, where you may have a new competitor who's trying to come into the market. Particularly, investing outside the U.S., you get macroeconomic issues, you get geopolitics, and things can look squirrely sometimes. So just holding on to great companies can sometimes be a pretty difficult endeavor.

Dan Ferris:                 Hey, let's talk about that a little bit. Because I noticed, just looking at your top 10 holdings, if this is still accurate, looks like you've got Tencent in there and Alibaba, are they still in there?

Daniel Fields:             They are still in the portfolio. They're no longer in our top 10 holdings. And we can talk about that a little bit. But they are still in the portfolio. They're very important parts of the portfolio, and they're companies that we're very optimistic about. Maybe I'll just back up and talk a little bit about China if that would help your listeners.

Dan Ferris:                 That's where I'm headed. Yeah.

Daniel Fields:             Perfect. Because I think there's a lot we could discuss about China. I'll try to keep my thoughts fairly succinct here. But investing in China requires more than just understanding the businesses that you invest in. And I'd be happy to talk about Alibaba and Tencent, which we're still very optimistic on. But China, in general, can be a difficult place to invest.

So first, maybe with a few thoughts at the outset, we don't buy into the idea that China is returning to a 1960s-style communism, or that Xi Jinping is Mao Zedong reincarnated. We do believe that economic growth and private businesses are still important. And they're essentially the pillar on which the Chinese Communist Party maintains its legitimacy.

And then the third thought is that the CCP today is trying to reestablish its primacy in the economy. And that means that there is going to be more intervention and there is going to be probably more volatility than there has been over the last five-plus years. But that doesn't mean that China's not investible. So why today are we seeing this more brazen policy-making from China?

Dan Ferris:                 Good question.

Daniel Fields:             Well, the first I would say is that there hasn't been a massive change in the way that the CCP operates or the relationships that it has with private businesses. They've always been very heavy handed... always been very active in controlling private businesses. Historically, that's primarily been in areas like construction and real estate and banks and utilities.

It wasn't in technology until fairly recently, but now we're seeing a much heavier hand in the technology sector. And I think that comes from a couple of things. One, the CCP has always been paranoid about retaining power. And you're seeing today in the technology industry, there are a number of entrepreneurs which have created a lot of wealth, and along with that wealth comes a decent amount of political power too.

And so you're seeing them trying to squash out those competing power bases. Alongside that – and this is especially since the fall of the USSR – China has been attempting to adapt just enough to keep its people happy. Right? So it may sound fairly odd to say that the Chinese Communist Party has been adaptive, but if you look at, the changes that have been made in the Chinese economy, in the politics of China over the last 40 years, it's pretty astounding.

I mean, Mao Zedong would not recognize China today, right? Yeah. So there is a fair amount of adaptiveness. And I think that they are concerned, and they're looking at what's happened in the U.S. today. And they believe that U.S. Congress is essentially bought and paid for by certain entrenched interests, including the technology sector.

And they are saying, "We are not going to allow the technology sector or any private interest really set the policy direction in China." Now, that's somewhat concerning because it means that we definitely have an authoritarian regime here, and for better or worse, they are going to be setting the policy direction, but they view it as a competitive advantage of theirs.

Dan Ferris:                 Well, they view it as a competitive advantage, but is it really?

Daniel Fields:             I'm not sure that it is. I am a firm believer in democracy. If you look at the history of the United States, we have a great history of adapting and changing and being dynamic. And I think that's far more dynamic than what China has shown, and China has a much more recent history. To them, they do view that as an advantage.

And I would say it is interesting to see how little progress has been made in regulating certain tech companies here in the United States because there is an entrenched interest there, right? It is difficult to put forward regulation which most people would agree would benefit society.

And again, that's for better or worse, right? We don't want an authoritarian leader out there unilaterally setting policy. But it is clear that are also some downsides to our messy politics, which is that it takes a long time to get anything done.

Dan Ferris:                 Yeah, I would that's a benefit. I mean, we want it to take a long time and be very messy. It's supposed to take longer and be messier than it is, I think. But yeah, China's an odd thing to me because I think – here's what I ponder about China is – "How good can it be and still be really run by the Communist Party?"

And then I think, "Well, is it just that I don't appreciate how much of a thriving market economy it is? And am I too distracted by the existence of this president for life and the country being run by the Communist Party? Could I be too distracted by that? Is it more of a thriving market economy than maybe be someone like me might think because I worry about it?"

Daniel Fields:             The first thing I would say is it is absolutely a thriving market economy to a point, right? If you're looking at everyday businesses on the street, your everyday man in China, they are very entrepreneurial. They are very capitalistic and they are cutthroat competitors.

There is almost nowhere else in the world where you will find competition as intense as it is in China. But at the same time, the Chinese Communist Party is trying to walk a very fine line, because they're trying to have their cake and eat it too here. They're trying to regulate and control the economy and businesses toward their own priorities and toward their own aims while at the same time also trying to have the benefits of free economy, which drives innovation and drives economic growth.

And I'm not sure, long term, you can really have both. They've done a good job of maintaining some flexibility and allowing private businesses to thrive. But ultimately, if they end up cutting them off – which I don't believe they will, but is sort of the direction they're heading in – then absolutely, innovation and economic growth will suffer.

Dan Ferris:                 I see. So is this worry about politics, the wall of worry that China's going to climb for another 50 years?

Daniel Fields:             It very well could be. I mean, if you look at the valuations today in China, it is very clear, particularly for companies listed in the U.S. But valuations, generally and especially in the tech sector, are extremely low and there is a large wall of worry that they could climb for many decades if things played favorably.

Dan Ferris:                 So I started out asking about Alibaba and Tencent. And what I'm really curious about was – China's been a little rough this year, man. How have you guys managed that?

Daniel Fields:             Yeah. To put it frankly, it's been in a hard market to operate in. Right? So we do have investments in Alibaba and Tencent. We also had an investment in Chinese education, which for anyone who's been following the education sector, that has been a very difficult space.

To sort of recap what has happened there, the Chinese government has essentially decided to nationalize after-school tutoring education. And in doing so, they have wiped out a whole hundred-billion-dollar industry. And that hurt us this year. Frankly speaking, our returns have been a little bit below what we would normally hope for.

But yet they've still been pretty decent. And that comes back to our portfolio construction. So China is a part of the portfolio, but it's a relatively small-ish part of the portfolio.

And we've had a number of other companies, thankfully, which have helped us to generate returns this year and keep us above water. But it has been absolutely difficult investing in China. And I would say this: what we're focusing on now is we're really looking at the long term, and we're looking at companies which we think are generating value for society and generating value that is obvious to the CCP.

And we think Alibaba and Tencent fit within that framework. The ability for them to, on the one hand, generate high, economic returns, and on the other, help the CCP with many of its strategic policy goals. So you'll see, both of these companies have been donating to common prosperity funds. They have been investing heavily in areas like rural economy, semiconductors, all of these, we think help to put them on the side of the CCP, and will ultimately allow them to continue to grow and produce good profitability in the future.

Dan Ferris:                 Yeah. China is a weird subject. I feel like we could go on and on and on about it. But I don't know, I think you've covered it pretty well. The one thing I will say though is, what happened to those education companies. I mean, this is a pristine example of what is generally thought – ex-U.S. or maybe even ex-North America, but definitely ex-U.S. political risk. Right?

You wake up one day, and the government has just decided to put an entire industry out of business and you're down 80, 90% on that position – or something instantly, almost. I mean, you're running an international growth fund, so you guys must talk about this type of risk often.

Daniel Fields:             Yeah, absolutely. And that's where good risk management comes in and where portfolio construction comes in. Inevitably when you're investing outside the U.S., you're taking political risk, you're taking currency risk, and you're stacking these risks on top of each other. But investing outside the U.S. does not necessarily have to be an overly risky thing.

We think in our concentration specifically in what we believe to be the highest-quality, best companies in the world, we actually think that reduces our risk. And this year, including, that's really been born out in the numbers. We tend to have much lower downside capture ratios than our competitors, typically in the sort of 60 to 70%. And we tend to have lower volatility even though we are investing outside the U.S. and even though there are issues of geopolitics that come up from time to time.

Dan Ferris:                 So when you say downside capture, do you mean that when the downside is 10 for somebody else, it's six or seven for you, is that –

Daniel Fields:             Correct. Yeah.

Dan Ferris:                 When you said 60 per – OK. I got you. So it's less. Good. All right. So maybe we could finally move on from China. But the semiconductor industry is an interesting global phenomenon right now. And the main narrative, of course, is the automobile industry, right? The automobile industry can't get semiconductors, so they're having major problems just building cars. But is there an opportunity somewhere else in the semiconductor industry? What do you think of it right now?

Daniel Fields:             Yeah. Semiconductors are an interesting topic, and I'm sure one that your listeners and basically every analyst is out there spending time on trying to understand better. And this is one of the reasons we actually think investing outside the U.S. makes a lot of sense. Because most of the good companies along the semiconductor production chain are outside the U.S.

I've heard analogies comparing semiconductors today to the oil of history in their importance. And I don't think that's totally wrong. The strategic importance of semiconductors to many countries and economies is going to be extremely important. There's likely to be wars fought over semiconductors in the future.

So it is something that we have spent a lot of time on, and we pay a lot of attention to. For us, the style of investing that we have, we like to invest in very long term ideas where the capital requirements are not too great, where the margins are high and the returns are high, and the volatility is not too great either. So we don't want to invest in overly cyclical companies which is difficult when you're thinking about the semiconductor industry, which historically has been highly cyclical. But for us, I'd say there's kind of two areas that are our framework. One would be the design companies and the other would be the semiconductor equipment companies. So we have an investment today in ASML. I'm sure many of your listeners and you have probably heard of ASML, but they are one of the largest semiconductor equipment providers in the world.

What they specialize in is something called lithography equipment. So these massive multi-ton machines which cost – the newest, leading-edge machines cost about 150 million euros each. And they are sold to companies like Taiwan Semiconductor that manufactures chips. And these machines help to edge out the chip designs onto the wafer before the chips are actually produced.

ASML today has a leading – in fact, a monopoly for position in the newest technologies. And we think that this monopoly position is going to position them well to do very well from what we think is a decade trend of increasing demand for semiconductors.

Dan Ferris:                 Yeah. And, just looking at the chart, man, it's up into the right. It's done really well.

Daniel Fields:             It has done very well.

Dan Ferris:                 I was going to say, I noticed it kind of peaked in August and it's interesting to me that it has done so well. I guess trying to – can you just characterize the state of global semiconductors? Because it seems chaotic right now.

Daniel Fields:             Yeah. So it is chaotic only in that demand has surged at the same time as supply has been somewhat impinged because of the pandemic. So the state of the industry today is that demand has skyrocketed. In part because of the pandemic, in part because of these big structural trends like artificial intelligence, more compute capacity being needed in everything.

Internet of Things... autonomous driving... all of these are big ideas which are going to drive or are already driving increasing demand, and are going to drive demand for the next decade or more. One of my favorite stats about the situation comes from ASML. They say today there are roughly 40 billion connected devices out there in the world. But by 2030, there's going to be 320 billion of these, right? So that's 8X over the next roughly 10 years.

If you do the math, that's over 20% CAGR. And that's just in the number of devices. Meanwhile, the semiconductor intensity, the number of semiconductors, and the complexity of those semiconductors going into newer products is only going up. So demand is likely to remain extremely high for quite some time.

Meanwhile, during the pandemic, you had a supply crunch as well because everyone stopped producing for a short period of time... because we weren't sure what the world was going to look like after March of 2020. And so, it takes a long time for these semiconductor companies. Once they stop production and they start to ratchet down their expectation, it takes time for them to reaccelerate. that production. And so, you got this sort of valley there where production stopped at a number of places or the investment stopped for a number of months. And only now are we starting to catch back up with that. There are also logistical issues in the auto industry and other areas, which is creating a supply shortage, but the main point is demand is incredibly robust.

Dan Ferris:                 OK. So, incredibly robust demand sounds really good to me, and it sounds like you're looking at a decade where that should mostly be the case.

Daniel Fields:             Yes. It's important to remember though, this is a cyclical industry and we don't think that has really changed. In fact, we could be – who knows? We don't try to call these cycles with any sort of precision, but we may be near a cyclical peak. Right? Everyone today is investing huge amounts of money. And that historically has been a red flag and signal that we're likely to go through a period where supply catches up in the short term or even surpasses what demand is.

Taiwan Semi, TSMC, the largest manufacturer, they committed to spending almost $100 billion over the next three years, over $30 billion annually in capex to increase production. That right there should probably be a red flag for everyone. I'm not calling the top because, clearly, demand is also very strong, but you're seeing definitely some increasing signs that supply should be catching up in the next few years.

Dan Ferris:                 Yeah, I hear you. I don't call tops either. No tops, no bottoms, no predictions, but you're identifying the risk and you're identifying that cycles happen and this looks like it's a lot higher rather than lower. So I would like to shift gears a little bit and ask you – you're a growth fund. So these companies are growing fast, they're usually valued higher in the marketplace than other things, but is there a prominent role for valuation in your strategy? Because you're really focused. So you really can't afford to get things wrong. What role does valuation play, Daniel?

Daniel Fields:             Yeah, that's a very good question. So for us, valuation absolutely has a role in our investment strategy, but it is not primary. And it's typically actually the last thing that we do in our process. Primary for us is getting to know these companies and understanding them well, and that often takes several years. So we will be researching a company independent of what valuation is.

It only comes down to where do we make those investments that we actually start to think about valuation and how do we prioritize and weigh investments in the portfolio? So for us, we have the benefit of being long-term investors as well. So a P/E which optically looks high today could actually end up being quite low in two, three years' time if the growth expectations play out or if they're even more favorable than what analysts are thinking today.

Just to give you a few examples, in our portfolio today, we have ASML as we just talked about. Its valuation is well into the 40s, but we expect it to be growing at over 20% annually for five-plus years. So if you start looking more than one year out, we're talking about quite-cheap valuation, if that earnings growth ends up playing out as we expect it to. Now, the other thing I'll say about valuation is that we require a double-digit return, an expected double-digit return, on all of our investments over a five-year period.

So double-digit annually over five years. And to get that, we have an earnings growth expectation over five years for that individual company. And then we have what we think is an appropriate exit multiple five years out, typically lower than the multiple is today. If the valuation today is so high that we can't get that at least 10% return, annual, then we won't own the company. And there are a couple of companies, I would say, a number of companies in our universe today, which we're on the sidelines on because valuation has gotten relatively extreme. And that is a sign of the world that we live in today.

Dan Ferris:                 Right. Do you feel like naming any of those or no?

Daniel Fields:             Sure, I can talk about some of those companies. One I would highlight is Shopify, which we actually have a small position in, but which we are uncomfortable with the valuation on. And so, we've maintained a very small position on – it's essentially what we would call a starter position, and we hope to build on that over time, but we fully expect at some point Shopify valuation will come down from where it is today.

Another one I would say outside the U.S.is a company called Adyen. It is a dominant, fast-growing payments company. Again, a phenomenal business, but the valuation you're talking is over 100 times sales, depending on how you measure it. And we just think that it is almost impossible for us to get a double-digit return over the next five years, even including some pretty robust growth.

Dan Ferris:                 I'm sorry, what was the name of that one again? I didn't get it clear.

Daniel Fields:             Adyen. It is a Danish payments company.

Dan Ferris:                 Oh, Danish payment. OK. Gotcha. And of course, I know my listeners are sitting here saying, "OK, what does he like now? What does he want to buy now?" You know they're thinking that. We have to address it if we can.

Daniel Fields:             Yeah, absolutely. So first I would just say we aren't in the business of trying to make short-term calls. So everything that we own, we typically own with at least a five-year outlook. But one thing that we aren't very excited about is medtech companies. So if you look at the big-picture demographics in the world, people are getting older – they're generally getting less healthy, you have a higher prevalence of things like cancer, diabetes, heart disease, chronic diseases, which don't go away.

And so structurally, we're quite optimistic about health care in general, but I think pharmaceuticals is a little bit more difficult – you have policy headwinds, you have much greater competition. We prefer medtech and we've found a number of good companies outside the U.S. in the medtech space, which we think will be able to profitably grow for five to 10 years easily and where their competitive advantages are strong.

And we think the valuations aren't extreme at all today. In fact, the pandemic disrupted some of these businesses a little bit, but it wasn't a permanent disruption. It was more just a pause on some of their procedures, on some of their ability to grow because hospitals were not investing in the same way. But again, this was a short-term headwind, and we think the long term is very positive for these companies.

So just to name one, Siemens Healthineers, it is a German medtech company. They are the leader in imaging diagnostics. So they sell CT, MRI, X-ray machines to hospitals. They also have a very large in vitro diagnostics business. And then they recently merged or acquired a company out of the U.S. called Varian. And Varian makes linear accelerators – these are radiotherapy equipment.

So if you had a tumorous cancer and you needed to have radiotherapy, they make the machines which do that. And so having these two parts of the business – the radiotherapy and the imaging, together – we think is a huge advantage because another trend we're seeing is that hospitals are consolidating and they're increasingly wanting to consolidate their purchasing. And so having this all housed under one entity, they are able to bundle their selling and really take market share away from competitors who have a less broad portfolio.

So we're seeing Siemens Healthineers is consistently taking market share pretty much across its product portfolio. And this is leading it to a high single-digit revenue growth and what we think is likely to be well into the double-digit EPS growth. And by the way, this should be very consistent year in, year out. Independent of what really happens in the economy, we think a company like Siemens Healthineers should be able to grow double-digit EPS fairly conservatively.

Dan Ferris:                 Nice. And it does for our listeners. It does trade in the U.S., it's got these over-the-counter symbols. The typical thing that you see where you can get the foreign share traded in the U.S. or the other one, I assume, is an ADR ticker symbol SMMNY. You got anything else for me, Daniel?

Daniel Fields:             I'll just say for all of our companies, all the companies we own our whole portfolio, they have corresponding ADRs, they have foreign ordinary shares, but then they also have ADRs. I'll highlight one other company real quick and I want to be brief on this, but we own a company based out of Sweden called Evolution Gaming. And what they do is they're a business-to-business services company, and they provide all of the gaming services for online gaming companies.

So online casinos today, you think about MGM, Golden Nugget. Many of these are running online casinos and really had to move in that direction because of the pandemic. The tables that you see and that you're playing at are not actually operated by MGM, they're operated by Evolution. So Evolution hires all the dealers, they train them, they have all of the technology equipment, the Internet bandwidth, they're recording it live, and they are the one who is actually operating these tables on behalf of the casino.

And it's an extremely difficult business to operate because it requires a great degree of technology innovation, it also requires a lot of security. A company like MGM is not going to easily work with just anyone because they need to know that the company, which is running their tables for them is actually generating revenues and paying MGM the amount that they should. And they need to make sure that there aren't people out there gaming that system.

And so we think Evolution has extremely strong competitive advantages, and today it has a near monopoly in the U.S. and over 60% market share in Europe in this space. And anyone who's been paying attention to gaming and online gaming recently would know that this is a very fast-growing and very promising sector as more and more states are beginning to legalize online gaming. So we think that this is a really exciting investment for us.

Dan Ferris:                 OK. I know this thing has run up huge in the last like two years. But that doesn't worry you, you're still excited, you still see big growth.

Daniel Fields:             Yeah. In and of itself, a stock going up does not worry us at all. At some point, you may need to think about valuation, but Evolution is probably one of the cheapest companies we own. Today, I think it trades at roughly mid-30s, next year's earnings, so mid-30s, 12-month forward P/E for a company we think should conservatively be growing earnings at 25 %. So we're talking about just over a 1 times PEG for a market leader in a fast-growing industry we think that's a really compelling investment opportunity.

Dan Ferris:                 Yeah, it sounds like it. So I made the listeners happy and I have to sort of scratch my own itch, which is I always wonder, especially when you're running an international fund, but with all growth investors, bottom-up, high-quality-type growth investors – and we've talked to some other folks like this recently – I always wonder about macro issues. Do you have a macro committee or do you sit down and discuss this stuff? And what role does it play?

Daniel Fields:             Yeah. Macro is important, although I would, again, stress we are very much bottom-up investors. So first and foremost, we're looking at the companies and we want to find companies which should hopefully be able to transcend any sort of macro issues that their local economy would have. We also tend to look for companies which are globally diversified, so they're not just selling into one market and not just dependent on one market or the politics of any single country.

But we do – our process before we make any investments in a company, we spend at least one meeting discussing the macroeconomic situation of that country. And oftentimes, we will decide not to make an investment if we think that the macro situation is too dicey or too uncertain. Just to give you an example, we haven't made any investments in Russia.

We have had a few companies which have come up through a process where we've said, "OK, this is an interesting opportunity," but we've said, "Look, we just don't understand Russia well enough. We just don't trust the political situation there, Putin has never been totally transparent for us, and so we've just decided not to make those investments in Russia." But for most of the companies that we invest in, we're looking at European, some Asian countries where we feel like the macro situation is relatively stable and understandable.

Dan Ferris:                 Right. Macro, relatively stable and understandable. It just sounds so simple, doesn't it? It's not always easy to find though in this world today, is it?

Daniel Fields:             We try to make it simple.

Dan Ferris:                 It's hard to make a complicated thing simple though, isn't it? I don't want to beat a dead horse with this, but the world's a big, hairy, complicated place, especially when you wander into different countries.

Daniel Fields:             When you extend out your time horizon, you're able to simplify things a little bit more because you can focus on big long-term ideas rather than trying to get caught up trying to predict exactly what's going to happen in the next three months, which anything could happen, and macro could really influence the outcome of an investment in a shorter-term period. But for most of our companies and most countries we've found over a 10-year period, macro tends to play a secondary role to what actually happens at that underlying business.

Dan Ferris:                 OK. Don't worry, I'm not going to run you through the macro rigor here. I was just kind of making an idle observation, but yeah, I appreciate that, it's long time frames.

Daniel Fields:             Yeah, absolutely –

Dan Ferris:                 I said it when we first started talking, it's like secret sauce, isn't it? Long time frames are like one of the simplest things for just about any investor of any level to get their head around, but getting your emotions around it... man, it's tough, isn't it?

Daniel Fields:             It is. And that's something that myself and my partner are always talking about and working on. We spend a lot of time just trying to do nothing.

Dan Ferris:                 That's well put, man, great. All right, well, gosh, that's a really good nugget, but we're actually to the end of our time. And when we do get to the end, I have the same final question for every guest on the podcast, and that is if you could leave us with a single thought, leave our listeners with a single thought today, what would it be?

Daniel Fields:             Well, that's a good question. So I'm going to steal an idea from one of my favorite investors, Charlie Munger, and like most of my good ideas which are stolen, I'm sure I took this from one of Charlie's writings, and I'll probably butcher it here. But the essential idea is that too many investors feel like they need to know everything and understand everything, and they're therefore always chasing the hot dot.

Before the financial crisis, they were investing in investment banks and financial products, and then it was health care and technology, and now they're looking at semis and inflation. And it can be too confusing to try to understand everything, it's better to have one or two big ideas that you really get to know and you focus on, you understand deeply, and you think about those in a long time frame. And you can really make a career out of that... you really only need one or two big ideas to understand, and don't try to go outside of your wheelhouse there – just focus on those one or two big ideas.

Dan Ferris:                 Hey that's great. Thank you for that. All right, Daniel. Well, we sure would like to invite you back sometime in, I don't know, six or 12 months or whatever.

Daniel Fields:             Great. Well, I enjoyed our conversation, Dan. I appreciate it.

Dan Ferris:                 You bet. Thanks for being here. Well, that was a really good talk and there's just no substitute for having a really thoughtful bottom-up investor spell out some of his favorite ideas currently for you. And we got two of them, Siemens Healthineers and Evolution Gaming. We've heard Evolution Gaming from other guests in previous episodes, but Siemens Healthineers is a new one on me.

And I like the fact that lately, we're talking to some growthy bottom-up folks who are emphasizing how little macro plays a role in their thinking. They don't say it plays no role, they have to think about it... they can't avoid it. But ultimately, they want to find a great business and stick with it for the long term. And man, I'm telling you what, there is no substitute for that.

It's not the easiest thing to do, because like we said, it's hard to hold on for a long time, but that's how huge money is made... 50, 100, sometimes 1,000 times your money over 10, 20 years, of course. That's how a normal person who doesn't make a lot of money can get rich in the stock market. Trading short term, most people are going to lose money, they're not going to get rich.

But you buy good companies and just hold on to them for 10, 20 years, you're going to make some real money and folks like Daniel Fields, who we just talked to, man, they're doing it right. Good talk. I'm glad we did that. All right, let's take a look at the mailbag.

Right now, I just want to share a quick story about a woman named Sandy Chaikin from Roxbury, Connecticut. Some years ago, she suffered a massive financial disaster. Now this happens all the time, so it doesn't usually catch my attention, but it did this time because it led to one of the best money-making breakthroughs our firm has ever discovered.

Back in 2008, Sandy lost around 50% of her 401(k). It was cut in half. She was furious because she entrusted that money – it was like the bulk of her life savings – to a money manager. And when her husband Marc Chaikin saw how upset she was, he created this whole new investment system to help her make it all back. And since then, she's made three times her money overall.

In fact, in about a year, Sandy made seven times her money just on one stock alone, just by logging into this website her husband created to help everyday folks like her get revenge against Wall Street. As you can imagine, she's told hundreds of people about the system, and that's why today I'm telling you her story on the Investor Hour. In short, Sandy is offering you a chance to claim free access to the system today. Simply go online to www.sandy2021.com to learn more. 

Her husband Marc, who spent 50 years on Wall Street, charged his former clients $5,000 a month to access the system. But today Sandy is asking Marc to make an exception. That website again is sandy2021.com, again, sandy-2-0-2-1.com to claim your free access.

In the mailbag 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, please, to [email protected]. I read as many e-mails as time allows and I respond to as many as possible. You can also call the listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show.

First up this week is Coach Z, and Coach Z. has a very straightforward question. First of all, he says, "Hi, Dan, love your show, never miss it. Please excuse me if I've missed your analysis of the PEG ratio on your show, I find PEG a very useful indicator to find good value stocks with growth potential. Do you use it? If so, how do you use it and to what extent?"

I value your input as always, Coach Z. By the way, everybody, the PEG ratio is P-E-G, price-to-earnings growth. And years ago, I know Peter Lynch talked about this and he said, "Well, look, if you find a company that's trading at 20 times earnings, but it's growing earnings at 20% a year, that's a PEG ratio of 1." And he said that's really good. So that's how you use the PEG ratio.

But technically speaking, Coach Z., no, we do not. Mike Barrett and I do not use the PEG ratio because we do something – I believe the PEG is kind of a shortcut to what we do. We do a discounted-cash-flow-type analysis that sort of turns discounted cash flow on its head. I've talked about it before, I don't want to go into the nitty-gritty of it again.

But we do the same type of assessment that you get from a PEG ratio. So we're looking at the current price of a stock, and then we're plugging in the future growth expectations that if they come true will equal the current price of the stock. So then we take a read on that and we say, "Well, is the market saying the stock is going to grow a lot or a little or none at all?"

And sometimes if the market says a stock is going to grow not at all, but we think it's going to grow plenty, we'll get really excited. That's how Starbucks was when we found it in 2018, and it's done really well ever since. The market was basically saying, "This thing is never going to grow for another five or 10 years," or some crazy number like that. And we said, "Oh, that sounds crazy to us." So we got really excited about it, it's one of our better picks for the last few years. So I guess the answer, Coach, is yes and no, but it's a good question.

Next is our old friend Ludvik H. Ludvik, wonderful to hear from you. Ludvik wrote in like four or five times this week, but there was one question I couldn't turn away from. He says, "Well, in the infrastructure spending plan from your president, I have a question. Where's the asphalt coming from? Does he realize it's a byproduct of the oil industry?"

Ludvik H., I don't think he realizes what day it is. So I'm sure that absolutely no one in the Biden administration has come close to considering something that deep and technical. They want to build more roads and they want to have more infrastructure, but less oil. So I don't know how that's going to work. So your question, I view it as rhetorical because it points out how crazy these green energy policies really are.

And last, certainly not least, this week is Larry B. Larry, thank you for this question. Larry says, "Dan, a longtime listener, love the show. I wonder if you have any thoughts or insight into the carbon credit market. It seems like whether you believe or don't believe in global warming, world economies are headed toward taxing or restricting carbon emissions, therefore carbon credits should increase inexorably going forward. Do you have any ideas to benefit from this trend?"

Well, my standard idea right now is to buy oil and oil stocks because it's a full-frontal assault on the production of oil and we can't live without it. This idea that we can live without oil and that we can make this transition in a decade or so – or two or five or maybe even 10 decades – is completely stupid and wrong, it's insane. And of course it's going to hurt the same people who always get hurt, the poor.

People with less money are going to get hurt because this is just going to be another giant government boondoggle that makes everything more expensive. But carbon credits specifically, all I can tell you I don't know if I have insights, but have an opinion. Carbon credits are bullshit, it's like medieval indulgences. In medieval times, you could basically pay the church to absolve you of your sins and that eventually turned into big money for the church.

They funded things like cathedrals and the Crusades and things in part through these indulgences. And that's all this is, it's indulgences, people are paying to pollute. I don't know if they're even paying to pollute, but they're paying to burn fossil fuels or whatever. It's ridiculous, it's just ridiculous. And all in the name of this made-up global warming apocalypse, which by the way in the '70s, '80s, and '90s, we were told by the year 2000, cities would be flooded and people would be starving and the earth would be burning and all this terrible stuff would be happening and not any of it has happened.

And the truth of the matter is we live in a world we don't completely understand. And even I get surprised by like I would have said, "Why don't we cut out all this global climate change nonsense, and why don't we pay attention to real things like how badly we're polluting the oceans?" And I would have pointed to things like coral bleaching, but then I saw some work recently that somebody did.

They said, well, it looks like this might be a cyclical phenomenon in at least some cases, because the corals bleached out and then they come back five or 10 years later, and it's perfectly healthy or coming back at least. So we live in a world that we only pretend to understand. Anybody who has table-pounding conviction that we're in a climate crisis is a fool. Science doesn't work that way.

There is no such thing as the science. Science is not a monolith that spews edicts. Science is the recognition that all truth is provisional and that all truth depends on the falsification of conjectures. Right? Science never confirms anything, it just fails to falsify. Now, you hear scientists using the words "confirmation," but it's not really confirmation, it's the lack of falsification. Those provisional truths are still good.

So carbon credit is just another little piece of this whole nonsensical business about the environment. And it's really terrible because it distracts us and steers capital and money away from actually fixing real badly polluted areas. So that's my spiel there, Larry. I hope you find the insight or opinion valuable because that's all you get on this show is Dan, a whole lot of Dan.

Well, that's another mailbag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We provide a transcript for every episode, just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. [Music starts] If you liked this episode, send somebody a link to the podcast and help us grow.

Anybody you know who might enjoy the show, just tell them to check it out on their podcast app, we're at investorhour.com. And 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.

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