Episode 110
The Secret Warning Signs Lurking in the Stock Market

In This Episode

Dan’s long kept a close eye on mining companies for the big returns a select few of them can offer. Not for nothing is the little-known miner he’s publicly staked his reputation on up 132% and counting, for example.

In fact, the top-performing Stansberry recommendation in our firm’s history, Seabridge Gold, returned 995% at one point. But the sector is fraught with risk. Between precious metal price fluctuations, geopolitical instability, and environmental challenges, there’s a lot that can go wrong.

That’s why Dan is headed to a conference this July he calls “the single best investment conference on mining companies in the world.”

One reason it’s so promising is because they don’t just let any mineral miners present. There’s a standard that presenting companies must meet before attendees hear from them – and that really culls the herd.

Dan will be presenting, and he’s arranged a way for Stansberry investor Hour listeners to get access at a discount.

Simply visit sprottconference.com and use the promo code “ferris100.” And if you see Dan at the conference, by all means come over and say hello!

Dan then gets to the current events of the day – the expulsion of a group of police officers from a Starbucks store, to the latest warning sign from Apple, before turning to this week’s podcast guest, Tim Price.

Tim is principal and founder of Price Value Partners, a London-based value-investing-oriented fund established in 2014. The fund seeks to invest in companies of exceptional quality that they believe are trading at a meaningful discount to their inherent value – the Benjamin Graham value approach. Tim has 25 years in capital markets and 15 years as a discretionary multi-asset portfolio manager and chief investment officer at three successive firms. He was shortlisted for five successive years in the U.K. Private Asset Managers’ Programme and was the winner in 2005 in the category of Defensive Investing.

Tim’s insights on the unique vulnerabilities of different sectors, from S&P 500 companies having to borrow just to pay dividends, to the sword of Damocles hanging over the ETF sector, are a must-hear for any investors who prioritize preparation for the next shoe to drop.

*Special Bonus Interview* Be sure to listen to the whole episode. After the mailbag Dan has another special interview with a Stansberry Subscriber just like you. You won’t want to miss this!

Featured Guests

Tim Price
Tim Price
Tim Price is principal and founder of Price Value Partners, a London-based value-investing-oriented fund established in 2014. The fund seeks to invest in companies of exceptional quality that they believe are trading at a meaningful discount to their inherent value – the Benjamin Graham value approach.

Episode Extras


  • To follow Stansberry Credit Opportunities like our guest Rob, click here.
  • To claim your discount for the Sprott Conference, click here and use promo code Ferris100
  • To follow Dan’s most recent work at Extreme Value, click here.


2:46: A somewhat “under the radar event” is coming up, and Dan will be there. “It’s probably the single best investment conference on mining companies in the world.” Don’t miss your chance to get access at a discount through a special promo code Dan reveals to all Stansberry Investor Hour listeners.

11:41: Dan recommends a lot of investing books based on market facts and deeply researched approaches. But if fiction is more your speed – you’ll have to check out these two books by Doug Casey that weave fantastic market insights into a dramatic thriller.

19:02: Dan checks in on one of the few Extreme Value recommendations he’s revealed on the podcast, up more than 72% as we write. Starbucks is a great business – but how will the latest arrest in one of its thousands of stores play with its Millennial customer base?

22:48: A week after Dan called Apple the riskiest of the FAANG stocks, one analyst has changed his rating on the stock from “Hold” to “Sell.”

25:30: Elon Musk now says self-driving chips will be making their way to new Tesla’s “most likely” by Q4 this year. But in Dan’s words, “you don’t have to be a hater” of Tesla to see why this won’t save the company.

31:52: Dan introduces this week’s podcast guest, Tim Price. Tim is principal and founder of Price Value Partners, a London-based value-investing-oriented fund established in 2014. The fund seeks to invest in companies of exceptional quality that they believe are trading at a meaningful discount to their inherent value – the Benjamin Graham value approach. Tim has 25 years in capital markets and 15 years as a discretionary multi-asset portfolio manager and chief investment officer at three successive firms. He was shortlisted for five successive years in the U.K. Private Asset Managers’ Programme and was the winner in 2005 in the category of Defensive Investing.

39:01: Tim explains how every decent company these days is in one big respect a tech company, and Dan asks for his take on the next “can’t go wrong” sector like mortgage debt that Wall Street could find a way to hijack.

46:22: Tim sheds light on the warning signs in the ETF world, where daily liquidity is a must-have. And with 15% of S&P 500 companies having to borrow to pay their dividends, a selloff could be what tips them over.

48:14: Dan asks Tim where he stands on the two schools of value investing thought – those that believe gold is a waste as Buffett does, and those who believe it’s a mandatory part of any balanced portfolio. Tim explains why it’s a false debate – “it assumes you’re comparing apples to apples.”

55:35: Tim explains why he voted “Leave” in Brexit, and why he’s standing by the unpopular view that’s brought down so many British politicians.

1:05:30: Dan answers a mailbag question from Gary D., who asks about Washington rumblings to restrict share buybacks. Dan explains why corporate buybacks are in the interest of shareholders. “It’s better for everyone if you let them do what they want to do, rather than what they’re required to do.” 

1:15:00:  Dan has a special bonus interview with Stansberry subscriber Rob Lamoureux on his amazing story and spectacular success with a specific Stansberry publication.


Recording: Broadcasting from Baltimore, Maryland and all around the world. You're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here is your host, Dan Ferris.

Dan Ferris: Hello, and welcome to another episode of the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, a value investing service, published by Stansberry Research. Let's do the rant.

OK, so this week, I want to talk about something I really love because I have to tell you, since I took over the podcast, in the very beginning, we got a few Negative Nancys who didn't like me. But then, after that, the feedback has been universally wonderful. It just struck me today as I read through more lovely feedback by our listeners that I'm – this is like the greatest job I've ever had in my life. I get to just sit here and talk about all the stuff I love and you guys are loving it. So, this is like a giant love fest. It's wonderful.

So, one of the things I love is books. I'm surrounded by them in my office here, hundreds and hundreds of them. I always mention them during the rants and podcast. I thought I would just talk about some of them because a standard question I get is, "What should I read? I want to learn more about investing. What should I read?" I always recommend Howard Marks' The Most Important Thing and I recommend chapters 8 and 20 of The Intelligent Investor by Ben Graham, and a bunch of other really good financial books to start off with.

But there's a presentation, actually, that I hope to give this fall at our conference in Las Vegas that will focus on non-financial books that I think investors really need to read. OK, these are must-read but they're non-financial books for investors. Because they just have the kind of ideas that investors need to be exposed to. There's just no other way to say it than that. These are ideas investors need.

So, I thought today I would kind of give a little preview of that. I just – like I said, I love what I'm doing here and I love communicating with you. Actually, before the fall, I'm going to be in Vancouver at the Sprott Conference in July. The Sprott Conference is a wonderful event. I go there every year. I feel like it's kind of a slightly more under the radar event because it focuses on mining companies. But it really is the single best investment conference focused on mining companies in the world.

One reason for that is that Sprott goes to the trouble of – they don't let just any mining company exhibit and speak there at the conference. They're actually picky. You have to be good enough to get in. I'm telling you, in the mining industry, that eliminates a lot of folks from getting in because the mining industry is loaded with scammy, crappy companies that you don't want anything to do with. I mean they're still risky. Mining is still risky. But they're gone to the trouble of just focusing on the exhibiting companies that they want at the conference, things that they want their attendees and their investors to focus on and be exposed to.

I've been going to this thing for years. I never fail to learn something. I always find – I'll tell you what. I always find a company that I hadn't thought about before that I wind up putting real money into. It might be a small amount because they're really risky, but it's true. I always find one. So, anyway, that's the Sprott Vancouver Investment Conference in July. I'll be speaking there. I'll give two talks there; one in the main hall and then one in one of the little break-out sessions.

To get your seat at the conference, you can register at SprottConference.com. That's S-P-R-O-T-TConference.com. You can get a special discount for listening to the podcast if you use the promo code, Ferris100. Ferris100. Look, if you see me at the conference, by all means, come over and say hello, if you see me in the hallways. I'm really looking forward to it.

Having said that, let's talk about books for non-finance investors. Now, of course, let's just kind of consolidate. We had Albert-László Barabási on the program. I told you his book, The Formula, the universal laws of success was one of my favorite books, probably the best book I read in the last year, easily. I couldn't put it down. These are real laws of success that are – it's not like self-helpy sort of airy-fairy kind of laws. They're scientific laws like László says they're like the Law of Gravity because he's got all the math to back it up.

I thought I would read you each law. There are five of them. The first one is "performance drives success, but when performance can't be measured, networks drive success." The second law is "performance is bounded but success is unbounded." Right? The example there is Tiger Woods. So, Tiger Woods' golfing is just a little bit better than everybody else, but his success is a lot more. Because once you're the number one guy, that's who the one everybody focuses on. Right?

The third law is "previous success times fitness equals future success." I don't want to get into that one. Read the book. The fourth law, "while team success requires diversity and balance, a single individual will receive credit for the group's achievements." I think that speaks for itself. The fifth law is the one that you'll recall in the interview we said, "This kind of gives us hope." Fifth law is "with persistence, success can come at any time." So, those are the five laws. Read the book. I feel like it's changed my life. It's really a fantastic book.

Now, he has two other books. One is called Linked, and the other one is called Bursts. These are all based on his research in network science. If the topic of networks interests you, there's another book called The Seventh Sense by Joshua Cooper Ramo. That Seventh Sense is just to see the world the way László sees it in terms of networks.

Now there's another book that I haven't read yet called The Square and the Tower. That, too, is about networks. It's by Niall Ferguson, the guy who wrote The Ascent of Money, who is a great historian. We've got to have him on the program at some point. Just in the same vein, it's not about networks but I think it's germane to the topic. There's a book by a guy named Derek Thompson, who wrote for The Atlantic magazine – who writes for The Atlantic magazine now.

The book is called Hit Makers. It's got a wonderful story about the people who became those first – I think there were seven impressionist painters and the manner in which they became basically a big hit. Then he goes and gives other more modern examples of people who became a big hit. I don't want to spoil it for you. Read it! It's fascinating how these people became famous. He busts certain myths like the idea of word-of-mouth isn't exactly what you think it is.

OK, this next book is really special. I said The Formula was the best book. Hmm, OK, so maybe a close second and one that has arguably been more impactful to me just in the near term here is a book called How We Learn by Benedict Carey. I think I've mentioned it once or twice. This book is awesome. I don't know how else to say it.

So, when I was studying music in college, my teacher said, "How much are you going to practice your guitar every day?" I said, "Well, I was thinking three or four hours." He said, "That's good." Because I was a performance major. So, he was like, "OK, you've got to practice a lot."

He said, "But don't do it all at once. Space it out during the day. It's better to have two or three practice sessions of an hour or so than it is to have one long one." That technique is covered in the book. It's called spacing. You're spacing out your practice sessions, your study sessions. This goes for anything you want to learn, anything.

There are other things. I remember when I was going for – I was managing other people's money for a very short period of time. Not a pleasant experience, I have to say. I wanted to get a – I think it was a Series 65 license. So, you've got to take a test for that. There's a bunch of stuff that – half of it's really pretty forgettable. I thought, "God, how am I going to study for this thing? This is a drag. I don't want to take up too much time with this."

So, I did one of the techniques in this book, unbeknownst to me. I didn't know about the book back then because it wasn't out. But it's called testing. So, all I did was – I got ahold of these practice tests. There were six of them. I just read through the material once and did a practice test. Then I graded it, got a bunch wrong. Went back, studied all the stuff I got wrong. Did another practice test. Did that six times. I passed the test. It was not hard at all. So, testing is really good.

I wound up – that's another that you wind up doing as a musician, right? You're constantly testing to see if you can play the piece you're working on. So, you sit down and you start playing it. You play from the beginning to the end. You're like, "Well, I made 10 mistakes." You go back and try to fix your 10 mistakes. There are other techniques.

Interleaving is an interesting one. That's when you practice different skills in the same practice session, again, a typical thing that a musician does and can be applied in other disciplines. Fascinating book. Fantastic read. Really easy, breezy read, very well-written. The guy's a professional writer. He writes for The New York Times. He writes about science for The New York Times. How bad can it be? It's very good. So, How We Learn by Benedict Carey. Highly, highly recommend.

OK, so for – the next two are by Doug Casey and John Hunt. They're novels. They're fiction books. One is called Speculator and one is called Drug Lord. I've known Doug Casey I think since about 1998. Just about since then, he's been telling me about this series of books that he's going to write one day. I thought, "Boy, he's –" I just thought, "Well, this is one of those things people talk about. They're never going to do it." He's doing it!

The first two books are out. They're fantastic because Doug is a very smart guy. He got a guy named John Hunt, who's an actual novelist, to help him. So, the books read like really exciting adventure novels, but they're loaded with incredible ideas that are highly valuable. Some of the ideas are about politics, but a lot of them, especially in the book Speculator are about how to think about how you participate in financial markets.

I don't want to ruin any of it for you because there's some mystery and stuff in the books. But I will tell you that two of the characters are based on Doug himself. One is like the young Doug and one is like the older, wiser Doug. Highly recommend those. Doug Casey; Speculator and Drug Lord. The series that he was telling me about that he – the first one is Speculator. The next one is Drug Lord. The next one is Assassin. I believe the one after that is War Lord and then Anti-Christ.

So, these are occupations. The guy starts out as a young man. He's a speculator and the government steals his money and screws him up. So, he becomes a drug lord. He doesn't sell like nasty drugs that kill people but he does sell drugs illegally because the FDA won't approve them. Then they screw him up with that.

Then he's going to become an assassin. They're going to screw that up for him. Then he's going to become a war lord, et cetera, et cetera. This is a guy who – he'll basically spend his life pursuing these occupations that are maligned and he'll end up as the Anti-Christ. I have no idea what the occupation of Anti-Christ entails, none whatsoever. OK, so that's Speculator and Drug Lord.

Let's just finish up with a couple of titles. One is Humilitas by John Dickson. It's about the attribute of humility, which I think is very important for investors. It goes into this whole bit about ancient cultures based on honor and shame, which is a little different. If you watch TV at all and you watch the news and you pay attention to news, there's not a lot of honor and shame. There doesn't appear to be a lot of shame.

Although, we do have our version of it, don't we, because you get these people having to apologize for sometimes not doing anything particularly very wrong. So, we've sort of perverted that idea, I think. Anyway, Humilitas is a good book for investors. It teaches you about the attribute of humility. A short, really good read, too.

Last, I'll mention the genius biographies of Walter Isaacson. Look, these are 600 pages. You can't do a great biography without taking up 600 pages. It's Steve Jobs, Einstein, Ben Franklin, and Leonardo DaVinci, we discussed last week on the show with Chris Pavese. These are – I can't say enough about them. They're incredible books.

The Steve Jobs book and, I think to a certain extent, the Franklin and Einstein books, they read like novels. They're incredible. They do a wonderful job of kind of showing you what these people were about. They go into their ideas. There's a whole section explaining Einstein's scientific ideas and Leonardo's ideas. They're well worth your time. OK?

So, those are some of my list of essential non-financial books for investors. OK, it's time to find out what's new in the world.


Earlier this week, the first thing I saw when I got out of bed and turned on the news was that Ross Perot had died at the age of 89. You probably remember him – he ran for President a while back and he was a very successful guy. Early in his career, he was a top IBM salesman, selling computers when computers were these giant machines. Right? He noticed that the customers were not using – they were spending huge amount of times actually not using their machines. Of course, IBM didn't want to hear about that because they just wanted to sell more machines. But he basically made a fortune helping people use their computers more efficiently.

So, he would sell the – he found a way to sell the time on these computers and did a bunch of other things and created a company called EDS that was early-on involved in Medicare and Medicaid and helping the government be a little more efficient, which we could all – we're probably all grateful for, or not. I don't know. Maybe you don't want those things to be more efficient. Maybe you want them to go away.

But a story that I want to tell about Ross Perot is in the book I Love Capitalism by Ken Langone. Ken Langone is one of the five founders of Home Depot. He was the banker, actually, in the beginning. So, early on, when the guys got fired from their job, Bernie Marcus, and Arthur Blank, and another fellow whose name escapes me for the moment, got fired from their job at a company called Handy Dan.

Ken Langone said, "Don't worry; we're going to start a new company." He went to Ross Perot to try to raise the money. They were all set and Perot was going to give them 2 million bucks. Then Perot asks the one guy, he says, "What kind of car do you drive?" The guy says – this is like the mid – this is like 1978 or '79 or something like that. He says, "I drive a 1972 Pontiac." He says, "Great."

Then he asks the other guy. He says, "What kind of car do you drive?" He said, "I drive a 1973 Cadillac." Perot's eyebrows shot up. He says, "Cadillac? My guys drive Chevrolets. They don't drive Cadillacs." So, then, Bernie Marcus, he got Ken Langone. He said, "Can we go talk for a minute?" He says, "You know something? This guy, we're going to have him own 70%of our company and he's busting my chops about owning an old Cadillac?" Because the car had 100,000 miles on it. It wasn't some new, fancy car.

He said, "What else is he going to drive me nuts about? Let's get the hell out of here." They had a little argument. They were like, "Are you nuts? The guy's about to give us $2 million." Then Marcus came back and said, "You know, I don't want to have this guy as my controlling shareholder."

He says – here's a quote from the book. He says, "In fact, I'd rather starve to death than have this guy as a partner." That was the end of Ross Perot's involvement in Home Depot. But, you know, interesting guy. Gone at the age of 89. A great book, by the way, I Love Capitalism. Really easy to read. Fun. Extremely well-written. Great story after story after story told by Ken Langone. There's another one you can add to the list. Right?

So, I just want to talk about Starbucks, which is a company that I have revealed that we recommended in Extreme Value. It's done extraordinarily well the last year. It's up like 70%, just since last August when we covered it. It's a great business. It's a wonderful business. But they have these episodes every now and then that kind of speak to their sort of left-coast culture. You know? Recently, what happened was an employee at one of the stores in Tempe, Arizona asked six police officers – six of them. I mean the guy had guts walking up to six cops and asking them to leave or move out of a certain customer's line of sight because the customer said he didn't feel safe because of the big police presence.

Now I have to say I'm ever so mildly sympathetic to that viewpoint, but this strikes me as a little silly. I don't know. Maybe I'm not that guy. Maybe he was beat up by the police at one point in his life. I don't know. But just going through with this and having – saying something to the manager and the manager or employee, whoever it was, asking six police officers to leave the store or move out of this guy's line of sight just struck me as a little bit crazy, kind of a sign of the times. The latest headline is that the Starbucks has apologized after an employee – I just think that this is a little bit crazy.

I said earlier – I was talking about the book Humilitas, and that we are not so familiar anymore with the ancient cultures based on honor and shame. Maybe we just have such a different version of it that I'm failing to recognize. Maybe that's what this is. This is our version of those concepts in reality. But certainly, if you're a Starbucks shareholder, none of this means anything. But I do have to point out, the last time this happened, they closed the store for a day and everybody had like diversity training, I think it was, and learning how to get along and include everybody and not cause problems. Because, if you remember, the previous incident was – I think it was in Philadelphia and two African American gentlemen were asked to the leave the store for whatever reason. That created a big hubbub and they shut the business down for a day and did diversity training.

Of course, right away, the first thing I thought of – and it was pointed out to me. I didn't think of it myself. But one of the first things I heard and I thought, "Yeah, that makes a lot of sense." I mean Chick-Fil-A does this every week. Right? They close down every Sunday. They're closed every Sunday and their employees are – because they're honoring the Sabbath, which doesn't even necessarily have to be a religious thing. It's just a break. One of our former podcast guests would call a hard break, once a week. So, maybe – I don't know. Maybe the folks at Starbucks need to just take a hard break once a week. Maybe they're working too hard. They work too much. They wind up doing this crazy stuff. But kind of meaningless for investors.

OK, one more. Maybe two more. An analyst at Rosenblatt Securities named Jun Zhang cut his rating on Apple. It was a hold rating. A hold rating on Wall Street is like sell. Right? But he's actually changed the hold rating to sell. So, maybe when he says hold, he really means it. With the stock, lately – actually let me just get a quick quote here. The stock, lately, is up around $200. He says his new price target is $150. There are some questions. I mean, for example, would a value investor say, "Is it time to buy if the guy's cutting his rating?"

I don't think this indicates anything about whether or not you should buy the stock. I did indicate on a previous podcast that of the big fang companies – Facebook, Amazon, Apple, Netflix, Google – of those big companies, I do worry a bit about Apple because two-thirds of the revenue comes from the iPhone. This is just a standard risk that we look for in businesses. We always look for this.

In this general category, we always look for a company that's got too much revenue from one product. We always look for companies that get some substantial amount of revenue from like Walmart or something, because what if Walmart decides, "Ah, we don't want to use you anymore," and it's like 30%of the revenue? I promise you, the day that announcement is made, the stock is going to plummet, and the business is going to suffer.

It's a similar fear with Apple. I think it's just a reasonable, rational investor's viewpoint of Apple. What do you do when two-thirds of your revenue come from one product? You could call it a category because there's different versions of the iPhone but it's one product. Is the iPhone going to grow forever? Is it going to even maintain current levels forever? I don't think so.

The question then becomes, do these other businesses which are admittedly kind of great – App Store, iTunes Store, all that stuff, is there going to be enough revenue from those to replace two-thirds, tens of billions of dollars or some portion of that two-thirds? I don't think Apple's a no-brainer at all. I think it's kind of hard. It's in the too hard pile for me because of that.

Anyway, just one more thing. Anytime Elon Musk gets in the news, we have to mention it. Elon Musk says that self-driving chips will be most likely coming to older Teslas, will be available for older model Teslas this year. According to Musk, they'll be rolled out to the older vehicles most likely, he says, by the end of the fourth quarter this year. Of course, he said that on Twitter. Remember when he said he deleted Twitter? I guess so much for that idea. Maybe he was saying it tongue-in-cheek.

The chips are manufactured by Invidia. I don't think that this news is very meaningful at all. I think Whitney Tilson, who has a really great newsletter published by Stansberry right now called Empire Financial Research, I think Whitney's right. I think it's the beginning of the end for Tesla. There's too many problems.

Again, you don't have to be a hater. It's about being a rational investor and that's all it's about. It's an extremely, highly competitive capital-intensive business. The fact that other companies, a bunch of other companies are building very similar products and they're actual car companies who have made money selling cars before, the fact that they're doing it just means that making cars is still a highly-competitive, highly-capital intensive and very likely will always be a low margin affair. I just don't – brand new products like this, they make great stories. They can make a great stock for a short period of time, but they generally make really poor investments. That's all I have to say about Tesla.

Yes, Musk is weird and he exhibits weird behavior and that doesn't make me feel good as a potential shareholder. Right? You don't want to see a CEO behaving this way. I won't even get into it. You know what I'm talking about. Just Google, "Musk Weirdness," and you'll probably get a bunch of stuff. But that's how I feel about Tesla. I don't think this news changes anything. I think Whitney Tilson is right. I think the stock will probably go below $100 by the end of the year.

So, there are some other stuff going on. Actually, just one more. OK? Just one more. The SEC is suing this fellow named Daniel Pacheco who – and they allege that he engaged in a $26 million like crypto Ponzi scheme, that he sold unregistered securities through some companies called IPro Solutions, LLC, IPro Networks, LLC. He was selling investors what he called points and they could, theoretically, redeem their points and convert it to the Pro Currency digital asset that was affiliated with his companies. Apparently, it's all caving in.

He says he doesn't have to pay cash back to investors. But – and the SEC is suing him over it. To me, this is just kind of a sign of the times. Look, we had Mark Yusko on the program and we talked about bitcoin. Yusko is long bitcoin. I said I bought $1,000 worth of bitcoin just to have a tiny little bit of skin in the game and try to figure out – if a smart guy like Mark thinks it's worth thinking about, I'll put $1,000 in it and that'll give me some skin in the game and I'll do some work and think more about it.

So, there are like a couple thousand of these crypto currencies now. At some point, even during a mining boom, one of the companies is going to be legitimate. But many of them will be illegitimate and a lot of them will be scams like this guy allegedly is. This is very typical. I think there will not be 2,000 crypto currencies five or 10 years from now. There will probably be one, if any, or maybe a handful. Maybe there'll be bitcoin and Ethereum and a couple other things, if they're still around at all. This is just – it's a sign of the times. You'll probably see a bunch of stories over the next few years about crypto currency Ponzi schemes and other scams. It doesn't surprise me one bit.

So, if you're into crypto currencies, it's risky stuff. It's extraordinarily risky. I realize, that's the nature of opportunity. Right? Opportunity involves risk. But some things are just so crazy that if you're not an expert, you have no business going anywhere near them. Or like I'm putting an amount of money into it that I can afford to lose all of it just so I can gain familiarity. That's probably the only thing I would ever recommend anyone do, if anything.

So, that's a little bit of what's new this week. Now, let's get on with our interview.


This week's guest is Tim Price. Tim Price is principal and founder of Price Value Partners, a London-based value investing oriented fund established in 2014. The fund seeks to invest in companies of exceptional quality that they believe are trading at a meaningful discount to their inherent value, the Benjamin Graham Value Approach, to which I say, "Amen, brother." Tim has 25 years in capital markets and 15 years as a discretionary multi-asset portfolio manager and chief investment officer at three successive firms; Henry Ansbacher, Union Bancaire Privee, and the PFP Group. I hope I pronounced those even close. He was shortlisted for five successive years in the U.K. private asset managers program and was the winner in 2005 in a category of defensive investing. Tim is also a columnist for MoneyWeek magazine. Tim is also the cohost of the State of the Markets podcast. Tim Price, welcome to the program, sir.

Tim Price: Thanks very much for having me. A pleasure to be here.

Dan Ferris: All right, so, Tim, I was noticing something. Actually, before we talk about that, can you tell me something about your early experiences as an investor? How old were you, for example, when you decided upon a career as a professional finance guy?

Tim Price: OK, so I was watching what I think is the most magnificent film of the 21st century, over the weekend, which is The Social Network. I haven't read the source material but the source material apparently is a book called The Accidental Billionaire. Well, I'm sadly not a billionaire but I'm an accidental fund manager. So, I came into the city entirely by accident. So, it was purely a quirk of fate that in 1991, when I graduated with an English degree, the only job I could get was as a bond salesman for a crappy Japanese bank which is tautology because they're all crap. But that was essentially the way it worked.

I couldn't get a job in finance or advertising which – or journalism, which were the – so I couldn't get a job in advertising or journalism which were the fields I was previously interested in. So, on the basis of sort of needs must, I took the first job offer that came my way and that, as I said, it was fixed income sales. So, I did that for 10 years. But after a couple of years, I got to quite like the landscape. So, I decided to stick around. The rest is history.

Dan Ferris: I see. That's an auspicious beginning. I was noticing something. I wanted to start out with this because I'm excited about it. I was noticing something in your book, Investing Through the Looking Glass. I noticed that the table of contents is split into two parts. The first part is called "Problems" and the second part is called "Solutions." The problems are all the banks, the central banks, the economist and financial theorists, fund managers.

I thought you very correctly in the introduction said, "The financial crisis was everybody's fault. Everybody had a role to play." But the thing that really made me smile was the first chapter of Part Two, which his called "Solutions", the first chapter is value investing. I thought, "Man, that's great," because, today, nobody thinks value investing is the solution to anything. Value is not a popular strategy right now. So, how is value investing a solution?

Tim Price: Well, I'm kind of going for the long run here, because you're right, that being a value investor in 2019 feels a bit like being the world's best buggy whip manufacturer. So, I'm kind of hoping against hope that, once again, that reversion to the mean is going to work and value is going to be relevant. The reality is, I mean, I've been managing private client portfolios for the last 20 years. For the last 10 years, you might as well just have bought an S&P 500 tracker for the difference it makes. So, there's been no benefit whatsoever to asset diversification, to any style, any strategy other than just buy U.S. Mega Caps. At some point, that's going to have to change.

Dan Ferris: Right. These things don't go on forever. The problem is they can always – they can go on much longer than you would ever believe.

Tim Price: Well, that's the subsidy – you're absolutely right. So, I remember very distinctly hearing a guy called Dylan Griess at a MoneyWeek Conference back in Iran, 2010 or so. What he said was that when the Soviet Union first came into being, that was as a result of the 19 – was it 1917 Russian Revolution? Pretty much every year thereafter, you would have intelligent, objective third-parties saying, "You know, this thing is just a pack of cards. This thing is going to blow away. The command/control economy isn't going to work." Well, that's fine but the Berlin Wall didn't fall until 1989. So, I guess what we're saying is that just as Adam Smith said there's a great ruin in the country, there's also a great deal of ruin in a dysfunctional financial system.

Dan Ferris: Right. So, I wonder about this cycle that we're in because a question that our listeners have asked and that I think about, too – I think we're all thinking about it – is, for example, U.S. profit margins. This is – in the words of Jeremy Grantham, the most mean reverting data series in all of finance and yet, it continues – corporate profit margins continue to bump up against these highs.

We're sitting here kind of waiting for the cycle to turn. As you say, waiting for mean reversion to come back. It just – it's utterly persistent. We wonder, for example – listeners and readers of ours have asked, "Aren't there a whole bunch of different businesses in the world nowadays and aren't those higher margin/lower capex-type businesses and wouldn't that naturally mean that –" I hate to even say the words – "but doesn't that mean this time it's different?" Isn't it different this time, Tim?

Tim Price: So, I can accept that some of the landscape's changed. So, for example, I saw a piece earlier. I can't remember who made the point, but it was basically suggesting that book value no longer has any real meaning as a metric. I can accept that because in a world in which basically every decent companies, in some respects, a technology company because they use the Web. They use digital technology. They use all that kind of stuff.

Then, things like book value don't have that much meaning. Book value really only had meaning in a world of primary extractive business and then secondary manufacturing business where if you drop things on your foot, they hurt. So, in a world where so much value is now wrapped into intellectual property and in tangible stuff like branding, OK, I accept the argument that price to book isn't necessarily such a good metric.

But I can't see how the landscape's 100%changed because if – I mean, clearly, also, the interest rate situation is completely different to what people have experienced. So, you can basically get free money to launch a business and expand and draw on credit and all the rest then, OK, so that enables a start-up to get properly global in a fairly short period of time. But by the same token, that also means that that start-up should face practically infinite competition. So, for all that profit margins going up, they should also be competed back down by competitive forces. I don't believe the free market's gone away.

Dan Ferris: So, the market still works. It's just working a little differently because times have changed.

Tim Price: Well, the market still works but there's a lot of distortion to that market. So, in a world in which benchmark government bond yields across a wide variety of countries are now negative, that's not a world in which normal economics necessarily applies. If people are willing to pay to own extraordinarily poor-quality rubbish in the form of debt, then that's a world where – there's no playbook for that world.

Dan Ferris: Right. But they don't consider what they're holding poor-quality rubbish. They consider what they're holding so good that, in many cases, they're required to own it so they have enough capital. Right?

Tim Price: Well, that's kind of like a separate argument. So, I think there's a very fair argument to be had for, "Is there agency risk attached to whatever asset you happen to be buying?" So, the way to see if there's agency risk is, if someone's managing a gigantic fund, clearly in a for-profit business, then how much of that fund is owned by the person managing it? If it's a bond fund, I can guarantee it's going to be next to nil. All they're doing is tracking a benchmark. Whereas, if it's a – say, for the sake of argument, a value equity fund, there's a reasonable chance that, first, it's going to be an awful lot smaller in NAV terms, the size of the fund's going to be smaller. But also, it's more likely the manager's going to have a meaningful piece of skin in the game.

Dan Ferris: Right. But I guess, what I'm focusing on though is the perceived quality. For example – and we've seen this before. Right? The U.S. 30-year mortgage was this wonderful, safe asset. You couldn't go wrong owning it. Then, Wall Street found a way to turn it into toxic waste. Sovereign debt from some of the world's biggest countries, biggest Western countries is supposed to be this wonderful, safe asset. But by sending the yields into negative territory, they've turned it into toxic waste. Yet, until something cracks, the perception of quality remains, bizarrely.

Tim Price: But you're absolutely right. But then it becomes a question of confidence. So, in the bond market, I'll argue that virtually nothing has any real value of any kind. I mean the great insight to the Austrian School economist was that value is subjective. So, value isn't some kind of universal that's the same throughout space and time for every investor the way, say, gold is.

Value is inherent. It's contextual. It's subjective. So, your sense of value for, say, a bond and mine, they're probably going to be on the same side of the page. But for someone who's a sovereign wealth fund or someone who's a government – I mean the government example is the most obvious one-way. There's a contradiction between attitudes because the government wants actively to devalue the worth of its debt pile whereas the investor clearly wants to maximize the value. So, there's no way you can square those two circles.

So, I guess where I'm coming to you is the best way to describe the state of the market, because I've been waiting for the sky to fall in for the last 10 years, because I don't understand the world in which we now live if you can you have zero rates or negative rates and everyone's behaving as if this is a gorgeous party, this is never going to end, and the punch bowl keeps getting spiked.

The only thing I think you can acknowledge is – and this is a scientific observation rather than a sort of economic one because I'm not an economist and I despise most people who practice that bastard science. But you can acknowledge that in any physical system – this takes a snow settling on a snow mass – you can acknowledge that there comes a point where the snow mass shifts from being in stable equilibrium to being in unstable equilibrium.

Once that point has been reached, you know that there's going to be an avalanche. What you can't say for sure is exactly which snow flake is going to trigger it. But you just know it's going to happen. Or in the same way, you know that the branch of the tree is going to break. You just don't know which bit of whatever lands on it is going to cause the branch to break. You just know that it's not safe to be on the branch anymore.

Then, it's a question of what your objective is. The objective for me and our clients is to not to maximize returns under all circumstances. It's simply to preserve the capital they've got and then try and eke out a return on top, but in such a way that they don't risk losing everything. So, the thing that I'm most concerned about is catastrophic risk of loss in a Lehman 2008 moment, if you like. That risk, surely, today, is now higher than it's ever been in history.

Dan Ferris: I completely agree. I think looking at markets, looking at actual asset prices, we are definitely in the minority, though.

Tim Price: Because the thing is you've got – the debate is slanted by the, say, the practitioners in the debate who assume that it's like this or the value argument is the same for everybody and everything at all times everywhere in the world. But it's not. So, here in the U.K., at the moment, we've got this bizarre situation where one of our highest-profile fund managers is going through an existential crisis. This is a guy called Neil Woodford, who's had to close one of – had to gate one of his funds because he's had so much redemption pressure.

His business may never recover from this. Now I'm not saying this because I'm sort of bathing in schadenfreude because there's some knock-on effects from that which is as the manager of a daily dealing what's called a UCITS fund, which is the sort of gold standard outside the U.S. for a collective fund – you can't sell UCITS funds into the U.S. but you can sell them everywhere else in the world – there's now a massive sort of question mark overhanging all similar funds, all these funds because no one knows for certain if they make a sell – if they make a redemption request, that redemption request is going to be fulfilled.

The awkward thing about this development is this feels uncomfortably like – I remember the – the financial crisis, I would suggest, could be dated back to summer '07 when a couple of money market funds run by the French bank, Paribas, had to close because they couldn't be redeemed – they couldn't make good on redemption requests. So, it seems to me as if we're in the early stages of history repeating itself with a 10-year lag.

Dan Ferris: I believe we are. I believe – I think there is – I think we're obviously much closer to the end of the cycle than the beginning. I would suspect there's more of this to come. But you mentioned UCITS. To me, that rings like – it's just like previous episodes. In 1920s, they had those investment trusts and then –

Tim Price: Knickerbocker Trusts and all that stuff, yeah.

Dan Ferris: Yeah. So, every episode, there's this instrument or instruments, multiple instruments, perhaps, this time around, where everybody thinks it's the safe no-brainer. It turns out that it's not only not the safe no-brainer easy thing to buy and hold but if too many people buy it, it turns into toxic waste. Who would have thought that this Neil Woodford would go the way he's gone, for example?

Tim Price: I think this also – a legitimate concern over – just so we can sort of just bring everybody into this sort of pool of horror. There's also a legitimate concern over the status of the Exchange Traded Fund world because there's plenty of illiquid assets that are the prime components of the ETFs. There's a presumption that there is daily liquidity in these funds and can easily be bought and sold without triggering any kind of change in the market environment.

But if that analogy, if that comparison with the snow mass is correct, then the same problem is potentially going to affect every kind of tradeable fund, particularly those that are in assets that are, say, on that liquid to begin with, whether that property or whether it's government debt or, more particularly, corporate debt. You cited a figure earlier in relation to U.S. profit margins. There's a figure, a stat that I seem to recall – I hope this is correct. But it's basically suggesting that I think 15%of S&P 500 companies can only pay their dividends by borrowing to do so. In other words, they're not generating any positive cash flow.

Dan Ferris: That wouldn't – I don't know the number, but it does sound like it could easily be true to me.

Tim Price: I can certainly validate the number closer to home. I know it's the fact that the likes – some of our big pharmaceutical companies, the likes of GlaxoSmithKline, AstraZeneca. They're paying out more money than they earn in gross profits. So, that is completely unsustainable. The only way they can maintain their high dividend yields is by borrowing to facilitate them. But over time, that's going to lead to bankruptcy. So, it's clearly not tenable. I think they're damned if they do and they're damned if they don't because they cut the dividend, then their share price is going to collapse anyway.

Dan Ferris: That's right and bankers hate it when your equity collapses. I want to shift gears a little bit because there's a particular issue among value investors that kind of cuts them in half. Half of them are part of the Warren Buffet school that says gold is a worthless waste of time, and the other half think gold is a really good idea. You and I are in the latter camp. You – do you not currently – you have gold in your fund at this time, correct?

Tim Price: Yeah, yeah. So, I mean, so we offer two things. We offer a fund which is – the fund is a standalone global equity value fund. So, it's pure equity, pure long on the equity. But within that, we own gold miners. Then, our discretionary offering, we also – which is multi-asset, we have, say, 20%exposure to gold bullion and also to gold mining entities.

This whole Buffet debate is a false debate because it presumes you're comparing apples with apples, but I don't think Buffet ever was. So, the Buffet complaint was always that given a choice between a pile of gold or a pile of IBM stock, you're better off owning the IBM stock of whichever equity you happen to be – it happens to be favored at the moment. I don't dispute that because gold is inert, and a living company is a claim on the real equity. So, I don't dispute that at all.

But that's not why we own gold. We don't own gold to outperform IBM. We own gold, I would suggest, as a cash proxy, which is going to be a better form of cash or currency than anything else on the planet. So, it's a diversifier. It's not a – you can really fall down the rabbit hole when you start to make goals, as I'm sure you're aware. But I've had the great luck to be moving in circles with people far more intelligent than me over the last 10, 15 years.

So, here's a line that I – there's a lot of weight – I touch a lot of weight to and it goes like this. "Gold is not even an investment. It is a conscious decision to refrain from investing until the return of an honest monetary system makes a calculation of relative asset prices possible." Now that is a heavy quote, but I think it also happens to be true. So, in terms of just agreeing what gold is, you can spend all day just arguing the nature of the question. I would say what gold represents is the soundest, purest form of honest money.

Dan Ferris: Right. It's not the thing you're measuring. It's the yardstick itself.

Tim Price: Exactly. So, again, the same person who came up with that great line about gold not being an investment also said, "If you're trying to measure the price of gold using, say, the U.S. Dollar," which is the conventional way of doing it, has been for hundreds of years, "Then that's like trying to measure a suit using a piece of elastic. The only honest response is to throw away the elastic and get something that isn't going to be malleable. It's going to be fixed."

So, we get back in terms of science here. So, there's a – so a kilogram, we know what a kilogram is. A kilogram is the mass of a given amount of material at a given temperature, at a given height above sea level, in a given laboratory in Northern France. That's what a kilogram is. What's a dollar worth? What's the definition of a dollar's value? There isn't one. Same for sterling. Same for the Euro. Same for Yen. Same for Renminbi.

So, we're operating in a system whereby we're using these things as units, but their own worth value hasn't been defined. So, we're putting the cart before the horse. The unit of account is gold here, because an ounce of gold is an ounce of gold in here, in London, or in New York or Paris or Shanghai or Beijing or Tokyo, the ounce of gold is the universal store of value here.

Dan Ferris: I can't disagree with any of that. I wonder if you've read George Gilder's piece on his 21st century rationale for owning gold.

Tim Price: I know Gilder, but I haven't read this.

Dan Ferris: Yeah, so you mentioned the kilogram and he goes into a whole bit in his piece where he talks about the whole international system, the kilogram and the meter and all of these things are defined – I think there are seven of them. He says five or six of the seven are defined by units of time, ultimately, and that that winds up being – there's information in an ounce of gold about what it took to bring it out of the ground and the time it took to bring it out of the ground. Obviously, he's an extremely smart guy. I'm not anywhere in that league. So, I'm never going to do his argument justice. But I would recommend looking at it because you sound like – your ideas sound like you're sort of headed in that direction and that you would have an appreciation for it.

Tim Price: I think – I'm not trying to get on the high horse, but it just seems to me that people have – people just accept at face value what they're given by, say, the press or the media. I mean, at the moment, here in the U.K. we're beset by this existential crisis called Brexit. Maybe, in a similar way, you guys in the States are beset by the existential issue that is Trump. They're like black holes. They're kind of suck in all the energy and the passion and everything in the argument. But one thing I'm finding in response to the whole Brexit predicament, if you want, is that it's – the way I describe it, it's like a gigantic rock has been lifted over our culture and nobody in the entire country can quite believe the kind of scandalous pond life that's scuttling around underneath that rock that was never previously revealed.

As a result of which, I think what I call the magic Brexit wrecking ball is just going to take out massive sways of our establishment. I think the House of Lords is going to go. I think BBC is going to go. Half of our mainstream media is not going to survive this process. The Civil Service is not going to survive this process. Because all of the horror of these things in the establishment has finally been revealed and everyone just goes, "Ugh, this is just disgusting. I don't want any part of this." It's just – it's like a benign meteorite of death.

Dan Ferris: [Laughs] Did you say a benign meteorite of death?

Tim Price: Yeah, because you know there's this idea, the concept of the friendly meteorite of death which is like, "Oh, my god, can modern society get any more bat shit?" The answer is no. So, then the meteorite of death then homes into view and just takes out the entire planet. It's like goodnight Vienna. Well, I'm thinking of it in a slightly more benign way which is maybe like it only takes out the unworthy so that the chosen will survive the benign meteorite of death and only the mainstream media get pulverized.

Dan Ferris: I think there are a lot of people listening to the sound of our voices who are probably cheering that idea right now.

Tim Price: [Laughs]

Dan Ferris: OK, you mentioned Brexit. You're a leaver, correct?

Tim Price: Yeah. Yes, so, basically, I came to the – I was – I think a lot of people in the Brexit referendum debate were torn. That's certainly reflected by the outcome. So, in the end, the 23rdof June 2016 – what a long time ago that now seems – 52%of the voting – of the electorate voted for leaving, 48%voted to remain. So, that suggests the whole country was split down the middle.

Now it may be that it, in turn, most people who went to the ballot box ultimately sort of thought, "I really don't feel too strong otherwise." So, they probably tossed a coin to decide. But I was never a sort of fair-weather leaver. Because of, I suppose, my experiences in the capital markets and particularly around – since the financial crisis, I had this I feel like slow damascene conversion to free markets, to Austrian, more classical economics, to sound money, to libertarian principles to small government.

It was – for me, it was absolutely quite, absolutely certain that our best interests, as a country, were served by leaving the European Union and re-achieving our independence, which also, of course, means that the facility to arrange free trade agreements with the rest of the world, which is also growing an awful lot faster than the European Union is. So, for me, it was a no-brainer. But I accept for many people, it was a lot more nuanced than that.

Dan Ferris: Right. But one of the obvious things, people talk about all the folks who are going to lose their jobs. What do you say to them?

Tim Price: That never happened. So, we've got the lowest jobless rate and the lowest youth unemployment rate in the entire E.U. after the vote.

Dan Ferris: But the U.K. hasn't really left yet, though, right?

Tim Price: No, that's true, but I mean with a bit of luck any charlatan, the thing is finally going to happen. But with Project Fear, the sort of Continuity Remain Faction said that there'd be I think half a million who would lose their jobs as an immediate result of the referendum vote itself. Quite apart from what actually happens when we managed to finally extract ourselves from the E.U. So, there would be a – I mean during the referendum campaign, there were clearly exaggerations and distortions on both sides.

So, I'm not claiming anyone behaved like an angel. But the thing people should perhaps appreciate is the entirety of the British establishment was for remain. The BBC, the government itself, the House of Lords, the mainstream media, the IMF, the CBI, the U.S. President himself at the time, Saint Obama, all of these people were in league to make this thing happen. So, in a sense, it's no real surprise that as the vote went the other way, their entire value system has completely collapsed. It's just disintegrated. So, we are in the throes of – and it's lasted three years now. We're in the throes of the biggest nervous breakdown probably in our country's history, since we had our civil war back in the 17th century.

Dan Ferris: Well, I certainly pretend to have no great insight about Brexit. I'm happy to hear your ideas. There are other things that I wanted to ask you about. One of them – you talked about, in your book and elsewhere, you talk about value investing and gold. But you also mentioned hedge funds and trend following. These are not topics I often hear a value investor discussing. What's your insight there? What do these things mean to you?

Tim Price: So, there's a piece by a company called – a U.S. company called Research Affiliates, which is a tremendous piece. It's about two or three years old now. It's called something like, "How Not to Get Fired by Using Smart Beta," which is a slightly inauspicious title. But the practical outcome of this piece, that I recommend to anybody – you can find it through the Research Affiliates website – is there are two strategies – this is just in the stock market – that have continually led to outperformance versus the index itself.

One of them is called value and the other one is called momentum. The other two strategies broadly defined that people tend to use are quality and growth. The point about the Research Affiliates piece is that quality and growth have continually underperformed versus the market as a whole. So, all we're saying for momentum, momentum is basically just a trend following approach. What has worked, will continue to work. What has underperformed will most likely continue to underperform.

Together, those two strategies have been the best performing strategies in the stock market for the last 70 years. But you can also take the momentum approach and apply it to other markets. So, the whole point of having a diversified portfolio is that the components of that portfolio have to be uncorrelated versus each other. There is no point in having a portfolio that comprises four types of assets if those four types of assets trade lock-step with each other. So, in other words, if you have basically property plus bonds plus blue-chip stocks, there's a fairly high degree of correlation between those three asset classes. But you stick in gold and, all of a sudden, you have a diversifier.

You stick in trend followers and most definitely you have a diversifier because if we take, say, 2008, which is a year that probably needs no introduction, the worse year in financial markets in living memory, the only strategy I'm aware of that did particularly well in '08 other than bonds, long bonds, and gold, was trend followers. So, I won't name it, but there's one trend following fund that we use. In 2008, it made 108%. Most people probably lost half their money in 2008. But the reason that fund made money, and most trend following funds did make money in 2008, is because they can go short stuff.

And not just talking about the stock market. We're talking about stocks, commodities, currencies, the works. Interest rates, everything. All they're looking to do is trying to ride a trend. That price trend could be higher or it could be lower. As long as there are strong price trends in operation, these funds will try and exploit them.

They come into their own when everything basically just pukes at the same time, which is what happened in 2008. This is portfolio insurance. The reason why they're not more widely familiar is because, as hedge funds, they're not allowed to market to retail investors. So, most people have never heard of them.

Dan Ferris: All right, Tim. We're actually toward the end of our time here. When I get a guy like you who's been around the block a few times, I always like to ask, "If you can leave our listeners with a single idea in their heads, what might that idea be?"

Tim Price: There's a guy that I've come across recently who I've fallen massively in love with. So, there's the world's biggest man-crush happening here in Central London today. The gentleman in question, I'm sure you'll know him. He's a guy called Naval Ravikant. He's a gentleman of Indian extraction. He's a Silicon Valley venture capital investor or private equity investor, seed angel investor. I've heard him on a couple of podcasts now. He also gives great tweet. So, you can find him on Twitter @naval.

But to boil it down into an idea, it would basically be find your inner stoic. So, someone that he's referenced on a number of occasions is the great Roman stoic, Marcus Aurelius. The critical takeaways, basically, there are things that – we all worry about stuff. We all worry probably too much about stuff, particularly in a financial market context. There are things that we worry about that we can change and there are things that we worry about that we can't change. If you can't change them, there's no point worrying about them. If you can change them, fix them.

Dan Ferris: Easier said than done, but admittedly profound advice.

Tim Price: Well, I'm not claiming it's easy. But the great thing about it is once you start adopting that Marcus Aurelius approach, you can basically turn off mainstream media chatter and only focus on the stuff that really delivers value.

Dan Ferris: Also, excellent advice. There are folks – I don't know if – you probably have heard of Rolf Dobelli.

Tim Price: I was just going to say the – avoid news. The essay of avoid news is – falls absolutely into this camp. The Dobelli quote is basically, "The news is to the mind what sugar is to the body." It's just this massive distraction. It's actually poisonous. We're all better off without it. But I accept it's very difficult to wean yourself off. You have to do it in stages.

Dan Ferris: Yeah, you do. Also, given what you do for a living and what I do for a living, it's kind of difficult to do that. But it is possible. So, with that, thanks a lot, Tim. I really am so happy that we could have you on the podcast.

Tim Price: Absolute pleasure. Well, I hope I can repay the favor sometime.

Dan Ferris: Oh, absolutely. Absolutely. I'd love to be on State of the Markets if you ever have room for us. But I want to remind people that your book is called Investing Through the Looking Glass. It's a really great look at what is wrong with the financial system and, also, what you can do about it yourself. So, thanks very much, Tim. I hope we'll get together again soon.

Tim Price: My pleasure. I thoroughly enjoyed it. Thank you very much for having me.

Dan Ferris: All right, Tim. Thank you. Bye-bye. That was really great folks. Actually, we have another interview this week. It's a special interview. It's kind of short. So, I want you to stay tuned. It comes right after the Mail Bag. I'm not going to tell you anything else about it. It's really special. Great story. Just stay tuned till after the Mail Bag.


All right, folks, it's time for the Mail Bag. Remember your feedback is extraordinarily important to the success of our show. I love reading it every week. I read every feedback e-mail every single week. I put as many of them on the show as possible. So, just write in with questions or comments of any kind, including politely-worded criticisms to [email protected].

OK, let's go. The first one is from Gary D. Gary D. says, "Could you please address, again, as deeply as you can arguments for and against share repurchases? Personally, I think they should be eliminated or, at the very least, reduced. Maybe you can eliminate share repurchases through taking on debt then repurchase actions could only be taken on with the allocation of free cash flow. Perhaps you know someone who can bring some illumination regarding this issue on as a guest. Afterall, you always have the very best guests. I've really enjoyed all of your guests so far. You know some fascinating people. Thanks as always and keep up the great work. You're doing great. Gary D."

Well, thank you, Gary, for all those kind words. I don't agree that we should restrict corporate capital allocation in this matter. As an investor, you have every right – the main thing you can do, of course, is sell. If a company is buying back shares in a manner in which you think is destructive of shareholder value, you don't need to own the shares. It's better, I think, for everyone if you let them do what they want to do rather than what they're required to do. Because as soon as you require people to do things, they start trying to get around the rules and it makes things worse, oftentimes. I think this falls into that category.

So, yeah, I think companies that borrow a lot of money to buy back shares, eventually, if they keep it up, they can get in trouble. But some of them that do it are absolutely wonderful businesses and they're just gushing so much money they literally don't know what to do with it so they buy back shares with it. You have to make – you can't – I don't think you can blanket this issue. You've got to take it one company at a time. That really is the bottom line. But it's a good question.

Arguments for and against share repurchases; look, the only argument for a share repurchase is that it's a good investment given the alternatives the company has available to it with its capital. If it's not – if the stock isn't priced right and attractive enough versus other alternatives it makes no sense, because you'd pursue the alternatives, wouldn't you? That really is all there is to it.

Late in the cycle, when companies are gushing free cash flow, they all like to buy back stock because the opportunities get more difficult. Actually, part of it is not that at all. Part of it is simply that, in a given business that does one to two things, there's only so much – if it's highly profitable, there's only so much you can do with that excess cash flow. So, they buy back stock. Frankly, buying back stock and paying dividends are two ways to get the money out of their hands so that they can't do any harm with it. So, think of it that way. But it's a good question and it's one people should continue to ask about all the companies that they invest in. I hope that helps somewhat.

Number two, this week, is from Tim B. Tim B. says, "I really appreciate your knowledge and the information that you continually give out on the show. I'm sure it requires a fair amount of time to prepare for each week's episode. Thanks. Last but not least –" and he had a longer e-mail here.

"Last but not least, can you assist with somewhat of a conflict resolution? As a Stansberry analyst, you promote your thesis of value. Other Stansberry analysts, Sjugg and Doc, would fall into your camp of longer term holding of equities and they're not day traders. All of which are great, but the trade stop system that all analysts promote sometimes disagree with the thesis that one might be following. So, the question is, 'If a Stansberry analyst or you recommend an equity and trade stops is contradicting it at that time, would you buy based on the thesis or the indicators from the trade stop system?"

Since, ultimately, we are in this game for money, when do you cap that gut-feeling emotion thesis and use the data, trade stops? I know the standard applies, remove emotion from the deal and have a plan, but would you follow the indicators and be in and out several times during the life of the thesis? I am new to the investing game and apologize for the newbie issues. Tim B."

Tim, nothing to apologize for. It's a great question. But equating the investment thesis that we spend a fair amount of time on in our newsletters with the gut feeling and the emotion is false to me. I mean that's based on data and experience and understanding what a good business is. So, I don't – I can't say the thesis is about gut and emotion and trade stops is about the data. Trade stops is, for me, the primary use as a tool to prevent you from incurring catastrophic losses.

The standard mistake people make in the stock market is, frankly, selling. Nobody knows when or how to sell. It's very hard, very hard. When you get a great business, the time to sell, in my experience, is never. I know because I've violated it enough times to know that that is what you should do.

So, trade stops just help you set trailing stops so that, God forbid, there should be some enormous bear market that takes everything down 50 or 60 or 70%, which would not be crazy numbers from current levels, by the way, over a 2 or 3 bear market. Trade stops helps you avoid that by cutting losses quickly and early. That's the primary use. Of course, they also have a system that tells you when to get in. If you want to try to use that in conjunction with somebody else's advice, you've got to work that out for yourself.

We do what we do. I do what I do in Extreme Value. When I say buy now, I mean buy now. I don't mean wait for trade stops to tell you what to buy. But that's my decision. I can't make that for you. You said you know the standard reply is to move from emotion from the deal and have a plan. We can't go much beyond that.

I can't tell you how to arrange our advice in your mind so that it works best for you. That's – there's too many variables and it really gets dangerous legally because we're not allowed to give individual advice or anything that might be perceived as individual advice. So, ultimately, I think I can't quite help you. I hope I've shed some light on what I think when I make a recommendation and that that's worth something to you. But it's a very good question. A lot of people have it. We can just – we can only go so far with the answer. I'm sorry about that.

OK, last – number three here this week, is by Halbert T. Halbert T. has a long e-mail. He referred to a specific recommendation from a Stansberry publication. I don't want to give that away for free because I think I'd be getting a phone call from the editor of that publication about that. So, I will read his question leaving out those details. I left a whole chunk of the question off. But here it goes.

Halbert T. says, "I'm contemplating contacting this company's CEO to share my concerns but I'm not sure if it would be well-received or even perceived as hostile. What would you do and do you ever take this angle of risk into consideration before investing? For now, I'm holding off buying any shares due to my findings. Feel free to shorten the question and remove company-specific information. Halbert T."

Yes, Halbert T., I removed all the company-specific information. The answer to this question is simple. You are an investor. You are a prospective shareholder. If your questions about the vulnerabilities that you perceive in this business are not well-received, that tells you something about the company. If they're not capable of responding to your concerns in a rational manner, do you want to be involved with them? I don't know if you do. But that's up to you.

There's more to an investment than what I just said, but it's a variable. I know for me, personally, I wouldn't like it if I had a concern and I called them up and said, "You know, I have this concern about a vulnerability in your business based on my own expertise and I just want to share it with you and see what you say." If I get a mouthful of B.S. back where they're clearly not interested in dealing with it, they could be telling me something and they could be telling me something I don't really like. So, that's all I'm going to say about that. I definitely recommend calling up this company and sharing your concerns. Absolutely. How they handle it tells you as much as anything.


OK, folks, we have a special, short, little interview right now with Rob Lamoureux. Rob Lamoureux is just like you. He's a subscriber to Stansberry. We want to talk to him today because he's got a really, really cool story to tell. So, Rob, when did you first get involved with Stansberry?

Rob Lamoureux: Well, actually, Dan, I have you to thank for that because Extreme Value was, I believe, my first subscription. It wasn't long after that that the dominos started falling and I became an Alliance subscriber in 2008, which was, as I'm sure you know, just before the world fell apart for the second time in nine years. So, it was really good timing on my part. But I've been with the company [inaudible] 


Dan Ferris: Yes. Sounds like you found us just in time.

Rob Lamoureux: Well, absolutely, in more ways than I can count.

Dan Ferris: So, you became an Alliance member in 2008. But you found your way to another one of our products, didn't you?

Rob Lamoureux: Yes. Actually, it was shortly after that. I'm sure I don't have to explain to most people how the Alliance program works. You get everything that Stansberry publishes for as long as they publish it. So, in '09, a bonds publication began. It was the first time I had ever had any exposure to quality bond research. I say this as somebody who, 10 years prior to that, had been working for a Wall Street brokerage firm.

I was a retail broker but the business model then, in the late '90s was stocks and stocks and more stocks. That's where 99%of the research was based. So, this was my first foray into buying individual bonds. I'll say that I had a few really good experiences at the outset and I was hooked. I've been doing it ever since.

Dan Ferris: So, first time you ever bought a bond was after you bought Stansberry Credit Opportunities or after it was delivered to you, I guess?

Rob Lamoureux: Yep, absolutely. It was – the first version of the bond program was in 2009 and, yeah, that was the first individual bond I had ever bought. When I sold it three years later, it was up over 300%. Well, with results like that, I've been – like I said, I've been hooked ever since. It's been great because I get the results that I need, obviously.

I mean I don't get 300%every time I trade. Nobody does. But the results are consistently excellent. I sleep like a baby at night because, as you know, bonds are not designed to spike wildly up and down. Following the dot-com crash and following the mortgage snafu in '08 and '09 when stocks, once again, we jumbled all around, it's been nice to have a stable of investments that are just steady performers and steadily profitable, too.

Dan Ferris: So, the thing that caught my ear was 300%on a bond. Wow. That must have been some deeply-discounted bond, huh?

Rob Lamoureux: It was. I actually remember that – as you know, bonds are usually priced at $1,000 each. But then they trade, on the bond market, the way stocks trade on the stock market. This particular one had been priced below $200. So, virtually, the entire world had given up on it. But Porter and his team did a deep dive into the numbers.

They said, "There's an excellent chance this company's not going anywhere and they're going to be able to pay it back." So, I bought this bond below $200. Three and a half years, I not only got my full $1,000 face-value back, but I received interest all the way. I actually received more in interest than I had even paid on the bond. So, it was an extraordinary performer for me.

Again, not every bond performs that well. That one's an outlier. But everything that I have done, taking into account everything: the winners, the losers, all of them, I win so much more often than I lose with these things. I just – I can't say enough. I know I sound a little bit like a fan boy here, but I really can't say enough about the research that Porter and his team do in this publication.

I understand this as someone who used to invest 100%of the time in stocks. Anybody who does that, I'm sure, knows what I'm talking about. You have some great days and you have some really horrible ones. Subsidy the word months and years for days sometimes. The stock market is a wild ride sometimes. The bond market, generally, is not.

If you've done the research – look, I'm not – I'm smart enough to follow the research. I'm not smart enough to do it myself. So, I'm incredibly grateful that this publication exists. The bond recommendations come out and, generally, what's required is patience and the ability to place an online order. I've been able to manage on both of those counts.

Dan Ferris: Wow. Your story just amazes me, Rob. We rarely get people who are willing to step forward like this and just tell the whole story from beginning to end. I wish we had more. I hope you inspire more people to come forward.

Rob Lamoureux: I hope so, too. In fact, it's funny, because this all really started, my involvement, with one of the Friday digests. Porter had just gone on one of his long letters about Credit Opportunities and what a great program it was and, yet, how he couldn't sell it. So, at the end, he asked, "If anybody's had any good experience with this, could you – feel free to drop me a line." I did. I said, "I can't imagine anyone who's had a bad experience with it. The only bad experience you could have is no experience at all."

I get that. Like I said, I used to buy nothing but stocks. It may be if I hadn't been an Alliance subscriber I wouldn't have had the courage to say, "Oh, let me go ahead and try bond research." But I'm so grateful every day that I did. I would really – I can't say it strongly enough. If there are people out there that are on the fence, this is just such a great program. Not every recommendation is a winner. That's not a realistic expectation of anybody.

But for – it was easy for me to respond to that Friday digest and say, "My goodness, my experience with this has been overwhelmingly positive and, most importantly, overwhelmingly profitable." So, from that, I just – that – my piece of feedback was received in the Stansberry offices. Somebody reached out to me and said, "Look, your story is an important one to hear. Would you mind telling it?" I thought, "My goodness, great." I'm retired at the age of 52 because – largely because of this program and because of the bonds that Porter and his team have been recommending for the last 10 plus years.

Dan Ferris: Retired at 52? Goodnight. I'm 57. I'm not retired yet. I'm way behind you, Rob. I need to start reading that letter.

Rob Lamoureux: Well, it's not a bad idea. Dan, your recommendations and Credit Opportunities, I think, are a one-two punch that couldn't be beat. Listen, I'm candid with anyone that asks. I probably will work again because I'm 52 and I can't imagine – I mean I spent the morning in the garden and that was wonderful. But I don't think that's going to be it for the next 30, 40 years, God willing. So, I probably will do something, but it's a wonderful feeling not to have to, not to have the financial gun to my head and know that I've got to start working again, or else. So, it's just been a very great, liberating feeling.

Dan Ferris: Rob, I have a question for you. It's something I wonder about with a lot of our readers, frankly. When they hear the word bonds, they just kind of go right to sleep. They're just not interested. It seems esoteric and it's just something they dismiss out of hand, you know. But you didn't do that. You were an Alliance member and we started delivering you this product, as we promised, and you went for it. What was the difference. What was it about this? What appealed to you? Do you remember your state of mind at that time that made you say, "You know what? I'm going to try to do this."

Rob Lamoureux: Well, I was fortunate, or unfortunate – I don't even know how to characterize it. It was 2009 and I had watched my stock portfolio get cleaved by a fair percentage. I was openminded based purely on that, that, "Listen, stocks have seasons like this and I'm experiencing the second on in the last decade. If there's a better way, I'm open to it." So, this was really a case of tremendously good timing, for me.

Now, it might take some of your listeners a little bit more of a push in that if you're looking at the rearview mirror, the stock market's been doing wonderful work for everyone's portfolio for the last I don't know how many years. But having said that, it's not backwards we have to look as investors, it's forward. Anybody who's a reader of any Stansberry publication has to be aware that we all feel like we're playing the ninth inning of a bull market here. I don't – I'm not as confident of the next 10 years or the next five or even the next one as I am of what I just saw.

So, it may take a little more foresight and a little more courage than it took me. I was hip deep in the alligators and I was looking for better results. It's also incredibly helpful. When your first trade goes that well, you start thinking, "Wow, I'm a genius. This is easy." It's never that easy and I'm absolutely not a genius. But it's made me feel like one most days.

I guess the most important thing is I'm off the roller coaster. I mean I still have stock investments, of course, but when I'm looking to put new money to work right now, I'm looking at the Credit Opportunities portfolio first because I just – I have that degree of confidence that it's going to work out as it's advertised and as it's been researched.

Dan Ferris: Wow, that is so cool. Porter, he works so hard to try to convince people to do this because he's been around the block a few times. He knows how people behave in the stock market. He knows what kind of results people get. Even if the results of the newsletter are really great, people tend to sort of buy higher and sell lower. They get scared and stuff. He has always had this – he's always known that bonds, especially the high-yield bonds were potentially a much better bet for most people. I'm glad he found a way to communicate that in the digest. I'm really glad that somebody did it. Congratulations to you, Rob.

Rob Lamoureux: Thank you very much. I've got to tell you, I've shared his frustration because I've been reading, like I said, for the better part of 10 years. Every time he tries to sell this thing, he talks about how difficult it is and it stuns me. Because I mean I can point to any one of a dozen, maybe 15, maybe 20 trades over the last several years, any one of which would pay the price of the subscription.

So, it's – like I said, it does require a certain degree of patience because bonds are not IPOs. They're not going to pop overnight, or they rarely do. It's fun when they do. I'm not going to lie. But it's not my expectation day to day. But the bond portfolio that I have – and right now I have a portfolio of about eight or nine different issues – it's meeting my expectations and then some. I can't begin to describe it.

Dan Ferris: Yeah, what most folks don't realize is that the – it's much more likely that the bond will get paid than that the stock will do well. Generally speaking, equity is a riskier instrument than debt, generally speaking.

Rob Lamoureux: Yeah. That's something that I've come to embrace, but I mean I – in fairness, I probably can't mention any individual recommendations, but there have been a couple where it's made me do a double-take and I've said – one very recently, in fact. I said, "Wait, you want me to buy the bond of this company when we don't know if it's going to be around in three, five, 10 years?" But, as you said, buying a bond is not about that. Buying a bond has all these legal protections built in and, if, God forbid, the company does go belly-up, then here you are as a bond holder at or near the front of the line to get paid back.

That's another one of the things, Dan, if I can go on another minute. Credit Opportunities has always impressed me because when they recommend a bond, of course they recommend the best-case scenario. The best-case scenario is always, "You're going to get your $1,000 and you're going to get this much interest," and it's laid out in this chart so you know, down to the penny, exactly what your return is going to be in the most likely outcome. But they also take a minute or two and say, "On the other hand, maybe we're wrong. Maybe the company is actually going to go bankrupt and maybe this going to happen instead." So, they lay out a worse-case scenario for you, as well.

So, I sit there and I came make an investment choice based on it's likely I'm going to get X%, but in the case that the company does go bankrupt, well, at least I can realistically expect $.30, $0.40, $0.50 on the dollar, whatever the case may be. But these things are all laid out. Again, I feel a little more fluent in the language of bond buying and bond trading now. But I didn't have to when I made my first order.

It was, "Here's the symbol of the bond you want. Here's what you're going to tell the person if you're speaking to them, or here's what you're going to enter if you're doing it on an online order." It just happened that naturally. But I really liked that it's not – the write-ups are not, "Listen, we are gods and we're right about everything. So, this is how brilliantly you're going to do." You get the flipside, too. Here's what you want – here's what could happen. I like that. I appreciate the integrity of the publication that way.

Dan Ferris: Yeah, and that's a basic level of thinking for investors. You have to consider various outcomes. It is really nice that they sort of do some of that work for you and show you and then you can learn how to think that way from reading the publication, right?

Rob Lamoureux: Yeah, absolutely. Again, I don't have the databases that Porter and his team have at my disposal. My understanding is he spent an ungodly amount of money putting it together. I don't have that kind of scratch. But I don't need it. It's good enough for me to be able to follow the logic and the thinking and the research of a team that really has its act together.

Again, I think because of the way the – we're expecting these things in the market to go south soon, I think one of the things that I'm almost excited about is, if that does happen, it's actually going to create greater opportunities, not fewer, at least in this one slice of the market. So, I think it's a great strategy just about any time, but I really feel like its best days are ahead of us. Again, I just – I can't say enough about it.

Dan Ferris: Well, Rob, I usually finish these things up by asking someone, our interview guests, what they would like to leave our listeners with. If there's one thought that they could leave our listener with, what would it be?

Rob Lamoureux: All I can – I can only reemphasize everything I've said which is this may be a new experience for you. If so, I understand the trepidation, but really, take a chance. The track record of the publication is there in black and white and it's just as impressive as can be. If you feel like you don't know what you're doing, this publication practically takes you by the hand, not in a condescending way, either. I mean I've never been spoken down to or written down to, as the case may be, but they'll take you by the hand and say, "Here's what you have to do."

Eventually, when you're more comfortable with it, like me, then you can cut right to the chase and say, "OK, here's what I want to do. Here's how we're going to do it. There's my down side. I'm willing to live with that. Let's go." But I guess that's – maybe that's my takeaway message is, "Let's go."

Just do this thing because even if you still are an active stock investor – I know Porter likes to say, "If you do this kind of investing you'll never buy stocks again." That hasn't been my experience. I still like to invest in stocks. But you'll be a much better, more successful investor the larger a part of your investing this strategy becomes.

Dan Ferris: OK, wow. That was great. Thank you, Rob. Thank you on behalf of all the listeners and readers that I think you're helping and on behalf of everybody at Stansberry.

Rob Lamoureux: Thank you very much, Dan. Thanks for the opportunity to say this. I do feel like this is a helpful thing for just about everybody. I hope as many people as possible can take advantage of it.

Dan Ferris: Yeah. We have a special website that our listeners can go to. It's called InvestorHourSCO.com. You can go there and learn more about everything that Rob has been talking to you about for the past several minutes. So, thanks very much, Rob. I hope you and I will talk again soon.

Rob Lamoureux: I hope so, Dan. Thanks very much.

Dan Ferris: You bet. Bye-bye.


OK, everybody. That concludes another episode of the Stansberry Investor Hour. You can go to our website, www.InvestorHour.com and you can sign up and put your e-mail in and get all the updates. There's transcripts there for every episode. Just click on the episode you want, scroll down to the bottom, and the transcript will be there. You can also go to InvestorHourSCO.com and you can learn all about Stansberry Credit Opportunities, which our second guest, Rob Lamoureux was talking about today. OK? So, talk to you next week. Bye-bye.


Recording: Thank you for listening to 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 at [email protected]. This broadcast is provided 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 decision 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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