In This Episode
Everyone’s rattled. It’s one thing to understand the logical argument for Dr. Steve Sjuggerud’s “Melt Up” thesis – but that doesn’t mean weeks like this, while historically normal, are fun to watch. With Friday morning bringing on another down day as tech reported weak earnings, plenty of brand names are trading significantly lower than they were Monday morning. The way our analysts see it, that means a lot of bargains are out there for investors who see them for what they are. In a choppy week for markets, Buck calls in Extreme Value editor Dan Ferris to give his take on what this signals for stocks – and in a week where all sorts of quality companies are trading at discounts, where the biggest opportunities can be found. He’s also joined by his chief research officer Mike Barrett, who specializes in finding potential – and hidden land mines – that others don’t see in companies, thanks to his ability to get “up to his eyeballs” in SEC filings and obscure documents.
Announcer: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour.
Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.
Buck Sexton: Hey, everybody. Welcome back to this week's edition of the Stansberry Investor Hour, your favorite podcast on the markets, finance, investing, and a little bit of politics thrown in for good measure. Mr. Porter Stansberry himself, the founder of Stansberry Research, is out this week. He has to attend to some other business. And I'm going to hold off on my political analysis until Porter is back in the house. So we're just going to get right to it this week and let you hear from some financial experts like the one and only Dan Ferris and Mike Barrett from Extreme Value to give their take on market conditions.
Dan Ferris: Hello, everybody. This is Dan Ferris. I'm the editor of Extreme Value, published by Stansberry Research. And today with me I have my chief research officer, Mike Barrett. Mike, why don't you say hello to everybody, please?
Mike Barrett: Hello, everybody. Glad to be here.
Dan Ferris: Now I want to tell you a little bit about Mike before we get started. Mike is the guy who helps me make all the decisions in Extreme Value. He's really just the best I know at digging into public filings and security filings with the SEC, and just getting in up to his eyeballs in the most difficult, complicated stuff. I used to think I was the best one at Stansberry at that, but I think Mike has proven that he really is the best one at it.
Today we're going to talk about what's been going on recently in the stock market. And we're going to back you up a little bit and show you some of the things that we've been doing in Extreme Value, bring you up to the present moment, and then we're going to tell you what we kind of expect from here and what we think you oughta do. So let's get on with that.
Now, starting in about May of 2017, I was getting really cautious on the stock market. And I told investors that stocks were expensive, we were looking at a full-blown equity mania – something like you saw in late 2007 and early 2000, or maybe 1999, that kind of action – with stocks near their highest valuations in history. And it's just gotten worse since then. And sure enough, here we are and we're looking at, so far, about an 8% or 9% correction from recent highs. And along the way we talked about specific stocks like Facebook and Google, and we became really concerned – I became really concerned about Facebook starting in September of last year, a little over a year ago.
And I just thought: "This is really a strange situation because here we are at the top of the longest bull market in history and this company – no one thinks they can do any wrong. The stock price just keeps going up and up and up. And it is a great business. It's one of the greatest things in human history, right? It's 2 billion people. I mean, it's bigger than Catholicism and communism and just about any other ism you can name." And yet, to me, it looked a little funny. It looked like it was the largest surveillance operation in history and I thought that there would be some regulatory backlash, and sure enough, there was. And you got these big – what I was afraid of was is big, sharp drawdowns in the share price based on some of the sentiment turning negative, and even some of the results turning negative, and that's what you saw.
You got a big drawdown early in the year and then you got another one in July. And the one in July is the one that really concerns me because the stock fell 19% in an instance, just like that. Lost $119 billion of market cap in an instant. And that's really something for a stock that is so huge and so liquid. I think the thing closed at like $217.50 one day late in July, and before you know it, just in an instant, after hours it was in the $170s. And this reminded me too much of the air pockets that stocks hit during the 1929 crash. And some of this action also happened in the dot-com crash. And it's generally a feature of market crashes that stocks just get obliterated. They lose huge amounts of share price and market cap in an instant.
And so I started thinking about that some more, and my initial warnings were about volatility because volatility was so low. And then I started getting, more recently, concerned about liquidity. And that's something nobody ever thinks about. And let me tell you about this...
There's a very brilliant guy named Chris Cole who works or a firm called Artemis Capital. And you should read his stuff. It's very complicated. Half of it goes over my head. But he knows more about volatility than anybody. And he's lately started reporting on liquidity, too. And he told this story that I think is really – it shows a big hole in the average investor's plan and the average investor's strategy. And it's a part of your strategy you don't even know is there. And the story goes like this: a wise old fish is swimming along and along come two young fish. And the wise old fish says, "Good morning, boys. How's the water?" And the two young fish just kind of look at each other and they're a little perplexed and they keep swimming along past the old fish. And finally one of them says to the other, "What the heck is water?"
And of course the moral of this story is that the water in the story is this ubiquitous thing, that it surrounds you and sustains you, and it's the most important thing in your life, but you don't even know it's there. And that – and this is a horrible pun between water and liquidity, and I apologize for that, but that is what liquidity is in the stock market. You think your strategy might be based on momentum. You think your strategy in the stock market might be based on fundamentals of companies. But I bet a lot of the time you go into the stock market and you say to yourself, "You know something? If this doesn't work out, I'll just sell and I'll be down 5%, 10%, 15%, whatever." But you don't count on going in and being down 19% or 20% or 30% in an instant. And that, my friends, is liquidity. When liquidity is not there, all of a sudden – it's like oxygen: you don't think about it; then it's not there and you're dying.
So I think that Facebook episode we saw in July could be a harbinger and we could be seeing this sort of thing in the future with other stocks that people don't question. And it's always the names that people don't question that get them in big trouble. And I continue to refer to Cisco. In 1999 and 2000, it was the stock to own. It was in 10 of the top 10 mutual funds. Everybody had to have it. It was a no-brainer. Nobody thought it would do anything but continue to gush free cash flow and grow and it wouldn't treat anybody badly no matter what happened. And of course the thing fell from $80 to $8 or something and it's barely a little more than halfway back to its dot-com high these days. So you got obliterated on the company everybody thought was a no-brainer.
And that's how people get obliterated the worst. What was the worst thing in the financial crisis? It was mortgages. The 30-year mortgage. The pride of the U.S. securities markets. And that's the thing that destroyed people, right?
So, you know, we started with all these warnings in 2017, and I've just ratcheted them up recently because – in 2017 I was saying, "Well, this is the second-most overvalued moment in stock market history," and in late August of this year we saw the most overvalued moment in stock market history.
And I gotta give a shout-out to John Hussman of Hussmanfunds.com because I kind of rely on the numbers that he publishes to make that statement. He does a very good job of knowing what metrics are the best ones to follow to determine the valuation of the overall stock market and which ones are most highly correlated to subsequent 10-year returns. So, at that high we hit in August, it was the highest thing ever. It was higher than the dot-com peak. It was higher than the 1929 peak. And he was saying returns would be really terrible from here over the next several years. And it seems to have started sooner rather than later.
So we were concerned about volatility. We were concerned about liquidity. And then we've had this terrible October where the market is down quite a bit. I think down about 8% from the highs at this moment. Something like that. So the question is: what now? Well, now we would expect that this is not the end, you know? These long bull markets were stocks become extremely overvalued – they never just go to the top and then end, right? There's always a ratcheting. They ratchet down and back up. And I fully expect, like in past episodes, we'll make new highs from here. So the "Melt Up" thesis that you've heard from our colleague Steve Sjuggerud is probably likely at some point along the way here, maybe even starting now.
Seasonally, the technical guys will tell you that the action from October through the spring – I think it's October through May – the market generally performs better during that time than from May through October. So this could be kind of the beginning of the Melt Up phase. But in Extreme Value we don't worry about predicting things. When Mike and I put out our research, we don't do it from a perspective of trying to make predictions. We say, "Prepare. Don't predict."
And the only thing I think I've changed – we've said you should be holding a lot of cash when stocks are this overvalued, and you should only buy really good businesses when you can get them with a big margin of safety, a nice discount to their real value. You should be shorting deteriorating businesses and industries that're in great upheaval or deterioration, and we've shorted a kind of an old traditional advertising agency. Because, let's face it, Facebook and Google have taken over the ad business and the traditional ad business is suffering. It's suffering this morning. WPP, one of the biggest advertisers – I believe the biggest one in the world – the stock was down – the last time I saw it, it was down I think 9% because they're losing customers. So that's one thing you can do: short stocks.
You know, short stocks, buy high-quality names, and hold lots of cash. And for the first time ever at the Stansberry Conference in Las Vegas recently, I said, "Hey, it doesn't hurt to own a few put options." And friends of mine – one of them is a really great value investor named Vitaliy Katsenelson – are for the first time buying put options. Or they were. I guess they're probably selling them now because they performed so well so far this month. But this year Vitaliy I know was buying put options. Because he was trying to buy volatility. He saw volatility as very cheap options, and put options are a way to buy volatility.
And so now we have this moment upon us. So what do we do? Well, what Mike Barrett and I are going to do – I honestly believe that the best thing you can do right now is to be a value investor. Aside from holding plenty of cash and shorting bad companies, the most important thing to do is be a value investor. Historically speaking – and I've seen different research on this. I saw one bit that showed that it was actually six out or 13 bearish episodes in the past century – value outperformed growth: buying good, solid, slow-growing companies at low multiples of earnings outperformed during these bearish episodes.
And you say, "Well, gosh, six out of 13 – that's less than half." Yeah, but the outperformance was much greater for value than it was for growth in the other seven episodes. The outperformance of value was like 9% annualized whereas it was less than 1% for growth in the other episodes. So I think it's a real good idea to be a value investor at these big turns. It was a great idea in 1999 and 2000 to be a value investor.
And you see a tick-tock historical phenomenon where value outperforms growth for a while and then growth outperforms value for a while and then value outperforms growth. And we've just had a terrible decade for value really, compared to growth. And now all the growth-y, high-flying companies are getting whacked. You saw Facebook, Google, and Amazon down about 5% recently in one day. And it looked a lot better for the value investors than it did for the growth investors. And I think that trend is going to continue.
Now, of course if we're in a Melt Up, you're going to get one last hurrah from all these growth-y companies. But overall, over the next – if you're a long-term rational investor, you're going to do a lot better as a value investor over the next five years or more. I believe than you are buying what's hot and what's popular and what's growing fast.
So that's sort of where we are. And the only other thing that we're doing right now in Extreme Value is we are recommending gold because gold is cheap relative to stocks and you can measure that by the number of gold ounces it takes to buy one unit of the Dow Jones Industrial Average. Over time you've seen that when it takes 20 ounces or more, gold is cheap relative to stocks, and stocks are really overvalued. And it recently hit about 22 ounces. And with stocks falling, I know that number's probably lower now. But still: overall, I think it's a really good idea. Gold stocks of course got hammered from the top in 2011 down to the bottom in late 2015, early 2016. And they had a good run, but they fell back. So now is the time to buy a high-quality gold stock.
And I think we have the highest-quality gold stock in the world. Of course, I'm not going to mention it because it's for Extreme Value readers only and we charge a lot of money for this thing. I think Porter would crucify me if I gave the name away in public at this point. But I think we have the highest-quality gold stock in the world. It's not a royalty company but it's royalty-like and it has a wonderful business that generates 80%-plus EBITDA margins and contains multiple sources of optionality if gold really gets cooking. So the downside is extremely limited. There's great free cash flow. And pays a nice dividend of about 4%. And the upside is huge if we get a good bull market in gold.
So that's kind of where we are. We're not very far below the all-time most expensive peak in stocks. You see the S&P 500 still around two times sales, and that's really expensive, historically speaking. That's a much better way to gauge the overall market than price-to-earnings. And you also see the other things that we talked about: it's a good time to hold cash and it's a good time to, like I said, be a value investor. Cash, gold, value – that's our mantra. We haven't changed. Except for just kind of adding gold in more recently. And I should probably ask Mike for his take on gold because I know, Mike, that you watch gold and you watch various sources of insight and research about gold. What do you think about gold right now?
Mike Barrett: Well, I agree with you, Dan. It's coming off a long – I tend to look at the long cycle – cycles of things. And gold is certainly many years into a down-cycle now. No one knows of course whether we've hit the bottom of that cycle. But certainly – I think the last peak was, what, 2011? So we're in basically a seven-year down market. And that's why it's starting to get interesting. And that's why I think the idea that you mentioned and we've got in the portfolio is really interesting at this point and compelling. Because of the nature of these long cycles. And at some point, there's an inevitable turnup. We don't know any better than anybody else but the fact that gold's been down for so long and so much for so long makes this an interesting entry point.
Dan Ferris: It does. And we've seen some sort of sentiment-type anecdotal kind of indicators. We saw the – Vanguard was renaming their gold fund. It used to be called I think Precious Metals Fund and now they changed it to the Global Capital Cycles Fund. And I was looking at the charts. They made the change I think in the last week of July. And you saw a bunch of gold stocks – a bunch of the big names they had in there sell off as they rebalanced the portfolio. So there's that. When a big name gets out of it, it's kind of like saying, "Well, we can't sell this product anymore. Nobody wants it." And that tends to happen at bottoms.
Another thing we saw recently which I'm sure has changed over the past couple of weeks was a huge record short position in the futures market in gold. And, like I say, gold punched through $1,200 and it's up around I think the $1,220s. And I don't watch the charts really closely but I don't know if it hit $1,240, but I know it was in the $1,230s after kind of fooling around in the higher $1,100 range and then above $1,200, and then back under. And then you just saw this strong move up well above $1,200 into the $1,220s and $1,230s.
And that kind of thing – it's hard to say what a price action movement means until you get some really good distance from it. But that's the kind of thing that you might see when the sentiment is changing, when the bottom might be in and investors are saying, "Gee, I really need to own some gold because stocks are really precariously situated here," and interest rates are up and people are talking about inflation. Our colleague, Doc Eifrig, talked a bit about inflation at the Stansberry Conference in Las Vegas. And that's a really good concern. Because it's nothing anyone has been the least bit concerned about for years, for a long long time.
So it makes a lot of sense. Gold makes a lot of sense. And gold stocks are kind of even cheaper than gold is relative to stocks because they got hammered so badly. So it's a good idea. The cycles change. And this could be a big change in the cycle for stocks and for gold.
So we come upon this weird moment in history where the markets seem to be changing and we have all this political upheaval. People are getting bombs mailed to them. It feels a lot like what we saw in the 1920s and '30s. There was a lot of political upheaval then with kind of a Republican candidate coming in. And we've seen the same thing recently: Trump got elected; things seemed to change. Things seemed to get more manic in the stock market. And then of course it all seems to be turning around.
But what I want to know from you, Mike, is: let's talk to people about this Melt Up idea. It's not our idea. It's not an Extreme Value idea. But at these turns in the market, we never think about the overall market because it's foolish to do so. But at the big turns when things are extremely overvalued or extremely undervalued, you have to think about it. And I just want to know – I know you'd look at some things that we don't even report about in Extreme Value. We're bottom-up value investors and you look at charts and things, don't you?
Mike Barrett: I do. But, you know, Dan, I think one of the things that I would mention with regard to this movement this week that I think will be of interest to listeners is: let's go back and quickly think about Facebook. You mentioned it earlier and how it had that dramatic 20% drop or so in the course of about 24 hours. And you mentioned Cisco back 20 years ago: it absolutely fell off a cliff and didn't stop for months after being the most favored stock of everybody that was in the market for so long. And ask the question: why does that happen? It turns out that there's a common denominator for Cisco and Facebook and so many other stocks, and in the stock market itself when it drops dramatically and suddenly. And I don't think most people appreciate that the driver of that change, the catalyst is quite often a sudden change in expectations with regard to future cash flows.
I wrote a pretty involved Digest piece a month or so ago about this, using the Facebook example that you mentioned as an illustration: that what drove that 20% drop was the fact that everybody assumed, that owned Facebook, that what had been happening quarter after quarter for the last couple of years was going to continue to happen into the future. That's almost always a terrible bet because at some point something happens to change and alter the course of those cash flows. And that's what Facebook management announced that night on I think July 25 – that: "Sorry, folks, what you continue to think is going to happen – we're now ready to tell you that it's not." And so the sharp, abrupt 20% drop was a reaction to that change.
As I mentioned in the piece, there's a very good chance that investors have overreacted to the one particular dynamic that was at play there. And so, back to your point, this week we've had this sudden – what'd you say? Eight-percent drop in the markets. As the old adage goes, investors like to take the escalator up to the top and then jump out the window to get back down. And I think we're seeing that this week. Investors tend to think – because none of us is very good at looking into the future and understanding what's coming tomorrow or next year. So we typically imagine that what tomorrow's going to look like is a lot like today and yesterday and the last week, last month.
And when that doesn't happen, when it doesn't play out that way, they get scared to death and they jump out the window and they sell stock and they head for the hills. And so they tend to overreact dramatically. And so I think that's the possibility here. And so with regard to the Melt Up, it's really kind of an ideal setup, right? Because you may very well have a large number of investors dramatically overreacting to what they think are the changes in expectations this week creating an opportunity to get in at a very good price if you make the right selection and ride this Melt Up higher from here.
Dan Ferris: Yeah. That's right. Porter mentioned a sentiment industrial yesterday. He sent an e-mail out to the subscribers and he said, "The sentiment has turned the other way now and people are just way too terrified." And other folks have reported on this where the put option volume is just – people get terrified and they just go screaming into the market buying put options. And when it gets to a certain point, it's overdone. And, historically speaking, you get 5%, 10%, 15% pops after these things. And I agree that's probably what we're doing.
But actually, folks, Mike was very smart. He steered me back toward a discussion about fundamentals. Because that's what he and I know best. And that really is what it's about. We talk about fundamentals. We talk about cash flows and operating margins and revenue growth and all kinds of things. People get bored by that because those things are terrible timing mechanisms. They're not what you use for timing. They're not what traders really are looking at when they're trying to time a trade. But they're what a long-term investor wants to see in a long or a short. And that Facebook report – they basically came out and said, "This tree is no longer growing to the sky."
And eventually valuation matters. Valuation does matter a lot. At the big tops, stocks are always way way too expensive, and at the big bottoms, they're always way too cheap. But in between, people just don't think about valuation. And overall, in the overall market, we don't either, like I said. Ninety percent of the time, 99% of the time, you don't care. But you care a lot now, I promise. You're going to start caring. During bear markets, copies of Ben Graham's book, The Intelligent Investor – and he's like the father of value investing, if you don't know who Ben Graham is. Copies of his books fly off the shelves in bear markets because all of a sudden everybody's worried about what things are worth, and they weren't worried – they didn't care on the way up and now they care on the way down.
You know, that's why I said in bear markets one of the best ways to handle them is to have been a value investor all along anyway. Maybe you underperform on the way up, but you outperform on the way down when everybody else is getting obliterated. Because you've been careful to buy things that are selling at discounts that people are less interested in. So I want to thank you, Mike, for steering me back in the fundamental direction.
Mike Barrett: Yeah. And, you know, one of the things I wanted to mention is that I think "value investing" is a term that has bad connotations for a lot of people. They think value investing –
Dan Ferris: It sure does [laughs].
Mike Barrett: – that's buying crappy businesses that nobody wants to know, and holding them for long periods of time until they turn around. And what's interesting is that we have kind of a different approach to that. Our perspective, particularly in the last six months, has been to look for situations where there's a disconnect between what the market thinks is going to happen over the next few years for a particular company and what we think, based on building a well-informed opinion of – a variant opinion, if you will. And what's interesting, I think, that never gets much play, is the fact that in the last six months, we've added a number of very high-quality businesses at the top of the market –
Dan Ferris: Mike, I'm going to make an executive decision here. Let's just talk about Starbucks. That's one of our more recent picks. It's a huge big-cap stock, and I'm OK talking about that one. Let's talk about that one specifically. But continue if you're not ready to do that yet.
Mike Barrett: Well, Dan's right. This is one that we looked at recently – even though the market's at near-all-time highs, Starbucks is trading at a valuation that's probably close to a five-year low. And what we did was look very closely at the cash flows that we expect to happen over the next several years. And it was very apparent to us in the valuation model that we use that the current price is suggesting almost no growth in revenue when we see the opportunity to grow pretty significantly, just in terms of the China exposure that they've got and the program they've got in place there. So those are the kind of things that we look for: the situations where there's a disconnect between what the market thinks is going to happen – and, again, it goes back to what we said earlier: when people get down on a particular stock market or the stock market in whole, they tend to overshoot.
And I think that's what's happened here with Starbucks. They've simply given up on it to the point that they've said, "Oh, the heck with Starbucks." When there's really an opportunity. And it's a high-quality business with a great future. That's all I have to say about that.
Dan Ferris: Yeah. I sort of pulled the trigger on this and told Mike we were going to recommend it before he did his deep dive and used our model – our expectations investing model to kind of verify that I was actually right. And there's just a couple of really interesting things going on there. One is: I think they can wind up buying back a huge chunk of their stock over the next several years, like maybe even – over many years, five or ten years or whatever, I think they could wind up buying back a third of this thing or something huge. At least what they're buying back now is at really good, low valuations, which is what you want. That's the only way stock buybacks work, by the way.
You can't just buy back and buy back and buy back at any price. In fact, I mentioned Chris Cole earlier. And buying back stock at exorbitant levels, Chris Cole has taught the world, is sort of like – it's a short volatility position. So when volatility really kicks up, those companies get hammered. And one example of that that we know well is IBM. They just bought back and bought back and bought back and the business didn't grow and it was getting disintermediated by competition and things, and the stock really got hammered.
Mike Barrett: One other thing I would mention about that –
Dan Ferris: But I think Starbucks has that working for them though –
Mike Barrett: I'm sorry. Didn't mean to interrupt you, but –
Dan Ferris: No, go ahead.
Mike Barrett: – I think it's an important point. You're right, there's a very big buyback or shareholder reward program in place at Starbucks. I think it's about 20 billion that's left. So it's a big number that's going to be capital returned to investors via stock buybacks and rising dividends. But the thing that often gets lost in the shuffle is: how are they going to pay for it? And the good news is, for Starbucks, they generate very significant free cash flow year after year after year. So, yes, they're taking on some additional debt, but none of it's going to negatively impact the balance sheet over the long period of time, or it shouldn't. And they're going to come out very well, and so will investors. I think it's like a 20% anticipated rise in the dividend over the next year or two in addition to stock buybacks. So these are the kind of situations that you love to find.
It's different when a company announces it's going to buy back its stock and it's going to use mostly debt and it doesn't generate much cash flow on a regular basis. That's not the case here at all.
Dan Ferris: Yeah. And another thing we kind of liked about that situation was the fact that we thought they could grow in China. "Continue to grow in China," I should say. They have a lot of stores there now. And it's almost – between those two things alone, it doesn't matter that the U.S. store growth has slowed. And any other concerns that you might have about it almost done matter. Because there's this huge opportunity in China.
And it's one thing if you're a search engine company in China or something and you're from the United States. But it's another thing if you're just selling coffee and you're a coffee shop company. It's much easier to sort of get the government to kind of go along with what you're doing because you're not doing anything that's any kind of a threat to them. And they want business to grow. They're very pro-business growth in China. No matter what you might say about how they're going about it, you can say that they're very pro-business in China these days.
So we saw an opportunity and the thing was priced for – to say it was not priced to grow was kind of an understatement. It was priced to do absolutely nothing for the next four years. And Mike alluded to our model, and I mentioned our expectations model. And I just want to mention that briefly. You know, most of the time value investors look at a company and they try to estimate what's going to happen in the future and then they do some math and kind of establish what it's worth today if all that comes true. But that means you gotta know the future. And as Mike pointed out, we don't know the future [laughs], you know? So you gotta do something else.
And we discovered something else when I read this book called Expectations Investing by two guys named Alfred Rappaport and Michael Mauboussin. And it's got a terrific idea in it, which says: "Don't predict what's going to happen in the future. Plug stuff into the model until you equal today's share price and then look at that and realize that's the expectation that's in the market." And sometimes we find things that're priced to not grow at all for years, and Starbucks was one of those opportunities. And no matter what other number you may've been looking at – we realized that, as Mike said, the valuation was close to a five-year low and the growth was nowhere in investors' minds in the stock price. They were just too sour on this business.
And it's a wonderful business. People love it. I mean, they're practically addicted to the stuff, you know? I know whenever I travel, I eat breakfast at Starbucks and I drink Starbucks coffee. I mean, I pretty much stay home at home. I don't do a lot of it. But Starbucks – it's like the no-brainer thing. It's like McDonald's or something. Porter mentioned that recently in an internal meeting – that there was kind of this McDonald's potential for Starbucks. Where years ago, you would've said McDonald's was so big and it couldn't grow... and then the thing doubles on you. And I think Starbucks is in the same position today.
And that's just one. We found some other really high-quality situations that investors are just too soured on. Even at this moment – longest bull market in history, near the top maybe, or not, but at the most expensive moment – we're still finding the odd good business here and there. And that's a value investor's job. It gets harder, but we've proven I think that it's not impossible. And maybe for the last 10 years you didn't care about Mike and I [laughing]; you didn't care about what we were doing. But I'm telling you: it's the tick-tock of history. Growth was the big thing to do up to the top of the dot-com bubble. Well, then all those growth-y companies got wiped out and people puked them up and they got sick of them. And then they turned to the more conservative things that were cheap: the homebuilders and the banks. Even the mining companies and things.
Well, then of course Wall Street, in its way, turned all that to toxic waste, and it got ruined in the crisis, and people said, "Well, I don't want to own that stuff anymore." And then they turned around, started buying the growth-ier stuff again. And that stuff has outperformed like crazy. Except during 2016. And you can make these comparisons if you look at stuff like the Russell 2000 or Russell 3000 growth and value indexes. And they have another one called the Russell 1000 Pure Growth and Pure Value that doesn't have the overlap that the other ones have. But they all tell the same story. They tell that story where people get sick of one thing and they start doing the other. And at this moment, man, the setup – it is one of the all-time great setups in history to start being a value investor. Says the guy writing the value-investing newsletter [laughing]. I promise you I'm not just trying to sell you. I'm telling the truth about this. You can check the charts yourself.
But, you know, I think that's really where I'd like to leave you. Become a value investor. And I'll ask Mike if he has anything at all to add to that.
Mike Barrett: No. I think you hit it right on the head, Dan. Learn to understand the cyclical nature of markets and to take advantage of them. Use them to your advantage. That's essentially what we're saying here today: value has been out of favor for a long period of time and we're on the verge of that turn, or so we feel pretty strongly about.
Dan Ferris: That's right. We do. So, thanks a lot, folks. We've had a really good Extreme Value day here on Stansberry Investor Hour. And I want to thank you for tuning in and giving Mike and I a chance to come into your life for a little while here and talk about what we do.
Buck Sexton: All right. Well, I hope you enjoyed this finance-focused and markets-heavy edition of the Investor Hour podcast. Next week, Porter and I will be back in action and we will be bringing you up to speed on everything going on in the Stansberry world. Hope you have a fantastic weekend and week, whenever you listen to this. We'll see you next time, next week, on the Investor Hour.
Announcer: 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 Porter and Buck? Send them an e-mail at [email protected]. If we use your question on air, we'll send you one of our studio mugs.
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.
[End of Audio]