Episodes

Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan talks with Enrique Abeyta, editor at Empire Financial Research.

Dan Ferris: And for our opening rant, it's been a big week but probably not big enough. I'll tell you what I mean.

Corey McLaughlin: And as always, you can e-mail us at [email protected] and tell us what's on your mind.

Dan Ferris: That and more right now on the Stansberry Investor Hour.

So what do I mean by it's been a big week but probably not big enough? Basically, I've been talking about the Fed breaking something, and I've been waiting for something big to break like a big bank or something, and something broke this week, but it wasn't that big, I think, in the scheme of things. It was still very interesting, though, and Corey, I know you know what I'm talking about.

Corey McLaughlin: Bankman-Fried.

Dan Ferris: Bankman-Fried. I mean, gosh, if your name is Bankman-Fried, maybe don't go into the cryptocurrency-exchange business. Or if you do, don't lend out $10 billion of customer deposits. Maybe we should fill everybody in on what happened here. If you would like to tell the tale, go ahead, but –

Corey McLaughlin: Well, I mean, basically, this cryptocurrency exchange, FTX, which is one of the largest of the world, is basically on the verge of collapse after very interesting personal drama involving the founder of FTX and his rival and basically overleverage and not being transparent, and basically anything you could think of that are themes in the cryptocurrency world and finance have come together in this story. If I was writing a book about cryptos, this would be a central narrative, I think.

Dan Ferris: Oh yeah. This thing is going to be on Netflix. If for no other reason, the main character, Sam Bankman-Fried, he's just – he's a typical sort of modern-era crypto eccentric guy. He wears shorts and T-shirts everywhere and he's a vegan, he drives a Toyota Corolla, he's got roommates because he doesn't want to spend a lot of money, he talks all the time about giving money to charity. He wants to give all his money to charity. He's got a lot less of it now. And he has these ideas. He follows this thing called effective altruism where they claim to be using science and reason to figure out how to benefit others the most with their lives. And one of the primary principles behind it is integrity. I mean, that is too rich. I mean, integrity and he gets caught lending out $10 billion of customer deposits causing his crypto exchange to fail and maybe go bankrupt. They need $4 billion in financing to – I think to stave off bankruptcy, and I haven't seen any headlines saying they've got it.

Corey McLaughlin: Right. What's interesting is you start off talking about, you know, or waiting for something to break. People might look at this and think that this is the something breaking, but when you really break it down and get into the details of this, it's had the CEO of Binance not kind of pulled the little – pulled the rug out from under FTX and pulled out these FTT tokens, which are these native tokens that he got in an early investment in FTX, and so he had them and then basically kind of hold it as blackmail over FTX and pulls it out whenever he wants. And he did that, and it started this collapse. But that's more of – there's something to be said there for the regulation in the crypto space, but as far as something breaking significantly in the financial system, from like the Fed and interest-rate perspective, I don't think this is it.

Dan Ferris: No. Now, generally – generally the breakage is – I believe will be caused and is caused in bear markets by declining asset values because some assets are collateral. We found out this week that crypto as collateral is really a bad idea, and of course, you're right, though. If Binance hadn't sold its $568 million – or announced that it would sell – they said they'd do it over a period of time in an orderly manner.

Corey McLaughlin: Right, they didn't even do it, which is – which tells you enough about the sensitivity and the volatility in crypto.

Dan Ferris: Exactly. Exactly. And so had he not done that – you're right. Had he not done that, Bankman-Fried could have lent out customer deposits. He could still be getting away with that.

Corey McLaughlin: Yeah, he'd still be doing the same thing he was doing last week today, which tells you about the level of just all the new things going on in crypto that are not visible to a lot of people in it.

Dan Ferris: Right, and he goes on Twitter after a silent period, and he says, you know, "Well, I guess I found out what I'm not good at." And I'm like maybe find out what you're not good at before you take the $10 billion and lend it to their affiliated trading firm, Alameda Research, to trade God-knows-what semi-nonexistent crypto garbage. I mean, it's just – the whole thing was like you really didn't know this was a bad idea?

Corey McLaughlin: Right, yeah. I don't believe that. I don't buy that. I mean, I read that apology, and I was reading it like – it read like a celebrity apology to some scandal with a few expletives dropped in in financial terms. It was that sort of thing to me, and I read it, I was like, "OK, do I believe you?" Probably not.

Dan Ferris: Well, he wants us to believe – you read in there he wants us to believe that, in much worse language, "Oh gosh darn it, I just didn't know that there was all this – all the customers were using this much margin leverage, and I thought we had 24 times the amount of daily average withdrawals but turns out we had 0.8 times, less than one." I mean, this is the MIT grad, the son of two Stanford law professors. No, I don't buy – no.

Corey McLaughlin: Yeah, I don't think you could be the head of a legitimate cryptocurrency company and not know how much margin you have at work in the exchange.

Dan Ferris: Yeah, he had a reputation as a great trader. He was called the Prince of Risk. I mean – and you know, the Moby Dick of crypto whales and all this stuff. I just – you know, and his excuse is "oh, I'm stupider than you think." No. No, no, no. Sorry. But as we point out, $10 billion in the grand scheme of things and, you know, this guy having his fake crypto money pulled out from under him by Binance, in the scheme of things, it's not going to make the world fall apart.

Corey McLaughlin: No, but I do feel bad for any innocent supposedly – I know you've got to do your research and know what you're getting into, but I do feel for people who have gotten caught up or will get caught up in this... individuals, I mean.

Dan Ferris: Now, to be clear, yes, yes this is like FTX International is the one that failed, the one that's based in the Bahamas. But FTX U.S. apparently is separate from all this and those deposits are fine we're told.

Corey McLaughlin: We're told, yeah. You don't really know.

Dan Ferris: But yeah. Well, I'll tell you what, though... stuff that does have the potential to really shake the world up are these interventions by central banks into their bond and currency markets that have taken place over the last couple of months – Bank of England, Bank of Japan – that looks like something big.

Corey McLaughlin: Yeah, I mean, I think we said this a couple weeks ago, the currency markets have become not popular, but talked about again more than they were before. I've certainly been paying attention to them more this year than I ever have, so yeah, what do you think? What's on your mind?

Dan Ferris: I'm just thinking that – you know, I keep thinking about our interview with Brent Johnson and his "dollar milkshake theory" and how the dollar's relatively much stronger and then all these other currencies are weakening, but of course, when they go into the market – like when Japan went into the market to prop up the yen some weeks ago – they do it with dollars. They're selling dollars to buy yen to try to prop up the market. And I was reading something today that said, you know, basically they're dumping – they dump 7% of their USD foreign currency reserve into the market and barely budge the yen, and they're just basically keeping it steady. They're not even preventing a decline really. They're just slowing the decline so they can spend 100% of their U.S. dollars and get kind of nowhere.

Corey McLaughlin: Yeah, I think the only solution or the most likely solution for

this is a weakening dollar, which people might be reading into happening this week given the lower inflation number... and that'll mean the Fed will slow down with interest rates. I do think there's something to that because inflation is worse, I believe, in other parts of the world, in England, and the U.K. So if it does end up slowing down and the dollar ends up weakening a bit, those other currencies could kind of catch up if inflation's still – depending on policies and there's a lot of questions there, but that's one scenario that could play out eventually.

Dan Ferris: Right. That's why the U.S. looks good, the dollar looks better. It's relative. You go to the Bank of England website today, and you'll see the Bank Rate, which is analogous to the fed-funds rate is 3%, and inflation is 10%, whereas we're at, call it 4% and 7.7%. So we're a lot closer to sort of fixing this if that is a fix of any kind. Or maybe we're just closer to breaking something.

Corey McLaughlin: Right, yeah. We're the best house in a bad neighborhood is what I've said before. I used to work with Harry Dent, actually, and he would say that all the time. The U.S. is the best house in a bad neighborhood, and that line has been in my head all year long, as you see the fallout from inflation.

Dan Ferris: Yeah, so Doug Casey's line I think is prettiest mare in the slaughterhouse.

Corey McLaughlin: Lot of good lines out there.

Dan Ferris: Yeah, that's right. You know, best, worst currency, etc. But did you think – I thought it was funny that CPI comes in 7.7%. Sure, it's lower than 8%. It's lower than the previous month. But at 7.7%, it's still like a 40-year high. Anything over 6.2% is a 40-year high. And the market goes nuts. The market went nuts on Thursday. It just soared.

Corey McLaughlin: Yeah, it acted like the worst is behind us, but I mean, I don't know about that, but that's what happened.

Dan Ferris: Yeah. The other thing that happened was record inflows into JNK and HYG, the two big exchange-traded junk bond funds. And I mean, that's like, hey, inflation's licked at 7.7%. Inflation's licked. Buy bonds. Buy junk bonds. I don't know about that. I don't know about that.

Corey McLaughlin: Yeah, I mean, I know I'm not running out to buy any junk bonds at the moment, but I wrote this – you know, after the numbers came out and the market did what it did, sure inflation could be peaking or have peaked. Say that's true... That doesn't mean it's going down to low levels anytime soon. You know, it's – I think we need to keep that in mind. Plus, we still have – you know, certain parts of the bond market are still indicating that a recession's going to happen. So we could have a recession, still, next year, and what does that look like? We don't really know. But inflation – OK, so inflation's not the highest it's ever been in 40 years, but it's still pretty freaking high. I don't know, maybe the market reaction's appropriate. I don't know. Who am I to say?

Dan Ferris: Yeah, I mean, I think that it strikes me as classic bear market action, and I just did some quick research on the – basically, the financial crisis bear market – or I'm sorry, the dot-com bust, actually, and the 1929 bear market because those are the two, what I'm calling, mega-bubbles, like 2.5-plus standard deviation above trend, and then they fall apart and markets go sideways and things go haywire afterward. And I think it was 12 times before the Nasdaq bottomed and 14 times before the Dow bottomed in 1932. So before the bottom, there were one-day, 6%-plus moves in the index. Like the 6%-plus moves were a sign that you're still in a bear market. It was not a sign that it was over.

Corey McLaughlin: And we've said this before, like all year long. The strongest moves and the bigger moves happen toward the end as more and more people get sucked in and believing the bullish cases, I would think.

Dan Ferris: Yeah, I didn't actually look at where during the course of the market the individual – the one-day moves occurred. But you're right, those are like the bigger rallies, the bigger multiday, multiweek, even multimonth, sometimes. Rallies do tend to come at the end, and in terms of percentages, just sucking in the last few suckers before you take them all out.

Corey McLaughlin: Yeah, I'm glad you just said "multimonth, sometimes" because that's kind of what's been on my mind lately. Like, all right, maybe the peak inflation part of the story is – if that's behind us, OK. But the – you know, next year's not, so I don't think all of that is "priced in." I hate saying that because who knows, but I think – I wouldn't be surprised if there's a rally through the end of the year but then, you know, it's still in a bear market. People will think it or not. They might say the bear market's over and then we'll have another 20% next year decline or something like that, and then looking back on it, it'll all be one bear market.

Dan Ferris: Exactly. Exactly. I mean, that's the point, right? The market behaves deceptively. That was one of the big points in Benoit Mandelbrot's book. The book was called The Misbehavior of Markets, and he had these 10 heresies of finance, and one of them is markets are deceptive... this idea that they're telling you things and telling you the state of the world isn't always true. They're deceiving you a lot of the time. And I think that's true. Bear markets are especially good at that, and I think a lot of people are being deceived right now, I think. I don't think it ends this easily... really don't. I suppose we'll find out.

Corey McLaughlin: We shall see.

Dan Ferris: We shall see. And on that note, maybe we should move on and talk with Enrique Abeyta... because he is a very smart guy, and I want to hear what he has to say. He's one of the sharpest "understanding what's going on at the current moment" kind of guys that I know. So let's talk with him. Let's do it right now.

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And with that, Enrique, welcome to the show once again.

Enrique Abeyta: Thanks, Dan. Good to see you, man. It was good to see you a couple weeks ago in Boston in perhaps the weirdest place I've ever been in my entire life, that casino.

Dan Ferris: Yes, the weirdest – like you look around you and it's Boston, and it's kind of a dingy part of Boston if we're being honest, and not really Boston Harbor, as we noted, and then you turn behind you and there's this thing that looks like it was plucked out of Las Vegas right off the strip. I mean, it's weird.

Enrique Abeyta: The other thing that was somewhat disarming about it is a piece-for-piece replica of the same casino in Las Vegas, so I literally – it was like the mini-golf version. So take the mini-golf version and drop it into industrial Boston. So it was beautiful. Don't get me wrong. It was a great facility, everyone was super friendly, I thought the event was fantastic, but it was a little surreal with the mini-golf version of the Wynn Encore dropped into industrial Boston. Not what I was expecting when I was headed there.

Dan Ferris: Not at all. I heard somebody say it was about a third the size.

Enrique Abeyta: Yeah, it looked to scale. I was just glad I was able to walk through the doors, you know.

Dan Ferris: Yeah, and speakers like from the stage – actually from the stage I said – at one point I said, "Here in Las Vegas," and then I went, oh wait a minute. It was an honest mistake. Not a joke.

Enrique Abeyta: The facility itself was beautiful. There was no – and I'm not really complaining. I'm just making a point that it was unusual. It was definitely not what I anticipated when I got there.

Dan Ferris: But it was cool, and I enjoyed, as I always do – I enjoyed hearing you talk. I've met a lot of folks in this business over the years, heard a lot of talk, but I like what you have to say, and in particular, we exchanged some e-mails about this recently, and I want to start here. This is cool to me... this idea that you're buying stocks, not businesses, because most people say a stock is a piece of a real business, but you say otherwise, and I've become more interested in this, and I kind of feel you on it, but maybe explain to our listeners what you mean by –

Enrique Abeyta: Well, look, it's just the physics of it. I'm not sitting here and saying that the ownership of a common stock equity is not ownership of a business. What I am saying is that the value of that business and the value of that stock in the short term can be very unaffiliated with each other. The fact is – let's just think physics. I see stocks all the time that gap down 40% in a day. and did the value of the business move 40% in a day? No, it did not. I can guarantee you that. if you and I owned that business privately, you take even some of the moves that have happened in big tech, let's go both ways. Let's go both ways.

You and I own Amazon or Facebook or whatever it is, and the stock goes from $100 to $600. In two years, I doubt you and I sat there and said our company just went from being worth $100 to $600. You and I more likely sat there and said we were earning $10 billion and now we're earning $12 billion. And I don't know, company's worth 20% more, maybe 30%, like as we grew ours. That's what you think as a private holder. The other thing is when you report your quarterly earnings and instead of 6.7% growth you had 4.8% growth and your daily average users missed by $100,000, your stop gap's down 27%, I don't think you or I as a private company holder would say, "Damn, we missed by 200 basis points on one quarter's growth, and now it's worth a third less." Like, that's just logic, man.

So Whitney posted something the other day which I had seen that said in the short term, the value of a stock is really based about sentiment and positioning. In the long term, it's based on fundamentals. And I look at it basically the same. I go, look, you know when a stock is truly worth the value of the business? A, when it goes bankrupt, although we've seen some exceptions to that with Hertz and some of the crazy stuff that we saw in the last couple years, but we'll say for the most part when it goes bankrupt, and B, when it gets bought out. If someone says I'm going to pay $40 a share for the stock, and you get your $40, you get your $40. Everything else in between is just a matter of opinion and heuristics.

Now, there are very well-established heuristics, and heuristics are simple rules to govern complex situations. There are very well-established heuristics, and there's some things. Paying a dividend can influence the value of the equity because there's cashflows. Buying back stock can often influence it. We can go back and forth on that. And I do think there are rules of physics that work in the world. The one rule that I say over and over to people is if you have a company that's earning $1 and they then earn $10, at some point in the future, the stock will be higher in 99% of the cases. Now, if it's trading at a 100-times multiple, then maybe it's 10% higher, but I don't think I've ever seen, even at the most expensive multiples, a company that was earning money. Remember, I started with earning money, 10 times earnings and not have the stock higher. You might see big multiple compression and not go up 1,000 times in the stock, but that's a rule, but even that's not hard and fast.

You know, in options, you have put-call parity. Like if I have a put, a stock, and a call, I can replicate the put or the call. That's arbitrage. In bonds, I sort of have an arbitrage if the bond stays good, I get the money. What do I have with a stock? I mean, dividend's never paid – I mean, Amazon's never paid a damn thing. They barely bought back any stock, so what is this mathematical relationship? And so once you – that's the – you remember in the Matrix movie where there was Morpheus and Neo and there's the red pill and the blue pill – which unfortunately has been co-opted by some elements of the alt-right, and then the hard left said they totally co-opted it... I don't think anyone really co-opted it. I still use the friggin' analogy.

But one of the blue – one of the red pills you have to take is like if you wake up every day thinking I'm buying this stock because it's this company and you are – unless you're focused on the very long term, you're going to be a very frustrated investor. You're going to have some very large mental breaks that I think make it harder to be a good investor. What if you accept that in the short term, stocks are pieces of paper? And either you're doing one of two things... either you're just giving that volatility up and saying, "I don't give a damn, I'm looking out five years, 10 years," or whatever it is, or you're saying, "I accept this and either I'm going to live through it or instead of letting it master me, I will master it." And that's why I basically have two strategies. I have short-term trading and I have five-plus-year investing. I'm very uninterested in whatever goes – I mean, two, three years. Don't get me wrong. But that's how we operate.

Dan Ferris: So I'm not hearing – you know, you're not denying the heuristics or even time-honored methods of valuing a business at all. You're just – you've developed what I view as a more inclusive kind of superior mental model for someone who wants to trade stocks for less than five years.

Enrique Abeyta: And invest though, too because I just think that, look, if you want to believe that the value of a stock is ultimately the value of the company, which I do believe... Look, technically it's true, man. Like you know, legally it's true. I'm not saying any of that. Factually, though, that almost never actually interfaces with our lives. Like the conflux of the actual value of an enterprise and the stock price where 90% of public equities do not intersect in the entire time you will own the stock. So I guess from an intellectual setup, if you want to live in that world, you are going to face some very large psychological breaks. If you accept this, then you can better that world. And look, I think that quote that I gave from – that Whitney thing, which he posted to his daily and I posted to Twitter – @EnriqueAbeyta is my Twitter – I think it actually came from Warren Buffett or Charlie Munger. So I think Charlie Munger – and I said I feel very confident, I had this conversation with Charlie Munger and Warren Buffett, and I say stocks are not companies. They will actually agree with me after we have two minutes of conversation about it.

Dan Ferris: Right. OK, cool. Yeah, I was thinking about Buffett too, and I was thinking, you know, certainly Buffett sort of taking on these long, long-term positions in publicly traded equities and kind of behaving the way he does when he buys a company outright and takes it private, that's really unusual. Most people have a lot of trouble with that, especially in bear markets. They freak out and they memorialize their losses because they can't take it anymore, whereas Buffett just like breezes through all of it.

Enrique Abeyta: You know, he does and he doesn't. It's interesting is that – I mean, he does.

Dan Ferris: Mostly, yeah.

Enrique Abeyta: Well, yeah, but it is interesting. But I'm always fascinated by the fact that the vast majority of investors like that, they actually generally are not that much more aggressive during the downturns. I feel like risk takers – because there's a big element. I mean, one of my favorite Charlie Munger quotes that I've failed at miserably and I'm trying to fix in my life is this whole idea of I don't know what I would do under extreme duress. I do everything I can to avoid it. So I think there is an element with some of those types of investors that they wait until the very worst of the worst of the worst. But it's interesting that while Buffett was active in Q1 – and it's hard to say because, you know, look, while we say Buffett, the guy – his team is the one running the portfolio at this point. And they do very un-Buffett-like stocks. They buy a lot of John Malone stuff with debt, you know, so it's Buffett-ish as opposed to pure 100% uncut Buffett, which it was until probably 15, 20 years ago. But even they tend to be sort of tactical. But you know, look, I think so much of investing and successful investing is about positive psychology and putting yourself in a position to win.

I'm going to give you an example. We're going to go to short-term trading, as short-term trading as you get. I run this portfolio. It's my IRA. It's my tactical trading IRA, and it's not that big because a couple years ago I took a bunch of money out of my IRA to buy a house and things like that because you could do that. But what I do with that, back in April, May, I decided we were in a bear market. Now, that doesn't make me some great prognosticator. If anything, I was a little late. I mean, that's not some heroic decision to be made, but I was like, OK, I gave it January, February, March correction. Yeah, OK, May, June. Well, OK, we're bear market. Bear market might be over, by the way, already but we're bear market.

So what I know about bear markets is you see the worst – so you see two things. The greatest short-term rallies in stock market history have all happened in bear markets, every single one of them. Second, and this will be somewhat perverse when you think about it, the best technical setups on negative sentiment that you'll see in your entire career also happen in bear markets. Those two things are correlated, right? You know, it's like you get – so I don't get S&P RSI of 18 in a bull market correction. That ain't a thing. But here you can line up with bull-bear doing this thing, you know, all that other kind of stuff.

So what I've done is I've taken this IRA, and I run it from 0% invested to 100% invested, and I only trade two things. I trade TQQQ, which is the three times lever daily Nasdaq, and I trade TARK, which is the two times daily Ark asset. I'm going to tell you something. I don't know whether I'm bullish on the TQQQ for six months or the Nasdaq for six months. I don't know that I'm bullish ARKK for six months. I don't honestly have an opinion at this point, but I did know where I bought these. I was very bullish in the next six weeks, and so I took this account and I went and got 100 – I'm always early. I'm always early, so I buy 20%, 30%. Got it – started buying in May, like May 14, got it to 100% invested by June 6 or 10 or whatever it was, was down 22% at peak, and ended up closing out that trade up 38%. This time, I basically started in September, bought them on October 14, I'm now at 75% invested, and right now I'm about breakeven but I still have my 75% in there. Actually, I'm probably up about 5%.

My point is the psychology of trading. The reason I could do that is partially because I had nothing going in. The purpose of this trading account is to be at zero at the end of these bear market rallies. So did I leave money on the table? The funny thing is, because the way I lag out, I left almost no money on the table. I mean, I could have stayed 100% invested the whole time and maybe made another 15%, but this gets to one of the rule, and again, I'm being very trading oriented, and I really like to live most of my head in investing, but I'm going to stick with it. I tell my guys all the time, you know, you make 15%, 20% in a bear market in a week to a month, take it. Every single time. I don't care if it's going to go up 50. And this was when the bubble happened, what saved our asses multiple times in a bunch of recommendations, I said this. I've got a stock that goes up 100% in a week, a month, or six months is always a sell. By the way, a stock that goes up 100% in three years is almost always a buy.

Dan Ferris: Oh interesting, yeah. I could see that. Sure, absolutely.

Enrique Abeyta: You get the difference? Because if you're up 100% across three years, the company's doing something right, there's exceptions. These are simple rules. If you're up 100% in three years, the company's doing something right, the market is recognizing it, there's a buy. There's a dance going on. You make 100% in six weeks, no dude, that's not right. That's not sustainable. You sell half is actually what we would do. So we have – we're up – we had recommended Carvana at $100, and my investors that followed my recommendations are up 20% on that recommendation. Carvana today is at like $6 or something. I don't even know where Carvana is, but this trading psychology and just mastering yourself to navigate and surf the markets as opposed to having the market master you is a really, really important thing both for trading and investing.

Dan Ferris: You sound like a very disciplined guy. I feel like I should say it for our listeners' sake. You know, it's like I wouldn't say don't necessarily try this at home, but if you try at home, understand that the guy who's talking about it is pretty – I mean, you know, you've been around the block. You've been around a few years, and you've been doing this a while, right?

Enrique Abeyta: Well, I also think – you know, not to talk our own book, that's why people should subscribe to our newsletters. Like I read what you write, I read what Doc writes, I read what Steve writes, Corey McLaughlin, like all that, and I'm very – I'm like, yeah, this is great. It's funny. My background was out of institutional, and so I ran $1 billion hedge funds. And before I came to Stansberry, I was very market-wise in the Stansberry family. I was very unfamiliar with all of it. And I don't know that I had a lot of natural skepticism. I'm not necessarily a naturally skeptic guy. I'm actually a pretty naturally open guy, but I was like, OK, let me read these things because I was like, "What is this?"

And I'll tell you I read – I think I read over 100 of them across the course of a week because they're not that long, and I walked around and I said, God damn, I wish that the basic common sense lessons that are in these letters were given any attention or execution by institutional money managers because institutional money managers, in my opinion, spend 90% of their time on details that don't matter in order to justify the fees that they're making. And I did the same thing. we would go, oh, look at this and – but if I just would have stuck with "buy low, sell high" and a couple other things, I didn't need 90% of that information. There was – the things that made and make me money are a dozen simple things, not 1,000 complicated and complex ones.

And I think that's what – but getting back to the newsletters, I think that's why you partner with us. I mean, EET, which is what I was pitching the other day, I think that since July we've had 36, 37 trades. I'm up in 30 or 31 of them. I've had one real loser, which was a stock that, crazy enough, has had numbers go up and best numbers, and nothing really happened. It was down 20%, but I mean, it's going to happen sometimes in the market. But my point is that's not luck. That wasn't darts. That's discipline and 25 years of experience. And what I think we try to do is share both the direct picks but then also share the background behind it, how we get there, because I think that every investor, if they do the work and show the discipline can get better, but it's like going to the gym. It's good to have a trainer. They're going to make you – you're going to accomplish your goals better with someone's help who knows what they're doing.

Dan Ferris: And EET is basically – it's like levered emerging markets.

Enrique Abeyta: It is not levered emerging markets at all. No, no. EET is actually –

Dan Ferris: No? What is it?

Enrique Abeyta: No, it's very simple. EET is every week we pitch one trade. Sometimes if I see a lot of them, I'll pitch multiple trades.

Dan Ferris: Oh, I'm sorry. I thought that was a ticker.

Enrique Abeyta: No, EET is my – Empire Elite Trader. Sorry, it's a product. Yeah, yeah. No, Empire Elite Trader, we trade only common stocks. It's mostly – it's – well no, we trade some levered ETFs, but we're probably 95% common stocks. Every week on Wednesday, we write a piece that is a macroeconomic piece that shares a lot of my thoughts. Between that and my Twitter, people have a pretty good idea what I'm thinking. And look, I'm looking actually since inception in 2019, we're at a 78.4% hit rate, and we have outperformed the S&P 500 like-for-like by 50%. When I say that, I mean the S&P 500 is up 8.6%... we're up 12.4%. So that's like-for-like. Every trade, if you just mimic the S&P 500, what market – you know, we've handily beat the market. But what I find more impressive, since I reset back in May to June, you know, this market's done nothing and my readers are up on 31 of 36 trades.

Dan Ferris: Nice.

Enrique Abeyta: That's what I did in '00 to '01 and that's what I did in '08 to '09 is figure out how to make money in these markets because there's always a way to make money in the short term. And there's always a way to make money in the long term. It's called great – find great companies and buy on whole.

Dan Ferris: Most people don't do both.

Enrique Abeyta: I wish – if you can put the time in, I think you're better off doing both, strangely enough. I think the long term – because the problem is the vast, vast majority of people, you know what they do, they do the middle. They say, on long term, buy and hold... but as soon as the market or a stock goes against the par, they risk manage and they sell the stock. That is literally human psychology, it is institutions. I'm going to get a little deep in the weeds. I'm going to tell you something that we ran in our fund.

So this – it came to us from one of our investors. We ran – and by the way, an individual investor can do this as well. We ran what we call steady-state portfolios. So we would go, and I'd take the beginning of the month, I'd take everything that I owned at the beginning of the month, and I'd say what would have happened if I didn't do a damn trade, not a single trade, not one. And what actually happened. Did I outperform the own what you own and don't do anything book? And what I will tell you, the vast majority of institutional investors, 90%, 95%-plus underperform their do-nothing portfolios. So that's amazing. People who get paid to do this. They're literally the pros. They underperform.

And I think it's the same thing with individuals. We say all the time either trade a lot or don't trade at all. Now, what I do, to be honest, is I have a portfolio that trades a lot, and I have a portfolio that doesn't trade at all. I mean, I think in our long-term products like Empire Elite Growth, I mean, we've closed out – it's actually funny. We've closed out – we have three things that doubled and we took profits on 50% of it, and then I've closed out one, two, three, four, five, six, seven, eight positions of 40 positions in three years. By the way, those positions are on average down 50%, 60% from where we closed them out, so they were good sales. But yeah, that's the don't trade at all. And then on the other one, I don't know, I've got a trade that I put on last Wednesday that I might close out because it's getting up there.

Dan Ferris: All right, so you've got to do both.

Enrique Abeyta: It depends on the person. It depends on the person. I'm saying if you can be in that mind space – but if not, absolutely buy and hold, man. Just buy and hold. Find a company – and again, I'm going to say something about value. You've heard a lot of other stuff from me, Dan. You know, value stock never went up because it was cheap. Value stocks don't go down because they're cheap. They go up because they grow. Coca-Cola, when Buffett bought Coca-Cola, it was arguably reasonably inexpensive. Coca-Cola did not go up like it did because it was cheap. It went up because they went from making $100 million to making $14 billion, and the stock followed suit. So value works when it grows. Growth works when it grows.

Always if I – if every stock I look at for, again, there's some strategies that are a little bit more hybrid, long term I say they're making $1 today, can they make $10? And if I can't – maybe it's $5. OK, I don't need to – I'm being extreme. If I can't get there, that's my first cut. And if I can't get to that, well then, you know, every single year in the stock market there are – in bear markets, there are typically 30 to 50 companies out of the 5,000 in the stock market that go up more than 100%. In every other type of market, there's usually something like 8% to 10% of the market at least that goes up over 100%. So that means I have – in bad years I have 30 to 50 stocks, and in good years I have 400 that go up 100% in a year. So why don't you look for the best stuff, not the – and some of those are growth, some of those are value stocks, by the way. I'm not saying that isn't an anti-value creed. It's just look for what's going to go up, not what's cheap or not cheap. Finding the cheap ones is also nice too.

Dan Ferris: It's just asking a basic question what makes stocks go up, and there's really nothing like a growing business. There's no substitute for that. I mean, occasionally you'll get these things Marty Whitman called resource conversion or whatever, and there's some hidden value that gets released or whatever, but even then it's usually like businesses splitting up.

Enrique Abeyta: There's sum of the parts and book values and liquidations and all that, but I'm going to tell you this. The greatest trap of value when you know this is things often get cheap because the businesses are deteriorating, and owning a deteriorating business, you know, like is just – it's just a dangerous thing. You know, let's look at Sears, and what what's-his-name, Lampert did with Sears, you know, that was a deteriorating business that, yeah, you could have made 200%, 300%, 400% on your money, but you were always skating across super-thin ice. And you have to skate faster and faster the more it deteriorates, and eventually it did what it was supposed to do. So I start with also another simple rule. Let me find companies that net-net are growing as opposed to companies that are shrinking because I'll tell you no company that ever continued to grow went out of business. Many companies that continue to shrink go out of business. These are rules of physics, so let's keep it simple.

Dan Ferris: So yeah, I mean, you're talking to a guy who writes a newsletter called Extreme Value, and all we do is try to find companies that we think can grow more than what we think the market is saying it thinks they can grow.

Enrique Abeyta: Yeah. And that's not to say – but look, this is a personal thing. That's not to say you can't buy a shrinking business and make a lot of money. I think if you have a high – two things. As long as you have a high margin for safety on the balance sheet and the potential we'll call it negative growth, and second, if you combine that with identifying names where expectations are very different, then I think you can get – you can make quite a bit of money. But let me give you some more math.

You and I have five stocks. Two of them – one of them goes bankrupt, one of them goes down 50, one of them's flat, one of them goes up 50%, one of them's a five-bagger. I now have a 20% IRR on that portfolio with a stock that went – 20% of my portfolio went bankrupt and 20% of my portfolio went down 50%, and I just did a 20% IRR. Now, I'm not saying you should be taking that much risk that you're going out and – you're going to get 40% of your portfolio basically going out of business. What I am saying is you should aim high in your long-term stuff and look for just incredible returns.

Dan Ferris: Oh yeah, look, we've had Rick Rule on the show, and his version of that is so extreme because he buys all these little – he runs those partnerships that buy 100 tiny little mining stocks and half of them disappear off the face of the earth. They just go away completely and then all the returns come from –

Enrique Abeyta: Same thing with biotech. Biotech is the exact same thing. It's essentially venture in publics. But I'm going to say something. We're in a very unique spot right now, and I don't disavow your '70s-type scenario, meaning that we could net-net on the indices being flattish for quite a few years. I'll make two points, though. Flattish wasn't flat any given year. It was actually down 20 and then up 40 multiple times, which is why trading becomes very important. But second, Walmart ripped during the '70s. Why? Because Walmart went – I'm getting the numbers wrong, but Walmart went from making $100 million to making $1 billion. And so I kind of don't give an "s" about the market one way or the other. Like in my trading strategies I do and sentiment I do. In my investing strategies, just one rule. Find things that are earning $1 and going to earn $10.

Now, where does that go in value? Well, look, I'm very interested in the mortgage stuff right now. Things like – and I'm picking the craziest of the craziest – Rocket Mortgage, Open Door. I could take mortgage trusts and REITs and things like that because I will tell you right now the refi portion of the mortgage market, which is a very important thing for Rocket, which also owns Quicken. Rocket's a very real business. Refi is zero. Literally, refi is zero. Refi is 2% of what it was. But I'll tell you what it can't do. It can't go less than zero. I mean, I guess servicing companies could get – but now when I take something that is a valid and necessary economic action and it goes to zero, I will tell you at some point refis will go above zero. That is a fact. That is physics. So now can I find businesses that are down 80%, 90% because refis have gone to zero, but we know refis will go back above zero?

This is the same way you would do it in steel and energy and cyclicals. Right now we've got a very interesting mortgage cycle that I think one should be paying attention to, looking at is "are we early?" I don't know for the mortgage stuff. I think for housing you might be a little bit early. By the way, I like the fundamentals of the housing market are very sound, but for the mortgage stuff, I don't know. It's hard to say I'm early when the stocks are down 90% and there's zero refi activity. I don't know what's going to go – it's not like they start having to pay – you know, it's not like you have to start paying them on the refi stuff.

Dan Ferris: That's right. Well, there's early and there's early.

Enrique Abeyta: But my point is – I guess my point is I talk so much about taking $1 to $10 it doesn't have to be growth. It can be value. Larry Robbins at Glenview has done a great job over and over of finding these cyclical names. And cyclicals don't actually have to mean – don't have to mean steel and copper. It can mean interest rates, mortgages, all of these cycles that happen naturally in our economy and you can find these value opportunities.

Dan Ferris: Yeah, agree. I mean, I – it's weird. I do less of that value stuff than of the other looking for the growth because to me that just – it kind of makes more sense.

Enrique Abeyta: Well, it's all growth, though. It's all growth. We'll just define stocks that work grow earnings. Whether they're growing earnings because they are Google and they are a secular – I don't even call it share taker, although eventually they did take share of the advertising market, or whether it's just a cycle that we're going through a cycle and you're going back to the up phase of the cycle. Growth is growth, and growth always works. And you're never – there are so few occasions that you're going to make money in a company that's actively declining on a sustainable basis. You can time it right, but you buy companies that have decreasing earnings, you're going to lose a lot of money through time. I guarantee that.

Dan Ferris: Yeah, that's not a strategy. That's actually the southern end of what Julian Robertson used to do. He was like the 200 best that were growing and had a real business and then the 200 worst that were [inaudible]

Enrique Abeyta: No, that's actually a great short strategy. I would always tell my guys let's start – everything we want to be long, I want companies that are earning $1 that are going to earn $10. And find me for the shorts companies that are earning $10 and are going to earn $1. That's step No. 1. Step No. 2, what are expectations? Because if a company's earning $1 and people expect them to earn $2 and they earn $3, I literally don't care what the stock is worth. That stock's going to go up. Where we run into problems is when those stocks now trade at 100 times earnings and people think they're going to earn $2 and they earn $2.02. Now we start running into the multiple piece of it. But the sweet spot – you know, Bernstein just put out a report, and I'm trying to get ahold of it because I'll put a thread on Twitter, by the way. Actually, let's talk about this. Hold on. Let's see here.

It's a study of 10-baggers. Let me just tell you what they said. What makes a 10-bagger? Ten-bagger starting market cap has been between $5 billion and $10 billion. It's easier to take a company that's got a $7 billion market cap to $70 billion than it is that one that has $100 billion to $1 trillion. We know that. Eighty percent of all 10-baggers and 90% of technology 10-baggers were profitable to begin with. That's quite interesting. So start with companies that you know have a viable business model as registered by profitability with median operating margins 8% to 9%, generally in line to slightly below the overall market. So profitable, normal businesses. Starting valuations were largely similar to modestly below market levels, 14 times to 17 times price to [inaudible] estimates and two times revenue, so buy reasonably priced businesses. Expensive tech stocks over 10 times sales have rarely become 10-baggers. And 10-bagger stock appreciation has been driven by solid revenue growth, typically four times. Strong margin improvement 50% to 100%, and a company multiple expansion.

So $5 to $10 billion, good profitable, remember I said started with profitable before. Find things that can go revenue four times. Look at the TAM. And take things that are a reasonable multiple. I'm going to get the full data. I actually think that 15 to 25 times is fine. You don't have to go just the 14 to 17 because I bet you when you throw in the 25, you get a lot of five-baggers too. So you know, there's some other things in there. But that seems to make a lot of sense to me. And like I said, I'll probably put this up on Twitter a little bit later today. Yeah, I'm trying to get the full report so I can steal more of it from them.

Dan Ferris: OK. Awesome. I'm looking forward to that. But actually, to tell you the truth, what you've already told me is a lot. I mean, you just told me the screen I need to run, basically. You've told me the screen. I look forward to your Twitter feed on this, but you've told me the screen, adios, see you Enrique, I'm going to go run that screen.

Enrique Abeyta: Now the art in this – there's two pieces of art – is, No. 1, being able to do the business analysis where you're actually going to get to the point of understanding the TAM and the ability of the company to execute. That is a skill that I've developed and you've developed across 25 years after seeing hundreds and thousands of businesses succeed and fail. We still have a fail rate, by the way. We still can be very wrong because there's other things that can happen, but I think you get a skill. And then the other thing is how do you put yourself psychologically in the place to win to own these stocks because what happens to most people, they find these and then they give up on them. Go back and look at how many stocks you said, oh my God, this is great, blah, blah, blah, and then you sold it 18 months later. Oh, I'm up 52%.

That's one of the worst things – that drives me nuts because people go, oh, I'm up a lot in the stock or the stock's up a lot. And I say you know what every stock that is up 1,000% did first? It went up 500%. It's math, right? So you coming to me and saying – what I said before. You come in and say, oh, the stock's up 80% in 10 weeks. I'm like, yeah, it's probably a sell. Take some profits. You come up and say, oh, the stock's up 80% across two years, three years, I'm like, oh, that's pretty interesting. I probably want to buy that. All the things held equal, there's a lot more information to be processed, but the natural inclination from unsophisticated investors who think they're sophisticated is to look at the trailing price across a two-year base and say, oh, it's up a lot. It can't be worth as much. Well, I mean, you know, this is not a static world. The companies grow, so yeah, it's probably worth more. And just because it's up 80% doesn't mean it's not worth a lot more. Obviously they're doing something right for the vast majority of the companies, and I want to buy winners. I don't want to buy losers. Screw that. Life is hard enough.

Dan Ferris: Yeah, it's the flip side of that awful psychology of selling out at the bottom in despair and you do that once or twice and then you're up 80% and you're like, oh, I better take that off the table because I don't want to do the other thing again. It's just – it's a horrible cycle.

Enrique Abeyta: It comes to your methodology. Trade a lot, don't trade at all, find great raw material, stick to your disciplines. Like I said, work with guys like us. We'll make those decisions a little bit easier for you by giving you, No. 1, the art/science of identifying these names, but No. 2, and I really work in Empire Elite Trader on a weekly basis, kind of reminding people, hey, this is – these are the basics. It's just like the gym. You need someone to go in there, OK, remember do the warmup, do the stretch, do this. And I don't care if you've been going to the gym for five days, five months, or five years or fifty years. You need to remember the basics. And that's actually what – MarketWise, that's what I was so blown away about was just these basics and just reiterating them over and over and over.

Institutional money managers, I think, forget the basics all the time. They don't even think about it. They're like, oh, well this model has 27 tabs. And I if I was a private equity guy – but you know what, I run private companies. I've got to tell you the 27-tab models, they don't really help me predict what's going to happen in the business much better. It's a much more complicated equation than that. So the fact that you have 42,000 lines in an Excel model – matter of fact, any time you give me 42,000 lines in an Excel model, I'm going to say you're probably going to lose money. I don't know. You're spending the time on the wrong thing.

Dan Ferris: So this is a good time for me to ask my final question then. If you can leave our listeners with a single thought today, what would it be?

Enrique Abeyta: Buy low, sell high. Seriously. I'll just add one addendum to that. Trade a lot or don't trade at all. That's it. They're related.

Dan Ferris: There you go.

Enrique Abeyta: People are going to think I'm an a-hole for saying buy low, sell high, but just remember – I want you to remember the next time you're selling low and think about where that's going to leave you, how you got – two things – sell high is as important for buy low as buy low is to buy low. But the next time you're at a sell low, think about what got you there, why you're doing it, and where this decision's going to leave you in six to 12 months because buy low – sell low, buy high is playing – is letting the market master you. Buy low, sell high is mastering yourself to – and I never say master the markets because it's like surfing, man. You know, the best we can do is catch the waves. We're going to crash off a bunch of them, but if you do the work and you're consistent enough and you get yourself athletic enough, you can catch a lot of waves. You can catch waves when you're 80, bro. You don't have to be 18.

Dan Ferris: All right, well stated. Yeah. Listen, man, thanks for being here. I appreciate it. I always enjoy talking with you, and I know our listeners [inaudible].

Enrique Abeyta: Awesome. Appreciate the time. Follow me on Twitter @enriqueabeyta. Check out Empire Elite Trader. It's our flagship trading product, and Empire Elite Growth is our flagship long-term product. We've got a great team. Whitney's been doing it for 30 years. My partner Gabe's been doing it for 25 years like me. We care deeply about this. This isn't just a job... It's a mission for us and it means something.

Dan Ferris: All right. Thanks a lot, man. We will definitely be in touch and we'll be talking to you soon.

Enrique Abeyta: Awesome. Thanks, everyone.

Dan Ferris: One of the most successful entrepreneurs in America over the past 50 years is going public with his fourth and final prediction about a scenario he calls America's nightmare winter. Woo. You've probably never heard of Bill Bonner, but in addition to owning an interest in businesses all over the globe, he also owns more than 100,000 acres with massive properties in South America, Central America, and the U.S., plus three large properties in Europe. And I've been to one of them. It's gorgeous... gorgeous château. And I've known Bill for many, many years. He hired me into this business, and he says we're about to enter a very strange period in America which could result in the most difficult times we've seen in many, many years. And he's made three similar predictions in his 50-plus-year career, and each time it proved to be exactly right, although he was mocked each and every time, and I remember all of them.

This is why I strongly encourage you to read about Bonner's fourth and final prediction totally free today. It's all spelled out in a free report that we've put together called "America's Nightmare Winter." Get the facts yourself. Go to www.nightmarewinterscenario.com to get your free copy of this report. Even if he's only partially right, it'll dramatically affect you and your money. So again, go to www.nightmarewinterscenario for this free report.

I hope you enjoyed that because Enrique, he's an awesome guy, and as you can tell, and extremely lively intellect, and he just – I love the way he just cuts down past the noise. I think that's really the point that he was making about what we do at MarketWise, and Stansberry and Empire and all the MarketWise affiliates is that we're about cutting through the noise that you get from more traditional institutional investors. And he's seen both sides of that, and he knows how to do it as well as anyone, better than most. And you heard it. Buy low, sell high. Trade a lot or don't trade at all. He just – he's cut away all of the nonsense and gets you down to those core nuggets that you can sort of lean into and use effectively to manage your own money. Great stuff. Great stuff. That was a great conversation.

Well, that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you like this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com. And do me a favor... subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us to grow with a rate and a review. Follow us on Facebook and Instagram – our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want me to interview? Drop me a note at [email protected] or call the listener feedback line at 800-381-2357. Tell us what's on your mind and hear your voice on the show. Until next week, I'm Dan Ferris. Thanks for listening.

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