Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we talk with Erez Kalir of Porter & Company.

Dan Ferris: And Corey and I will talk about the Shiller P/E ratio, Nvidia's sky-high valuation, and other bubbly things.

Corey McLaughlin: And remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour. Yeah, let's talk about bubbles, because I caught a little quote by Jeremy Grantham, in the news the past few days, where he was saying that the Shiller P/E ratio, the sort of cyclically-adjusted, inflation-adjusted P/E ratio of the S&P 500, it's 34. It's actually above 34, as we speak. And he says that's like the top 1% of all the history of it, which the history of that ratio goes back to 1871. So, you know, I'm just saying it's an expensive moment. I think it's the biggest mega-bubble in all recorded history, and I've said that many times here, and in the Digest and elsewhere.

And, you know, these things, it kind of bothers me it. It makes me worried. I usually don't care about the overall stock market. But this mega-bubble thing, it just kind of sticks in my craw, and makes me worry about the kind of risks that people are taking. And [crosstalk]

Corey McLaughlin: Devaluation [crosstalk], yeah. Yeah.

Dan Ferris: Yeah, they are. They're bothering me. It's like, you know, if you if you pay, you know, 10 bucks for a stock that that has, you know, $1 in earnings, that's 10 times earnings. If you pay 100 bucks for that thing, you know, that's 100 times earnings. It's like a 1% yield, sort of. And even if it grows, it better grow like really super-fast for the next 20 years. And I saw another chart recently that showed, you know, the data and it showed that like sustaining 20% growth per year, for more than five years, is extremely rare. In fact, for five years, it's extremely rare.

So, you know, I think right now the world is pricing in a lot of growth, that's not going to happen, is all I'm saying. And I think they're pricing in nowhere, as in Nvidia, which is worth like 2.2 trillion in market cap. If it were a country, it would be like the eighth largest GDP in the world. I saw a headline in the New York Times that I can't resist. It says, "If Nvidia keeps rising like this, it will be bigger than the global economy." Well, it's on its way.

Corey McLaughlin: Yeah. Which is worrisome when it's one company that being bigger than the entire economy. But yeah, that's Shiller P/E, also, you're reminding me back in early 2021, during meme-stock mania, and all of that, that same number was up at a rare level, maybe, maybe even less than 1% of historic numbers. So it's definitely something to look at when you're, you know, as a piece of evidence that things are – that there could be downside ahead. You know, there's certainly a reasonable reason for it to happen. Now, we know like the market's not reasonable a lot. But yeah, it's definitely, when you said that, it got my attention.

Dan Ferris: Yeah. I mean, it's been higher before. It was higher in the dot-com era. That was the tippy-top all-time high reading of, like, 43 or 44, or something. But you know, almost that high is pretty high, too. And it's just, I think the chart's pretty worthless for any other purpose. But for telling when you're in at – near the peak of a huge mega-bubble, I think it's done a pretty fair job. You know, it was crazy high in 1929, crazy high in 2000, and crazy high today. Not a lot of data points to work with.

Maybe not significant, you know, your average, a smart statistician, or probability expert or whatever, would say, "Hey, you know, that's really like three data points. That's not enough." And I get that. But I'm less interested in that kind of thing. I'm more interested in the sort of anecdotal things that you can observe at market peaks. And one way to think about that, one way to process that, is a George Soros quote that Meb Faber, our friend Meb Faber at Cambria, used to – he put it up on Twitter recently, and he said, Soros said, "Every bubble has two components, an underlying trend that prevails in reality, and a misconception relating to that trend."

And the underlying trend, obviously, like in the dot-com era, it was true. The Internet changed everything. Cisco was not worth 80 times earnings in March of 2000, and it still has yet to get back to, you know – or I'm sorry, it was like, I think it was like two or 300 times earnings, $80 a share. It was not worth $80 a share. And it hasn't been at that level since, you know, after many, many years. So [crosstalk] –

Corey McLaughlin: Yeah, I was just talking to our one of our – yeah, I was just talking to one of our colleagues, John Engle about this, he writes our – one of the editors of our Innovations Report. And he just wrote an issue on the metaverse. If you remember the Metaverse, if you remember the Metaverse two years ago, three years ago, it was all the rage.

Dan Ferris: Yes. A

Corey McLaughlin: And now, he commented that, like, now, AI is kind of, OK, they're these, you know, the new Apple, like, augmented reality goggles are out, right. And some people are checking them out here and there. And he said, they're, like mind-blowing, literally. But a lot of that's being overshadowed, the possibility now with all the AI buzz, and everything. But if you actually believe in like one of these new innovations, like, you know, like what Apple's doing, and different other companies, one of which they have recommended in Innovations Report, like, this is the time to, to be buying or not, rather than when a lot of, like, what you're saying the growth has already been realized, or the expectation of it has already been realized in the market.

So yeah, there's just different ways to – it's a good thing if you're actually paying attention, too, to, like, you know, if you're looking for different opportunities, and you see all this overvalued stuff, and you can look kind of look elsewhere.

Dan Ferris: Yeah, yeah. Yeah, you can look elsewhere. Just before we hit the recording button, you and I were talking about a book that I have on my shelf that I've looked through. I haven't read the whole thing. It's by an investor named Diego Parilla. I think I've seen a couple of presentations by Diego. I think he was at the old value investing congress that Whitney Tilson used to put on that I went to like many, many times. I must have gotten that thing almost every year for, like, 14 years or something. And it was a great event.

And Diego was a really good sort of value investor. And he's got this book called "Anti-Bubbles". Right? So we know what the bubble is. The bubble is like AI, and tech stocks in general, and a lot of things right now, I think. We're in a massive mega-bubble, I would say. So investors need to look for the anti-bubbles. We had Rick Rule on recently talking about an anti-bubble in natural gas, right? It's been obliterated. It was almost 10 bucks and 2022. It's like a buck 70 now. I mean, it's really been decimated. And yet, there are these huge companies, that he mentioned, that are highly-profitable, paying dividends, great balance sheets, great management, great assets, etcetera, etcetera, and they're trading for a bargain prices. So that's an anti-bubble. And you know, what else we got? We have the AI – or I'm sorry, not – AI is the bubble. I meant to say the biotech.

Corey McLaughlin: The bubble.

Dan Ferris: Yeah, the bubble, the biotech anti-bubble, right? If you just get a – just look at a chart of, you know, like a biotech ETF, or one of the big biotech stocks, and it's been hit pretty hard. And you can see, if you'd get like a five-year chart, it's just this massive mountain in the middle of it, and then, you know, back down to reality, and then some today. And some of these stocks are super, super dirt cheap. And we know a guy...

Corey McLaughlin: Yes, the higher rate era has not been kind to biotech, obviously, because, you know, the capital you need to fuel this, a lot of this investment in, you know, a lot of it's speculation. And so that has been one effect of you could trace it back to however far back you want to trace it back to, stimulus, high inflation, higher rates, whatever. But bio, you know, one of the consequences has been biotech stocks getting beaten down. And yes, that's one of the things our guest Erez is going to talk about in great detail, so...

Dan Ferris: Right. And just like before we bring them on, I just, I can't resist just sort of – I'm just grabbing a chart. I'm just, on the fly, this is the this is the kind of live action you get on the podcast, just on the fly grabbing a chart of the XBI biotech ETF, and it's 46% below its peak. And it peaked actually in like February of 2021, when all the other sort of, you know, techy stuff, like, you know, the ARC Innovation ETF, and all that other stuff started peaking in like February, March of 2021. And biotech did the same thing.

And, like, the peak is like a really sharp upside down V. And it has collapsed, and now it's down like 46%. And it was a lot lower before then. But some of these stocks are absolutely dirt-cheap. And our guest today is a very thoughtful investor named Erez Kalir. And Erez loves this space. He has done some deep research into it. He's got it sealed up. I mean, I don't know anybody who's on this trade the way Erez Kalir is. So let's talk to him about, you know, biotech, and let's talk to him about anything else, because he's a really smart, thoughtful investor. So get a pen and paper, I'm sure he will say a lot of things that you will want to write down. All right, so let's talk with Erez Kalir. Let's do it right now.

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Erez, welcome to the show. Glad you could be here.

Erez Kalir: Dan, thank you so much for having me on. Fun.

Dan Ferris: All right. And of course, I have my good cohost, Corey McLaughlin with us, and we're going to pummel you with questions for 30 or 40 minutes here. So, before we hit record on this, you had said that you were a reader of my newsletter Extreme Value for many, many years, which I was very happy about, of course. But does that mean, can I infer from that, that you are a fundamental bottom-up-oriented value-focused investor?

Erez Kalir: No.

Dan Ferris: No? All right, good. How would you describe yourself as an investor?

Erez Kalir: Like you, I'm a student of investing history. And if you're a student of investing history, there are certain – a bit like a literary canon. You know, it's probably the case that anyone who's ever been a student of literature has read the Bible, about the Old Testament and the New Testament. Probably has, you know, certainly if you're speak English, you've read Shakespeare. You've probably read Chaucer. You've probably read Dickens. And there's a whole kind of canon of people who you study, and you studied them for a reason.

And I think that investing is similar. We can debate a little bit about who belongs in that canon, as, you know, as investors, but there are certain names that are probably going to be indisputable. So I think that Buffett isn't – Buffett and Munger are probably names that are going to be indisputable. Ben Graham is probably going to be a name that's indisputable. You know, I would guess that names like Stan Druckenmiller and David Tepper are also going to be indisputable. So anyway, I'll stop there.

But I think that what's interesting to me about all of the investors that I've just mentioned, is that if you've, if you look at the way they've invested over their careers, they've eschewed or avoided the kinds of labels and micro specialization that has become sort of de rigueur in the investing and finance world today. So today, we invoke dichotomies, like fundamental bottoms-up, you know, security-specific stock analysis, versus macro investing, or, you know, top-down macro investing. And I just don't think that those kinds of dichotomies were helpful or relevant to all of the people that we just mentioned.

You know, so for example, Benjamin Graham, who, of course, is commonly sort of referred to as the father of value investing, you know, literally wrote the book, right? Wrote the book Security Analysis... that every value investor, including his prize student, Warren Buffett, you know, that was the mother's milk that they drank from. If, you know, I know, I don't have to tell you, because you are who you are, Dan, there are entire chapters of the, you know, however many pages, 900 pages, however long it is, of security analysis, that are devoted to what most people would call sort of the macro environment, and macroeconomic indicators, and how they are relevant to investing.

So, in any event, I guess what I would say about myself is that I've I once likened my own mentor in the investing world, Julian Robertson, to the old champions, Swiss army knife, you know, like that big fat, you know, super big Swiss Army, like a Swiss army knife, not the small one, but the big one that had every tool in it. And Julian had this extraordinary gift that he could pull out whatever tool was most needed, or was most relevant. So in a lot of investing environments, he knew how to read footnote, sort of 57 in the, in the annual statement, and how that sort of changed the analysis of the cashflow statement, and can follow those threads with exquisite granularity and detail.

And in other situations, to my mind, notably in the financial crisis in '08, '09, he understood that those kinds of details were not going to matter, and that the only thing that mattered was to pay attention to the burndown happening in the financial system. And if you got that right, nothing else was really going to matter. So it's to my mind, it's a question of trying to have as many tools as you can in the Swiss army knife, and knowing – and then having judgment about understanding what season you're in, and what kind of investment opportunity you're being presented with, and identifying the appropriate tool, or tools that are relevant to that season and that opportunity.

Dan Ferris: All right. That actually – I've gotten similar answers from people who will say, "Yeah, I'm a value investor," but they tend to be, you know, sorry for my simple – simplified labels, but they tend to be like macro aware, they describe themselves as macro aware value investors, like, nobody really can put their head in the sand about, you know, things, especially during events, as you described, like the financial crisis. But that was actually a much better explanation of it, than we often get.

So with that framework in mind then, do you find yourself, like, on a spectrum? It sounds like if we use the Robertson example of the of the financial crisis, there's a spectrum there. Right? Sometimes footnote 57 is the only thing that matters. And then at the other end of the spectrum, the macro environment is all that matters. I'm going to guess that there's, you know, sort of almost like a bell curve, right. You're, you're mostly, you're sort of in the middle, combining these things in various proportions. And I wonder, you know, maybe we should characterize your view at the current moment, and that would help us gauge, you know, how you think about that balance? You think that would work?

Erez Kalir: Yeah. I think that's exactly right. I mean, I like the, I like the bell curve metaphor. I also like, the sort of yin-yang metaphor, because I think that, you know, most – so I think you're right. I think that there are extreme seasons. There are extreme seasons in investing, where one or the other, it almost sort of entirely kind of dominates the other. You know, there are times when the really the only thing that matters is what's happening in the big picture in the macro. There are other times when the macro just is in a sort of steady state, and one really can't make – there's not much alpha to be had by paying attention to the macro piece, and one really needs to press very hard on the security specific fundamentals and the security specific analysis.

But I think for a lot of the time, we're some – we are somewhere in the middle, and there is a yin-yang, and there is alpha or contribution to be made by being thoughtful, and developing a variant perception in both pieces of the, of the analysis, both in sort of having a point of view about what's happening in the big picture of the world, and also pressing hard on individual securities, and why one is selecting them. And I do think that that – that is the environment we're in today, like I at least for at least as I see it.

You know, like we are we are living through, I think, a deeply unusual economic period in the history of the world, and especially in the history, the economic history of the United States. And I think there, I can enumerate kind of many reasons why I believe that to be true. So I think that it's very important to have a point of view about the big picture and how it sort of frames the investing world. But I also think that this is unquestionably a time when stock selection, or security selection, we're actually both asset class selection and security selection within asset classes, provide opportunities to generate alpha.

Dan Ferris: All right. Do you have – I'm not sure which one to go with, but I think asset class is the one I want to go with after that. Do you have an asset class, right now, outside of or whatever it is, whether it's whether it's inside or outside the stock market, that you sort of are focusing on, or one, or two, or five, or anything right now?

Erez Kalir: Yeah, I mean, look, it would be remiss for me not to talk about the one that I write about, which is, which is biotech. But strangely, you know, I would say that the word "biotech" and the word "value investor" don't usually go hand-in-hand. Right? Like it's almost, it's almost like an oxymoron for you to – for one to describe oneself as a biotech investor and value investor. It's almost quintessentially an area of growth investing, traditionally, right?

Dan Ferris: Right. And speculation, for sure, yeah.

Erez Kalir: However – yeah, and speculation. However, over the past two years, so I would trace the origin of the modern biotech sector to the IPO of Genentech. I think Genentech was the first important public company to become public and IPO. And I believe, my memory is a little bit foggy, but believe that IPO-ed either 1980 or 1982. In any event, in that span of years since then, the biotech sector has never really had to live through the type of interest rate hike cycle that the Powell-Fed just put the U.S. economy through. Because in some ways, like the biotech sector was born during the tail-end of the Volcker era, in the early 1980s.

And so from the early 1980s, forward, basically, for the ensuing 45 years into interest rates move in one direction. They move down, right. So Paul Volcker hikes rates to wherever he hikes them to, 18%, or wherever it topped out. And ever since then sort of rates come down, and down and down. Eventually, in the Bernanke-Fed, and the Yellen-Fed and the Powell-Fed, they get pushed into sort of negative, the bizarre sort of, sort of perverse world of negative interest rates.

In any event, then we get the COVID crisis, and we get sort of double monetary stimulus and fiscal stimulus that happens during the COVID crisis. The Fed prints a lot of money. You know, I think the Fed prints about $5 trillion to help pull the economy through the COVID crisis, and we also get a massive fiscal stimulus bill. And so an enormous amount of stimulus is rejected in the economy. We get – predictably. we get inflation, and inflation actually materializes this time. And the Fed appreciates that, you know, they've seen this movie before. They know, they know the playbook that you're supposed to do when you see inflation, so they hike interest rates dramatically.

And this obliterates the biotech sector. The biotech sector experiences the most epochal bear market that it's seen in its history. And so, you know, the mainstream biotech indices declined by something by 30 to 50%. But the small and mid-cap public biotech sector, which is really the part of the biotech sector that I think is more interesting, because it consists of young emerging biotech companies that are exploring breakthrough science, those companies declined by somewhere between 70 and 95%.

And it's not just that they declined by 70 to 95%, but we now get the truly kind of bizarre and I know you'll appreciate this, Dan, as a value investor, we get the bizarre anomaly of having several hundred of these companies, which are public, trade at negative enterprise value. And –

Dan Ferris: One of my standards screens.

Erez Kalir: Yeah, exactly. I mean, this is a screen – exactly, this is a screen that comes out of Ben Graham's security analysis, and Ben Graham's own sort of Graham – Graham and Dodd sort of hedge fund, that the, you know, you know, that he that he ran, you know, net-nets. You're not supposed to see kind of biotech net-nets. And you're especially not in these are actually not even sort of net-nets by a little. You know, now we're talking about companies where the net cash on the balance sheet is three or four times the market cap of the company.

Dan Ferris: Whoa.

Erez Kalir: Right?

Dan Ferris: Whoa.

Erez Kalir: And there's not just one of these, there's not just one of these companies. There are dozens of these companies.

Dan Ferris: Wow.

Erez Kalir: And so just to be clear, if one were running a focused activist hedge fund, you know, like a Buffett style, I mean, Buffett liked to sort of play nice, and didn't really like to put guns to people – people's heads. But if one were running, I don't know, like a Dan Loeb-type activist, you know, value-focused activist hedge, hedge fund, one could go to these companies and just, in effect, sort of run proxy fights, and take over the board, and force them to shut down, and triple one's money, in effect, just by liquidating the companies.

And there's a, you know, there's a well-known kind of activist named "Kevin Tang" in the biotech world, who does, I mean, doesn't quite, he's not quite that aggressive. But that is kind of part of his strategy to get these companies to liquidate and to return cash to investors. But I think for passive investors, who don't want to run that activist playbook, these companies now, to use the title of your lovely publication, which I'm a huge fan of, these companies now represent "extreme value." And so one can sift through them one-by-one, as I have done, or as I am doing, and find, you know, the babies that have been thrown out with the bathwater.

Corey McLaughlin: Where do you begin to evaluate – to that point, where do you begin to evaluate a biotech company that's worthy, compared to one that's not, aside from enterprise value, which, you know, you're looking at this group of companies that's way undervalued? How do you start to differentiate between the ones you want to look at more, and the ones you don't?

Erez Kalir: Wonderful question. Really thoughtful question. Thank you. I tried to answer this in the very first issue that I wrote for biotech frontiers, which is actually an homage to an issue that Porter Stansberry wrote many years ago for Porter Stansberry's Investment Advisory, which is my favorite ever issue. I've been a PSA reader for many, many years, I think dating back to 2007. And in 2009, Porter wrote a really wonderful issue, that has stayed with me ever since, called "The Seven Secrets of the World's Greatest Investors". And it was an unusual issue for him, in that it was not so much focused on one specific stock pick. Frankly, I've even kind of forgotten which pick, even though I've reread that issue many, many times in the years since, I've kind of forgotten which stock he recommended, even though I do remember many things that he recommended, specifically. Right?

I recommend – I remember the issue where he predicted that Fannie Mae and Freddie Mac would go bankrupt, when that was very non-consensus. I remember the Hershey's issues. I remember the PNC Insurance issues. So it's not that I don't remember Porter's picks, it's just that I don't remember the specific stock he wrote about in this issue. And instead what that issue was about was seven methodological tools, seven things that should be in your Swiss army knife that were not obvious, and that were in some ways contrary.

And so my favorite specific one of them was you can time the market. You must time the market, which is a very, I think, contrarian thing to say, because the cliche in so much of investing circles is, like, time the market? No one can time the market. You know, you can't time the market. You've just got to dollar-cost average or whatever. So in any event, that issue for people who haven't read it, I think it's well worth digging up. It was published sometime in 2009, so it's somewhere in the archives.

But with that issue in mind, I tried to write, when I launched with Porter's backing, Biotech Frontiers, the first thing I did was write what I call "The Guidebook". And I picked seven factors that I thought were relevant to studying and exploring opportunities in biotech. So it's a seven-part framework. The first factor is the science. The second factor is what I call the opportunity, which is really a way of sizing the addressable market, and performing an expected value analysis.

The third factor is the cap table. The fourth factor is the balance sheet. The fifth factor is the macro – sorry, the catalysts. And we can talk more about sort of catalyst, because biotech stocks tend to be kind of catalyst-driven. The sixth factor is the big picture, and how the big picture bears on the opportunity. And the seventh factor is what I call the overall risk reward. And there's some ways that I think about framing risk reward. So those are seven factors. I think all of them are really relevant to analyzing opportunities in biotech. And I think that in different – for different specific opportunities, different ones of them can play, you know, a more important role.

So for example, one of the early, sort of, stocks that we focused on, in an issue we published was a company called Iovance, which is pursuing some really, really important breakthrough science, that was attributable to one of the fathers of cancer immunotherapy, a guy named Dr. Steve Rosenberg, who is the Chief of Surgery at the National Cancer Institute, and probably one of the three most important scientists in the history of cancer immunotherapy.

But in any event, Iovance had a series of really important catalysts that were upcoming. And so when we wrote about Iovance, we paid special attention to the catalysts. But that's just an example. Right? I think any one of these seven factors, or any one, or two, or three of these seven factors can play an especially important role in driving an investment thesis.

Dan Ferris: The one of your seven terms, that readers might not be immediately familiar with, it's sort of familiar sounding, is the phrase "cap table". Can you tell them real quick what that means?

Erez Kalir: Yeah, sorry, "cap table" is short for "capitalization table". And the capitalization table is just a list of who the company's largest shareholders are. And I divided the world, I divided the world of the cap table into three important sort of subcategories that we like to pay attention to. One, I think is known and familiar to you, Dan, because you write about it, which is the insiders. Right? So we pay attention to insider ownership.

We like to – we pay special attention to companies where a large part of the company is owned by a founder, or by a CEO, and where founders or CEOs are board members, but basically people who are intimately involved with building and running the company, have meaningful skin in the game. You know, that matters to us. And I think that is, you know, that's going to be recognizable to many value investors, right, because it's a, it's one of the sort of, I think, principles of value investment analysis that incentives matter, and that skin in the game matters.

And that also goes back, of course, to you know, in some ways the most canonical value investment stock, Berkshire Hathaway, you know, where you have Buffett with sort of his entire net worth in terms of skin in the game. So, that's one part of the cap table that we pay attention to. But there are two other categories that we pay attention to. One is called, what I've called "the smart money". And the smart money consists of a relatively short list of the 20 sort of most accomplished biotech investors in the world. Now, some of these are hedge funds. Some of these are individuals. Some of these are venture capitalists. They have different labels, you know, but what they all have in common is that they're extremely experienced.

You know, the, the value investment term here would be "circle of competence," right? Like, these are investors, who, whose circle of competence is biotech and biotech investing. It's all they do. It's what they focus on. They frequently employ an entire small army of medical doctors and PhD's on their investment staff to really get deep into the science of these companies. And we have an opportunity, in effect, to swim alongside them, right, to let them do the heavy lifting, of, you know, of cracking, which of these companies are most scientifically promising.

And so I mean, just give you one example, right. Like, I think that up to a few years ago, the hedge fund on Wall Street that had the most successful 30-year track record, in terms of the net rate of return, was a hedge fund called Perceptive Advisors, which is run by a guy named – founded and run by guy named Joe Edelman. And Joe's a self-made billionaire. He launched Perceptive with like seven or $8 million, which is a lot of money to a normal person, including me, but not a lot of – not a lot of money in the hedge fund world. Right? So it's not like he's launching with hundreds of millions of dollars.

And basically, just by being consistently right about picking biotech stocks, you know, he translates this $7 million, 30 later into $8 billion, and compounds at like a 31% net rate of return. Perceptive Advisors makes big bets. Right? Like, there are situations where they will, they will put a billion dollars into a biotech company, or they will own like 20% of a biotech company. It's not the only way that they invest, like they're not always concentrated, but they will occasionally, you know, swing really hard and make big bets. And they have a track record of being right when they make those big bets. Right?

So when I study a biotech company, and I see Perceptive Advisors in the cap table, and then I cross check. And I come to appreciate that this is not like a small bet for Perceptive, but this is like a meaningful bet for perceptive, either because they put a lot of money into it, or because they've decided to in a smaller company, you know, company that may have like $100 million market capitalization or $200 million market capitalization, they've decided to own 20% of the company, which is an amount that's going to be very difficult for them to undo. You know, like, they're not easily going to be able to sell 20% of the company.

That matters. You know, that I my ears prick up, and I pay attention to that. So that's the – those are the what I call the smart money, and then the last category are the whales, which are the Fidelity's, and Wellington's, or Big Pharma, you know, like Pfizer or AbbVie, you know, when you see big whales take a stake in a small biotech company, that's very interesting as well.

Dan Ferris: Right. Wow. That's great. I feel like you just taught the whole audience how to be a good biotech investor.

Corey McLaughlin: Yeah, for sure. If I, if I can ask you, you mentioned catalysts earlier. Why are the conditions right for biotech stocks right now? I mean, you've talked about, you know, the trend of rates going lower since the Volcker era, and then what we've seen the last couple years. Is it as simple as the Fed has been signaling rate cuts, you know, might be coming later this year?

Erez Kalir: I think that's part of it, but I, but I don't think that's the whole story. I mean, Dan, one of the things that I love about your letter is, you know, like, you focus on – so let me take a step back. I think that one of the, one of the really kind of hard things to get one's head around as an investor, is that it's virtually impossible to succeed in investing, doing what most other people are doing. It's almost definitionally impossible, you know, to succeed as an investor if you do what everyone else is doing. You have to find a different way of doing things if you want to succeed.

And one of the things that I love about your letter, Dan, and which I've just appreciated about your model, is you have an affinity for focusing on parts of the investing world that are hated, and reviled, and regarded as sort of untouchable or uninvestable. And I think that you – whether that's a, whether that's a particular kind of cluster, or niche of the stock market, or whether that's a specific company that's regarded that way. And I think that that's – I appreciate that and I like that, because that way of thinking about things, almost ensures that you're not going to be making a mainstream herd-like decision in the way that you invest. Right?

If you if you focus on companies, or parts of the sandbox that other people aren't regarding, you know, just won't touch because they're too afraid of them, or they're just regarded as an investable, for whatever reason. At least you know, that you're not, you're not following the herd, and you have a chance of finding something that's differentiated, and that can lead to investment success. And so I liked that. I liked that approach methodologically, in general. And it so happens that that describes the biotech sector today. Right? Like, the biotech sector has just been so badly – it's just been beaten like a redheaded stepchild, and people regarded as untouchable. So I think that's part of the story, too.

Dan Ferris: Yeah. I'll add another list. You know, you listed some investors, and you said, you can list more. I'll add another one to the list in light of your comments about extreme value. Howard Marks, who...

Erez Kalir: Yes.

Dan Ferris:... I like his framing, because what he says is, like, we all know, what's been what's been beaten up. But at the other end of it, if you say, you know, if you tell me about Nvidia, and you say, they invented the GPU in 1999, and you know, in this year, and this year, and this year, they improved upon it. And it was just for games at first, and now it's for AI and etcetera, etcetera. And Marks would say, "Wow, that's really impressive." And of course, Nvidia, right now, is a very impressive company firing on all cylinders. And all those things are true. And Marks would say, "Who doesn't know that?"

And I think having that framing at both ends of the spectrum, does exactly what you just said. It gets you away from the herd, which is where you have to be. I'm really glad you made that point. And I'm also glad that you're such an Extreme Value fan. I have to say, I didn't know that. I want the listeners to know that. I did not know that.

Erez Kalir: A thousand percent for many, for many, many years. I like to read things. You know, I've never quite accomplished it, Dan, but I'm mindful that the very best investors, you know, when you talk about – I mean, Munger – and Buffett and Munger have said this over and over again, that they spend all their time reading. You know, they spend like 12 hours a day reading. They'll read like 500 pages a day. And I've never gotten to a point where I have enough – I've designed my life well enough to be able to read 500 pages a day. But I try at a minimum to read 50. And I like to read things that teach me something, and I've definitely – your letter falls into that category.

Dan Ferris: All right, thank you. I didn't put him up to this, folks. He's just speaking off the cuff. I don't know why I feel – I think I'm joking, you know, when I say that, because it's sort of obvious that I didn't do it.

Corey McLaughlin: I can confirm that, Dan. I'll confirm that for everybody.

Dan Ferris: All right. Thank you.

Erez Kalir: No, if you [crosstalk] listen – sorry, go ahead.

Dan Ferris: No, no, no, go ahead.

Erez Kalir: I was going to say if you and I knew one another better, you would know about me that I – yeah, I'm not someone who can be put up to – when I, when I was, you know, when I was a younger person I was constantly accused of being – of lacking tact. So I don't think that saying nice things about people is you know, for whatever reason, unless it comes from an authentic and sincere place is something that I have had an issue with in my, in my life. Quite the opposite.

Dan Ferris: OK. Well, I can appreciate that. My wife might say similar things about me from time-to-time. But again, I've – in my case, I've naturally tended, since childhood, to sort of overcompensate. I go to extremes. You know, I'll say something that I know is going to sort of rankle someone or whatever, and then I'll be – I'm like, almost like obsequiously kind of polite the rest of the time. So far, it seems to work.

Erez Kalir: Very human.

Dan Ferris: Yeah. So all right, now that everybody knows, you know, who you and I are...

Erez Kalir: Now that we know, that we know one another a little better, right?

Dan Ferris: Right. And actually, I feel like you've done so much already. Like, you've taught people, giving them this list of seven things here, is really great. Actually, now that I'm now that I've said that, let me, let me back up here for one minute. One of your seven items with your – that you're looking at for biotech stocks was the big picture. And I immediately wondered if it was the macro picture, or just sort of what's going on in the biotech science world? You know what I'm saying? Like, which big picture are we talking about, I guess, is the simple way to put it.

Erez Kalir: Thank you. So I think both big pictures are relevant. I put up – sort of put what's going on in the biotech world, under the first factor, which I call the science. You know, so I definitely think it's important to understand where the biotech sector is at, and sort of understand that both scientifically and commercially. So I'll just give you like one example there. Like antibiotics, hugely important area of medicine. Right? Like, we would not be life expectancy, human life expectancy in the developed world would not be where it is today, without sort of the advent of sophisticated antibiotics.

And I think even sort of casual readers about some of the medical and biological world understand that we're facing a serious problem of antibiotic resistance. But for whatever reason, and it's a complicated set of things that have contributed to this antibiotics is a really difficult area to build a successful company in. And it's also difficult area to find attractive investment opportunities in. So that's just one example where you have an area of medicine and biotech that's hugely relevant to humans from a public health standpoint, but doesn't necessarily translate into good business results or good investment results.

And so just being mindful of those kinds of things, in both directions, I think is important in the world of science. But the sixth factor that you're talking about in my seven, in my list of seven, which is the big picture, is the economic big picture, the macro big picture economically.

Dan Ferris: Mm-hmm. All right. OK. I would just wanted to make that distinction. So, Erez, I love your, like, intensely-detailed explanations of things, because I'm just sitting here taking notes. I think I've, you know, I've got more good useful stuff than I normally get when I take notes during an interview. So thank you for that.

Erez Kalir: That's so kind of you, Dan.

Dan Ferris: Yeah. Hey, good of you to do it for me. And so we're at about the time when I'd want to ask my final question. Which, I guess this is your first time on the show, so you've never you've never answered it before. And I hope you don't know what it is because it works better that way.

Erez Kalir: I have no, I have no clue what's – I have no clue what's coming. So I am – this is fun.

Dan Ferris: Excellent. Excellent.

Erez Kalir: Hit me with it.

Dan Ferris: All right. It is the same question for every guest, no matter what the topic, even sometimes when we have non-financial guests. Same question for everyone, no matter what. And if you have already said the answer, in some form or another, please feel free to repeat it. That's OK. But the question is very simply this. If you could, this is your moment to sort of leave our listeners with one thought. And if you could leave our listeners with just one thought, or one idea today, what would it be?

Erez Kalir: I'm going to take this in a direction that's very different from investing, because I think implicit in the question is an invitation to do that. And maybe the way to segue into my answer is to think about what investing is ultimately about. You know, one of my mentors early in life, who was hugely important to me, and is still alive, he actually was someone who did the first big leveraged buyout, said that for him money and investing were all just about security, and obtaining kind of security.

And if you then push on that a bit more, and you – or you maybe pull on that a bit more, not push, and you think about sort of what's – what is security about? To my mind, like security is about the people that we love. It's about – it's not so much about ourselves, it's about our loved ones. It's about our spouse or our partner. It's about our parents. It's about our kids. It's about our grandkids, if we have grandkids. It's about our family. It's about our friends. It's about our community.

And so more and more, I think there are seasons of life. You know, I'm in my early 50s, in this season of life, I'm more mindful than I ever have been that the true meaning of life is about being present, with the people that we love. And really being present with them, like not being distracted, not being on a phone, not being on a computer, or not having one's mind on work. But savoring that, savoring that presence with the people who matter most to us. And so I suppose if I, if I have one thought to leave people about, which is I know very distant from investing, that that would be the thought.

Dan Ferris: Excellent. We get more of these type of answers than ever. Before, when we asked the question, when I first started asking it, I don't know, a couple years ago, or so, the answers were all financial, you know. But now more and more of the answers, many of the answers I would say, are similar to what you just said. And we're very grateful for them. We've had – Corey and I have talked about how important these answers are, more so than the financial ones. And we feel like almost – we feel like there's a whole another show to be done about all of this. So I thank you for that. You've contributed to what has become a wonderful trend in this show, and I'm really grateful.

Erez Kalir: I'm so happy to hear that, Dan. I'm really heartened to hear that. Like, I wouldn't have wanted to – it's interesting, right? Because when it comes to a conversation about investing, I hope I've said a few things that are novel, but when it comes to this last question, it's not my aspiration to say something novel. And in fact, I'm really – my heart is fuller, knowing that other people have given voice to some things, you know, to thoughts that are similar.

Dan Ferris: Great. And, you know, overall, Erez, thanks. You've been a wonderful guest. This has been a great conversation. You've taught us a lot about biotech, and investing, and even life, as we just found out. And we're really glad that you could make it today.

Erez Kalir: And I'm delighted and I'm so grateful, Dan. I hope maybe downstream, I'll have a chance to come back.

Dan Ferris: Oh, you will definitely be invited back. I promise you. You will definitely be invited back.

Corey McLaughlin: Yeah, please come back.

Erez Kalir: I look, I look forward to that.

Dan Ferris: Excellent. So do we. Thanks again.

Erez Kalir: OK, have a great day.

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Wow, what a guest, huh? I mean, that was awesome.

Corey McLaughlin: Yes. I would say so. Articulate, way more than me. And eloquent, and, you know, tons of experience that we could talk about. But yeah, just great outlook and explanations on what he's, what he's looking at investing in right now...

Dan Ferris: Yeah, I think when the show –

Corey McLaughlin:... in biotech.

Dan Ferris: Yeah, when the show generally, I think we've done a good job. Like, the trend in the interviews has been to let the guests talk as much as they want to and let them spell out their ideas completely. Absolutely. And Erez reminds me a little bit of another recent guest, Rick Rule, who we just had on again. We've had him on more than once, known him for, you know, decades. And they're both like, it's that really, as you say, very eloquent. The eloquence is obvious, but with all those words that they say, that they spin out, there's so much good information.

You know, when they stop talking, I'm almost disappointed, because I want more and more and more. And it was great. I took the notes and I took a lot of notes, I should say and, and it makes me want to go do homework. They both leave me with that feeling of wow, I've got to go look into all this, you know?

Corey McLaughlin: Yeah, I feel like you're going to go find some picks for Extreme Value. Like, that's what I feel like. Yeah.

Dan Ferris: I think Erez is, very obviously, a very brilliant guy. And I think he could probably get more comfortable with the science end of biotech than I could. You know, I could see myself maybe doing like a biotech fund in the Ferris Report. I don't know if I see us recommending biotech in Extreme Value. But if Mike Barrett comes to me with one of those ideas, I'm going to have a softer spot in my heart for it now. You know, if it's soon, and if they're still this cheap and stuff.

But I've – I do that I run that screen, we were talking about negative enterprise value, I run that thing all the time. And I've noticed for some time, it's been like, just, it's all biotech there. You know, all the best ones are biotech. So by that, I mean cheapest, many of the cheapest ones. So it's good to hear that a guy that's smart, who does that kind of deep work, is interested in using that screen to find those things. That's great. That was – that really, that, and the fact that he kept saying how great Extreme Value is.

You know, this was like the you know, almost the practically the mutual admiration society, because I love his work, and he who knew, he loves mine. So I hope people believe it's all real. It really is, I promise. OK, with that, you know, I just really can't tell you how much this is the best part of my day when we do some of these interviews, man. And so with that, you know, that's another interview, and that's another episode of The Stansberry Investor Hour.

I hope you enjoyed it as much as we really, truly did.

We do provide a transcript for every episode. Just go to InvestorHour.com. Click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com, please. And also do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week I'm Dan Ferris. Thanks for listening.

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