Investment Strategy Evolution: Whitney Tilson emphasizes the shift from traditional value investing to focusing on owning high-quality businesses, suggesting investors should identify the top 100 businesses they understand well and buy them when the market undervalues them.
Case Study - Meta Platforms: Tilson highlights Meta Platforms as a prime example of a turnaround opportunity, noting its stock dropped significantly due to temporary issues, which he identified as fixable, leading to substantial gains.
Letting Winners Run: A key takeaway is the importance of allowing successful investments to grow, as Tilson shares personal experiences where premature selling led to missed opportunities for massive returns.
AI's Impact on Stocks: The discussion covers how AI could affect companies like Salesforce and Adobe, with Tilson suggesting that while AI presents risks, it also offers opportunities for these companies to innovate and potentially enhance their business models.
Market Valuation Concerns: Tilson warns against investing in overvalued stocks, using Palantir as an example of a company with excessive valuations that could lead to significant losses if the market corrects.
Index Fund Strategy: He advises a diversified approach to index fund investing, suggesting a mix of traditional S&P 500, market cap-neutral funds, and international exposure to mitigate concentration risks in the current market.
Speculative Opportunities: Tilson mentions Joby Aviation as a speculative investment reminiscent of early Tesla, highlighting the potential for significant returns in emerging technologies like electric vertical takeoff and landing aircraft.
General Investment Advice: He cautions against get-rich-quick schemes, emphasizing the importance of long-term, disciplined investing to build wealth sustainably.
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McGlaughlin, editor of the Stansberry Daily Digest. Today we talk with Whitney Tilson, lead editor of our Stansbur's Investment Advisory. Get out your pens and pencils, folks, because Whitney has a headful of knowledge that he will share with you now. He loves to share it, and you should write it all down. Let's do it. Let's talk with Whitney Tilson. Let's do it right now. Welcome back to the show. Always a pleasure. >> Pleasure is all mine. Thanks for having me, Dad. >> You bet. Uh the first thing our our listeners know you well. So I'm just going to like dive into the deep end and you know we'll talk about stuff. Um the first thing that I that's on my mind um about you today as I read your daily uh for those who don't read it they're really missing out. Whitney goes through individual stocks in some way shape or form just about every single day and and other topics too. It's really good. Anyway, um, you know, he's a colleague, so, you know, take this however you will, but I promise you won't be disappointed. >> So, yesterday that I read it every day. So, >> yeah. Yeah. >> Almost every day if I can. >> Yeah. >> So, yesterday, um, Whitney, you mentioned Salesforce and and there were two things. One is I'm wondering if you're continuing to look at the stock because it sounded like you really were getting interested in it. Um, and the other thing was, if I can quote you here, said, um, this isn't a company or sector I've been following closely over the years. The valuations have always been too high. I know you're a a a value guy kind of at heart, but I know also years ago you just started describing yourself as a make money investor. Like you didn't want to be called value investor, you want to be called a make money investor. So, you know, we can talk about either one of these things first, but I wonder if you wouldn't mind addressing both of them. >> Sure. Well, uh let me uh give a little bit of context and background uh for what I mean by make money investor. Um, I would say for most of my investing career, um, you in any investing any everybody basically who's who's actually investing as opposed to, I don't know, spec trading or using quant models or whatever, but anyone who's actually looking at companies, you know, the world tends to fall into growth investors and value investors. Uh, I consider myself a value investor. I've been to 26 Bergkshire Hathway annual meetings. I pray in the church of Graham Dodd Buffett and Munger. Uh and so uh everyone is balancing. They want to buy good businesses and they want to buy cheap stocks and unfortunately there's most 95% of the time or 99% of the time there's a tension between those two because good companies tend to have richly valued stocks. So um as a value investor I would say what I did is I took the hundred cheapest stocks in the universe and then I tried to find better businesses among those hundred cheap stocks. And in hindsight that's exactly backwards. What I what I do now and what I would recommend that anybody do if they want to be a successful long-term investor is find the hundred greatest businesses in the world that you understand very well. like don't get outside your circle of competence or anything like that. Just find a hundred great businesses, study them closely, and then try and own 10 of them, maybe 15 at any given time, and try and buy them or add to them uh when their stocks get sold off when the market makes a mistake. So, a classic example, probably the best example I can think of in the last five years was Facebook's Meta Platforms in 2022. They were investing heavily in the metaverse. Uh they were getting hit by the rise of Tik Tok. The stock went down by almost 80% and I wrote a fivepart series in my daily. I gave it away for free to my to my 100,000 readers of my free daily and I said this is one of the two greatest businesses on earth. I cited Google/Alphabet is the other one and the stock's down 80% and these are all fixable problems. And sure enough, you know, the stock's gone from 90 to 700 or something. So, um, I'm I'm sort of doing the same. Uh, you know, I'll stop with the the long lecture here. Um, but, you know, I'm I'm always looking for situations like that. And, you know, yesterday, as you mentioned, I mentioned another tech stock, Salesforce, that, you know, stocks down 33% this year. And so, I'm sort of poking around seeing if that might be a good opportunity, >> right? And uh so so the comment about valuation is sort of um you you gave that a pretty nice context. I feel you can't you you can't get stuck in cigar land, but you also have to have some respect for for uh how much you pay. I I get that. Also, I note your your evolution from looking for the cheap to looking for the quality. Um I went through the same thing. I started looking for great businesses around like 2004, 2005, 2006 because um all the all the cigar butts that were around in 2002, 2003 a little bit, like they went away pretty quick because they always do, right? All the all the busted netnet tech stocks that had lots of cash, you know, more than the market cap or whatever, like that disappears and then what do you got left? Uh and a lot of them turn out not to be great businesses in the first place, right? as you point out and I feel like a lot of folks I mean I know Porter Stanbury has made a similar kind of evolution not exactly that but very similar um and this and Buffett himself made this evolution didn't he nobody sticks with the cigar butts they just they they can't do it anymore. >> Yeah. The problem with cigar butts is is you sort of have to trade them because they're not highquality businesses. They're probably declining over time and eventually no matter how cheap you buy them, if the business continues to deteriorate, the stock's going to do so as well. So, I will say so you you made an interesting comment there though. You said, you know, there are a bunch of cheap stocks like I remember buying McDonald's, Home Depot, like some incredible businesses back in O2 and early 03 during that selloff. Um, and then you're like, okay, then they go up and you you got to sell them and you know, then how what how do you replace them? And what I again, I would say the second biggest mistake in my investing career, other than um, you know, the one I mentioned earlier about fishing among cheap stocks as opposed to fishing among better businesses, the second mistake I made is I didn't let my winners run. And I would argue had you bought Home Depot and McDonald's at depressed prices in 2002 or early 2003, >> yeah, >> if you were sensible, certainly with the benefit of hindsight, you should still own them more than 20 years later. You never should have sold them, >> right? >> And that was the mistake I made. You know, the stock doubled, I sold half, doubled again, and I was out. And I felt like a genius. And instead, I was an idiot. I left, you know, I made I made double my money or three times my money and I left a 10 bagger on the table. And so that's the other key to long-term investment success. And I would particularly argue today when you've got so many supercomputers and the US market is so efficient. I think the only way to beat the market over time and there's no shame in index funds to beat the index funds you have to do what the index funds do which is uh hold for a long period of time and in particular hold on to your big winners because if you pick if you buy 10 stocks and you do it well and you've got 10 quality companies two of them are going to drive all the returns of your portfolio but you don't know which two. But here's the other key. If you sell them after they double, they're not going to be the big winners that you need to drive the overall portfolio's return. So, you got to let those two or three stocks, you know, after they double. Um, you know, there's no but it's sort of a tautology to say, you know, there's no such thing as a 10 bagger that first has it first has to double. Right. >> Right. >> But you'll never get a 10 bagger if you sell everything after it doubles. Right. >> Right. I'm going to implore my listener to um Google Robert Kirby the coffee can story and and read the coffee can story and notice that one stock overwhelmingly generated the bulk of the returns in that portfolio and his secret was that he just held he never sold ever. I mean the guy the story began when the guy died. So that's how long you hold these things. >> Yeah. I mean they've done uh there's a professor he may be at Arizona State you can Google this but okay he goes back and looks at the entire US stock markets returns and something like 2% of stocks account for virtually all the returns like over the past hundred years and here's the key the index funds bought Apple 20 years ago and they still own it they bought Amazon 20 odd years ago and they still own it over and over like the top 10 stocks today account for 40% of the value of the S&P 500. That's an all-time high. >> And what that means is anyone who owned an index fund owned those 10 stocks and rode them and rode them. And the problem is is virtually no active money managers have the patience and discipline to let those winners ride. You know, in the case of Apple, I mean, I owned it at 35 cents, Dan, 25 years ago, and then it went up to 36 cents and had a bad quarter and I sold it. Yeah. And if I had just held on to, you know, $10,000 of that, you know, I'd be I'd have many more millions to my net worth. Right. >> Yeah. Exactly. And and you're right. As as advantages go, this is simultaneously absolutely the lowest hanging fruit on the one hand and yet emotionally really difficult on the other for most people. >> Right? And here's the thing. If you can be smart 364 days a year, but if you're dumb on one day, okay, you didn't get a good night's sleep. Uh I remember Netflix um after uh I that was I nailed the stock of the c stock I wouldn't say stock of the century, but stock of the decade for sure. Yeah. >> Uh 13 years ago in um 2012, October 2012, I I nailed it so publicly. I went on national television on CNBC. Uh I spoke in front of a conference with 500 people and I said Netflix I compared Netflix in 2012 to Amazon in 2002. And 10 years apart, they had almost identical economic characteristics. They both had three billion of revenue. They both had 30 million customers. Um, but I said, "Netflix is an even better business." And I said, "So I I here was my exact quote. Netflix is this decade's Amazon." And Amazon over the previous decade had been a 20 bagger. 20 times your money. And it turns out I was dead wrong. Netflix was a hundred bagger. >> I was much too conservative, right? So uh, so what how did I play it? Did I make a hundred times my money? No, it doubled and I sold half. It doubled, I sold half, doubled again, I sold, and I was out. And I still remember one of those dumb days when I finally exited. It was because a well-known short seller, who I won't shame here, but his name would be known to any of you, contacted me and said, "Hey, I'm shorting Netflix. You know, are you still long it?" He he wanted to hear the long thesis. >> And this was after the stock had gone up 8x. And uh that spooked me out. I was like, geez, if this really smart friend of mine is shorting it, surely, you know, I don't want to short it. I had the good sense not to short it, but maybe I certainly don't want to be long it. And so, after making eight times my money, I left a 15 bagger on the table after that. The stock from from then today over the last 13 years up about 150 times. >> Wow. This is I know we've talked about this before, but it it's been a it's been a couple years. And it's worth talking about because for for for probably more than one reason, but I like this story of yours because um you know, you you didn't, as you say, you're a guy who looks at businesses. You're not it's not a quant thing. You're not a trader. You're really looking at businesses and you changed your mind. You did a 180 on the business, right? And it continued to be that business. And yet, you know, like you say, like we've all done. I've done it, believe me, plenty. Um, and yet, you know, you exited for whatever other reasons. Um, that to me is is the the kernel here. It continued to be a great business. >> We all know great businesses don't necessarily continue, right? There can be a time to sell, but there never really was. Interestingly, at one point, I don't know 10 years ago, I was dumb dumb enough to be long, excuse me, I shorted Salesforce in my hedge fund. And fortunately, I got out and saw uh that, you know, my analysis was that the company had virtually no um net income gap reported profits. But then I realized that's because the company uh was deliberately you know wanted to was reinvesting in the business was paying uh using a lot of stockbased compensation but the actual underlying cash flows were booming and this was a real growth business. So I figured out you know my analysis was wrong. I got out. It should have gone long given the stock how well the stock did. But now today, you know, the stock's uh pulled back uh and I'm more of a make money investor. And so, you know, with the stock trading at 19 times next year's earnings for a very high quality recurring revenue software as a service business, I think that's pretty interesting. Now, I need to evaluate whether AI is going to really impair the business and cause this to turn into a melting ice cube. That's the bare case. That's why the stock is down a bunch. But but I've had tremendous success in my investing career. Not very many cases where I was once short a stock and then I turn around and go long generally at a lower price. >> Right. I'm glad you mentioned AI because it's it's at this point in my opinion for for a guy like me it's difficult to tell. you look at something and I looked at one of the things I looked at was Accenture which you know if you just look at the the cash flow the results it's like wow okay something wonderful has happened here something incredible has happened here why was Dan worried about this thing being you know supplanted by by some other piece of software um you know in in fact a business like and I think and I think CRM is in the same category it could be like dramatically improved and made dramatically more efficient by AI or it could be I just want to say supplanted entirely by it and it's difficult to tell at this point. >> Yeah, it's very interesting you mentioned that because a bunch of my readers have said hey uh because I get a lot of my best stock ideas from my readers emailing me and just say hey Whitney have you ever taken a look at XYZ company and Salesforce in fact was two of my readers. Uh uh so Accenture, it's funny, is on my list and you know, I'll probably take a look at it u in the next uh uh in the next week or two. >> Yeah, talk to the altimmetry guys. They I think they know something about it. >> Um >> all right, >> AI real while we're on AI real quick. Uh I know one of the thing and letting winners run. One of the things you've been you've written about a few times recently I think in your daily is you know if people sitting on a huge position in the video or big gains in the video at this point like >> you know using these lessons that you've learned over time like how do you what's maybe you could talk about just a little share like a little bit about if somebody's riding some huge AI winner right now like what advice do you give to kind of manage that position? um coupleofold. I mean, we recommended Nvidia five years ago in one of our promos related to um autonomous driving and electric cars. And interestingly, Nvidia at the time was not an AI play, but they were making chips that would be used for um autonomous cars. By the way, I rode in my first Whimo in San Francisco on Friday or Saturday, just just a few days ago. And it I'm I felt like I was seeing the future. It was incredible. And and there were Whimos everywhere. Like every third car in San Francisco is a Whimo now. >> Wow. >> And it was so smooth. I was like, "Wow, I'm never going to go back." Given the choice, you know, I prefer not having a driver. And uh and so uh Nvidia uh getting back to your question was one of our recommendations and we never pulled that recommendation. Um and we recommended five stocks and four stocks, you know, collectively probably did a little worse than the S&P. Uh but it didn't matter as long as you held that one stock, but you had to hold it. So I've been covering Nvidia um uh for, you know, for many years since then. And I basically told people, look, if you own it, it it's always been too richly priced for me to really pound the table on it as it's, you know, up probably 20x since then. >> But I said, if you own it, if you have big gains in it, this is the kind of stock you've got to let your winners run. And this is a classic example of just an incredible business that's riding multiple waves, not but primarily AI. Um, and I said, "Look, if it becomes 75% of your portfolio, you might trim it for that reason. You got to be able to sleep at night." Um, and I also suggested, you know, putting in a stop-loss. Like, that's what I should have done with Netflix where after I'd made eight times my money. Why did I sell it entirely? The business was absolutely booming. Revenues were growing 40% a year in, they were moving internationally. They were raising prices. Everything I could have possibly hoped for was actually happening. the fundamentals were incredible. >> Yeah. >> And that's where you really got to let your winners run. So, I'm not saying never sell anything. Never take any money off the table. Uh but at the but if you're thinking of selling all of it, at least put in a 10% or 20% trailing stop loss. Now, with a volatile stock, maybe you want a 30 or 40% stop-loss. So, you're you're still going to get out and keep, you know, keep enormous part of your gains, but you you're leaving the upside intact. And in fact, I went and looked back if I had Netflix never had a huge pullback um uh for at least 10 years after I got uh after I was pounding the table at about $8 a share. I could have uh even even if I kept a fourth of my position with a stop-loss that that never got hit, a fourth of a 5% position that goes up a hundfold is you only need one of those in a lifetime. So, you know, generally speaking, I don't use stop losses. For example, if I get into a stop a stock at 10 and it goes down to eight, I think it's uh I'm not a believer and oh, you just have to sell it, right? But on the other hand, uh using a a trailing stoploss to to protect very large gains, um I I can see how that makes sense. But here's the other key is there are sometimes stocks that go up. You know, let me give you an example of a stock I've written negatively about. Apploven um or Palunteer are probably the two most overvalued stocks, not only in today's market, but that among large cap stocks with hundred billion dollar plus market caps. They may be two of the most overvalued stocks I've ever seen in my life. >> Yeah. And so it does like those those are I'm not sure if if somebody owns Palunteer today and they've made 20 times their money. I'm not sure I'd say sell it all tomorrow, but I might uh I I would I would be I I have a different view of Palunteer versus Nvidia. Nvidia is trading at 28 times next year's earnings. >> In other words, the stock's up 20x, but the earnings are up 20x. >> Right. >> Right. Whereas Palunteer is trading, I'm not making this up. It's trading at over a hundred times trailing revenue. Yeah. >> And almost 300 times earnings. >> So that's a stock, you know, if Nvidia falls 25% like value guys might start buying it. There's a floor there. Palunteer could fall by 90% and there's not a value investor on the planet that would buy it, right? There's no floor there, >> right? So, so um you know there's some techniques about using a trailing stop that I would apply but also uh you've got to understand the companies and and whether the current valuation is in any way warranted and and are the fundamentals supporting uh the stock as it's rising. The dream scenario is the stock goes up 40% a year for 10 years and the earnings go up 40% a year or at least the revenues which is what happened with Netflix. That's what I'm saying. I I should have been riding Netflix. >> Um, and by the way, McDonald's back in 2002. >> McDonald's never traded at 50 times earnings or something where you sort of have to sell it. It the the stock grew in line with earnings. And you know, those are the ones you can Berkshire Hathaway is of course the world the classic example. >> Um, you know, Bergkshire never traded at five times book value or whatever. You know, traded between one and two times book with Warren Buffett running it for almost for free, >> right? You know, I've got a friend who bought Berkshire at a few hundred a share and it's now over $700,000 a share and he still owns those shares. He bought in the 1970s. Yeah. For for folks who want a different um perspective that sort of underscores what Whitney is talking about with earnings and share price growing a pace. Um there's a paper called agency costs of overvalued equity by a guy named Michael C. Jensen and he talks about all the terrible incentives created by an a drastically overvalued stock. You and and an early example in the paper is Enron. He said it's probably worth 30 billion and the market said it was worth you know like 70 billion or something you know so 40 billion of excess equity. management could have been honest and tried to temper the market's expectations, but instead they tried to uh you know fraudulently work their way into a higher valu you know to justify the higher valuation. So um valuation when it gets this crazy like Whitney just described folks pay attention he has a serious serious point here. Um, >> right. >> I was It was funny. Just last week I was uh uh at dinner with uh my cousin who I hadn't seen in a number of years and we were sort of laughing. He was in one of the great uh stock uh bubbles of all time back in 2018. It was the cannabis bubble and he owned Tillray. Remember Tillray? >> Oh yeah. >> That stupid stock was a Canadian pot company >> had gone from like 10 to 150. insane. >> And he told me, "Hey, Whitney, I own this thing and I had just been on television warning people about this was an obvious bubble. Had no earnings. No, it was trading at over a thousand times revenue. Not making this up." And um and so I told him, "All right, Kyle, put in a 10% stop loss." >> And sure enough, the next day the stock doubled to 300 and then crashed to 100. And he's like, "Witney, I got stopped out." Um, and I was like, "Yeah, you should be thanking me." That stock today was at a $118. >> Oh, man. >> Uh, it was it was down by 90% within a month. And then is and then you think, "Oh, it can't go any lower." It's down 99% after falling 90%. >> Right. >> So, that's that's another good lesson, by the way. if don't don't get tempted, you know, by some obvious fraud or bubble. There they're, by the way, a whole bunch of Chinese uh companies trading on US markets where they're being promoted by unscrupulous people and WhatsApp groups and all. >> And uh and there, by the way, a stop-loss, a trailing stop-loss doesn't help you because when the when the promoters are finished promoting it, the stock drops 80 or more percent on one trade. There's no there's nothing in between. >> Yeah. >> They take they take a dollar stock, they pump it to $10, and then the next trade is at $2. And so there's no there's no chance to get out with a stop-loss. You just can't you just can't get involved with these. So, by the way, um, let me check the stock price today. It's the craziest stock I've ever seen. The ticker is QMM. >> Oh, yeah. >> Stock fraud. It's an outrage that the the markets um are are letting this thing trade. But >> yeah, we just had um we just had Edwin Dorsy on from the barricade. >> Yes. He's been writing about this and a credit to him for identifying >> he created a whole website. >> Yeah, he's created a whole website for this. Yeah, >> it has a 52- week low of 54 cents. And just last week, they got pumped to $33 a share. A week later, it's already back to 100. But I'm telling you, sometime soon, I would guess in the next week, the next trade on this stock will be at 10 $10. I could be down 90% in on one trade. >> Whitney, what was the guy's name? Remind me. Um, I think he's like a European guy, short seller, specialized in situations similar to this where they would just like evaporate overnight and go to zero. I want to say his name began with a G. Do you know who I'm talking about? I bet you. >> Gabriel Greg. >> Yes. Thank you. >> Yeah. Yeah. No, he's my buddy. uh and he's uh you know he nailed um what was the Greek uh jewelry company or apparel company and he he he has many notches in his belt. >> Yes. >> Um >> yeah where he identified uh Foley Foley was now I remember was the name of that Greek uh company where by the way the uh the managers uh went to jail. He identified a total fraud. >> Yeah. Um, you know what's interesting is like Foley Foley actually had a real business, but they were just fraudulently saying they had more stores than they did and all, but they actually did have some stores or whatever. >> Uh, this QMM, for example, like there's no business there. It's it's just a P.O. box in Shanghai or something like that. >> Um, and it's just a a completely manipulated stock. >> There you go. Um, I'm glad you brought up cannabis uh potstocks. Um, it's it's a in part in part it's another case where um you can actually identify u something happening legally and in society generally um and just the the investment thesis like doesn't play out. I I and and many people I know have been hosed buying MSOS, you know, the the ETF, >> the cannabis ETF. We just I we just decided to blow it out of my wife's 401k because we got tired of looking at it minus she only did like minus 40%. You know, other people have been absolutely obliterated on that thing. >> H but you c you can get these trends right and still, you know, the the investment thesis is wrong. And in a similar sort of a vein, we were talking about AI. And AI looks to me like it kind of looks a little bit like um the internet, which the dot mania was true. It was right. Trillions and trillions and trillions of dollars of value have been created, but that doesn't mean it was easy to like invest directly in it at the time, right? >> And I feel like AI has the has the potential to go the same way. >> Yeah. I mean those are these are three interesting case studies. Um I at one time was bullish on um cannabis and after it had fallen by 80% and the MSOS ticker was sort of away the ETF to play it and I too realized I was wrong and got out and thank thankfully I did because it fell a bunch more but it was it was a painful experience. >> Um you know what I got wrong there was the fundamentals um ultimately ended up being terrible for the public companies. Um, every state and Canada has different legislation. Um, it's still a schedule one drug, so they couldn't access the banking system, etc. U, but fundamentally, uh, uh, what happened is is there's a tremendous black market out there. And so the legal players are paying, you know, 50% taxes or whatever. And just look around New York. They've shut most of them down. But um after New York legalized cannabis, all these little pot shops popped up all over New York City and they weren't paying any taxes and whatever and they undercut the legitimate players and all. So the market hasn't grown nearly as much as I thought it would. But more importantly, the the the profitability has just never emerged because um everybody in the sector is sort of being undercut by the by the black market. Um, and I'm not sure that problem goes away. And then of course you just had all sorts of charlatans and conmen and you know like every good good bubble as well that >> has hurt the sector. So the internet, you're right, the internet got way ahead of itself, but it was a worldchanging development. Yeah. And the people who hung in there uh through the bust, you know, who rode rode the bubble in 1999 and early 2000. Then there's, you know, the NASDAQ went down by 80% between March of 2000 and October of 2022, uh, 2002. I remember it well. >> Yeah. um you know the stocks emerging from that you know Amazon uh booking uh holdings uh the travel company you know Apple of course you these have been thousand baggers >> in some cases um you know how AI plays out is interesting I mean look the spending is very real I just saw a chart of the just just the four big tech companies they're spending on on AI mainly the chips mainly made by Nvidia you know gone from 25 billion to 400 hundred billion in the last uh few years and there's no sign it's letting up. I just saw an interview with Mark Zuckerberg who says look we're going to spend hundreds of billions of dollars uh on this and I'm perfectly willing to accept that many tens even hundreds of billions of dollars is wasted because we cannot afford to miss what he calls super intelligence right so that's another you know that's the reason gee if I owned Nvidia and I hear that from the biggest customer one of the biggest customers of Nvidia you know I'm going to I'm going to keep riding hitting that winner, right? I might trim it a little bit, might have a stop loss to lock in some gains, but but you know, this this is going to keep going. Uh, you know, so I think AI is going to be revolutionary, but I do urge investors caution that, you know, you see all sorts of meto companies and charlatans and all coming in and they slap AI on the name on it, you know, reminds me back of the dot days, right? Um and so so investors should should be careful. This you know it's very nobody really knows how this is going to play out but AI is is I believe as legitimate and you know 20 years from now will be as world changing as the internet but as you pointed out a lot of people got wiped out investing in the area along the way. >> Right. And I'm glad you mentioned uh you know like the hyperscalers because they're simultaneously investing as you said hundreds of billions just the top hypers scale investing hundreds of billions in admittedly real infrastructure over time we you know if that performed like um you know all the fiber they built and the and the revenues cut in half while the usage soared a thousandfold over 20 years that wouldn't surprise me. But those same businesses are also huge players at the edge of the network. They're meeting the user head, you know, headon with with stuff people just love. You know, they're they're voracious for these products for, you know, social media or, you know, um whatever, you know, whatever Amazon selling today and and um and all the rest of it. So, yeah. Yeah. Streaming. That's right. The real thing I think investors need to do is make good judgments on where AI is going to hurt versus help versus be neutral uh companies. So, I've been pounding the table on Alphabet, Google for example, because I sign up for Chat GPT and I don't know, I pay $10, $20 a month for it, but I really don't use it very often because I just use my regular Google search that I instinctively have been using for 20 years or whatever. And now it gives me an AI answer. Google has built AI into their standard search. And so I'd say 98% of my usage of AI when AI searches or queries are just done through my traditional Google search and but it pops um Google Gemini up at the top and that gives me a sufficient answer. So I don't even need to go over to chat GPT. So my I've been arguing and pounding the table and you know the stock has really I've been proven right so far >> uh that you know Alphabet is is an incredible company and AI is not only not going to hurt the business but may uh help the business. Um the question getting back to Salesforce is the bare case. The reason Salesforce is sold down is um their cons uh customer relationship management CRM software um is perceived to be vulnerable where their customers could start using AI to to replace uh Salesforce's software. And that's um by the way a number of my readers I included in my daily today make comments that this is also why Adobe has sold off another software maker that makes Adobe Illustrator and um and you know products for hand it uh for creating graphics and um I I don't think those concerns are crazy but the question is is at what point are insanely great businesses with very sticky uh customers recurring revenue new businesses, you know, at what point do businesses that have historically traded at 35 times earnings are now trading below 20 times earnings where yeah, even if there's a little bit of an AI headwind. And by the way, they're scrambling to incorporate AI into their products the same way Google has done. >> Um, you know, at some point the selloff is overdone. You know the question is is >> you know Salesforce down 33% is uh you know could be could fall 50% if they if they report a weak quarter right um so you know that's the dilemma of you know value investors uh like me sort of buying fallen growth angels I would say >> uh so so it's uh you know this is this is why investing is hard right it's it's you got to predict the future and particularly when you have the introduction of something as massive as AI, it's hard to predict the future. But, uh, I've I've been pounding the table on Google. I've been pounding the table on Facebook. Even with their very high spending on AI, I think it's going to pay off in um, you know, many, many more years of high growth. Yeah, I agree with I think with all of that. Um I want to run another idea by you that that that falls hard upon this. I think that if you um have your list of hundred greatest businesses in the world, let's say, or even if you own the S&P 500, perhaps anywhere in between there, lots of highquality companies in a portfolio. Um, it seems to me like over time if you make virtually no effort to be invested in AI and you still hold this fantastic portfolio of great businesses, you'll be invested in AI. You it will happen. The greatest many of the greatest businesses will figure out how to incorporate this. They'll become more efficient or or they'll offer new products, whatever it is that they will do. If you own that large, you know, largestish portfolio, not just 10 names. So, I'm talking like, you know, an index fund or something, >> right? >> It'll be in there the same way the internet got in there. >> Yes. >> Um, that's the beauty of owning index funds and that's why index funds outperform virtually all active money managers. Um, and by the way, they so my default recommendation for anybody is you don't have to go become an expert on AI or uh, you know, have an opinion on Visa and Mastercard or the pharma companies or whatever. You just buy buy an index fund uh, and forget about it. And that's what my sister's done for her entire career. She's never owned an individual stock and she has a very nice nest egg because she did the basics right. She has been regularly employed with growing income, has built a nice career, but never had high income. She works for um uh in international development um you know, working overseas, done maternal health projects, that kind of thing. >> But every she's um she's had decent income. She has always lived beneath her means and has always had money deducted from her paycheck, put into a retirement account, and critically automatically invested in the S&P 500. She's done that for about 30 years. >> Oh, wow. >> Um, lo and behold, with never having high income, uh, having gone through two divorces, uh, etc., she's got a $2 million nest egg right in that in that retirement account. >> Um, and through and never picked a stock in her life. Like that's and that's the track I've got my daughters on. The only little tweak I will add, by the way, is that I wrote about in my daily probably two weeks ago, which is I used to just say put a 100% in the S&P 500 index, you know, the Vanguard mutual fund or SPY, you know, the ETF that tracks it. And I've just become concerned that 10 stocks are now 40%. It's a it's a market cap weighted index. >> Yeah. So what that means is is that the number one stock in the index, Nvidia, with a over a $4 trillion market cap, has a thousand times the waiting of the 500th biggest stock, which at the time I last looked two weeks ago was Nphase Energy, which has a 4 billion market cap. So 4 billion versus 4 trillion, that's a,000 to1 difference. Um, and so effectively in owning the the uh S&P 500 today, you're disproportionately owning sort of the MAG7 tech stocks, etc. Um, and I don't think they're in bubble territory, but I do um I have seen historically when such a small number of stocks account for such a big percentage of the index, they've tended to underperform. So I shifted from 100% S&P 500. I took that down to 40%. And by the way, this is in a tax-free account. Don't do this if you're gonna have to pay a lot of taxes. I don't feel strongly enough about it that if there's capital gains to be paid, don't do it. But if it's in a retirement account, I took uh I took 100% of S spy down to 40%. Then I bought a market cap neutral S&P 500 fund. So Nphase Energy and Nvidia, one of them moves 10%, the other moves 10%. That's the same impact on the index. >> Um, there are a bunch of ETFs. I think RSP is the name of the one that I found. And then I put 20% in an international uh index fund that excludes the United States. Uh, I think it's called VXUS, which is a Vanguard X United States, meaning excluding United States, uh, is the ticker of that one. >> So, honestly, I don't think it's going to make a huge difference. uh might might be a one or two% per year difference but yeah so it's still all indexed uh but it's 40 4020 instead of 100% spy >> interesting yeah interesting idea um and you know kudos and congrats to your sister man that's awesome you know uh there was a a story I think in the uh you know that that little book series uh that WY puts out and the the one by John Bogle had I think had a story of a guy who never made more than $25,000. He was a millionaire um just doing that very very >> I was thinking about that too. Yeah. Yeah. >> Yeah. Yeah, I mean those stories generally, you know, they bought some shares of Microsoft or Berkshire or something, you know, that's those are the stories that the media writes up, but vastly more common is just people who bought index funds or maybe even sort of a highquality mutual fund, which honestly they're all tracking the S&P minus their fees, but they still do okay, even though you would have been better off in a index fund. Um, and you just let the miracle of compounding work and the numbers are, you know, over, you know, compound out even five or six% over 30 or 40 years for, you know, my my sister's 56. I think she'll live till she's 96. So, you know, we have we've got good genes in our family. So, she still has a 40y year investment horizon. um she's not even halfway through her her lifetime of investing here and you know she's already got a good nest egg but you know she was um she's in between jobs right now so for the first time in her life she doesn't have income right now and so she was thinking you know putting a bunch of it in cash or whatever and I was like look you have no debt you've got a nice nest egg and you still have a 40-year investing horizon so you know don't don't change don't don't change anything. Yeah. >> Right. >> Isn't that one of the things you one of the famous things people say about Buffett, right? Is how much he made after what age. >> Exactly. >> He's made he's made I forget the numbers, but you know, since turning 60, he's made 99% of his net worth. >> Oh, yeah. The compounding effect. Look, listeners, if you got Excel, even if you're not good at Excel, just do this. Put one penny 01 in a cell. Then below that, put that cell times two and then just drag it down for about 30 cells and and it becomes a million dollars in 30 days, >> right? >> And you notice and this is how all compounding works. All the money is in the last three or four days, right? That's also how it works over 20 years when you're compounding story you know going back a zillion years where >> you know some guy came along and came up to the king and you know provided some service and the man and the king said how much would you like to be paid and the king said you know just give me one grain of rice and took a a chessboard >> and then say you know put e each uh square next to it just put double so one grain next square is two grains then four then and there are 30 um you know squares on the board and the king you know agreed to it not realizing that by the last square it was all the rice in the world that's good I I vaguely remember hearing that one that's that's a good one um excellent way I'm gonna look that up I gota I got to use that I need material for digests Corey and I both do so thanks for that um all right well we've talked a lot of principle here and we've mentioned a few stocks. Is there any stock on your mind that you're really excited about that you can talk about maybe that you that's that you know the maybe your readers already have known about it or um just anything you're really excited about now? Um >> well uh I would just uh generally shame shameless plug for my daily. I'm constantly throwing out interesting stocks. And just this morning, um I got an email from one of my readers. Uh two weeks ago, I wrote about Office Depot, a stock I owned back in 2002. Was it was the second best performing stock in the entire S&P 500 in 2002. By the way, what was the number one performing stock? Nvidia, which which cracked me up because Nvidia didn't go anywhere for 20 years, you know, but it happened to have caught a pop that year. Um, and uh, Office Depot is a dying business, a melting ice cube, but still produces positive cash flow. I said, 'Look, I generally don't like to speculate on takeovers, but someone's going to buy this company. Um, and sure enough, just yesterday, the news broke um that someone's acquiring the company. Stock was up 35% yesterday. And one of my readers emailed me today and said, "Whitney, thanks so much. I just make quick 35% because I read your article two weeks ago." It wasn't even really a recommendation so much like a formal recommendation. >> Sure. >> You know, it was just, you know, I laid out the analysis and and said, "This is pretty darn interesting." Uh, >> and so I'm I'm constantly doing that. I'll tell you one stock that I'm I'm really struggling with, but I think it, you know, could be a big winner is Lululemon, the maker of athleisure clothing. >> Uh, the stock is down more than 60%, maybe even 70%. just gotten hammered. >> And uh I love their clothing. Um my my favorite tennis shorts, gym shorts, bathing suit, shirt are all Lululemon. One of their problems is is their products are so good. They last forever. So, you know, I don't shop there very often because their clothing doesn't wear out. But I checked with my daughters who are more the demographic of blue, you know, buying yoga pants and all and they rave about the products. But there are competitors out there. Athleta, um, Viori, uh, etc. that are, um, coming in. They're being affected by tariffs and also there are good reasons the stock is sold off. But it's sort of, you know, it reminds me of Five Below, another very different retailer, but it got hammered. stock went from 200 to 50 bucks um and bottomed uh because they import most of their cheapo products from China. So uh back in April when uh tariff fears were at their peak, the stock sold way off and you know the stocks um the stocks doubled or tripled in just a few months since then. um you know it's a very good business and it just got hit by short-term concerns and you know there's still somewhat longer concerns but the sell-off was way overdone. So uh we haven't we haven't you know formally recommended Lululemon in our uh in our newsletter yet but it's um it's definitely one that I'm encouraging my my team to to take a look at. You know, you want to I mean, generally the goal of successful investing, what I've always tried to do is find really great businesses that are producing a lot of cash flow, have little or no debt, etc., and they encounter um headwinds that knock the stock way down. And then I try and figure out, okay, are these headwinds permanent? And is this has this turned into a melting ice cube or um will these things either go away or at least won't get any worse? Because keep in mind when you're looking at retailers, everything depends on your year-over-year comps. Well, you know, um and not just retailers, but for example, my thesis on Facebook when it got hammered was, you know, one of the things hammering them was Tik Tok came out of nowhere and was attracting a lot of eyeballs. But Tik Tok had already, you know, done an S-curve and was plateauing. So I figured, okay, I don't think Tik Tok's going away, but I don't think it's going to be any worse 12 months from now than it is today. So the year-over-year cops are going to look really good a year from now, right? So um so that's uh um you know, I would say Lululemon um you know uh we already talked about Salesforce. Uh, we did end up recommending Adobe sort of on a similar thesis that the AI concerns are overblown and actually that stock's just about flat. I think we recommended it about six months ago. >> So, um, you know, if you're going to bottom fish and look for turnarounds, look for companies like Adobe or Lululemon or Salesforce that have incredibly strong balance sheets and maybe their margins have been knocked down, but they started at 25% and now they're at 20%. In other words, they're still minting money. >> Yeah. >> Right. Those are the kind of turnarounds you want. Not uh, you know, not, you know, generally speaking, I don't bottom fish in things like Office Depot, which is clearly uh a melting ice cube. Uh, but in that case, you know, they still were generating enough cash flow, had a decent enough balance sheet that I figured, yeah, someone will probably come in and buy them. And I was right on that. >> Nice. Nice call. Um, do I have you confused with somebody else? Were you not short Lululemon at some point many years ago? >> You know, honestly, I don't remember. Um, if it was, you know, right when they were first coming public and they were trading at like a hundred times revenue or something crazy. I was like, this is ridiculous. >> Yeah. >> And you want to hear a funny story? >> You know why I got out of the short before it destroyed me? >> What? Um, a pillow short seller told me, "Whitney, um, never ever short a stock that sells a product that makes a woman's rear end look smaller because there is no price that a woman won't pay for that product." And it's sort of sexist. It's sort of crude, but he was exactly right. >> Yeah. Yeah. That's right. I mean, if is Spanx's public if Spanx goes public, >> stay out of the way. >> Yeah. I mean, one of the things I have learned um again over the years of short selling, and by the way, I I 99% of people should never short a stock their entire lives, right? >> Period. Yes. >> Abby. You know, uh I learned a lot of lessons because I did a lot of short selling, activist and non-activist. But you just never want to short anything where people are crazy about the product. Look at uh the people who got destroyed shorting Tesla. Um and because people love their Teslas more than their watts, right? >> Um another total fraud um was um the Carag Green Mountain coffee. They made the Carrick coffee pods >> and all where instead of having to brew up a whole pot of coffee, you just pop the little pod in, press a button, and you've got one cup of coffee. >> Yeah. and that that um in and I know for a fact one of my friends was at their warehouse and saw them committing inventory fraud to make their numbers one quarter. >> They were literally taking coffee pods out of one entry bay of their distribution center and transporting it a hundred yards into another entry bay and declaring it as sold products. It was total fraud. >> Yeah. and they exposed it and nobody cared because because it was a great product and people were buying it. And the fact that they were fiddling around at the margins to, you know, make, you know, boost their sales or profits by two or three or 4% at the end of a quarter to make their numbers. Um, yeah, it was total fraud, but it didn't matter at the end of the day. You know, somebody came in and bought the company for a big premium. >> Here's to fraud that my cup is full of uh, you know, cury coffee every day. Exactly. >> Yeah. Uh I was just >> by the way the inverse of this is obviously don't short any of this but try and go long like shame on me for I visited Tesla's factory 12 years ago in Fremont, California. A friend of mine actually who I just my cousin who I just spent the weekend with uh last weekend. He's a Stanford engineer out there. He knows all the other engineers. He heard I was short Tesla. He's like, "Hey Whitney, a couple of my Stanford engineering friends work for Tesla." and he he arranged through his friends to give me a tour of the plant. >> And I was smart enough to get out of my short, but I should have gone long. >> Yeah. >> Like, and I'll tell you, here's here's the most speculative idea I'm going to give for you and your listeners, anyone who's stuck around till the end of the podcast. >> My favorite speculation right now reminds me of Tesla 12 years ago. Joby Aviation, J O Y is the ticker, >> and they make EV talls, electric vertical takeoff and landing, like air taxis, jets and stuff kind of stuff. >> And they have an aircraft that seats a pilot and four passengers. It's going to it's um they're going through FAA approval. Um there's another company, Archer, in the space, but Joby is the leader. That's my favorite. and they are going to start commercial flights between Abu Dhabi and Dubai next spring >> because they don't need FAA approval for that. >> And I'm going to fly over there just to fly in this thing. Uh I know a senior executive there. I spent an entire day at the company two years ago. Um and my cousin, the Stanford engineer, came with me and he knew all the engineers there. And after visiting, he's like, "Whitney, this is the greatest collection of engineering talent outside of Tesla in the world. these guys are for real. And I said, you know what, they have no revenue. Who knows when the FAA will approve them? Who knows if flying air taxis will be a viable business, right? >> Um but um I think that they are working in order to make a flying air taxi. There are a thousand things you have to do, right? But the two most important things are um developing superefficient battery packs because the weight of the batteries in an aircraft is obviously really critical. And then you need superefficient electric motors. Now those two things are not unique to aircraft. So I figured, you know, if these engineers come up with a $5% more efficient motor or a 5% more efficient battery pack and this company has a $3 billion market cap and Tesla has a trillion dollar market cap, Elon Musk would buy this company so fast just to get a 5% improvement in a motor or a battery. Right. Right. >> So I just sort of figured and Tesla, I'm just throwing out Tesla. By the way, Joby, his stock's done well. You know, uh, stock went up from $5 to $20. It's now back to, I don't know, 14 last I looked. Um, so it's had a little pullback. Still has no revenue. Still highly speculative, but you know, I've um I've consistently in my career underestimated um what the world's greatest engineers and emerging technologies are capable of and what the stock results can be. and I'm sick of missing those moonshots and so I've got a small, you know, uh I'm recommending Joby, but size it small. >> All right, thank you for that. And thanks thanks for being here, too. It's time for our last question. Um, which is the same for every guest, no matter what the topic that we've been discussing, and you can answer it any way you like. Doesn't have to be financial. The question is simply this. If you could leave our listener with a single takeaway today, what would it be? Um, the shest way to get poor quickly is to try to get rich quickly. And um, so I I just see it. It's I see it all the time. I hear stories from my readers and all. There's there's a massive massive industry designed to suck people in to get rich quick schemes. And um you know I still to this day like I no longer think Bitcoin is worthless just because there are enough people who think it has value >> but it is purely an instrument of speculation and I have no regrets about missing it. Uh >> uh there's there's no way to value it. There's no intrinsic value. There's no cash flow. whatever, right? >> Yeah. >> Uh but I mean that would be among the best speculations out there, you know, it's sort of done well. >> Um but these China scams that are um I we're talking tens of billions of dollars and then, you know, people get called up and they get sucked into these romance scams and so forth that drain their life savings, you know, in this highly interconnected world, especially older people who aren't as sophisticated. Those are the targets. >> Yeah. Um and so they get sucked into stocks, scams, promotions, etc. And uh they end up getting destroyed. So um and it's, you know, people feel financial pressure and every human being on earth wants to get rich quick. And it's um and but by getting sucked into trying to get rich quick is the absolute shest way to get poor quick. >> Amen. And thank you for that. And thanks again for for being here. It's always a pleasure to talk with you, man. >> Likewise. Thanks for having me. >> Hey, man. It's another another Whitney interview. We got tickers, we got insight, we got advice, we got everything. It's just another great session with Whitney. >> Yeah. And I'm glad I get to take advantage of these supposed all these mistakes that he's made throughout his career and uh listen to this advice and just >> hold winners and don't sell them for the most part and uh >> hopefully I can take that advice and uh listen to it myself for a long time. But um yeah, no great went through a lot there. Uh >> yeah, he did. >> It was uh pretty good. Yeah, a guy I mean his daily he's just constantly sort of rumaging through the through the market, you know, he's constantly going through the market stock by stock by stock. So, and you as everyone just heard, he's got all this information just right online. Um, so it's it's, you know, he's like a must must check in with, you know, a couple times a year kind of a guest for us. Uh when he mentioned Bitcoin, I thought of you immediately because he's he's like, "Well, I Yeah, I he's like because I know you own plenty of it." And he's like, "No, not my thing at all. Can't value it. Don't know what it's worth." Pure speculation. So, >> right. I mean, well, yeah, I it's pure speculation and as much as anything else, I would say, you know, but um you know, it's >> you're right. you can't value it like traditionally, conventionally uh with cash flow and and that sort of thing. Um but neither can you say commodity like gold I would say. Right. So >> same argument. Yeah. >> Yeah. So that's fine. I mean I'm not I'm happy to have had some some returns from Bitcoin and uh a lot of other people are too so far. But like anything else, you just got to be careful when it's getting to those levels like those mania levels. Um, >> and just know that it also can go down 80%. You know, it's not like uh it's not the end all beall like anything else, I would say. >> Um, so I totally agree speculative point there. Yeah, >> I read something the other day that suggested that um Bitcoin's days of 80% declines are over and uh >> oh >> my normal reaction to that is oh sure they are. That's probably a sign of the top or something. But my new reaction is I don't know anything. It could be true. I I have no idea. I mean, I I don't like all these havingss that occur and all the stuff behind Bitcoin that makes it value and that people like Michael Sailor say, you know, makes it the most valuable thing that humanity has ever created or whatever. Um, they may have gone too far as people do in in sort of bubbly speculative situations, but they didn't say it for no reason at all, you know. >> So, I don't know. I I >> Yeah, I'm with you. I don't think anybody truly knows, right? It's still something that's >> still uh less than 20 years old at this point. And uh >> yeah, >> so Bitcoin and um >> so we'll see. But >> yeah, if you're not following Whitney's Daily, I mean, you really should like it's it's uh >> yeah, >> I'm a little biased because I think I mentioned this before. I I I edited it for a little bit um when I first worked with him and I was just like, how is he possibly reading all of these things every day and putting these into a daily >> newsletter? Um and he's still doing it and he's kind of more recently taken a angle of getting into the individual company analysis that as he mentioned a lot of readers will just write in and say, "Hey, take a look at this stock." and he'll go through it and give like a first look I think he calls it and um >> yeah no it's great and then he just kind of callulls a lot of stuff from what's out there in the financial uh uh investment uh we used to call it blogosphere right but the internet I I just suppose we can call it now um and um yeah and also you can find him in our investment advisory too where he's the lead editor where so we where we do the formal recommendations and portfolio and and all of that sort of thing. So, um, >> right. >> Yeah, >> cool stuff. Yeah, that's where you go. The the Stanbury Investment Advisory is where you go if you want to find out what he's saying you should buy right now, uh, you know, this month or whatever. So, um, another place to find him. Smart guy, cool guy. I've known him for many years. I've known him probably for, um, more than 20 years. I I think I went to the very first value investing congress which was more than 20 years ago I think >> um as I recall early 2000s or so um you know my memory is not great so if it wasn't 20 years ago sorry u but yeah I used to attend every single one of those because he and his partner Glenn Tong um were um really really smart guys who attracted lots of other smart guys that they went to like Harvard or Princeton or wherever they went, >> right? >> Um, so as well, you know, and people like Bill Aman and David Einhorn would show up and it would be amazing. So, >> um, learned a lot from him over the years and I and I know we'll continue to do so. So, yeah, that's another interview and that's another episode of the Stanberry Investor Hour. I hope you enjoyed it and benefited from it as much as we really truly did. Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stanbury Research, its parent company, or affiliates.
How to Bottom Fish and Find Turnarounds
Summary
Transcript
[Music] Hello and welcome to the Stansbury Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and the Ferris Report, both published by Stanberry Research. And I'm Corey McGlaughlin, editor of the Stansberry Daily Digest. Today we talk with Whitney Tilson, lead editor of our Stansbur's Investment Advisory. Get out your pens and pencils, folks, because Whitney has a headful of knowledge that he will share with you now. He loves to share it, and you should write it all down. Let's do it. Let's talk with Whitney Tilson. Let's do it right now. Welcome back to the show. Always a pleasure. >> Pleasure is all mine. Thanks for having me, Dad. >> You bet. Uh the first thing our our listeners know you well. So I'm just going to like dive into the deep end and you know we'll talk about stuff. Um the first thing that I that's on my mind um about you today as I read your daily uh for those who don't read it they're really missing out. Whitney goes through individual stocks in some way shape or form just about every single day and and other topics too. It's really good. Anyway, um, you know, he's a colleague, so, you know, take this however you will, but I promise you won't be disappointed. >> So, yesterday that I read it every day. So, >> yeah. Yeah. >> Almost every day if I can. >> Yeah. >> So, yesterday, um, Whitney, you mentioned Salesforce and and there were two things. One is I'm wondering if you're continuing to look at the stock because it sounded like you really were getting interested in it. Um, and the other thing was, if I can quote you here, said, um, this isn't a company or sector I've been following closely over the years. The valuations have always been too high. I know you're a a a value guy kind of at heart, but I know also years ago you just started describing yourself as a make money investor. Like you didn't want to be called value investor, you want to be called a make money investor. So, you know, we can talk about either one of these things first, but I wonder if you wouldn't mind addressing both of them. >> Sure. Well, uh let me uh give a little bit of context and background uh for what I mean by make money investor. Um, I would say for most of my investing career, um, you in any investing any everybody basically who's who's actually investing as opposed to, I don't know, spec trading or using quant models or whatever, but anyone who's actually looking at companies, you know, the world tends to fall into growth investors and value investors. Uh, I consider myself a value investor. I've been to 26 Bergkshire Hathway annual meetings. I pray in the church of Graham Dodd Buffett and Munger. Uh and so uh everyone is balancing. They want to buy good businesses and they want to buy cheap stocks and unfortunately there's most 95% of the time or 99% of the time there's a tension between those two because good companies tend to have richly valued stocks. So um as a value investor I would say what I did is I took the hundred cheapest stocks in the universe and then I tried to find better businesses among those hundred cheap stocks. And in hindsight that's exactly backwards. What I what I do now and what I would recommend that anybody do if they want to be a successful long-term investor is find the hundred greatest businesses in the world that you understand very well. like don't get outside your circle of competence or anything like that. Just find a hundred great businesses, study them closely, and then try and own 10 of them, maybe 15 at any given time, and try and buy them or add to them uh when their stocks get sold off when the market makes a mistake. So, a classic example, probably the best example I can think of in the last five years was Facebook's Meta Platforms in 2022. They were investing heavily in the metaverse. Uh they were getting hit by the rise of Tik Tok. The stock went down by almost 80% and I wrote a fivepart series in my daily. I gave it away for free to my to my 100,000 readers of my free daily and I said this is one of the two greatest businesses on earth. I cited Google/Alphabet is the other one and the stock's down 80% and these are all fixable problems. And sure enough, you know, the stock's gone from 90 to 700 or something. So, um, I'm I'm sort of doing the same. Uh, you know, I'll stop with the the long lecture here. Um, but, you know, I'm I'm always looking for situations like that. And, you know, yesterday, as you mentioned, I mentioned another tech stock, Salesforce, that, you know, stocks down 33% this year. And so, I'm sort of poking around seeing if that might be a good opportunity, >> right? And uh so so the comment about valuation is sort of um you you gave that a pretty nice context. I feel you can't you you can't get stuck in cigar land, but you also have to have some respect for for uh how much you pay. I I get that. Also, I note your your evolution from looking for the cheap to looking for the quality. Um I went through the same thing. I started looking for great businesses around like 2004, 2005, 2006 because um all the all the cigar butts that were around in 2002, 2003 a little bit, like they went away pretty quick because they always do, right? All the all the busted netnet tech stocks that had lots of cash, you know, more than the market cap or whatever, like that disappears and then what do you got left? Uh and a lot of them turn out not to be great businesses in the first place, right? as you point out and I feel like a lot of folks I mean I know Porter Stanbury has made a similar kind of evolution not exactly that but very similar um and this and Buffett himself made this evolution didn't he nobody sticks with the cigar butts they just they they can't do it anymore. >> Yeah. The problem with cigar butts is is you sort of have to trade them because they're not highquality businesses. They're probably declining over time and eventually no matter how cheap you buy them, if the business continues to deteriorate, the stock's going to do so as well. So, I will say so you you made an interesting comment there though. You said, you know, there are a bunch of cheap stocks like I remember buying McDonald's, Home Depot, like some incredible businesses back in O2 and early 03 during that selloff. Um, and then you're like, okay, then they go up and you you got to sell them and you know, then how what how do you replace them? And what I again, I would say the second biggest mistake in my investing career, other than um, you know, the one I mentioned earlier about fishing among cheap stocks as opposed to fishing among better businesses, the second mistake I made is I didn't let my winners run. And I would argue had you bought Home Depot and McDonald's at depressed prices in 2002 or early 2003, >> yeah, >> if you were sensible, certainly with the benefit of hindsight, you should still own them more than 20 years later. You never should have sold them, >> right? >> And that was the mistake I made. You know, the stock doubled, I sold half, doubled again, and I was out. And I felt like a genius. And instead, I was an idiot. I left, you know, I made I made double my money or three times my money and I left a 10 bagger on the table. And so that's the other key to long-term investment success. And I would particularly argue today when you've got so many supercomputers and the US market is so efficient. I think the only way to beat the market over time and there's no shame in index funds to beat the index funds you have to do what the index funds do which is uh hold for a long period of time and in particular hold on to your big winners because if you pick if you buy 10 stocks and you do it well and you've got 10 quality companies two of them are going to drive all the returns of your portfolio but you don't know which two. But here's the other key. If you sell them after they double, they're not going to be the big winners that you need to drive the overall portfolio's return. So, you got to let those two or three stocks, you know, after they double. Um, you know, there's no but it's sort of a tautology to say, you know, there's no such thing as a 10 bagger that first has it first has to double. Right. >> Right. >> But you'll never get a 10 bagger if you sell everything after it doubles. Right. >> Right. I'm going to implore my listener to um Google Robert Kirby the coffee can story and and read the coffee can story and notice that one stock overwhelmingly generated the bulk of the returns in that portfolio and his secret was that he just held he never sold ever. I mean the guy the story began when the guy died. So that's how long you hold these things. >> Yeah. I mean they've done uh there's a professor he may be at Arizona State you can Google this but okay he goes back and looks at the entire US stock markets returns and something like 2% of stocks account for virtually all the returns like over the past hundred years and here's the key the index funds bought Apple 20 years ago and they still own it they bought Amazon 20 odd years ago and they still own it over and over like the top 10 stocks today account for 40% of the value of the S&P 500. That's an all-time high. >> And what that means is anyone who owned an index fund owned those 10 stocks and rode them and rode them. And the problem is is virtually no active money managers have the patience and discipline to let those winners ride. You know, in the case of Apple, I mean, I owned it at 35 cents, Dan, 25 years ago, and then it went up to 36 cents and had a bad quarter and I sold it. Yeah. And if I had just held on to, you know, $10,000 of that, you know, I'd be I'd have many more millions to my net worth. Right. >> Yeah. Exactly. And and you're right. As as advantages go, this is simultaneously absolutely the lowest hanging fruit on the one hand and yet emotionally really difficult on the other for most people. >> Right? And here's the thing. If you can be smart 364 days a year, but if you're dumb on one day, okay, you didn't get a good night's sleep. Uh I remember Netflix um after uh I that was I nailed the stock of the c stock I wouldn't say stock of the century, but stock of the decade for sure. Yeah. >> Uh 13 years ago in um 2012, October 2012, I I nailed it so publicly. I went on national television on CNBC. Uh I spoke in front of a conference with 500 people and I said Netflix I compared Netflix in 2012 to Amazon in 2002. And 10 years apart, they had almost identical economic characteristics. They both had three billion of revenue. They both had 30 million customers. Um, but I said, "Netflix is an even better business." And I said, "So I I here was my exact quote. Netflix is this decade's Amazon." And Amazon over the previous decade had been a 20 bagger. 20 times your money. And it turns out I was dead wrong. Netflix was a hundred bagger. >> I was much too conservative, right? So uh, so what how did I play it? Did I make a hundred times my money? No, it doubled and I sold half. It doubled, I sold half, doubled again, I sold, and I was out. And I still remember one of those dumb days when I finally exited. It was because a well-known short seller, who I won't shame here, but his name would be known to any of you, contacted me and said, "Hey, I'm shorting Netflix. You know, are you still long it?" He he wanted to hear the long thesis. >> And this was after the stock had gone up 8x. And uh that spooked me out. I was like, geez, if this really smart friend of mine is shorting it, surely, you know, I don't want to short it. I had the good sense not to short it, but maybe I certainly don't want to be long it. And so, after making eight times my money, I left a 15 bagger on the table after that. The stock from from then today over the last 13 years up about 150 times. >> Wow. This is I know we've talked about this before, but it it's been a it's been a couple years. And it's worth talking about because for for for probably more than one reason, but I like this story of yours because um you know, you you didn't, as you say, you're a guy who looks at businesses. You're not it's not a quant thing. You're not a trader. You're really looking at businesses and you changed your mind. You did a 180 on the business, right? And it continued to be that business. And yet, you know, like you say, like we've all done. I've done it, believe me, plenty. Um, and yet, you know, you exited for whatever other reasons. Um, that to me is is the the kernel here. It continued to be a great business. >> We all know great businesses don't necessarily continue, right? There can be a time to sell, but there never really was. Interestingly, at one point, I don't know 10 years ago, I was dumb dumb enough to be long, excuse me, I shorted Salesforce in my hedge fund. And fortunately, I got out and saw uh that, you know, my analysis was that the company had virtually no um net income gap reported profits. But then I realized that's because the company uh was deliberately you know wanted to was reinvesting in the business was paying uh using a lot of stockbased compensation but the actual underlying cash flows were booming and this was a real growth business. So I figured out you know my analysis was wrong. I got out. It should have gone long given the stock how well the stock did. But now today, you know, the stock's uh pulled back uh and I'm more of a make money investor. And so, you know, with the stock trading at 19 times next year's earnings for a very high quality recurring revenue software as a service business, I think that's pretty interesting. Now, I need to evaluate whether AI is going to really impair the business and cause this to turn into a melting ice cube. That's the bare case. That's why the stock is down a bunch. But but I've had tremendous success in my investing career. Not very many cases where I was once short a stock and then I turn around and go long generally at a lower price. >> Right. I'm glad you mentioned AI because it's it's at this point in my opinion for for a guy like me it's difficult to tell. you look at something and I looked at one of the things I looked at was Accenture which you know if you just look at the the cash flow the results it's like wow okay something wonderful has happened here something incredible has happened here why was Dan worried about this thing being you know supplanted by by some other piece of software um you know in in fact a business like and I think and I think CRM is in the same category it could be like dramatically improved and made dramatically more efficient by AI or it could be I just want to say supplanted entirely by it and it's difficult to tell at this point. >> Yeah, it's very interesting you mentioned that because a bunch of my readers have said hey uh because I get a lot of my best stock ideas from my readers emailing me and just say hey Whitney have you ever taken a look at XYZ company and Salesforce in fact was two of my readers. Uh uh so Accenture, it's funny, is on my list and you know, I'll probably take a look at it u in the next uh uh in the next week or two. >> Yeah, talk to the altimmetry guys. They I think they know something about it. >> Um >> all right, >> AI real while we're on AI real quick. Uh I know one of the thing and letting winners run. One of the things you've been you've written about a few times recently I think in your daily is you know if people sitting on a huge position in the video or big gains in the video at this point like >> you know using these lessons that you've learned over time like how do you what's maybe you could talk about just a little share like a little bit about if somebody's riding some huge AI winner right now like what advice do you give to kind of manage that position? um coupleofold. I mean, we recommended Nvidia five years ago in one of our promos related to um autonomous driving and electric cars. And interestingly, Nvidia at the time was not an AI play, but they were making chips that would be used for um autonomous cars. By the way, I rode in my first Whimo in San Francisco on Friday or Saturday, just just a few days ago. And it I'm I felt like I was seeing the future. It was incredible. And and there were Whimos everywhere. Like every third car in San Francisco is a Whimo now. >> Wow. >> And it was so smooth. I was like, "Wow, I'm never going to go back." Given the choice, you know, I prefer not having a driver. And uh and so uh Nvidia uh getting back to your question was one of our recommendations and we never pulled that recommendation. Um and we recommended five stocks and four stocks, you know, collectively probably did a little worse than the S&P. Uh but it didn't matter as long as you held that one stock, but you had to hold it. So I've been covering Nvidia um uh for, you know, for many years since then. And I basically told people, look, if you own it, it it's always been too richly priced for me to really pound the table on it as it's, you know, up probably 20x since then. >> But I said, if you own it, if you have big gains in it, this is the kind of stock you've got to let your winners run. And this is a classic example of just an incredible business that's riding multiple waves, not but primarily AI. Um, and I said, "Look, if it becomes 75% of your portfolio, you might trim it for that reason. You got to be able to sleep at night." Um, and I also suggested, you know, putting in a stop-loss. Like, that's what I should have done with Netflix where after I'd made eight times my money. Why did I sell it entirely? The business was absolutely booming. Revenues were growing 40% a year in, they were moving internationally. They were raising prices. Everything I could have possibly hoped for was actually happening. the fundamentals were incredible. >> Yeah. >> And that's where you really got to let your winners run. So, I'm not saying never sell anything. Never take any money off the table. Uh but at the but if you're thinking of selling all of it, at least put in a 10% or 20% trailing stop loss. Now, with a volatile stock, maybe you want a 30 or 40% stop-loss. So, you're you're still going to get out and keep, you know, keep enormous part of your gains, but you you're leaving the upside intact. And in fact, I went and looked back if I had Netflix never had a huge pullback um uh for at least 10 years after I got uh after I was pounding the table at about $8 a share. I could have uh even even if I kept a fourth of my position with a stop-loss that that never got hit, a fourth of a 5% position that goes up a hundfold is you only need one of those in a lifetime. So, you know, generally speaking, I don't use stop losses. For example, if I get into a stop a stock at 10 and it goes down to eight, I think it's uh I'm not a believer and oh, you just have to sell it, right? But on the other hand, uh using a a trailing stoploss to to protect very large gains, um I I can see how that makes sense. But here's the other key is there are sometimes stocks that go up. You know, let me give you an example of a stock I've written negatively about. Apploven um or Palunteer are probably the two most overvalued stocks, not only in today's market, but that among large cap stocks with hundred billion dollar plus market caps. They may be two of the most overvalued stocks I've ever seen in my life. >> Yeah. And so it does like those those are I'm not sure if if somebody owns Palunteer today and they've made 20 times their money. I'm not sure I'd say sell it all tomorrow, but I might uh I I would I would be I I have a different view of Palunteer versus Nvidia. Nvidia is trading at 28 times next year's earnings. >> In other words, the stock's up 20x, but the earnings are up 20x. >> Right. >> Right. Whereas Palunteer is trading, I'm not making this up. It's trading at over a hundred times trailing revenue. Yeah. >> And almost 300 times earnings. >> So that's a stock, you know, if Nvidia falls 25% like value guys might start buying it. There's a floor there. Palunteer could fall by 90% and there's not a value investor on the planet that would buy it, right? There's no floor there, >> right? So, so um you know there's some techniques about using a trailing stop that I would apply but also uh you've got to understand the companies and and whether the current valuation is in any way warranted and and are the fundamentals supporting uh the stock as it's rising. The dream scenario is the stock goes up 40% a year for 10 years and the earnings go up 40% a year or at least the revenues which is what happened with Netflix. That's what I'm saying. I I should have been riding Netflix. >> Um, and by the way, McDonald's back in 2002. >> McDonald's never traded at 50 times earnings or something where you sort of have to sell it. It the the stock grew in line with earnings. And you know, those are the ones you can Berkshire Hathaway is of course the world the classic example. >> Um, you know, Bergkshire never traded at five times book value or whatever. You know, traded between one and two times book with Warren Buffett running it for almost for free, >> right? You know, I've got a friend who bought Berkshire at a few hundred a share and it's now over $700,000 a share and he still owns those shares. He bought in the 1970s. Yeah. For for folks who want a different um perspective that sort of underscores what Whitney is talking about with earnings and share price growing a pace. Um there's a paper called agency costs of overvalued equity by a guy named Michael C. Jensen and he talks about all the terrible incentives created by an a drastically overvalued stock. You and and an early example in the paper is Enron. He said it's probably worth 30 billion and the market said it was worth you know like 70 billion or something you know so 40 billion of excess equity. management could have been honest and tried to temper the market's expectations, but instead they tried to uh you know fraudulently work their way into a higher valu you know to justify the higher valuation. So um valuation when it gets this crazy like Whitney just described folks pay attention he has a serious serious point here. Um, >> right. >> I was It was funny. Just last week I was uh uh at dinner with uh my cousin who I hadn't seen in a number of years and we were sort of laughing. He was in one of the great uh stock uh bubbles of all time back in 2018. It was the cannabis bubble and he owned Tillray. Remember Tillray? >> Oh yeah. >> That stupid stock was a Canadian pot company >> had gone from like 10 to 150. insane. >> And he told me, "Hey, Whitney, I own this thing and I had just been on television warning people about this was an obvious bubble. Had no earnings. No, it was trading at over a thousand times revenue. Not making this up." And um and so I told him, "All right, Kyle, put in a 10% stop loss." >> And sure enough, the next day the stock doubled to 300 and then crashed to 100. And he's like, "Witney, I got stopped out." Um, and I was like, "Yeah, you should be thanking me." That stock today was at a $118. >> Oh, man. >> Uh, it was it was down by 90% within a month. And then is and then you think, "Oh, it can't go any lower." It's down 99% after falling 90%. >> Right. >> So, that's that's another good lesson, by the way. if don't don't get tempted, you know, by some obvious fraud or bubble. There they're, by the way, a whole bunch of Chinese uh companies trading on US markets where they're being promoted by unscrupulous people and WhatsApp groups and all. >> And uh and there, by the way, a stop-loss, a trailing stop-loss doesn't help you because when the when the promoters are finished promoting it, the stock drops 80 or more percent on one trade. There's no there's nothing in between. >> Yeah. >> They take they take a dollar stock, they pump it to $10, and then the next trade is at $2. And so there's no there's no chance to get out with a stop-loss. You just can't you just can't get involved with these. So, by the way, um, let me check the stock price today. It's the craziest stock I've ever seen. The ticker is QMM. >> Oh, yeah. >> Stock fraud. It's an outrage that the the markets um are are letting this thing trade. But >> yeah, we just had um we just had Edwin Dorsy on from the barricade. >> Yes. He's been writing about this and a credit to him for identifying >> he created a whole website. >> Yeah, he's created a whole website for this. Yeah, >> it has a 52- week low of 54 cents. And just last week, they got pumped to $33 a share. A week later, it's already back to 100. But I'm telling you, sometime soon, I would guess in the next week, the next trade on this stock will be at 10 $10. I could be down 90% in on one trade. >> Whitney, what was the guy's name? Remind me. Um, I think he's like a European guy, short seller, specialized in situations similar to this where they would just like evaporate overnight and go to zero. I want to say his name began with a G. Do you know who I'm talking about? I bet you. >> Gabriel Greg. >> Yes. Thank you. >> Yeah. Yeah. No, he's my buddy. uh and he's uh you know he nailed um what was the Greek uh jewelry company or apparel company and he he he has many notches in his belt. >> Yes. >> Um >> yeah where he identified uh Foley Foley was now I remember was the name of that Greek uh company where by the way the uh the managers uh went to jail. He identified a total fraud. >> Yeah. Um, you know what's interesting is like Foley Foley actually had a real business, but they were just fraudulently saying they had more stores than they did and all, but they actually did have some stores or whatever. >> Uh, this QMM, for example, like there's no business there. It's it's just a P.O. box in Shanghai or something like that. >> Um, and it's just a a completely manipulated stock. >> There you go. Um, I'm glad you brought up cannabis uh potstocks. Um, it's it's a in part in part it's another case where um you can actually identify u something happening legally and in society generally um and just the the investment thesis like doesn't play out. I I and and many people I know have been hosed buying MSOS, you know, the the ETF, >> the cannabis ETF. We just I we just decided to blow it out of my wife's 401k because we got tired of looking at it minus she only did like minus 40%. You know, other people have been absolutely obliterated on that thing. >> H but you c you can get these trends right and still, you know, the the investment thesis is wrong. And in a similar sort of a vein, we were talking about AI. And AI looks to me like it kind of looks a little bit like um the internet, which the dot mania was true. It was right. Trillions and trillions and trillions of dollars of value have been created, but that doesn't mean it was easy to like invest directly in it at the time, right? >> And I feel like AI has the has the potential to go the same way. >> Yeah. I mean those are these are three interesting case studies. Um I at one time was bullish on um cannabis and after it had fallen by 80% and the MSOS ticker was sort of away the ETF to play it and I too realized I was wrong and got out and thank thankfully I did because it fell a bunch more but it was it was a painful experience. >> Um you know what I got wrong there was the fundamentals um ultimately ended up being terrible for the public companies. Um, every state and Canada has different legislation. Um, it's still a schedule one drug, so they couldn't access the banking system, etc. U, but fundamentally, uh, uh, what happened is is there's a tremendous black market out there. And so the legal players are paying, you know, 50% taxes or whatever. And just look around New York. They've shut most of them down. But um after New York legalized cannabis, all these little pot shops popped up all over New York City and they weren't paying any taxes and whatever and they undercut the legitimate players and all. So the market hasn't grown nearly as much as I thought it would. But more importantly, the the the profitability has just never emerged because um everybody in the sector is sort of being undercut by the by the black market. Um, and I'm not sure that problem goes away. And then of course you just had all sorts of charlatans and conmen and you know like every good good bubble as well that >> has hurt the sector. So the internet, you're right, the internet got way ahead of itself, but it was a worldchanging development. Yeah. And the people who hung in there uh through the bust, you know, who rode rode the bubble in 1999 and early 2000. Then there's, you know, the NASDAQ went down by 80% between March of 2000 and October of 2022, uh, 2002. I remember it well. >> Yeah. um you know the stocks emerging from that you know Amazon uh booking uh holdings uh the travel company you know Apple of course you these have been thousand baggers >> in some cases um you know how AI plays out is interesting I mean look the spending is very real I just saw a chart of the just just the four big tech companies they're spending on on AI mainly the chips mainly made by Nvidia you know gone from 25 billion to 400 hundred billion in the last uh few years and there's no sign it's letting up. I just saw an interview with Mark Zuckerberg who says look we're going to spend hundreds of billions of dollars uh on this and I'm perfectly willing to accept that many tens even hundreds of billions of dollars is wasted because we cannot afford to miss what he calls super intelligence right so that's another you know that's the reason gee if I owned Nvidia and I hear that from the biggest customer one of the biggest customers of Nvidia you know I'm going to I'm going to keep riding hitting that winner, right? I might trim it a little bit, might have a stop loss to lock in some gains, but but you know, this this is going to keep going. Uh, you know, so I think AI is going to be revolutionary, but I do urge investors caution that, you know, you see all sorts of meto companies and charlatans and all coming in and they slap AI on the name on it, you know, reminds me back of the dot days, right? Um and so so investors should should be careful. This you know it's very nobody really knows how this is going to play out but AI is is I believe as legitimate and you know 20 years from now will be as world changing as the internet but as you pointed out a lot of people got wiped out investing in the area along the way. >> Right. And I'm glad you mentioned uh you know like the hyperscalers because they're simultaneously investing as you said hundreds of billions just the top hypers scale investing hundreds of billions in admittedly real infrastructure over time we you know if that performed like um you know all the fiber they built and the and the revenues cut in half while the usage soared a thousandfold over 20 years that wouldn't surprise me. But those same businesses are also huge players at the edge of the network. They're meeting the user head, you know, headon with with stuff people just love. You know, they're they're voracious for these products for, you know, social media or, you know, um whatever, you know, whatever Amazon selling today and and um and all the rest of it. So, yeah. Yeah. Streaming. That's right. The real thing I think investors need to do is make good judgments on where AI is going to hurt versus help versus be neutral uh companies. So, I've been pounding the table on Alphabet, Google for example, because I sign up for Chat GPT and I don't know, I pay $10, $20 a month for it, but I really don't use it very often because I just use my regular Google search that I instinctively have been using for 20 years or whatever. And now it gives me an AI answer. Google has built AI into their standard search. And so I'd say 98% of my usage of AI when AI searches or queries are just done through my traditional Google search and but it pops um Google Gemini up at the top and that gives me a sufficient answer. So I don't even need to go over to chat GPT. So my I've been arguing and pounding the table and you know the stock has really I've been proven right so far >> uh that you know Alphabet is is an incredible company and AI is not only not going to hurt the business but may uh help the business. Um the question getting back to Salesforce is the bare case. The reason Salesforce is sold down is um their cons uh customer relationship management CRM software um is perceived to be vulnerable where their customers could start using AI to to replace uh Salesforce's software. And that's um by the way a number of my readers I included in my daily today make comments that this is also why Adobe has sold off another software maker that makes Adobe Illustrator and um and you know products for hand it uh for creating graphics and um I I don't think those concerns are crazy but the question is is at what point are insanely great businesses with very sticky uh customers recurring revenue new businesses, you know, at what point do businesses that have historically traded at 35 times earnings are now trading below 20 times earnings where yeah, even if there's a little bit of an AI headwind. And by the way, they're scrambling to incorporate AI into their products the same way Google has done. >> Um, you know, at some point the selloff is overdone. You know the question is is >> you know Salesforce down 33% is uh you know could be could fall 50% if they if they report a weak quarter right um so you know that's the dilemma of you know value investors uh like me sort of buying fallen growth angels I would say >> uh so so it's uh you know this is this is why investing is hard right it's it's you got to predict the future and particularly when you have the introduction of something as massive as AI, it's hard to predict the future. But, uh, I've I've been pounding the table on Google. I've been pounding the table on Facebook. Even with their very high spending on AI, I think it's going to pay off in um, you know, many, many more years of high growth. Yeah, I agree with I think with all of that. Um I want to run another idea by you that that that falls hard upon this. I think that if you um have your list of hundred greatest businesses in the world, let's say, or even if you own the S&P 500, perhaps anywhere in between there, lots of highquality companies in a portfolio. Um, it seems to me like over time if you make virtually no effort to be invested in AI and you still hold this fantastic portfolio of great businesses, you'll be invested in AI. You it will happen. The greatest many of the greatest businesses will figure out how to incorporate this. They'll become more efficient or or they'll offer new products, whatever it is that they will do. If you own that large, you know, largestish portfolio, not just 10 names. So, I'm talking like, you know, an index fund or something, >> right? >> It'll be in there the same way the internet got in there. >> Yes. >> Um, that's the beauty of owning index funds and that's why index funds outperform virtually all active money managers. Um, and by the way, they so my default recommendation for anybody is you don't have to go become an expert on AI or uh, you know, have an opinion on Visa and Mastercard or the pharma companies or whatever. You just buy buy an index fund uh, and forget about it. And that's what my sister's done for her entire career. She's never owned an individual stock and she has a very nice nest egg because she did the basics right. She has been regularly employed with growing income, has built a nice career, but never had high income. She works for um uh in international development um you know, working overseas, done maternal health projects, that kind of thing. >> But every she's um she's had decent income. She has always lived beneath her means and has always had money deducted from her paycheck, put into a retirement account, and critically automatically invested in the S&P 500. She's done that for about 30 years. >> Oh, wow. >> Um, lo and behold, with never having high income, uh, having gone through two divorces, uh, etc., she's got a $2 million nest egg right in that in that retirement account. >> Um, and through and never picked a stock in her life. Like that's and that's the track I've got my daughters on. The only little tweak I will add, by the way, is that I wrote about in my daily probably two weeks ago, which is I used to just say put a 100% in the S&P 500 index, you know, the Vanguard mutual fund or SPY, you know, the ETF that tracks it. And I've just become concerned that 10 stocks are now 40%. It's a it's a market cap weighted index. >> Yeah. So what that means is is that the number one stock in the index, Nvidia, with a over a $4 trillion market cap, has a thousand times the waiting of the 500th biggest stock, which at the time I last looked two weeks ago was Nphase Energy, which has a 4 billion market cap. So 4 billion versus 4 trillion, that's a,000 to1 difference. Um, and so effectively in owning the the uh S&P 500 today, you're disproportionately owning sort of the MAG7 tech stocks, etc. Um, and I don't think they're in bubble territory, but I do um I have seen historically when such a small number of stocks account for such a big percentage of the index, they've tended to underperform. So I shifted from 100% S&P 500. I took that down to 40%. And by the way, this is in a tax-free account. Don't do this if you're gonna have to pay a lot of taxes. I don't feel strongly enough about it that if there's capital gains to be paid, don't do it. But if it's in a retirement account, I took uh I took 100% of S spy down to 40%. Then I bought a market cap neutral S&P 500 fund. So Nphase Energy and Nvidia, one of them moves 10%, the other moves 10%. That's the same impact on the index. >> Um, there are a bunch of ETFs. I think RSP is the name of the one that I found. And then I put 20% in an international uh index fund that excludes the United States. Uh, I think it's called VXUS, which is a Vanguard X United States, meaning excluding United States, uh, is the ticker of that one. >> So, honestly, I don't think it's going to make a huge difference. uh might might be a one or two% per year difference but yeah so it's still all indexed uh but it's 40 4020 instead of 100% spy >> interesting yeah interesting idea um and you know kudos and congrats to your sister man that's awesome you know uh there was a a story I think in the uh you know that that little book series uh that WY puts out and the the one by John Bogle had I think had a story of a guy who never made more than $25,000. He was a millionaire um just doing that very very >> I was thinking about that too. Yeah. Yeah. >> Yeah. Yeah, I mean those stories generally, you know, they bought some shares of Microsoft or Berkshire or something, you know, that's those are the stories that the media writes up, but vastly more common is just people who bought index funds or maybe even sort of a highquality mutual fund, which honestly they're all tracking the S&P minus their fees, but they still do okay, even though you would have been better off in a index fund. Um, and you just let the miracle of compounding work and the numbers are, you know, over, you know, compound out even five or six% over 30 or 40 years for, you know, my my sister's 56. I think she'll live till she's 96. So, you know, we have we've got good genes in our family. So, she still has a 40y year investment horizon. um she's not even halfway through her her lifetime of investing here and you know she's already got a good nest egg but you know she was um she's in between jobs right now so for the first time in her life she doesn't have income right now and so she was thinking you know putting a bunch of it in cash or whatever and I was like look you have no debt you've got a nice nest egg and you still have a 40-year investing horizon so you know don't don't change don't don't change anything. Yeah. >> Right. >> Isn't that one of the things you one of the famous things people say about Buffett, right? Is how much he made after what age. >> Exactly. >> He's made he's made I forget the numbers, but you know, since turning 60, he's made 99% of his net worth. >> Oh, yeah. The compounding effect. Look, listeners, if you got Excel, even if you're not good at Excel, just do this. Put one penny 01 in a cell. Then below that, put that cell times two and then just drag it down for about 30 cells and and it becomes a million dollars in 30 days, >> right? >> And you notice and this is how all compounding works. All the money is in the last three or four days, right? That's also how it works over 20 years when you're compounding story you know going back a zillion years where >> you know some guy came along and came up to the king and you know provided some service and the man and the king said how much would you like to be paid and the king said you know just give me one grain of rice and took a a chessboard >> and then say you know put e each uh square next to it just put double so one grain next square is two grains then four then and there are 30 um you know squares on the board and the king you know agreed to it not realizing that by the last square it was all the rice in the world that's good I I vaguely remember hearing that one that's that's a good one um excellent way I'm gonna look that up I gota I got to use that I need material for digests Corey and I both do so thanks for that um all right well we've talked a lot of principle here and we've mentioned a few stocks. Is there any stock on your mind that you're really excited about that you can talk about maybe that you that's that you know the maybe your readers already have known about it or um just anything you're really excited about now? Um >> well uh I would just uh generally shame shameless plug for my daily. I'm constantly throwing out interesting stocks. And just this morning, um I got an email from one of my readers. Uh two weeks ago, I wrote about Office Depot, a stock I owned back in 2002. Was it was the second best performing stock in the entire S&P 500 in 2002. By the way, what was the number one performing stock? Nvidia, which which cracked me up because Nvidia didn't go anywhere for 20 years, you know, but it happened to have caught a pop that year. Um, and uh, Office Depot is a dying business, a melting ice cube, but still produces positive cash flow. I said, 'Look, I generally don't like to speculate on takeovers, but someone's going to buy this company. Um, and sure enough, just yesterday, the news broke um that someone's acquiring the company. Stock was up 35% yesterday. And one of my readers emailed me today and said, "Whitney, thanks so much. I just make quick 35% because I read your article two weeks ago." It wasn't even really a recommendation so much like a formal recommendation. >> Sure. >> You know, it was just, you know, I laid out the analysis and and said, "This is pretty darn interesting." Uh, >> and so I'm I'm constantly doing that. I'll tell you one stock that I'm I'm really struggling with, but I think it, you know, could be a big winner is Lululemon, the maker of athleisure clothing. >> Uh, the stock is down more than 60%, maybe even 70%. just gotten hammered. >> And uh I love their clothing. Um my my favorite tennis shorts, gym shorts, bathing suit, shirt are all Lululemon. One of their problems is is their products are so good. They last forever. So, you know, I don't shop there very often because their clothing doesn't wear out. But I checked with my daughters who are more the demographic of blue, you know, buying yoga pants and all and they rave about the products. But there are competitors out there. Athleta, um, Viori, uh, etc. that are, um, coming in. They're being affected by tariffs and also there are good reasons the stock is sold off. But it's sort of, you know, it reminds me of Five Below, another very different retailer, but it got hammered. stock went from 200 to 50 bucks um and bottomed uh because they import most of their cheapo products from China. So uh back in April when uh tariff fears were at their peak, the stock sold way off and you know the stocks um the stocks doubled or tripled in just a few months since then. um you know it's a very good business and it just got hit by short-term concerns and you know there's still somewhat longer concerns but the sell-off was way overdone. So uh we haven't we haven't you know formally recommended Lululemon in our uh in our newsletter yet but it's um it's definitely one that I'm encouraging my my team to to take a look at. You know, you want to I mean, generally the goal of successful investing, what I've always tried to do is find really great businesses that are producing a lot of cash flow, have little or no debt, etc., and they encounter um headwinds that knock the stock way down. And then I try and figure out, okay, are these headwinds permanent? And is this has this turned into a melting ice cube or um will these things either go away or at least won't get any worse? Because keep in mind when you're looking at retailers, everything depends on your year-over-year comps. Well, you know, um and not just retailers, but for example, my thesis on Facebook when it got hammered was, you know, one of the things hammering them was Tik Tok came out of nowhere and was attracting a lot of eyeballs. But Tik Tok had already, you know, done an S-curve and was plateauing. So I figured, okay, I don't think Tik Tok's going away, but I don't think it's going to be any worse 12 months from now than it is today. So the year-over-year cops are going to look really good a year from now, right? So um so that's uh um you know, I would say Lululemon um you know uh we already talked about Salesforce. Uh, we did end up recommending Adobe sort of on a similar thesis that the AI concerns are overblown and actually that stock's just about flat. I think we recommended it about six months ago. >> So, um, you know, if you're going to bottom fish and look for turnarounds, look for companies like Adobe or Lululemon or Salesforce that have incredibly strong balance sheets and maybe their margins have been knocked down, but they started at 25% and now they're at 20%. In other words, they're still minting money. >> Yeah. >> Right. Those are the kind of turnarounds you want. Not uh, you know, not, you know, generally speaking, I don't bottom fish in things like Office Depot, which is clearly uh a melting ice cube. Uh, but in that case, you know, they still were generating enough cash flow, had a decent enough balance sheet that I figured, yeah, someone will probably come in and buy them. And I was right on that. >> Nice. Nice call. Um, do I have you confused with somebody else? Were you not short Lululemon at some point many years ago? >> You know, honestly, I don't remember. Um, if it was, you know, right when they were first coming public and they were trading at like a hundred times revenue or something crazy. I was like, this is ridiculous. >> Yeah. >> And you want to hear a funny story? >> You know why I got out of the short before it destroyed me? >> What? Um, a pillow short seller told me, "Whitney, um, never ever short a stock that sells a product that makes a woman's rear end look smaller because there is no price that a woman won't pay for that product." And it's sort of sexist. It's sort of crude, but he was exactly right. >> Yeah. Yeah. That's right. I mean, if is Spanx's public if Spanx goes public, >> stay out of the way. >> Yeah. I mean, one of the things I have learned um again over the years of short selling, and by the way, I I 99% of people should never short a stock their entire lives, right? >> Period. Yes. >> Abby. You know, uh I learned a lot of lessons because I did a lot of short selling, activist and non-activist. But you just never want to short anything where people are crazy about the product. Look at uh the people who got destroyed shorting Tesla. Um and because people love their Teslas more than their watts, right? >> Um another total fraud um was um the Carag Green Mountain coffee. They made the Carrick coffee pods >> and all where instead of having to brew up a whole pot of coffee, you just pop the little pod in, press a button, and you've got one cup of coffee. >> Yeah. and that that um in and I know for a fact one of my friends was at their warehouse and saw them committing inventory fraud to make their numbers one quarter. >> They were literally taking coffee pods out of one entry bay of their distribution center and transporting it a hundred yards into another entry bay and declaring it as sold products. It was total fraud. >> Yeah. and they exposed it and nobody cared because because it was a great product and people were buying it. And the fact that they were fiddling around at the margins to, you know, make, you know, boost their sales or profits by two or three or 4% at the end of a quarter to make their numbers. Um, yeah, it was total fraud, but it didn't matter at the end of the day. You know, somebody came in and bought the company for a big premium. >> Here's to fraud that my cup is full of uh, you know, cury coffee every day. Exactly. >> Yeah. Uh I was just >> by the way the inverse of this is obviously don't short any of this but try and go long like shame on me for I visited Tesla's factory 12 years ago in Fremont, California. A friend of mine actually who I just my cousin who I just spent the weekend with uh last weekend. He's a Stanford engineer out there. He knows all the other engineers. He heard I was short Tesla. He's like, "Hey Whitney, a couple of my Stanford engineering friends work for Tesla." and he he arranged through his friends to give me a tour of the plant. >> And I was smart enough to get out of my short, but I should have gone long. >> Yeah. >> Like, and I'll tell you, here's here's the most speculative idea I'm going to give for you and your listeners, anyone who's stuck around till the end of the podcast. >> My favorite speculation right now reminds me of Tesla 12 years ago. Joby Aviation, J O Y is the ticker, >> and they make EV talls, electric vertical takeoff and landing, like air taxis, jets and stuff kind of stuff. >> And they have an aircraft that seats a pilot and four passengers. It's going to it's um they're going through FAA approval. Um there's another company, Archer, in the space, but Joby is the leader. That's my favorite. and they are going to start commercial flights between Abu Dhabi and Dubai next spring >> because they don't need FAA approval for that. >> And I'm going to fly over there just to fly in this thing. Uh I know a senior executive there. I spent an entire day at the company two years ago. Um and my cousin, the Stanford engineer, came with me and he knew all the engineers there. And after visiting, he's like, "Whitney, this is the greatest collection of engineering talent outside of Tesla in the world. these guys are for real. And I said, you know what, they have no revenue. Who knows when the FAA will approve them? Who knows if flying air taxis will be a viable business, right? >> Um but um I think that they are working in order to make a flying air taxi. There are a thousand things you have to do, right? But the two most important things are um developing superefficient battery packs because the weight of the batteries in an aircraft is obviously really critical. And then you need superefficient electric motors. Now those two things are not unique to aircraft. So I figured, you know, if these engineers come up with a $5% more efficient motor or a 5% more efficient battery pack and this company has a $3 billion market cap and Tesla has a trillion dollar market cap, Elon Musk would buy this company so fast just to get a 5% improvement in a motor or a battery. Right. Right. >> So I just sort of figured and Tesla, I'm just throwing out Tesla. By the way, Joby, his stock's done well. You know, uh, stock went up from $5 to $20. It's now back to, I don't know, 14 last I looked. Um, so it's had a little pullback. Still has no revenue. Still highly speculative, but you know, I've um I've consistently in my career underestimated um what the world's greatest engineers and emerging technologies are capable of and what the stock results can be. and I'm sick of missing those moonshots and so I've got a small, you know, uh I'm recommending Joby, but size it small. >> All right, thank you for that. And thanks thanks for being here, too. It's time for our last question. Um, which is the same for every guest, no matter what the topic that we've been discussing, and you can answer it any way you like. Doesn't have to be financial. The question is simply this. If you could leave our listener with a single takeaway today, what would it be? Um, the shest way to get poor quickly is to try to get rich quickly. And um, so I I just see it. It's I see it all the time. I hear stories from my readers and all. There's there's a massive massive industry designed to suck people in to get rich quick schemes. And um you know I still to this day like I no longer think Bitcoin is worthless just because there are enough people who think it has value >> but it is purely an instrument of speculation and I have no regrets about missing it. Uh >> uh there's there's no way to value it. There's no intrinsic value. There's no cash flow. whatever, right? >> Yeah. >> Uh but I mean that would be among the best speculations out there, you know, it's sort of done well. >> Um but these China scams that are um I we're talking tens of billions of dollars and then, you know, people get called up and they get sucked into these romance scams and so forth that drain their life savings, you know, in this highly interconnected world, especially older people who aren't as sophisticated. Those are the targets. >> Yeah. Um and so they get sucked into stocks, scams, promotions, etc. And uh they end up getting destroyed. So um and it's, you know, people feel financial pressure and every human being on earth wants to get rich quick. And it's um and but by getting sucked into trying to get rich quick is the absolute shest way to get poor quick. >> Amen. And thank you for that. And thanks again for for being here. It's always a pleasure to talk with you, man. >> Likewise. Thanks for having me. >> Hey, man. It's another another Whitney interview. We got tickers, we got insight, we got advice, we got everything. It's just another great session with Whitney. >> Yeah. And I'm glad I get to take advantage of these supposed all these mistakes that he's made throughout his career and uh listen to this advice and just >> hold winners and don't sell them for the most part and uh >> hopefully I can take that advice and uh listen to it myself for a long time. But um yeah, no great went through a lot there. Uh >> yeah, he did. >> It was uh pretty good. Yeah, a guy I mean his daily he's just constantly sort of rumaging through the through the market, you know, he's constantly going through the market stock by stock by stock. So, and you as everyone just heard, he's got all this information just right online. Um, so it's it's, you know, he's like a must must check in with, you know, a couple times a year kind of a guest for us. Uh when he mentioned Bitcoin, I thought of you immediately because he's he's like, "Well, I Yeah, I he's like because I know you own plenty of it." And he's like, "No, not my thing at all. Can't value it. Don't know what it's worth." Pure speculation. So, >> right. I mean, well, yeah, I it's pure speculation and as much as anything else, I would say, you know, but um you know, it's >> you're right. you can't value it like traditionally, conventionally uh with cash flow and and that sort of thing. Um but neither can you say commodity like gold I would say. Right. So >> same argument. Yeah. >> Yeah. So that's fine. I mean I'm not I'm happy to have had some some returns from Bitcoin and uh a lot of other people are too so far. But like anything else, you just got to be careful when it's getting to those levels like those mania levels. Um, >> and just know that it also can go down 80%. You know, it's not like uh it's not the end all beall like anything else, I would say. >> Um, so I totally agree speculative point there. Yeah, >> I read something the other day that suggested that um Bitcoin's days of 80% declines are over and uh >> oh >> my normal reaction to that is oh sure they are. That's probably a sign of the top or something. But my new reaction is I don't know anything. It could be true. I I have no idea. I mean, I I don't like all these havingss that occur and all the stuff behind Bitcoin that makes it value and that people like Michael Sailor say, you know, makes it the most valuable thing that humanity has ever created or whatever. Um, they may have gone too far as people do in in sort of bubbly speculative situations, but they didn't say it for no reason at all, you know. >> So, I don't know. I I >> Yeah, I'm with you. I don't think anybody truly knows, right? It's still something that's >> still uh less than 20 years old at this point. And uh >> yeah, >> so Bitcoin and um >> so we'll see. But >> yeah, if you're not following Whitney's Daily, I mean, you really should like it's it's uh >> yeah, >> I'm a little biased because I think I mentioned this before. I I I edited it for a little bit um when I first worked with him and I was just like, how is he possibly reading all of these things every day and putting these into a daily >> newsletter? Um and he's still doing it and he's kind of more recently taken a angle of getting into the individual company analysis that as he mentioned a lot of readers will just write in and say, "Hey, take a look at this stock." and he'll go through it and give like a first look I think he calls it and um >> yeah no it's great and then he just kind of callulls a lot of stuff from what's out there in the financial uh uh investment uh we used to call it blogosphere right but the internet I I just suppose we can call it now um and um yeah and also you can find him in our investment advisory too where he's the lead editor where so we where we do the formal recommendations and portfolio and and all of that sort of thing. So, um, >> right. >> Yeah, >> cool stuff. Yeah, that's where you go. The the Stanbury Investment Advisory is where you go if you want to find out what he's saying you should buy right now, uh, you know, this month or whatever. So, um, another place to find him. Smart guy, cool guy. I've known him for many years. I've known him probably for, um, more than 20 years. I I think I went to the very first value investing congress which was more than 20 years ago I think >> um as I recall early 2000s or so um you know my memory is not great so if it wasn't 20 years ago sorry u but yeah I used to attend every single one of those because he and his partner Glenn Tong um were um really really smart guys who attracted lots of other smart guys that they went to like Harvard or Princeton or wherever they went, >> right? >> Um, so as well, you know, and people like Bill Aman and David Einhorn would show up and it would be amazing. So, >> um, learned a lot from him over the years and I and I know we'll continue to do so. So, yeah, that's another interview and that's another episode of the Stanberry Investor Hour. I hope you enjoyed it and benefited from it as much as we really truly did. Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stanbury Research, its parent company, or affiliates.