Sven Carlin: Value Investing’s Big Comeback Amid the AI Frenzy | Avoiding Risk Beats Chasing Returns
Summary
Value Investing Approach: Sven Carlin emphasizes the importance of value investing, focusing on fundamentals, cash flows, and dividends rather than chasing high valuations and momentum stocks.
Market Outlook: Carlin highlights concerns over the current high valuations in the stock market, particularly in large-cap tech stocks, and suggests that the market's reliance on valuation expansion is unsustainable.
Investment Strategy: He prefers investing in undervalued sectors and companies, such as Amsterdam Commodities, which offer steady returns and high dividend yields, over holding cash.
Sector Opportunities: Carlin identifies sectors like food and commodities as offering potential value, while cautioning against the risks in sectors like chemicals and small caps.
Global Perspective: He discusses the importance of geographical diversification, noting the relative expense of the US market compared to opportunities in Asia and Europe.
Risks and Hedging: Carlin warns of potential risks from government deficits and private equity, advocating for hedging strategies to protect against market downturns.
AI and Technology: While acknowledging the transformative potential of AI, Carlin remains cautious about investing in AI-driven companies due to high competition and uncertain profitability.
Investment Philosophy: He stresses the importance of a disciplined, long-term approach to investing, focusing on consistent performance rather than trying to outperform the market.
Transcript
Why do you believe this is still the right approach to take? Because I'll miss on the huge losses when those happen. The growth doesn't justify the valuation expansion. As long as the party is going, everybody's happy. There is a chance that the party might stop and that's a place where I don't want to be. I look at the fundamentals and slow and steady I keep on compounding no matter what the market does. Hello and welcome to Wealthy. I'm Maggie Lake and joining us today to talk about how a value investor can find opportunity in this market is Spven Carlin of Modern Value Investing with Spen Carlin which airs on YouTube. Hi Spen, welcome to Wealthon. Thank you. Happy to be here. Just a reminder before we jump in, uh, if you have any questions about your investment strategy, you can get a free portfolio review from an advisor in the Wealthy Network. Just click on the link in the description or head over to wealthy.comfree. So Sven, before I we talk about specifics about opportunity and risk, I just thought we might start with the concept of value investing itself because I think it's fair to say it's sort of fallen out of favor in recent years with so much of the action and frankly the huge gains really centered around these big momentum large cap cap tech stocks. Why do you believe this is still the right approach to take? Because I'll miss on the huge losses when those happen. Okay. So you think this is this is not something hasn't fundamentally changed in the market in terms of how it functions. You just think this is a sort of cycle we're in. I I'm not there to predict. So for example, value investing is about avoiding risk first and then getting returns from fundamentals. The S&P 500 over the last seven years did 15% per year. Me with my portfolio I did equally. The only difference is the SAP has a P ratio of 30. My portfolio has a price to earnings ratio of 10. I have five six% dividend yields. So whatever happens with the market, I want to get my returns from fundamentals, cash flows, dividends, buybacks, and not expansion in valuation. The P ratio of the S&P 500 10 years ago was below 20. Now it is above 30. So if you look at the market more than 50% of the gains is just a valuation expansion and everyone is looking at the forward projected expected earnings. But if you look at real earnings, the growth doesn't justify the valuation expansion. And as long as the part is going, everybody's happy. There is a chance that the party might stop. And that's a place where I don't want to be. Yeah. I I mean I think that there are a lot of folks who are concerned. Um but but what what are you seeing? You know, we are sitting at these record highs. So from from your sort of value perspective, what are you seeing when you look at the US stock market? What what sort of characteristics suggest that this is going to end badly? Well, we I cannot know that this is going to end badly. I'm not here to predict. I just see a dividend yield of 1.2% which is nothing compared to the historical yield of 4%. And yes, the stock market did great but on completely different fundamentals in history and there could be now they are predicting as stocks go higher the expectations about the stock market go higher and higher. Yesterday I heard someone saying the SAP will be at 9,000 points by the end of 2026. And given the situation, that is extremely possible. But I know that there are these long-term cycles and uh the 2000s, the 1970s where you get no gains for a decade or two decades. And with a dividend yield of 1%, I just don't want to be on that side of the bet. So when you when you look at something like tech stocks and this is this is um you know something that comes up when you challenge people about the sort of momentum nature of this and and point out some of the things you just said they say well feel it you know okay you say it's an AI bubble but uh and and it seems uh the valuation seems so stretched but these companies are making real revenue there's real money coming in um which you know if if if people are thinking about value investing that matters right how how do how do you um approach that especially when you're looking at these AI stocks so I am a customer of Microsoft of Amazon of Google of all the companies there and I really like their products and those are ex extremely v valuable and wonderful businesses nobody can argue about the great businesses is those are on the value investing perspective there is always this risk and reward when I think it was two three years ago Amazon was trading at 1 trillion Facebook was at 10% of where it is now Google was even cheaper and then we always look at that risk and reward if Amazon would be trading now at 1 trillion I would buy it at 3 trillion it's just a matter of price. So what am I getting for the price I am paying? And now I see a lot of momentum. It can go higher. Everything is great. But I'll look again when perhaps the next recession comes. I will look again at those names and see whether there is value. as long as I can find other things that I like perhaps better or not better businesses but at a better price and that give me more certainty when it comes to returns then I'm happier owning the boring stocks compared to the momentum stocks. Yeah, I think that's going to resonate with a lot of people because you're you're you're not sort of taking a position that these stocks don't have great businesses. This is really just operating on a framework and being very disciplined on that framework. Yes. Price exceeds something you're comfortable. It's it's just not worth chasing for you. So, how do you approach the situation we're in right now given that clearly some of these stocks do not fit in your framework? Are you looking to actively put cash to work in some other areas where you see opportunity? And we'll talk about where they are. or is this a period where you feel like the risk is so high that you actually need to hold cash? How should people be thinking about cash versus actively investing in this environment? Depends on the opportunity. For example, one of the businesses I own is Amsterdam commodities, which is a Dutch trade spice trading business. They have 200 years of history. They source the spices from all over the world, nuts, tea, things like that. and then they sell it across Europe, the states, organic, things like that. So, such a boring business, nobody is wa watching that. Has a market cap of around 800 million and it pays a dividend yield of 6% and earnings over the last 10 years have been growing at 8% per year and the projections are that it will continue to do so. A little bit of food inflation, it's defensive. No matter what happens, we are likely going to keep eating if AI doesn't solve that problem too. Some of us a little bit less, some of us more. But it's such a defensive relatively cheap stock that I prefer having that one rather than sitting in in cash because cash, if we talk about cash, then over the long term, we are certain to lose money. This October, Wealthian's putting the spotlight on silver with expert interviews, deep analysis, and a special in-depth report from our partners at SCP Resource Finance. To receive this report and other exclusive benefits, you can sign up to become an accredited investor with Wealthon at wealth.com/acredited or by finding the link in the description below. Speaking of silver, Wealthon will be on the ground in Toronto for the SCP Resource Finance second global silver conference happening on Thursday, October 23rd. Legendary investor Eric Sprat headlines the event alongside 15 silver mining companies presenting their top projects. It's a must attend for anyone serious about investing in silver. Tickets, both in person and virtual, are now available. Find out more in the description below. Yes, this is this is why I asked this because there's so much conversation about uh fiat currencies and the devaluation and some of the debt problems we have. So, it sounds like you're not you don't have an if possible if you're able to find the opportunities, it sounds like you'd rather not have much cash at all. Is that fair? I have I have very little cash because as long as I can find opportunities and that's what I do. I do. I'm practically a researcher. If I constantly look at things, analyze things. As long as I can find these things, then I'm happy owning businesses. Just an example, Warren Buffett is all in cash, but a business that has a market cap below 100 billion doesn't move the needle for him. So, I don't think he's looking into my area. Therefore, yeah, if I'm not competing with Buffett, I can still find something. That is exactly what I had in mind when you were asking about that because a lot of people look at, you know, Berkshire still as the as the benchmark for sort of value investing. Um and and it's made a head a lot of headlines that they've been raising cash. So that's exactly what was on my mind. Um so you're you're just more nimble and looking to be actively invested. So you mentioned that one company. Are there sectors that you like or are you much more picking individual stocks? How how are you where do you see the opportunity right now? usually follow a lot of sectors and then look at the sector that is let's say with a negative sentiment and I try to find fundamental values uh for example one of the terrible sectors now is the chemical sector the DAO company and things like that but for example if there is a recession next year that will look even uglier so there I say okay if there is there is too much risk still despite everything looking cheap and they have been overinvesting for the last let's say two three years. So it will take two three years to let's say wash that out and then we just wait for lowrisk highreward opportunities and food is also relatively cheap now so everyone is switching towards tech and I AI and they always forget something from that perspective. So boring companies, there are some in Asia, some in Europe, some in the states that give fundamental returns no matter what happens with the economy with this or that. M uh you know there one thing I hear a lot when you have this conversation about value versus say someone who is maybe looking more toward growth or has more of a growth perspective is you know they'll say well they're cheap for a reason right just because they're cheap isn't a reason to buy something so talk to me a little bit about that concept how do you make a determination that yeah something's cheap but that doesn't mean I want to purchase it what are the what are some of the sort of um you know check marks you put to say okay wait now this is interesting how do you view that so the definition of value investing from an academic perspective is low price earnings and low price to book that would be standard value investing however if I look at 20 businesses that have those characteristics I am not a general value index investor that I buy them all I try to analyze those businesses and then from those 20 or even 100 then I select one that might be interesting and so I form a list that I have been following for a decade now and carefully select those businesses when the opportunity knocks. Yeah, it's so you have a sort of watch list going of companies that Yeah, this is this this all sounds very familiar to me but very old school if you will. This is how research analysts used to do it, right? how people constructed portfolios. Do you care about management? Well, uh management you always look at if what they have been saying five, seven years ago still holds. And just as you managed all hat and all fashion yesterday, I was reading Peter Lynch, one up on Wall Street. This was published I think 2000 edition. and he just comments on all these internet stocks and how great they are and how it will change the world and everything but how he will remain old-fashioned. I think that's in the introduction. So also that works for the because fundamentals work whatever happens forever and everything else work until it works until it doesn't. So yeah, that's it. Yeah. uh do you how do you feel about and do you use ETFs and index funds? Because this is one of the things in my mind that's really changed. You know, when I first started out um talking to folks like you and and reporting on markets and investing, it was really teams of people doing deep research, really understanding the company, visiting the companies, really, you know, that really knowing the the balance sheet inside and out. and we've shifted to a much more passive universe where ETFs for all the benefits have made it easier to just not have to choose the winner but pick a basket of a stocks. How do you feel about that? Is there a place for them? Do you avoid them? I personally avoid them because it's mindless investing. They have some strategies or weighted or something. There are even value ETFs, but whenever I look at that, they just threw something, package it, and it's great marketing. I think the ETF industry has done the most wonderful marketing activity in the financial world. They get their fees, they collect their money, invest passively. And okay, for someone that is good, the fees are ridiculously low for an S&P 500 ETF, which is a benefit, but you miss you will always get just the average with ETFs. And I'm not doing so much work just to be average. Just an example now ski season will will start and I have looked I think a few days ago at Veil Resorts. M I have published a video and then the out of the first 10 comments six were about the bad customer service of users and then okay that's also something that you don't get in an ETF or things like that and then you say okay bad customer service negative sentiment which means that they might not turn to growth and then you say okay a little bit more risk and say you weigh it compare it to other things. So I personally I strive for being better than the average. What are some of the other areas that you have on your watch list? Uh because I feel like outside tech has sort of been hoovering up all of the interest and momentum and and there are a lot of sectors that have sort of been left for dead. People comment and ask about energy. They ask about health care. You know, there are a lot of sectors that seem like they're they're hurting. What what's on your watch list? Uh volatility, for example. There are businesses that strive on higher volatility. And for the past few years, the VIX index has been down in the toilet. Nobody expects any shocks and therefore these businesses that trade on volatility they when and if all these bubbles or recessions or things start to revert or the unsustainability of the current environment shows up these businesses will gain a lot. So are they financial businesses? Are you talking about the money makers uh market makers or things like that? Yeah, that's also a hidden opportunity in the current market. Yeah. What about um uh international versus US? Are you thinking about things from a geographical point of view? Wherever I can find the value. The US for now is the most expensive market in the world. I think the market capitalization is 65% of the world. Of course, there are the best businesses. China was relatively cheap up to six months ago. Now everything I had in China has doubled in the last six months. So I have trimmed that. But still you can always find around if you look into places. But you really have to know well your international investments. Yeah, ask you how do you how do you deal with the political risk, the geopolitical issue, currency issues? Like how do you think about that if you're because obviously they are going they're going to be cheaper than US equities right now many of them. But I but I've heard people have issues like Europe's a great example. How do you think about Europe? because clearly from a price perspective there's going to be opportunity but then a lot of people point out a lot of issues about governance and bureaucracy and regulation and for them then that becomes the reason they're cheap not an opportunity. Yeah, for me it's easy because I'm from Europe so that's easier to understand but that is correct. I would prefer an American all else equal an American business should do better than a European business because it's still easier and uh let's say especially if more deregulation comes in the states. It's easier to do business in the states than in Europe. However, there are always these smaller businesses that are more nimble that operate globally. Then you also you always you sometimes you find businesses that have operations just in the states but are traded only in Europe and therefore those are cheaper. So it's always about looking into those details that the market might be overlooking. If you're looking for a simple, secure way to invest and own physical gold and silver, visit our sister company, Hardass Assets Alliance, at hard assetsalliance.com. That's hardassallalliance.com. The other the other sort of question I have when you're building framework is what about size of company? So, I feel like when you're looking at neglected areas, there's been a lot of people or there have been a lot of people who've been looking at small caps and saying, "Well, they've been underperforming so long. It's finally going to be their chance." And if we get interest rates that are lowered in the US, maybe we see a breakout. But that has been a disappointing place to operate. Um, and it just hasn't happened. Uh, do you consider small cap stocks or do you prefer to stay farther up the food chain in terms of capitalization? Do you have a preference at the current levels? I prefer to go look under 20 billion market capitalization because nobody's looking. There are conference calls that I'm following. It's a 10 billion business and there are no analysts asking questions because everyone is focused on the apples on the Googles and these businesses they have 20 30 billion of revenue and no one asks questions. That's crazy. However, on the small caps, I looked at the index, I think about two years ago, and I start with the Ace and I pass all the 3,000 Russell companies and it was very hard to find value. So, underperformance might be also a reason because I remember a while ago those were expensive from a relative perspective. So, it's always about looking at those fundamentals and compare them to the price. Yeah. Do you um what is what is your sort of fundamental outlook for the for the global economy and for interest rates and how much does that influence what's on your list right now? I think that if you look at things Asia is still booming. It's 5 billion people. They are still growing. I've been there to Asia and when you see what's going on then okay this is something and will keep be will keep being that way for the next 10 20 years which also means that for us in the developed countries the old countries like the state that means also more competition for copper for all these metals for commodities for food and things like that so you don't have to go there to invest but if you invest I don't know in commodity business or food businesses locally, those will also benefit from those good global long-term structural trends. Is there anything uh uh on the horizon for the global economy that has you worried that has has you sort of really avoiding certain areas? Where do you see risk most concentrated? I see risks I think all everywhere you can see risks. The government deficits and budget deficits in Europe and in the states are completely unsustainable which means they will print money to get out of that. If they print money, our currencies will lose their strength and power. Therefore, we have to be in businesses that will do well no matter what happens with the currency. M then we have a lot of risk I think in private equity because they are borrowing at 3% investing in businesses at 4% if given the budget deficits and the US government needs to refinance 9 trillion in the next 12 months and you cannot refine refinance that with the low interest rate. So that will also might be an issue that will not be discussed now but maybe arise in April of next year and things like that and then the house of cards might start to fall and then perhaps have systemic consequences. Buffett is not for nothing all in cash. Yeah. And that doesn't that did you feel like your portfolio can withstand that? Are you also expecting to experience a downdraft if you're not in cash? Do you have as I said if if there is turmoil market makers things like that should do much better I think. So that's their hedge. Yeah I'm hedged the the their earnings were five times higher in 2020 when there was volatility than in 2023 or 2024. So if there is volatility unhedged there I get my Do you have a do you have a favorite? Do you think someone's best in class there? Yes, but I will not mention names. And if I have a dividend yield on food stocks of six 7% uh 8% something from Asia then I can use that cash flow and buy things on the cheap if and when the turmoil happens. If not, if nothing happens and we all keep on enjoying our lives as we have been doing for the last 15 years, then I'm also okay. I'll get my 5% dividend and slowly wait for better value investing times. You you me you've mentioned food a few times. Are you also looking at other commodities? I am following all the commodities I follow from coal from uh copper things like that and there is significant volatility so I don't know in April some of those names were cheap for example like Glenor now it is already a little bit higher so I'm always looking at that shortterm and also long-term volatility but in general looking at the long-term copper players will who should do okay. So if we if we think about the we just talked about the risks and it's very easy I think in this environment to be overly negative. What do you think the best opportunities are? How are you thinking sort of in a positive way about what the next few months might hold? So the opportunities are perhaps you know it's everything is cyclical. We had the last time I was talking to Anthony Scaramucci, we were discussing Archer Daniel Midland as a cheap stock that was somewhere in March and the stock price was 40. Now it is above 60. So every stock in a year usually drops 30% for whatever reason and then it goes up 50% for whatever reason if you look at let's say individual businesses. So you can always just wait for what you like to fall into your B basket and uh then buy as much as you feel fits your portfolio. But in general if you say now what are the opportunities now at this moment apart from the two I already mentioned without taking too much risk it is very hard to find. There are still still some cheap stocks in Asia. But then you really need to know what you're doing or to let's say manage your exposure. Automotive companies are getting cheaper, chemicals are getting cheaper. And there are these sectors but these sectors are not cheap yet enough. These are cyclical. Then you need a recession and then you go look into those. I I I you know understand from the way you're talking about it and I and again I think this is interesting that you have you don't something doesn't just sort of pop out out of nowhere. You have a watch list that you're always adding to and subtracting to and then you look for the price entry but you they're already on your radar. You're just looking for an opportunity to buy them. How how much how often or how long do you hold them? Do you have a typical time frame? Do you also have a price target once they reach the upper end of that then you're moving them off the list or you're taking your profits you know are you actively changing the your portfolio quite frequently in this environment you always compare with the fundamentals for example uh the most recent sale I made was Alibaba I had a significant position accumulated over the last few years when it was cheap And uh now it has doubled even more from that position building. But I was looking at the fundamentals and the fundamentals haven't moved. It's still the same business slow growing and all it's all lying on promises on AI and they have actually lowered their cash flows promising investments in AI. And then I say okay it's time to also it's China now everybody is excited about China. Two years ago everyone was saying China is uninvestable. For me the risks of China are still there. Nothing has changed. So I said okay let's trim that position. So depends on how the fundamentals move in relation to pro price. If the fundamentals keep improving, the price keeps going higher. As Buffett says, my preferred holding time is forever. Yeah, I Yeah, exactly. I I was I I was wondering about that because I tend to think of value investing with a much longer time frame, but you sound like you're active and rebalancing and looking at market conditions all of the time. So, it sounds like a little bit of a hybrid. Do you own any growth in tech at all? Do I own any growth? Do you own any AI exposed companies? No, I did own Alibaba before it became AI exposed company. So, how do you stay patient and focused on value when we've clearly seen the market reward these these tech companies and momentum companies and and they've shown sort of extraordinary numbers. I think the essence of value investing is not outperforming. It's focusing on just performing. I have my goals. These I have to reach my financial goals slow and steady. I accumulate my dividends. I look at the fundamentals and slow and steady. I keep on compounding no matter what the market does. I'm happy for everyone making their millions on AI stocks or Bitcoin or whatever. I'm happy for them, but I know I'll miss out on most of that party and I'm fine with that, too. I hope they are happy for me just doing my thing. Is there um anything that you have felt like you were wrong about or an area that you won't touch based on something that has happened or you feel maybe has changed in the investment environment? Are there no go areas for you? So I really am looking at especially what you mentioned earlier international investing and uh with the current situation I'm let's say going back home Europe US and really watching those international investments and the risks there for example when I mentioned copper earlier you look at the world and copper it's extremely difficult to find individual copper players that don't have international risks or if there is a change if politics in Chile you can lose 50% tomorrow if they raise taxes or confiscate or things like that and for example that's an interesting way to play copper which long-term should be positive is just to buy an ETF if something happens in Indonesia and copper prices go up that business goes down but everyone body else gains on higher prices. So that is one of the few ways where I would play something even with an ETF. Yeah, that comes up with commodities a lot because they're so very specific and have that that that international risk when you have these risks that you simply cannot know. You cannot estimate, you cannot know. If Indonesia as they did five times already said say okay now this mine is from the government you can just say goodbye to your money has happened will happen again. So those are things that one should watch. What is what is one piece of advice you'd give investors right now? One piece of advice to check whether the risk of the current portfolio is something that would impact their life. For example, if I could say the S&P 500 is overvalued, if next year we have a recession, if AI, which is my biggest concern, isn't as profitable as people expect because Chinese AI is as good as American AI for a much lower price. So two years everyone is invested billions and then you can buy cheaper somewhere else as it is manufacturing with everything. If that if that doesn't work out we could lose we can look at losses of 50 60% with all these tech names which would just mean that those revert to where those were in 2023. And if that would affect your personal well-being and lifestyle, then you have to consider the risks. And if you are into that, just hedge yourself. I think for you can buy for 5% of your portfolio, you can buy a put on the S&P 500 and you can't lose money. If the S&P 500 goes up 20% next year, you will not make 20. you will make 15 because you spent 5% on the put, but you can sleep well. So, be hedged is my message. Great, great, great advice. I just want to ask you, you brought up a really important point, and I wonder if you're you're plugging this into your thinking. There are some who, you know, the big conversation around AI is, well, it has no moat. We know it's going to change everything, but we're not sure that companies who who have it currently can gatekeep it and profit off it, but there's a possibility that all these once it's out really being used in the ecosystem that all these boring companies that you talk about will be the ones who benefit from it and will be able it'll hit their bottom line because they'll be optimizing it. Are are you looking at that benefit of AI down the road? And is that something when you're looking at companies to see whether they're able to benefit from the efficiency of AI? Everyone, every company that's now printing money, those are all benefiting from the companies that built the internet. Amazon, Facebook, Google, they didn't build the internet. Those have been a asset light businesses that have taken advantage of the companies building the internet and AI will change the world. I'm using it. It's really remarkable. It replaces 10 researchers for me. It's not correct. When I ask questions, I still have to recheck and sometimes it's dead wrong. But it helps truly. However, with all these capex investments, it's very likely that the real winners will be those companies that are using AI. And there is simply there are many investors in the infrastructure which means that we as customers we will be able to choose. If we can choose it means prices are lower, the investors don't make any money. The customer is the winner. I think also Jeff Bezos said that a lot of money is now thrown into AI both at good things and at bad things and that the customer will win. So it will be a great benefit for humanity I hope but it's unlikely it will lead to profits due to incredible competition. Yeah, great stuff Sven. Thank you so much. This I think a really timely conversation. Um, as I said, a lot of people have moved away from value investing and this is a good reminder of the benefits and and why people should, you know, take a look at it and see if it's the right fit for them. So, thank you so much. Really enjoyed it. Thank you for having me. And remember, if you'd like to check on the allocation mix in your portfolio and the risk as we've been discussing, you can get a free review from one of the adviserss in the Wealthon network by clicking the link in the description or heading to wealthon.comfree. Thanks for watching everybody. We'll see you again next time. [Music]
Sven Carlin: Value Investing’s Big Comeback Amid the AI Frenzy | Avoiding Risk Beats Chasing Returns
Summary
Transcript
Why do you believe this is still the right approach to take? Because I'll miss on the huge losses when those happen. The growth doesn't justify the valuation expansion. As long as the party is going, everybody's happy. There is a chance that the party might stop and that's a place where I don't want to be. I look at the fundamentals and slow and steady I keep on compounding no matter what the market does. Hello and welcome to Wealthy. I'm Maggie Lake and joining us today to talk about how a value investor can find opportunity in this market is Spven Carlin of Modern Value Investing with Spen Carlin which airs on YouTube. Hi Spen, welcome to Wealthon. Thank you. Happy to be here. Just a reminder before we jump in, uh, if you have any questions about your investment strategy, you can get a free portfolio review from an advisor in the Wealthy Network. Just click on the link in the description or head over to wealthy.comfree. So Sven, before I we talk about specifics about opportunity and risk, I just thought we might start with the concept of value investing itself because I think it's fair to say it's sort of fallen out of favor in recent years with so much of the action and frankly the huge gains really centered around these big momentum large cap cap tech stocks. Why do you believe this is still the right approach to take? Because I'll miss on the huge losses when those happen. Okay. So you think this is this is not something hasn't fundamentally changed in the market in terms of how it functions. You just think this is a sort of cycle we're in. I I'm not there to predict. So for example, value investing is about avoiding risk first and then getting returns from fundamentals. The S&P 500 over the last seven years did 15% per year. Me with my portfolio I did equally. The only difference is the SAP has a P ratio of 30. My portfolio has a price to earnings ratio of 10. I have five six% dividend yields. So whatever happens with the market, I want to get my returns from fundamentals, cash flows, dividends, buybacks, and not expansion in valuation. The P ratio of the S&P 500 10 years ago was below 20. Now it is above 30. So if you look at the market more than 50% of the gains is just a valuation expansion and everyone is looking at the forward projected expected earnings. But if you look at real earnings, the growth doesn't justify the valuation expansion. And as long as the part is going, everybody's happy. There is a chance that the party might stop. And that's a place where I don't want to be. Yeah. I I mean I think that there are a lot of folks who are concerned. Um but but what what are you seeing? You know, we are sitting at these record highs. So from from your sort of value perspective, what are you seeing when you look at the US stock market? What what sort of characteristics suggest that this is going to end badly? Well, we I cannot know that this is going to end badly. I'm not here to predict. I just see a dividend yield of 1.2% which is nothing compared to the historical yield of 4%. And yes, the stock market did great but on completely different fundamentals in history and there could be now they are predicting as stocks go higher the expectations about the stock market go higher and higher. Yesterday I heard someone saying the SAP will be at 9,000 points by the end of 2026. And given the situation, that is extremely possible. But I know that there are these long-term cycles and uh the 2000s, the 1970s where you get no gains for a decade or two decades. And with a dividend yield of 1%, I just don't want to be on that side of the bet. So when you when you look at something like tech stocks and this is this is um you know something that comes up when you challenge people about the sort of momentum nature of this and and point out some of the things you just said they say well feel it you know okay you say it's an AI bubble but uh and and it seems uh the valuation seems so stretched but these companies are making real revenue there's real money coming in um which you know if if if people are thinking about value investing that matters right how how do how do you um approach that especially when you're looking at these AI stocks so I am a customer of Microsoft of Amazon of Google of all the companies there and I really like their products and those are ex extremely v valuable and wonderful businesses nobody can argue about the great businesses is those are on the value investing perspective there is always this risk and reward when I think it was two three years ago Amazon was trading at 1 trillion Facebook was at 10% of where it is now Google was even cheaper and then we always look at that risk and reward if Amazon would be trading now at 1 trillion I would buy it at 3 trillion it's just a matter of price. So what am I getting for the price I am paying? And now I see a lot of momentum. It can go higher. Everything is great. But I'll look again when perhaps the next recession comes. I will look again at those names and see whether there is value. as long as I can find other things that I like perhaps better or not better businesses but at a better price and that give me more certainty when it comes to returns then I'm happier owning the boring stocks compared to the momentum stocks. Yeah, I think that's going to resonate with a lot of people because you're you're you're not sort of taking a position that these stocks don't have great businesses. This is really just operating on a framework and being very disciplined on that framework. Yes. Price exceeds something you're comfortable. It's it's just not worth chasing for you. So, how do you approach the situation we're in right now given that clearly some of these stocks do not fit in your framework? Are you looking to actively put cash to work in some other areas where you see opportunity? And we'll talk about where they are. or is this a period where you feel like the risk is so high that you actually need to hold cash? How should people be thinking about cash versus actively investing in this environment? Depends on the opportunity. For example, one of the businesses I own is Amsterdam commodities, which is a Dutch trade spice trading business. They have 200 years of history. They source the spices from all over the world, nuts, tea, things like that. and then they sell it across Europe, the states, organic, things like that. So, such a boring business, nobody is wa watching that. Has a market cap of around 800 million and it pays a dividend yield of 6% and earnings over the last 10 years have been growing at 8% per year and the projections are that it will continue to do so. A little bit of food inflation, it's defensive. No matter what happens, we are likely going to keep eating if AI doesn't solve that problem too. Some of us a little bit less, some of us more. But it's such a defensive relatively cheap stock that I prefer having that one rather than sitting in in cash because cash, if we talk about cash, then over the long term, we are certain to lose money. This October, Wealthian's putting the spotlight on silver with expert interviews, deep analysis, and a special in-depth report from our partners at SCP Resource Finance. To receive this report and other exclusive benefits, you can sign up to become an accredited investor with Wealthon at wealth.com/acredited or by finding the link in the description below. Speaking of silver, Wealthon will be on the ground in Toronto for the SCP Resource Finance second global silver conference happening on Thursday, October 23rd. Legendary investor Eric Sprat headlines the event alongside 15 silver mining companies presenting their top projects. It's a must attend for anyone serious about investing in silver. Tickets, both in person and virtual, are now available. Find out more in the description below. Yes, this is this is why I asked this because there's so much conversation about uh fiat currencies and the devaluation and some of the debt problems we have. So, it sounds like you're not you don't have an if possible if you're able to find the opportunities, it sounds like you'd rather not have much cash at all. Is that fair? I have I have very little cash because as long as I can find opportunities and that's what I do. I do. I'm practically a researcher. If I constantly look at things, analyze things. As long as I can find these things, then I'm happy owning businesses. Just an example, Warren Buffett is all in cash, but a business that has a market cap below 100 billion doesn't move the needle for him. So, I don't think he's looking into my area. Therefore, yeah, if I'm not competing with Buffett, I can still find something. That is exactly what I had in mind when you were asking about that because a lot of people look at, you know, Berkshire still as the as the benchmark for sort of value investing. Um and and it's made a head a lot of headlines that they've been raising cash. So that's exactly what was on my mind. Um so you're you're just more nimble and looking to be actively invested. So you mentioned that one company. Are there sectors that you like or are you much more picking individual stocks? How how are you where do you see the opportunity right now? usually follow a lot of sectors and then look at the sector that is let's say with a negative sentiment and I try to find fundamental values uh for example one of the terrible sectors now is the chemical sector the DAO company and things like that but for example if there is a recession next year that will look even uglier so there I say okay if there is there is too much risk still despite everything looking cheap and they have been overinvesting for the last let's say two three years. So it will take two three years to let's say wash that out and then we just wait for lowrisk highreward opportunities and food is also relatively cheap now so everyone is switching towards tech and I AI and they always forget something from that perspective. So boring companies, there are some in Asia, some in Europe, some in the states that give fundamental returns no matter what happens with the economy with this or that. M uh you know there one thing I hear a lot when you have this conversation about value versus say someone who is maybe looking more toward growth or has more of a growth perspective is you know they'll say well they're cheap for a reason right just because they're cheap isn't a reason to buy something so talk to me a little bit about that concept how do you make a determination that yeah something's cheap but that doesn't mean I want to purchase it what are the what are some of the sort of um you know check marks you put to say okay wait now this is interesting how do you view that so the definition of value investing from an academic perspective is low price earnings and low price to book that would be standard value investing however if I look at 20 businesses that have those characteristics I am not a general value index investor that I buy them all I try to analyze those businesses and then from those 20 or even 100 then I select one that might be interesting and so I form a list that I have been following for a decade now and carefully select those businesses when the opportunity knocks. Yeah, it's so you have a sort of watch list going of companies that Yeah, this is this this all sounds very familiar to me but very old school if you will. This is how research analysts used to do it, right? how people constructed portfolios. Do you care about management? Well, uh management you always look at if what they have been saying five, seven years ago still holds. And just as you managed all hat and all fashion yesterday, I was reading Peter Lynch, one up on Wall Street. This was published I think 2000 edition. and he just comments on all these internet stocks and how great they are and how it will change the world and everything but how he will remain old-fashioned. I think that's in the introduction. So also that works for the because fundamentals work whatever happens forever and everything else work until it works until it doesn't. So yeah, that's it. Yeah. uh do you how do you feel about and do you use ETFs and index funds? Because this is one of the things in my mind that's really changed. You know, when I first started out um talking to folks like you and and reporting on markets and investing, it was really teams of people doing deep research, really understanding the company, visiting the companies, really, you know, that really knowing the the balance sheet inside and out. and we've shifted to a much more passive universe where ETFs for all the benefits have made it easier to just not have to choose the winner but pick a basket of a stocks. How do you feel about that? Is there a place for them? Do you avoid them? I personally avoid them because it's mindless investing. They have some strategies or weighted or something. There are even value ETFs, but whenever I look at that, they just threw something, package it, and it's great marketing. I think the ETF industry has done the most wonderful marketing activity in the financial world. They get their fees, they collect their money, invest passively. And okay, for someone that is good, the fees are ridiculously low for an S&P 500 ETF, which is a benefit, but you miss you will always get just the average with ETFs. And I'm not doing so much work just to be average. Just an example now ski season will will start and I have looked I think a few days ago at Veil Resorts. M I have published a video and then the out of the first 10 comments six were about the bad customer service of users and then okay that's also something that you don't get in an ETF or things like that and then you say okay bad customer service negative sentiment which means that they might not turn to growth and then you say okay a little bit more risk and say you weigh it compare it to other things. So I personally I strive for being better than the average. What are some of the other areas that you have on your watch list? Uh because I feel like outside tech has sort of been hoovering up all of the interest and momentum and and there are a lot of sectors that have sort of been left for dead. People comment and ask about energy. They ask about health care. You know, there are a lot of sectors that seem like they're they're hurting. What what's on your watch list? Uh volatility, for example. There are businesses that strive on higher volatility. And for the past few years, the VIX index has been down in the toilet. Nobody expects any shocks and therefore these businesses that trade on volatility they when and if all these bubbles or recessions or things start to revert or the unsustainability of the current environment shows up these businesses will gain a lot. So are they financial businesses? Are you talking about the money makers uh market makers or things like that? Yeah, that's also a hidden opportunity in the current market. Yeah. What about um uh international versus US? Are you thinking about things from a geographical point of view? Wherever I can find the value. The US for now is the most expensive market in the world. I think the market capitalization is 65% of the world. Of course, there are the best businesses. China was relatively cheap up to six months ago. Now everything I had in China has doubled in the last six months. So I have trimmed that. But still you can always find around if you look into places. But you really have to know well your international investments. Yeah, ask you how do you how do you deal with the political risk, the geopolitical issue, currency issues? Like how do you think about that if you're because obviously they are going they're going to be cheaper than US equities right now many of them. But I but I've heard people have issues like Europe's a great example. How do you think about Europe? because clearly from a price perspective there's going to be opportunity but then a lot of people point out a lot of issues about governance and bureaucracy and regulation and for them then that becomes the reason they're cheap not an opportunity. Yeah, for me it's easy because I'm from Europe so that's easier to understand but that is correct. I would prefer an American all else equal an American business should do better than a European business because it's still easier and uh let's say especially if more deregulation comes in the states. It's easier to do business in the states than in Europe. However, there are always these smaller businesses that are more nimble that operate globally. Then you also you always you sometimes you find businesses that have operations just in the states but are traded only in Europe and therefore those are cheaper. So it's always about looking into those details that the market might be overlooking. If you're looking for a simple, secure way to invest and own physical gold and silver, visit our sister company, Hardass Assets Alliance, at hard assetsalliance.com. That's hardassallalliance.com. The other the other sort of question I have when you're building framework is what about size of company? So, I feel like when you're looking at neglected areas, there's been a lot of people or there have been a lot of people who've been looking at small caps and saying, "Well, they've been underperforming so long. It's finally going to be their chance." And if we get interest rates that are lowered in the US, maybe we see a breakout. But that has been a disappointing place to operate. Um, and it just hasn't happened. Uh, do you consider small cap stocks or do you prefer to stay farther up the food chain in terms of capitalization? Do you have a preference at the current levels? I prefer to go look under 20 billion market capitalization because nobody's looking. There are conference calls that I'm following. It's a 10 billion business and there are no analysts asking questions because everyone is focused on the apples on the Googles and these businesses they have 20 30 billion of revenue and no one asks questions. That's crazy. However, on the small caps, I looked at the index, I think about two years ago, and I start with the Ace and I pass all the 3,000 Russell companies and it was very hard to find value. So, underperformance might be also a reason because I remember a while ago those were expensive from a relative perspective. So, it's always about looking at those fundamentals and compare them to the price. Yeah. Do you um what is what is your sort of fundamental outlook for the for the global economy and for interest rates and how much does that influence what's on your list right now? I think that if you look at things Asia is still booming. It's 5 billion people. They are still growing. I've been there to Asia and when you see what's going on then okay this is something and will keep be will keep being that way for the next 10 20 years which also means that for us in the developed countries the old countries like the state that means also more competition for copper for all these metals for commodities for food and things like that so you don't have to go there to invest but if you invest I don't know in commodity business or food businesses locally, those will also benefit from those good global long-term structural trends. Is there anything uh uh on the horizon for the global economy that has you worried that has has you sort of really avoiding certain areas? Where do you see risk most concentrated? I see risks I think all everywhere you can see risks. The government deficits and budget deficits in Europe and in the states are completely unsustainable which means they will print money to get out of that. If they print money, our currencies will lose their strength and power. Therefore, we have to be in businesses that will do well no matter what happens with the currency. M then we have a lot of risk I think in private equity because they are borrowing at 3% investing in businesses at 4% if given the budget deficits and the US government needs to refinance 9 trillion in the next 12 months and you cannot refine refinance that with the low interest rate. So that will also might be an issue that will not be discussed now but maybe arise in April of next year and things like that and then the house of cards might start to fall and then perhaps have systemic consequences. Buffett is not for nothing all in cash. Yeah. And that doesn't that did you feel like your portfolio can withstand that? Are you also expecting to experience a downdraft if you're not in cash? Do you have as I said if if there is turmoil market makers things like that should do much better I think. So that's their hedge. Yeah I'm hedged the the their earnings were five times higher in 2020 when there was volatility than in 2023 or 2024. So if there is volatility unhedged there I get my Do you have a do you have a favorite? Do you think someone's best in class there? Yes, but I will not mention names. And if I have a dividend yield on food stocks of six 7% uh 8% something from Asia then I can use that cash flow and buy things on the cheap if and when the turmoil happens. If not, if nothing happens and we all keep on enjoying our lives as we have been doing for the last 15 years, then I'm also okay. I'll get my 5% dividend and slowly wait for better value investing times. You you me you've mentioned food a few times. Are you also looking at other commodities? I am following all the commodities I follow from coal from uh copper things like that and there is significant volatility so I don't know in April some of those names were cheap for example like Glenor now it is already a little bit higher so I'm always looking at that shortterm and also long-term volatility but in general looking at the long-term copper players will who should do okay. So if we if we think about the we just talked about the risks and it's very easy I think in this environment to be overly negative. What do you think the best opportunities are? How are you thinking sort of in a positive way about what the next few months might hold? So the opportunities are perhaps you know it's everything is cyclical. We had the last time I was talking to Anthony Scaramucci, we were discussing Archer Daniel Midland as a cheap stock that was somewhere in March and the stock price was 40. Now it is above 60. So every stock in a year usually drops 30% for whatever reason and then it goes up 50% for whatever reason if you look at let's say individual businesses. So you can always just wait for what you like to fall into your B basket and uh then buy as much as you feel fits your portfolio. But in general if you say now what are the opportunities now at this moment apart from the two I already mentioned without taking too much risk it is very hard to find. There are still still some cheap stocks in Asia. But then you really need to know what you're doing or to let's say manage your exposure. Automotive companies are getting cheaper, chemicals are getting cheaper. And there are these sectors but these sectors are not cheap yet enough. These are cyclical. Then you need a recession and then you go look into those. I I I you know understand from the way you're talking about it and I and again I think this is interesting that you have you don't something doesn't just sort of pop out out of nowhere. You have a watch list that you're always adding to and subtracting to and then you look for the price entry but you they're already on your radar. You're just looking for an opportunity to buy them. How how much how often or how long do you hold them? Do you have a typical time frame? Do you also have a price target once they reach the upper end of that then you're moving them off the list or you're taking your profits you know are you actively changing the your portfolio quite frequently in this environment you always compare with the fundamentals for example uh the most recent sale I made was Alibaba I had a significant position accumulated over the last few years when it was cheap And uh now it has doubled even more from that position building. But I was looking at the fundamentals and the fundamentals haven't moved. It's still the same business slow growing and all it's all lying on promises on AI and they have actually lowered their cash flows promising investments in AI. And then I say okay it's time to also it's China now everybody is excited about China. Two years ago everyone was saying China is uninvestable. For me the risks of China are still there. Nothing has changed. So I said okay let's trim that position. So depends on how the fundamentals move in relation to pro price. If the fundamentals keep improving, the price keeps going higher. As Buffett says, my preferred holding time is forever. Yeah, I Yeah, exactly. I I was I I was wondering about that because I tend to think of value investing with a much longer time frame, but you sound like you're active and rebalancing and looking at market conditions all of the time. So, it sounds like a little bit of a hybrid. Do you own any growth in tech at all? Do I own any growth? Do you own any AI exposed companies? No, I did own Alibaba before it became AI exposed company. So, how do you stay patient and focused on value when we've clearly seen the market reward these these tech companies and momentum companies and and they've shown sort of extraordinary numbers. I think the essence of value investing is not outperforming. It's focusing on just performing. I have my goals. These I have to reach my financial goals slow and steady. I accumulate my dividends. I look at the fundamentals and slow and steady. I keep on compounding no matter what the market does. I'm happy for everyone making their millions on AI stocks or Bitcoin or whatever. I'm happy for them, but I know I'll miss out on most of that party and I'm fine with that, too. I hope they are happy for me just doing my thing. Is there um anything that you have felt like you were wrong about or an area that you won't touch based on something that has happened or you feel maybe has changed in the investment environment? Are there no go areas for you? So I really am looking at especially what you mentioned earlier international investing and uh with the current situation I'm let's say going back home Europe US and really watching those international investments and the risks there for example when I mentioned copper earlier you look at the world and copper it's extremely difficult to find individual copper players that don't have international risks or if there is a change if politics in Chile you can lose 50% tomorrow if they raise taxes or confiscate or things like that and for example that's an interesting way to play copper which long-term should be positive is just to buy an ETF if something happens in Indonesia and copper prices go up that business goes down but everyone body else gains on higher prices. So that is one of the few ways where I would play something even with an ETF. Yeah, that comes up with commodities a lot because they're so very specific and have that that that international risk when you have these risks that you simply cannot know. You cannot estimate, you cannot know. If Indonesia as they did five times already said say okay now this mine is from the government you can just say goodbye to your money has happened will happen again. So those are things that one should watch. What is what is one piece of advice you'd give investors right now? One piece of advice to check whether the risk of the current portfolio is something that would impact their life. For example, if I could say the S&P 500 is overvalued, if next year we have a recession, if AI, which is my biggest concern, isn't as profitable as people expect because Chinese AI is as good as American AI for a much lower price. So two years everyone is invested billions and then you can buy cheaper somewhere else as it is manufacturing with everything. If that if that doesn't work out we could lose we can look at losses of 50 60% with all these tech names which would just mean that those revert to where those were in 2023. And if that would affect your personal well-being and lifestyle, then you have to consider the risks. And if you are into that, just hedge yourself. I think for you can buy for 5% of your portfolio, you can buy a put on the S&P 500 and you can't lose money. If the S&P 500 goes up 20% next year, you will not make 20. you will make 15 because you spent 5% on the put, but you can sleep well. So, be hedged is my message. Great, great, great advice. I just want to ask you, you brought up a really important point, and I wonder if you're you're plugging this into your thinking. There are some who, you know, the big conversation around AI is, well, it has no moat. We know it's going to change everything, but we're not sure that companies who who have it currently can gatekeep it and profit off it, but there's a possibility that all these once it's out really being used in the ecosystem that all these boring companies that you talk about will be the ones who benefit from it and will be able it'll hit their bottom line because they'll be optimizing it. Are are you looking at that benefit of AI down the road? And is that something when you're looking at companies to see whether they're able to benefit from the efficiency of AI? Everyone, every company that's now printing money, those are all benefiting from the companies that built the internet. Amazon, Facebook, Google, they didn't build the internet. Those have been a asset light businesses that have taken advantage of the companies building the internet and AI will change the world. I'm using it. It's really remarkable. It replaces 10 researchers for me. It's not correct. When I ask questions, I still have to recheck and sometimes it's dead wrong. But it helps truly. However, with all these capex investments, it's very likely that the real winners will be those companies that are using AI. And there is simply there are many investors in the infrastructure which means that we as customers we will be able to choose. If we can choose it means prices are lower, the investors don't make any money. The customer is the winner. I think also Jeff Bezos said that a lot of money is now thrown into AI both at good things and at bad things and that the customer will win. So it will be a great benefit for humanity I hope but it's unlikely it will lead to profits due to incredible competition. Yeah, great stuff Sven. Thank you so much. This I think a really timely conversation. Um, as I said, a lot of people have moved away from value investing and this is a good reminder of the benefits and and why people should, you know, take a look at it and see if it's the right fit for them. So, thank you so much. Really enjoyed it. Thank you for having me. And remember, if you'd like to check on the allocation mix in your portfolio and the risk as we've been discussing, you can get a free review from one of the adviserss in the Wealthon network by clicking the link in the description or heading to wealthon.comfree. Thanks for watching everybody. We'll see you again next time. [Music]