We have a special guest for this week's podcast – Dr. Richard Smith, whose portfolio software TradeStops has helped thousands of investors to maximize their potential upside while slashing risk aggressively down to the bone.

Yesterday, 14,000 people signed up for his free online presentation where he revealed his latest breakthrough.

It's called 'Ideas.' Learn more at www.investorhourideas.com

Porter makes sense of Facebook's dramatic sell-off last week, and why he's advising his readers to continue holding the stock for now – even though he's telling fence-sitters not to enter new positions of Facebook just yet.

Buck brings up the latest in the PC culture war – a bid to rename what may be the most liberal city in Dixie. He also explains why they'll likely succeed, even though the name Yale, named after a slave trader, is still untouchable.

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Buck Sexton: This week's episode of Stansberry Investor Hour is brought to you by Ideas by TradeSmith. Learn more at InvestorHourIdeas.com.

Announcer: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.

Buck Sexton: Hey everybody, welcome back to another episode of the Stansberry Investor Hour. I am nationally syndicated radio host and morning show host and also all-around hustler Buck Sexton. With me is the fearless leader of all things Stansberry – Mr. Porter Stansberry, the founder of Stansberry Research. Good to see you, sir.

Porter Stansberry: I'd like a new title, Buck. I think we should go with "the most likely winner of the White Marlin Open next week, Porter Stansberry."

Buck Sexton: I'll take it. There you go. The smart money is on Porter to win the White Marlin Open.

Porter Stansberry: $5 million in winnings will be on the line next week.

Buck Sexton: I got to tell you, one of my favorite discussions we've had on the show is when you explain to me that at that level it is a game of skill, because I think to the layperson it's just you get lucky, you catch the biggest fish.

Porter Stansberry: No, unfortunately it's not luck. It does happen. Occasionally an amateur crew will win, but far more than 75% of the time it's a professional crew that will win. Just to give you an example, I've been in the White Marlin Open three times. We've been in it three times. We have been to the weigh station five times. So it's kind of like golf. If you hit a 20-foot putt and it goes in, the fact that it actually goes in the hole is mostly just chance.

But if you can put it within two inches of the hole nine times out of 10, that's really skill. So the more time you go to the weigh station the more shots you have at winning, and I don't think there's another boat out of the entire fleet that has been to the weigh station more times in the last three years than we have. So we haven't won it yet, but we're going to win it, because the more shots you have on goal, the better your chance.

Buck Sexton: Indeed. And "You miss 100% of the shots you don't take." Wayne Gretzky.

Porter Stansberry: That's also true. And also you can't catch a marlin on the couch in the living room, unless your boat is big enough to take your living room with you, in which case you can.

Buck Sexton: I will say video-game fishing has never been as fun as video-game hunting. But this week we have Dr. Richard Smith with us, everybody, founder and CEO of TradeStops, which is a web-based stock tracking and alert program that synchronizes and tracks online portfolios to empower individual investors managing their own investment.

Stansberry Research has been advising readers for years to use this tool. It pinpoints what losers to cut, what winners to keep, and how to best balance your risk today. Richard is here to tell us all about his latest tool to help you make money, which sounds good, Porter. People like making money.

Porter Stansberry: They sure do, and it's very difficult for individual investors to manage portfolios of a dozen or more stocks. You're going to get lost in all those numbers to follow and what's happening in all those companies and that's the main reason why we've been recommending TradeStops I think since 2003.

Dr. Richard Smith: We got our first customer in 2005, so I think we hatched the idea in 2003, launched it in 2005, 13 years of being in business together.

Porter Stansberry: We've been recommending it for a very, very long time, and as you know I'm now an investor in TradeStops, so let me disclose that interest. But what we really wanted to do, the idea behind this was to give individual investors all the tools that institutional investors take for granted.

Dr. Richard Smith: Absolutely.

Porter Stansberry: So if you want to truly manage your own portfolios in a way that's accurate, timely, and risk-averse, I don't know any other way to do it except for TradeStops. There's nothing else like TradeStops on the market unless you go out and you're a hedge fund and you have a prime broker and you have millions of dollars invested in VAR models and lots of computer scientists to run them.

Dr. Richard Smith: I think after I showed you my latest research, Porter, you summed it up. You said this is an enormous advantage. If you folks have been wondering why the investment banks can make money all the time and why you can't, this is exactly why.

Porter Stansberry: So let's jump into it, Richard. I know you've been developing this tool for decades, and it does a couple of simple things. Let's run that down real quickly for people. What are the most basic things that your system does for folks?

Dr. Richard Smith: Well, I think the most basic thing is it gives them a way to overcome these sort of deficiencies of human nature when it comes to investing, which I know you know well, right? And we all know if you've been investing for any length of time. The most important one is that we tend to hold on to our losers and let go of our winners, and I know it sounds so cliché to bring it up over and over again, but it's such an insidious bias that we bring to practically every decision we make. Two Nobel Prizes have been awarded for this now, Danielle Kahneman and Richard Thaler this year. We are risk-averse with our winners.

We want to take our winners off the table, and we are risk-seeking with our losses. We double down. Why do we double down on our losers and not double up on our winners? So people need basically algorithmic support to make consistently good decisions as investors. I saw firsthand from my own experience, getting great investment ideas was wonderful, but it wasn't enough to make me a successful investor and I needed to combine great investment ideas with some quantitative algorithmic approaches, and that's what pretty much everything I do is about.

Porter Stansberry: I'll tell you, I think the two most powerful things that your software can do for folks, and it's just absolutely point and click, in 30 seconds you'll be done. You go on, you give it your login so Richard's software can see what's in your brokerage account.

Now Richard's software can't change what's in your brokerage account, it's read-only, but it can take a look at what you've got and it dumps that data into these algorithms, and within seconds Richard can tell you exactly how risky your portfolio is and compare it to, say, the S&P 500. The No. 1 thing that I have found is that most investors don't know how much risk they're taking. They just don't have any idea.

Dr. Richard Smith: Absolutely.

Porter Stansberry: Likewise, they don't have any idea how to manage that risk in individual positions. So for example, Buck, if you're going to own a small junior mining stock, it is not the same thing as owning Disney, but in your portfolio it looks the same. It's a stock ticker, it's a stock ticker... it's a number of shares, a number of shares. What's the difference? Well of course they're radically different businesses and they have radically different analytical results in terms of what the stock movement is.

Dr. Richard Smith: And hedge funds understand that, right?

Porter Stansberry: Of course. So you need to make sure that you have very small amounts invested in things like junior gold mining or, say, bitcoin or something that's going to be very volatile, and you need to have larger positions at Disney, otherwise you're actually not risking enough.

Dr. Richard Smith: And I think what I've done is I've made it possible for the average investor – and I don't mean average in a demeaning way, I mean you and me, man. I mean you're more sophisticated than the average investor out there now, but –

Porter Stansberry: But look, I cannot do that kind of allocation in my head, right? I have an idea of what I should be doing, but I don't know exactly. And what's so cool about the software, Buck, is you put your portfolio into it, you hit a button, and Richard's software will tell you exactly, "OK, this is what your risk is." Would you like to rebalance your risk? And you say yes, and it says, "OK, well this is exactly what you have to do to rebalance your risk."

Dr. Richard Smith: And I came up with this number – volatility quotient, or VQ. I know it's a kind of fancy name, but there's other metrics out there like value at risk that the hedge funds use, etc. but I think this number quantifies in a very easy, intuitive way to understand how much risk you're taking on any investment idea and on your portfolio as a whole.

Porter Stansberry: But this is the coolest thing about it. Richard isn't going to tell you, "Don't buy that stock" or "Don't own that stock."

Dr. Richard Smith: Absolutely.

Porter Stansberry: His software is going to tell you, "You have really bad risk dynamics. You're risking too much in some stocks and you're not risking enough in others." And you hit a button and it reorganizes your portfolio for you. Just because of the changing asset allocation, your overall risk is decreased dramatically.

Dr. Richard Smith: Just by changing the amount that you invest.

Porter Stansberry: Yeah. So I was doing this on my newsletter portfolio this week, just goofing around with it, and if you equal rate my newsletter portfolio, RVQ was like something like 22, which is twice as risky as the market as a whole, so a pretty risky portfolio because we've got a lot of big growth stocks in it.

Dr. Richard Smith: Yep.

Porter Stansberry: All right. Now if you just rebalance it and you invest appropriately in these things, not equal weighted, more in some, less in others.

Dr. Richard Smith: More in your less volatile stocks.

Porter Stansberry: Right. The VQ all the way dropped down to nine. So we went from being twice as volatile as the S&P to being less volatile than the S&P. That's exactly what every investor needs to know, and what I'm saying is this was on my newsletter portfolio. As a newsletter writer, I'm looking at the fundamentals of each individual business that I'm recommending to you. I'm not building your portfolio. I'm providing you with a list of good businesses to own. Richard's tool takes that information and creates an optimal portfolio for you.

Dr. Richard Smith: And there might be some people that want a 22 on their portfolio that want to be double the risk of the S&P 500, but you got to know where you stand in order to decide where you want to be, right?

Porter Stansberry: And if you're going to do that what you should do is still optimize your risk, and then you can lever that portfolio up to be as volatile as you want.

Dr. Richard Smith: Exactly.

Porter Stansberry: That's going to be way better than ending up in stuff that's just risky by chance.

Dr. Richard Smith: Yep.

Porter Stansberry: So the idea that I want to get across to everyone listening is it is really helpful to have a team of researchers like we have here at Stansberry who can vet and do due diligence and make sure that the stocks that you're going to buy have high-quality managements, have very good assets, are well-run, and are fairly priced when you buy them.

Dr. Richard Smith: I love you guys for that, man.

Porter Stansberry: That's a lot of work.

Dr. Richard Smith: Yep. Can't live without it.

Porter Stansberry: But unfortunately that work is not optimized for you, and it can't be because we don't do any personalized investing. So I don't know, as a reader I've got no idea if you're a 26-year-old kid just got out of college and is starting to save, or you're an 85-year-old who's got frankly a very short-term time horizon with his time investments.

Dr. Richard Smith: And neither do I, actually.

Porter Stansberry: Neither do you, but what I'm saying is that Richard's tool is going to allow you to optimize a portfolio that's right for you. Here's the punch line. What do you think happens if you take my advice just the way it's offered and you equal weight it? Do you think you're going to beat the stock market over time? Well, Richard has done all this study. He can prove to you looking at all the math, all the recommendations I've made, that yeah you're going to beat the S&P if you follow Porter's investment newsletter, and we've done it for years and years and years and we have all the data.

But here's all the fun part. What's more valuable, that list or Richard's tools? I'm afraid to tell you it's actually Richard's tools because if you will just overlay our recommended list with Richard's tools, and if you just do smart risk parity investing, you end up outperforming the market even more dramatically. You know the numbers, but it's ridiculous.

Dr. Richard Smith: I started out with trailing stops and then volatility trailing stops, but the volatility-based position sizing and the risk rebalancer is probably I think the most important tool.

Porter Stansberry: It is the most important tool. There's all kinds of really cool studies that have been done by –

Dr. Richard Smith: And it's important psychologically.

Porter Stansberry: - by AQR. There's a big-time quantitative hedge fund. He's studied all different ways of building portfolios, and the idea that leads to the most amount of alpha or the greatest amount of return per unit of risk has always been and I think will always be risk parity, and the idea, Buck, let's say you have 20 positions in your portfolio. You make sure that you have the exact same amount of risk in each position because you have no way of knowing the future. You have no way of knowing which position is actually going to do the best. So to make it fair so that you don't have any lumps in your performance, you put the same amount of risk in each position. So if you've got a junior gold mining stock with a VQ of 40 and you've got Disney –

Dr. Richard Smith: Or a 72 on Northern Dynasty.

Porter Stansberry: And you've got Disney with a VQ of 10 or something like that, you're going to have four times as much in Disney as you have in that junior miner.

Dr. Richard Smith: Absolutely.

Porter Stansberry: But believe it or not, even though one is a very risky company and one is very, very sound, you have actually the same amount of money at risk, and that is the key to getting good portfolio performance.

Dr. Richard Smith: And that's hedge-fund-level risk management for the individual investor.

Porter Stansberry: That's right. Until TradeStops was developed, there was no other way for you to get these tools unless you were going to put millions of dollars into a hedge fund.

Dr. Richard Smith: So I would like to just spend a few minutes telling you about my new project.

Porter Stansberry: Yeah, let's hear it.

Dr. Richard Smith: So we talked a lot about TradeStops and it's absolutely foundational, and all of these algorithms, the VQ and the stock state indicator which is a simple green, yellow, red light system based on the VQ, again sort of telling you hey, is this stock in normal risk range? Is it sort of getting close to excessive volatility, or has it moved beyond its expected volatility as it turned red? So those are kind of the foundational algorithms that inform TradeStops. So this new project that I just launched recently that I call "Ideas by TradeSmith," so TradeSmith is the parent company that owns TradeStops and this new product Ideas as well, is about how to find the best sectors of the market.

Right now I think small caps are the most exciting area of the stock market, and then within the big indexes focusing on technology stocks, financials, consumer discretionary. So I'm using these same algorithms to help investors zero in on what I believe to be the strongest pockets of the market, and then to be able to drill down and find individual investment ideas that use these algorithms to give you the best stock to find for your portfolio today.

Porter Stansberry: So in other words, by looking just at the trading dynamics in the market itself, you think you can come up with stocks that you should own today.

Dr. Richard Smith: I think that you can drill into that and then also use some new algorithms that I've developed, namely in particular the kinetic VQ idea that I shared with you a couple months ago to find stocks that are particularly attractive for a portfolio today.

Porter Stansberry: Yeah, so I'll talk about this for a minute. As a fundamental investor, I don't pay much attention to the stock trading patterns. I'm not going to look at a chart and buy stock because of that. But as a fundamental guy what I have seen is that companies in trouble follow a really very clear cycle, and it usually is 18 to 24 months before trouble can come out of something. So let's take an example today: Facebook. Facebook is just getting hammered. So the stock was very richly priced.

The company was growing at 40%-plus a year, very difficult to value a company that's growing that fast that's that capital-efficient because there's a wide range of future values. That company has produced enormous amounts of cash, and if it keeps doing that it's probably worth more than $1 trillion. But if growth slows or heaven forbid users start abandoning Facebook, holy cow, then it might be worth nothing because this software and these social networks are very fad-driven, and everybody decides "oh, the next thing is going to be this one," and everybody leaves Facebook, well now Facebook is the equivalent of Myspace. What's that worth?

Dr. Richard Smith: Well, how about one stock from your own portfolio that I brought to your attention a couple months ago? Ralph Lauren.

Porter Stansberry: Yeah. Ralph Lauren has had a couple of ups and downs because fashion changes, but the point is–

Dr. Richard Smith: Been kind of beaten down by Amazon and the whole consumer retail area, but yet it's part of the consumer discretionary sector, which is doing pretty well overall right now, and it had a lot of extra volatility in it, basically because of the crisis that the retail sector has been in. So that volatility built up and it's above its normal range of volatility.

I know it sounds a little technical, but I identified that from your portfolio and I said, "Hey, this is the stock that has the highest above-average volatility right now from where it usually is," and that's what I call "kinetic VQ." I think, since I mentioned that stock to you two months ago, it's up 38%.

Porter Stansberry: Right. So what I was talking about is just – an example for earlier in the stage would be Facebook. Volatility is building in Facebook right now, so this is a stock that we would avoid buying today because all of a sudden there's a whole bunch more risk here and the market is trying to digest exactly what that means and what Facebook should be worth. So Richard's software would tell you, just stand aside. Just wait. Imagine it like if you shake up a can of soda, right?

Dr. Richard Smith: That's a great analogy.

Porter Stansberry: That volatility is building pressure in that can, and until that volatility is released, it's very unlikely that that stock has found a bottom.

Dr. Richard Smith: _____ _____ in an uptrend is what Steve calls it, right?

Porter Stansberry: Right. But what you want to do is let that volatility, who knows how long that can is going to shake and who knows how much pressure is going to build. What you want to see is that that volatility went from a long period of building to all of a sudden is now being released, and that volatility is certainly in decline. And an amazing number of times, as the volatility finally begins to decline, and with Facebook this might not be for months –

Dr. Richard Smith: It might not be for a year or two.

Porter Stansberry: – or maybe a year or two, but it doesn't matter because sooner or later that volatility, that can, opens and all that foamy water goes everywhere, and that leads to a bottom in the stock, and everybody says, "Man, I don't want to go near that thing. That's a flat can of soda water now. It's all done." It's had its negative explosion of bad news and bad energy, and now all of a sudden there's none of that energy left in that situation. All of that volatility begins to just fade off, and as that happens, that's when stocks tend to rebound the most.

Dr. Richard Smith: Yep.

Porter Stansberry: So what Richard's software allows you to do is scan the entire market almost instantly to find areas where there has been a large amount of unusual volatility that is now in decline.

Dr. Richard Smith: And now you can even filter that on your favorite newsletter recommendations.

Porter Stansberry: So you can look for companies that have this newly declining VQ dynamic among the list of stocks that are also liked by your favorite gurus.

Dr. Richard Smith: Yep.

Porter Stansberry: And not just your favorite newsletter writers, but also your favorite hedge fund managers. So you can search Warren Buffett's portfolio. You know all the names of these guys. Green Light Capital, Bill Ackman, blah, blah, blah.

Dr. Richard Smith: Einhorn.

Porter Stansberry: All these famous –

Dr. Richard Smith: All these guys. Carl Icahn.

Porter Stansberry: And so you say, "Look, I want to find out – I know these guys are investing in great businesses, but I want to find a situation where the timing is right, where there's a definitive catalyst that makes it more likely that this stock is going to go up than down."

Dr. Richard Smith: Yep, and basically I'm in the business of developing quantitative approaches to investing that can be overlaid on great fundamental ideas, and TradeStops does that for portfolios, and our new service, Ideas, does that for individual stocks and for sectors of the market as well.

Porter Stansberry: And I think what's really interesting is how often Richard's computers will pinpoint stuff that my analysts were already working on, coming at it from a fundamental standpoint.

Dr. Richard Smith: When I see that kind of agreement, I'm all over it.

Porter Stansberry: So like, with Ralph Lauren – an example you brought up – we were bullish on Ralph Lauren because we knew the company had acquired a new CEO and he was making a lot of really smart decisions, and he was backing down on the discounting and investing in the brand and doing things we knew would build value over the long term. So we liked the fundamental story at that time, and that fundamental story was reflected in what you saw looking at the internals of the market and the volatility decline.

Dr. Richard Smith: And were you attracted to it in part because it had been beaten down a fair bit?

Porter Stansberry: No, I was attracted to it because it is one of the most capital-efficient consumer product companies in the world. So they have very big gross margins because it's a beloved brand, and high gross margins flows all the way through to the amount of capital that the company is able to return to shareholders via dividends and buybacks.

Dr. Richard Smith: Not a lot going for it.

Porter Stansberry: So whenever that stock is trading at around 10 times earnings, I'm going to be a buyer.

Dr. Richard Smith: Can I tell you another company that I found that might be interesting to you?

Porter Stansberry: Yeah, of course.

Dr. Richard Smith: Maybe you've heard of it. It's called Ascena Retail. The ticker is ASNA. I just came across this stock because one, it's a small cap stock – you probably can't recommend it in a newsletter, but it has high kinetic VQ. It is a retail clothing company. They do Lane Bryant. They have about eight brands – Dress Barn, Lane Bryant – and it popped up on my radar.

Porter Stansberry: After this podcast, I'm going to go check it out.

Dr. Richard Smith: Yeah. It looked pretty interesting, but it is a very small cap stock. I think it's less than $1 billion valuation right now.

Porter Stansberry: All right, so Richard, let's get to something useful for the listeners here. If you guys would like to use TradeStops on your portfolio to understand the risks and to build better portfolios by doing that risk optimization stuff that we're talking about, how do you get that? How do you get the basic TradeStops package?

Dr. Richard Smith: Well, you can always go to TradeStops.com and learn about our basic packages there. What we have today is a special on the new product, and you can also get a 30-day free trial of TradeStops along with the new product if you're not already subscribed to TradeStops and you can find out about that at InvestorHourIdeas.com.

Porter Stansberry: OK, so this is one of those URLs that someone who had a little too much fun over the weekend designed. So this is one word – even though it's not really one word – and it's InvestorHourIdeas.com. I don't have any idea why they didn't just call it, like, TradeSmithIdeas or something, but OK. InvestorHourIdeas.com, and it's $1,000 for a year, and you get to have all this research into finding companies that have big Kinetic VQ.

Dr. Richard Smith: Yep. Kinetic VQ and a number of other things.

Porter Stansberry: And so they'll help you find the stocks that have a likely near-term catalyst, and you can overlay that into all these different ideas that you have.

Dr. Richard Smith: We did an hour-and-a-half webinar on this last night. It's available as a replay right now. It was an incredibly informative webinar. I think you really would've been proud.

Porter Stansberry: If I want to learn more about it just on the webinar, how do I see that?

Dr. Richard Smith: I think it's at InvestorHourIdeas.com.

Porter Stansberry: Oh, again, same URL. Well, Buck, I think you've got your work cut out for you this afternoon.

Buck Sexton: I do.

Dr. Richard Smith: Buck, is any of this piquing your interest as a would-be investor?

Buck Sexton: Yeah, absolutely. I will tell you, my concern is I'm going to use my new TradeStops account and it's going to tell me everything I'm doing is wrong and I'm going to have to sell a lot of things and buy a lot of things.

Dr. Richard Smith: And is that really such a scary proposition?

Porter Stansberry: That's a lot better than holding on to them all the way to zero.

Buck Sexton: I know, I know. A little truth sauce would be good for me, so I'm going to see what the trades – you know what? I'm going to do this and I'll tell you, Porter, how it goes for me.

Dr. Richard Smith: I think we did set you up with a complimentary TradeStops account already, Buck.

Porter Stansberry: This goes to something that I'd like to start in the podcast. I don't know if our producers can hear me or not in the control room, but what I'd like to do is I would like to find two very attractive – and not dumb by any stretch of the imagination, but two very attractive women who were selected on the basis of their looks, not their brains. I'm not saying that I want them to be stupid. I'm saying we want to find two very attractive young women, say, under the age of 28, and what we're going to do – they should've gone to a community college, by the way.

That's the key thing. For these two girls, we want just community college graduates, or maybe even still in community college – that would be fine – but two very attractive girls who went to just a regular, average community college. And then, on the other side, Buck, you're an Ivy League guy, I believe, so we're going to need two women who are either in Ivy League colleges or have recently graduated from an Ivy League college who are not picked on the basis of their looks but are picked on the basis of their brains.

So, somebody who graduated with honors or summa cum laude or something like that, maybe someone who went to Yale Law School or something, a very intelligent woman. And I want to call them the trailer park girls, but that's not nice.

Dr. Richard Smith: That's not nice.

Porter Stansberry: The community college girls, they will be allowed to use all of Richard's tools and all of our newsletters. The Ivy League girls will not have access to any of Richard's tools, and will have to agree not to use them. They also are not allowed to use any of our newsletters. We'll have both groups pick portfolios, and once a month, we'll have a radio segment where we'll bring them on via video chat and we'll all talk about what's going on in our portfolios and what the girls are excited about. The point of the whole experiment is: Does good fundamental research, paired with great analytical –

Dr. Richard Smith: Quantitative research and tools.

Porter Stansberry: – quantitative tools, is that good enough to take a trailer girl – sorry, a –

Buck Sexton: Average Joe.

Dr. Richard Smith: Average Jane.

Porter Stansberry: – a community college girl, and allow them to whip the pants off of old smarty shoes over here.

Dr. Richard Smith: I know where I'd put my bets.

Porter Stansberry: What do you think? Would that not be fantastic radio show content?

Buck Sexton: Uh…

Dr. Richard Smith: Maybe TV show.

Buck Sexton: If you could set that up. It's more of a TV segment, really, than a radio show.

Porter Stansberry: Well, we could always have that part of the podcast be video.

Buck Sexton: I was going to say, the whole notion of the women being attractive, if it's radio, I can tell you the good thing about radio is nobody cares what you look like.

Porter Stansberry: Well, I have a face for radio so I know about that, but what I'm saying is I actually believe that the prettier girls will actually have prettier voices, too, and even if you can't see them you would still know they were very attractive, fun young ladies.

Buck Sexton: See, this is where we get into the Porter-splaining on the show, which is mansplaining by Porter.

Porter Stansberry: Hey, and by the way, don't write in all about me calling someone a trailer park girl. I'm just telling you that might be one of their backgrounds. They might have lived in a trailer. And listen, I lived in a trailer in college, no joke. I lived in a single-wide trailer at the University of Florida's outdoor recreation facility, Lake Wahlberg, and I had a waterbed and I had a freshwater fish tank. That is as redneck as you can possibly be. So I'm not disparaging. I'm just saying, these girls are at a stage in their lives where they're just starting out and they might in fact live in a trailer.

Dr. Richard Smith: That's it.

Porter Stansberry: All right. By the way, the first girl I ever dated in Baltimore lived in a trailer, too. I hope she's not mad at me saying that.

Buck Sexton: Well, I will set up my account and I'll let you know how it goes with the TradeStops.

Dr. Richard Smith: Let me know how it goes, Buck.

Buck Sexton: I will.

Porter Stansberry: All right, Richard, thank you very much for joining us.

Dr. Richard Smith: Thank you guys. Really appreciate the opportunity, and it's InvestorHourIdeas.com, and you can get a 30-day free trial to TradeStops as well, and it's a 30-day money-back guarantee for your audience.

Porter Stansberry: InvestorHourIdeas.com.

Dr. Richard Smith: And you can see the replay there.

Porter Stansberry: OK. Now Richard, before you go, I've got one idea for you in terms of a new tool to build.

Dr. Richard Smith: All right. I love your ideas.

Porter Stansberry: Well thank you, but this is going to be really hard to build, but that will make it really valuable if it can be done.

Dr. Richard Smith: All right.

Porter Stansberry: And by the way, this is how all these things get started over the years with guys like Steve Sjuggerud, really smart guys – I'm like, "Hey, what if we could do this?" And they're like, "Oh, I don't know if I can do that or not," and they work at it for years, and I'm like, "Oh, that was easy." So here's the idea I have. The options market is a place where you can find very big anomalies.

Dr. Richard Smith: Yep.

Porter Stansberry: So the market is very efficient, Buck. You know the stock price of Disney or Facebook, there's lots of information input on that, so those prices tend to be very efficient. In the options market, you can go to stuff that's much more thinly traded, and so you can't do it in scale – like, I can't recommend it in the newsletter – but you could find some really attractive anomalies where things are very badly mispriced.

Dr. Richard Smith: Yes.

Porter Stansberry: So what I would like to know, is there a way to scan the market to look for those kind of really big anomalies where risk is being really mispriced? So a place, for example, you could say there's a large premium in the put or a large premium in the call, and it's not justified based on the VQ of the stock.

So looking for that difference. Lots of expensive premium but no real VQ, or maybe even better, a place where there has been a decline in VQ, your Kinetic VQI situation, where the options market is still pricing it as though it's not there yet. Those are your most valuable opportunities to grab premium.

Dr. Richard Smith: Yeah. What kind of time horizon do you like to look at in options, short-term, leaps?

Porter Stansberry: Yeah, I would say your biggest anomalies are going to be in the longer timeframes.

Dr. Richard Smith: That's what I'm pretty interested, too. The trouble is, they're pretty thinly traded.

Porter Stansberry: I know that. But this wouldn't be something that we are recommending to people. This would be a tool that they could go find those anomalies on their own. So even if they can only trade four or five contracts at that price, it still could be very, very attractive.

Dr. Richard Smith: Yeah. All right, sounds good.

Porter Stansberry: All right, Richard. Thanks for joining us.

Dr. Richard Smith: Thanks again, guys, really appreciate it.

Buck Sexton: Thank you. So Porter, you got into some of the Facebook talk there. So you would not invest in Facebook right now. You would wait. I thought that was interesting.

Porter Stansberry: Well, hang on now. Using Richard's tools, you would wait, because Richard's tools have not yet discovered a decline in VQ in Facebook. And so, if you were to buy Facebook now, I think you would be taking on a very significant amount of risk. We're still in Facebook in my newsletter, I think. We might've gotten stopped out yesterday, but I think we're still in it.

As for me, why would I hold the stock in my portfolio if I don't recommend you buying it now? Well, because we have a much better entry price. So we're still up considerably on the stock, and I don't want to trigger a tax consequence if I don't have to. So we're following our trailing stops and we're prepared to sell, but we're hoping that we don't have to. I think there's no question the outlook for Facebook generally is still very good, and I think it's almost certain that Facebook will be worth more than it is today in 18 or 24 months.

But the question is, how low will it go before it begins to turn around? Because if you wait, you may be able to get it at a much better price than it is now. So for me, if I had new money, I would not be putting new money into Facebook today. I would want to wait and see and wait for that VQ to begin to sell off before I'd buy the stock. But we already have a position in it, so it's just a hold for me right now.

Buck Sexton: See, socialism via Medicare for All would cost $32 trillion. That was fun this week. That was from the Mercatus Center. I actually know the folks over there. Free stuff sounds like fun to me, Porter, until somebody has to pay for it.

Porter Stansberry: Well, that's the old saying, isn't it? Isn't that what Margaret Thatcher said?

Buck Sexton: Fun until people run out of the other people's money.

Porter Stansberry: Socialism works great until your neighbor runs out of money. Yeah, I'm not really worried about any of that stuff. I don't know why. I just think that it's all so crazy. I've been paying for private healthcare for probably 10 years now, and it costs me $5,000 a year in a membership fee to be a part of a private healthcare group, plus whatever services that we need after that.

So it's kind of like a country club model, where we have to pay up front, and the upfront fee gets us an annual physical and three or four doctors visits a year. I can't recall paying more for anything above that except for surgeries, which would not be part of this group. But the nice thing about that is, if I'm sick or I need meds, they'll do house calls. They will write scripts over the phone. It's very, very convenient, and it allows me basically to root completely around the entire screwed up quasi-socialist medicine system that we have today.

Buck Sexton: I tell all my friends this who are Democrats – and I do a show now with a Democrat every day, I've got to deal with Democrats a lot more these days than in recent memory – and I say, you can think that illegal immigration is great and you can think that single-payer are great.

After you've had the experiences I have of actually having an eye emergency and going to the only eye emergency hospital in New York City and being in line for hours behind people who are illegal immigrants and are getting basic vision services via the eye hospital, which they will not pay for but which creates a massive backlog for people who are like, "I need someone to look at my eye because I'm worried about vision loss because something hit me." Stuff like that. Then you can be for all these things.

But until you've had that experience of sitting in the waiting room and having to deal with, "Oh, first of all, you can talk to people there, and they have to have this talk or they go through the process of the paperwork, but they're doing vision tests in the ER because that's where people get care." That's what we're heading toward if people don't realize what's going on here, folks. The U.K., these other countries, they say has good healthcare. You want to go get dentistry done in the U.K.? That's the old joke, but it's true. The answer is, no, you don't. You do not.

Porter Stansberry: Yeah. There is never going to come a time in our country until there's a revolution that people won't continue to vote themselves from the public treasury because there are more of them than there are of us. So if you ever want to change any of these things, you have to change the general principle. You have to change the social contract we have. The social contract has become completely warped. Now people actually believe that the government owes them things, and the way that the Democrats talk, they want to propose that health care is a civil right. You have an unalienable right to health care.

Of course, Buck, you can understand how crazy that is. The government doesn't grant you any rights. The civil rights you have as a person were granted to you by God or by nature or whatever you want to call it, right? You have the right to free speech. No one has to do anything for me to have the right to free speech except for leave me alone. That's a right. Health care cannot be a right because it can't be granted to you. Work has to be done to deliver it.

So the only way that the government can give you health care is if they make someone administer it to you, and that costs a heck of a lot of money, so I don't think you have a right to it at all. And I think this is obvious, but the further you get from the free market, the more expensive and the less efficient that system is going to be. I don't care how you design it. I don't care what you do. But the further you get away from the free market, the less efficient and the lower quality that will become.

So if you are a Democrat and you want to give everyone access to health care, fine. Give everybody a maximum of $25,000 a year that they're allowed to spend at any hospital that they want. Just do it that way and get out of the way. Let the hospitals organize and price things and advertise and compete in the market. That's the only way to get better health care. The one-payer system is the worst possible outcome we could ever have.

You've got one health care. All the hospitals are going to care about is gaming the payment system. They're not going to do anything to improve outcomes. They don't give a fuck about an outcome. The medicine has already been paid for.

Buck Sexton: Yeah. Well also, the Democratic party at this point is largely in the business of convincing people that their choices don't matter. If they make bad choices it's not their fault, and it's better to just have the government making the choices for them.

Porter Stansberry: All right, let's get to the latest on this political correctness stuff.

Buck Sexton: Uh-oh.

Porter Stansberry: Have you heard about this, Buck, renaming the city of Austin, Texas?

Buck Sexton: Oh, I know all about this.

Porter Stansberry: Where did the name Austin come from?

Buck Sexton: I actually have a buddy that's writing a book on all these historical rewriting things. It'll be coming out in a few months. Austin comes from Steven Austin, who's considered the father of Texas.

Porter Stansberry: Wasn't he a pro wrestler?

Buck Sexton: There was somebody Austin who was a pro wrestler, but –

Porter Stansberry: Our producers will know this. Stone Cold Steve Austin, right? He was a wrestler, wasn't he? He was, like, a little guy, too.

Buck Sexton: A lot of people don't realize that Texas was originally part of Mexico, and then the Mexican government allowed Americans to settle there. They needed tax revenue. Then the Texans revolted against Mexico, and then for a while you had the Republic of Texas, and then Texas joined the United States later on. In that process you had Steven Austin, and he was opposed to abolishing slavery in Texas at the time. I can't pretend to know much of the details beyond that, but because of that, they are thinking that they should at least consider – there are two tiers.

One is like imminent, must change right away, so they've changed things already in Austin. If anything is named after Robert E. Lee, if anything is named after any Confederate general, anything Confederacy, you're done. They'll change that right away. But because Austin was considered the founding father of Texas, that's why we have Austin, Texas – it's named for him – but he was opposed to getting rid of slavery in Texas, and so they're considering the impact of what it would be to change the name of the city.

Porter Stansberry: What about Yale? Wasn't –

Buck Sexton: Elihu Yale was a slave trader for the British East India company. That's right. Yale will never change its name, because, we both know why. That's its whole currency. If you call it the University of Eastern New Haven or something, people don't want to go there anymore. They don't want to brag to their grandparents about getting into the university of the other part of New Haven or whatever. I'm sure there's already University of New Haven. But they'll never change the name. What about Washington, D.C., Porter? Washington owned slaves.

Porter Stansberry: It just seems like such vanity. It just seems so strange to me. Maybe I'm naïve about this, but I don't think there are any Americans today running around going, "You know what we should do is bring back slavery, and you know what motivates me to think like that? Looking at that statue. That statue makes me want to bring back slavery." Or "Writing mail to Austin, Texas, I get excited about slavery." It makes no sense to me. Why would anyone care about any of these things?

Buck Sexton: It's easy for people. It's cheap virtue to oppose this stuff and to make a big deal of it. It costs you nothing, and people like to do that, especially in the social-media-obsessed world we're in now. I saw something yesterday, people are spending hundreds of minutes a day interacting with the media in one way or another. They're spending like half their waking hours interacting with media, and people like the feeling of, "I'm a good person because I oppose this thing that costs me nothing, that's easy, and that won't change anything," also known as virtue signaling.

Porter Stansberry: I don't get it, and I tell you, all these people that are offended by this stuff, I wish they had better leaders who would come out and say, "Our problem is not Yale University's name. Our problem is not the city name of Austin, Texas. Our problem is not a 200-year-old statue of Robert E. Lee," who by the way, Robert E. Lee condemned all of the monuments to the Southern soldiers.

He said, "No, no, we have to move past it. We're not going to move past it by remembering them all the time. Don't put it up." So if you're going to have a monument to any Confederate leader, it should be Robert E. Lee. He spent the rest of his life trying to heal the wounds from the Civil War, but never mind the facts. Let's not worry about the facts.

Buck Sexton: There's also, what are the outer limits of this phenomenon? Mexico is named for the Mexica Confederacy of the Aztecs, and Cortez came in and kicked some ass and turned some guys against each other to do it, but Mexico was an empire, before the Spanish conquistadors arrived, built on slavery – in fact, built on slavery and human sacrifice and cannibalism.

Porter Stansberry: Oh, lovely.

Buck Sexton: So I'm just wondering, do we ever get to say, "Maybe we should rename that? Lots of slavery going on."

Porter Stansberry: I would like to see a civil rights leader or a community organizer or whatever you call these people who comes out and says, "Can we please focus on the number of children that are born out of wedlock? Can we focus on the fact that our community, the underclass in America, we don't have bank accounts, we don't save any money. We're not making any steps toward improving our own selves. Can we talk about the violence in our communities? Can we talk about the fact that our 26-year-old kids keep shooting and killing each other? Can we focus on those issues first?"

And if we can drag ourselves out of poverty, I have a feeling that these statues and these names are not going to bother us anymore. We're not going to really give a fuck about it, because we've committed to being a part of American society and we're becoming successful. By the way, just like the immigrants from Ireland did 150 years ago, just like all of the immigrants from Israel and Eastern Europe, the Jewish community in America, just like the people who left Vietnam with nothing but the clothes on their backs, you don't see these problems in their communities.

So before we go tearing down all of the country's monuments, why not spend some time on our own community building up ourselves. Let's worry about that first. Can you imagine if a civil rights leader would say that? They would be embraced by the whole country. Finally, someone with some common sense.

The problem with Oakland, California, the problem with the inner city of Houston, Texas, the problem with the ghetto in Washington, D.C., Philadelphia, and Baltimore, is not that there's a statue in Richmond, Virginia, to Robert E. Lee. That's not causing any of those people any of the troubles that they face. What's causing their problems is a complete lack of public safety, a total lack of education, and – here's one – no parenting. Let's solve those problems, and then we can go deal with Texas and all of the evils inherent in a statue of Robert E. Lee.

Buck Sexton: I think, speaking of solving problems, we can solve some viewer or listener problems via the mailbag.

Porter Stansberry: Let's do it.

Buck Sexton: First up here, "Porter," – this is from K.S. – "I just want to add that, while you made a fair point on Tesla's supposedly strong gross margins, I think you missed the bigger issue which is their vertically integrated sales model. While most auto manufacturers sell cars to independent dealers at a discount, Tesla sells directly to customers.

The lack of discounting results in an artificially high gross margin but is totally semantic. Because Tesla has to pay to operate all of its showrooms and service centers, the difference gets reversed through higher overhead. This makes the gross margin number seem useless for comparison to other OEMs. Best, K.S." Porter?

Porter Stansberry: Yes, he's quite correct. I know that argument. I actually think it's not a very good argument, but it is technically correct, and the reason why I think it's not a very good argument is because, by having a vertical sales channel, there's no question that Tesla is always going to be able to maintain higher gross margins because all of the profits of all of the dealerships are retained. So that's a reason to embrace that business. The problem I have with their gross margins is not that I believe they're artificially inflated because of their internal dealer network.

They don't have a dealer network, their internal sales network. I think the gross margin number is worthless because they've only sold niche luxury cars that have huge federal tax advantages. In other words, they're not really selling cars, they're selling very expensive luxury toys. Once they get into the car market, when they're selling something for $35,000, we'll see if they have any gross margin. I don't think that they will.

So, great, they make a lot of gross margin on a very small number of vehicles, about 100,000 vehicles a year. That's not nearly enough scale to ever make a profit. So the gross margin is simply meaningless. Now, if they can produce the Model 3 at scale, if they can make a million of them a year or maybe more, then maybe the gross margin will become significant. Today, it's meaningless.

Buck Sexton: No. 3 here in the mailbag, actually, I'm going to jump to this one because I'm curious. We might get the other one, too. This is from Peter, who writes: "Porter, it's all well and good that you defend Steve and his China thesis. Hell, I can't argue with his success, but you can't do a full court press as the Stansberry publications did recently to get people to join Steve's China subscription and then dismiss the folks who are down substantially on their China investments because they didn't invest in 2016. Not fair, amigo. You won't be able to subscribe and then implicitly say, 'Too bad for now because you didn't subscribe sooner.' Your friend, Peter."

Porter Stansberry: Well, Peter, you need to take your medicine, buddy. We were not pounding the table and imploring people to buy Steve's China stocks. Our last sales promotion for Steve was for the new opportunity he sees in the markets, which is commodities. So if you're going to bash us, then bash us because commodities have gone down, not because China has.

Buck Sexton: All right. Gary D. writes: "Hey Porter, I know you're a longtime fan of Disney. Would you be willing to discuss the debt implications of Disney's takeover of Fox, especially if Fox is successful in their bid for Europe's Sky? It seems that Disney will ultimately take on a great deal of debt to acquire these crown jewel assets. I wonder what this will mean to Disney's ability to pay a rising dividend and deleverage that debt at the same time. Thanks, from Gary D."

Porter Stansberry: Gary, that's a great question, and I haven't seen these questions in advance, so I'll take a look at it and I'll let you know through the newsletter if I think it's going to be an issue. But I don't think it will be, just at first blush. The company that's going to have a much bigger issue with debt relative to the acquisition is AT&T. AT&T took on an enormous amount of debt to buy Time Warner, and that seems like a very difficult thing to monetize, in my opinion.

With Disney, buying a whole bunch of TV shows is going to allow them to launch a much better competitor to Netflix, and I suspect they'll be very successful. I don't know that I'm going to cancel my Netflix subscription if they pull all of Disney's content, but I know it won't be worth very much to me anymore. I think Disney will be able to turn Hulu into something that's a lot more competitive with Netflix, and I think will do very well with it. So the real question – this is a hard thing for people to figure out, Buck, but the real question is not necessarily debt in a nominal amount. The real big issue is, what does the business do with that debt?

So how many companies have we seen – IBM classic example – where they took on a whole bunch of debt to buy their own stock? And the trouble is, they paid too much for their own stock, so they took huge losses that have wiped out billions and billions and billions of shareholder equity. GE, same thing. Jesus, the losses in GE are unbelievable. You're talking about $200-$300 billion in losses, and large part simply because of GE's capital program, where they borrowed a whole bunch of money and bought back their own stock, stupidly.

So those are the problems of taking on too much debt. Taking on debt to buy a great asset at a fair price that you can monetize, that's just good business. So I think some people hear me saying, "Company A and Company B and Company C are going to be in trouble because they have too much debt, but it's not just the nominal amount of debt that matters, it's how that debt was invested that really counts."

Buck Sexton: All righty. Porter, you're going to be out on next week's episode because you're going to be fishing, right?

Porter Stansberry: I'm going to be winning the White Marlin Open. Please tune in on Friday. There is an online video. You can watch the weigh-ins.

Buck Sexton: I want to check this out. You've got to tweet this out.

Porter Stansberry: 5 o'clock to 7 o'clock Eastern Time on Friday, you'll see Two Suns, my boat, pull up to the weigh station with the winning white marlin on the back of the boat.

Buck Sexton: We have future White Marlin Open winner here, Porter Stansberry. He's calling his shot. He's pointing to the upper deck and saying it's going to happen this year, and he's taking young Buck out for a very expensive steak along with the rest of the Investor Hour crew if this happens.

Porter Stansberry: Of course. By the way, I was out yesterday practicing. We did a practice run. We drove the boat out 70 miles off the coast of Maryland and we caught one fish all day long. Guess what it was? It was a big white marlin. It would've been a tournament winner. It's next week – not this week, next week. I told the captain to just put it in the chipper and just keep it on ice and then just drag it, "Oh yeah, look what we caught."

Buck Sexton: How big, by the way, are we talking about here?

Porter Stansberry: The winning fish is typically around 68 to 75 pounds. Now, there are exceptions. A couple years ago, there was a 90-pound fish, but white marlin are much smaller than blue marlin. There's also a blue marlin category. To take a fish to the weigh station, a white marlin has to be 68 pounds. To take a blue marlin to the weigh station, it has to be 500 pounds.

Buck Sexton: Whoa. All right. Well, I was going to say best of luck, but just come back with the photos of the winner, Porter.

Porter Stansberry: Done.

Buck Sexton: Come back with your white marlin or on it, my friend.

Porter Stansberry: You know, you need luck if you don't have my crew. If you've got my captain and my crew, you don't need luck.

Buck Sexton: There you go. That's going to be it for this week's Investor Hour, everybody. Please go to InvestorHour.com. Check out the new website we've got. You've heard about TradeStops. Check them out, too. I'm going to come back with my review of TradeStops as a novice who knows nothing about it, so there you go. InvestorHour.com, that's it. Porter is going to come back with the trophy. Mr. Porter, good to see you. See you when you return victorious.

Porter Stansberry: Thanks, everybody. Have a great week. I'll see you in two.

Buck Sexton: Thanks, Porter, and good luck.

Porter Stansberry: Bye, guys.

Announcer: Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your email. Have a question for Porter and Buck? Send them an email at feedback@investorhour.com. If we use your question on air, we'll send you one of our studio mugs.

This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.

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