Episode 385: How to Get Your Financial House in Order
On this week's Stansberry Investor Hour, Dan and Corey are joined by Austin Root. Austin is an old friend and the chief investment officer at Stansberry Asset Management ("SAM"). SAM is a separate company from Stansberry Research and MarketWise, but it was born with the same DNA. The difference is, SAM helps individual investors optimize their portfolios.
Austin kicks off the show by discussing his favorite moments from last week's Stansberry Conference & Alliance Meeting. After, he shares what his role is at SAM and how the company helps individual investors with financial planning. Austin explains that SAM's team of specialists will look at an investor's full balance sheet – not just the part SAM is managing – and then make a personalized plan from there using projections. He emphasizes that paying down expensive credit-card debt is the most important first step, and he breaks down how macro factors influence SAM's strategies...
Around the perimeter, we are being more tactical. We're holding a little bit extra dry powder right now... On the fixed-income side, we have a weird barbell approach. We still own a lot of short-term U.S. Treasurys, and then we own some more high-yielding things that are sort of off the run... One of our favorites are busted convertible bonds.
Next, Austin talks about why investors should be in productive assets rather than cash, why he sees gold as inferior to shares of world-class businesses, and how bitcoin can be a good long-term store of value. He also names two stocks he finds particularly attractive right now. The first is a financial company that's trading at a discount, is poised for double-digit revenue growth, and serves as an inflation hedge. The second is a construction-materials company with a fantastic shareholder yield of nearly 10%...
It has a business that will benefit from infrastructure, needed infrastructure plans, aggregate, road building, etc., trades at a discount to the market. [It only] has a 1.5% or 2% dividend yield, but its shareholder yield is approaching 10% because it's retiring shares at an attractive price. [It] trades at a significant discount to the more traditional players in this space... If you just screen for dividend yields, you wouldn't appreciate how much it's returning capital to shareholders.
Finally, Austin explains why investors should keep politics out of their portfolios for the long term. He says inflation is the one factor he always pays attention to and everything else is noise. Austin does note though that he has loaded up on defense stocks for the short term since geopolitical tensions are rising around the globe. But overall, he says both candidates want to spend like mad and will be bad for the economy in the long run...
In either case, we want to own these productive assets because either candidate is going to spend and debase [the U.S. dollar]. And we see inflation as an issue.
Click here or on the image below to watch the video interview with Austin right now. For the full audio episode, click here.
(Additional past episodes are located here.)
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris, I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today we talk with Austin Root, chief investment officer of Stansberry Asset Management.
Dan Ferris: Austin is a great investor and an old friend of ours. He used to work with us at Stansberry Research. So let's listen to him spin his magic. He's a brilliant, sophisticated, level-headed guy, and you should write down all his advice. I promise you it will be very, very good. So let's do it right now. Let's talk with Austin Root. Let's do it right now.
Austin, welcome back to the show. Good to see you again.
Austin Root: Thanks. Thanks so much for having me. Great seeing both of you. This is a real treat.
Dan Ferris: Yeah, and it was good seeing you at our recent conference in Las Vegas. That was a lot of fun.
Austin Root: Yeah, likewise, I thought it was a lot of fun. I thought it was particularly valuable in terms of the information, too. I mean, these things are always good, but I felt like this time there was a nice mix of things to think about right now and then things to sort of structure the way you invest sort of over the long term and improve that, as well.
Dan Ferris: I have a favorite or two presentations. Do either of you guys have one or two?
Austin Root: I do. Maybe I'll go first. It was a Moneyball, Vegas, right, so I thought that Porter interviewing Michael Lewis was incredible. I love that book. But then, to have Billy Beane there, as well, to talk about it, I think for me, that probably was my favorite presentation, because Billy Beane talked about creating a baseball team using analytics, and trying to do it sort of on the best risk-adjusted basis, the way that I and you and we try to create an investment portfolio. So, I really took some of those lessons.
Moneyball has always been an interesting business book, but hearing it from them, and particularly Billy, I took a lot from that. How about you guys?
Dan Ferris: [Crosstalk] Corey?
Corey McLaughlin: Yeah, Billy Beane, that one, good. Michael Lewis, of course, he's just a brilliant guy, always interesting to hear from him, and there was a lot of great information. Probably Zach Kass, the former OpenAI executive and researcher, too, just got me thinking more about AI, like how I'm probably still underestimating its potential going ahead. But then also, we got Dan playing the guitar during our Stansberrry [crosstalk], we need to talk about this, because he killed it. It was amazing. I was blown away, and I know a lot of other people were, too.
We have to get this music on the podcast, somehow. And I've already talked with Damien about that, our audio guy. [Crosstalk], yeah, and it was amazing.
Dan Ferris: Thank you, I thank you very much. I learned a dangerous lesson from that performance, though, because, at the end of it, people were very gracious and the folks in the front row there yelled, "Encore, encore," and I felt kind of guilty saying, "Sorry, I'm not going to play anymore." But honestly, I had played the eight pieces that I remember from 20 years ago. I'm serious. And I sat down, and if you saw me, you're, like, "Boy, he's not doing so great."
Because I thought of one piece I had tried to play, and I played about five notes and I go, "Oh, well, that's a disaster. I can't play that." And then I thought and thought and thought and there was another piece, it was the first serious classical guitar piece I studied with my college classical guitar teacher. And I thought, "Well, I've got that one, right?" No, I played a little bit of it and it was OK, but I forgot this whole section, and then I sort of screwed up the end of it and missed a bunch of notes.
And then just kind of went, "Bump-bump. Sorry, I forgot." And the dangerous lesson I learned is everybody was OK with that. So from now on, I think instead of handing in a 5,000-word report each month, I'm just going to do 3,000 words and write, "Oh, sh**, I forgot," on the last line and hand that in. And the reader's going to be OK with it. So, I told [crosstalk] that. He wasn't happy.
Austin Root: Ah, no, I thought it was great, too.
Dan Ferris: Thank you. Thank you, Austin.
Austin Root: Yeah, yeah. We talked about, right before we started the podcast, that, man, I think, Corey, great idea, have Dan Ferris, Steve Sjuggerud, jamming on this podcast. What could be better than that?
Corey McLaughlin: Yeah, concert episode.
Dan Ferris: That would be fun, yeah.
Corey McLaughlin: I like it, yeah. But that's one of the things about this conference, right, you got your financial talk, and plenty that. But then also, it's entertaining and fun, as well. I'm thinking about, we have Dave Barry there, the humor columnist who won a Pulitzer Prize in the '80s, and he was just hilarious. He broke it up in the middle, I didn't know what to expect from him either, but it was great. So, yeah, it's always a fun conference.
Dan Ferris: I very much enjoyed Jonna Mendez, the former CIA spy, I was fascinated by that. I like spy books, I read all the James Bond books, and I read Donald Hamilton's Matt Helm books and etc., etc., and Raymond Chandler and all kinds of people. And I was just amazed at, like, she showed disguises, like, she was the master of disguise, which, it seems – when they do it in films and on TV, you know it's the guy. [Laughs]
So you're thinking, "OK, I'll go along with this," but people don't really do that, but they really do it and she really did it. And she told a story about one person who said, "Your disguise saved my life," and I was fascinated by that. I'm fascinated by spy craft generally, hiding little printed papers inside of a walnut and just hiding things inside of dead rats, I thought that was particularly clever. I was fascinated. Anyway.
All right, now that we've talked about music and dead rats and stuff, maybe we'll talk about investing. And maybe just remind our listeners, Austin, what your role is at Stansberry Asset Management. And not just the title, but what does it really mean? What do you really do?
Austin Root: Yeah, thanks, Dan. So I'm chief investment officer. So, Stansberry Asset Management is a separate company from Stansberry Research and MarketWise, but it was born, same DNA, same heritage. In the sense that, when Steve Sjuggerud and Porter Stansberry started Stansberry Research, the idea was, "Gosh, some of the other alternative and options out there for folks to understand and get good independent research for self-directed investors is not very good. So I want to create a research firm that I would want to use if the roles were reversed."
And that's sort of how you all got started. I know, Dan, you started with them shortly thereafter. That was 25 years ago. Some number of years ago, though, subscribers started talking to you, Dan, and Porter and Steve about, "Well, why don't you just go ahead and manage my money?" But that's not the way the research business works – you're independent publishers and you provide recommendations for – your avatar is the average investor, not an individual investor.
And so, Porter and I met, I was running a hedge fund that was backed by Tiger Management, and my focus was 100% institutional investors, and some ultra-high-net-worth investors that were investing with us. And I was so fascinated by his focus and your focus on individual investors. At some point, he convinced me to come work with you all on the research side. And so, for some number of years, a little over four years, I did that.
And the one bridge that we had between kind of what you all do and what I do now was we started working on something called Portfolio Solutions. And so, this was taking all the great research that Stansberry Research does and trying to put it into digestible portfolios that were based on individual goals, but they still were for that general investor. And three and a half years ago, I switched from Stansberry Research, totally different company, to Stansberry Asset Management.
And so, our idea is to help those individual investors find a way to take what they were doing and just sort of optimize it. So, we believe that every investor has some combination of three goals. They want to grow their wealth, they want to protect their wealth, they want to generate sturdy current income on that wealth, and again, some combination of those could be your end goal. And so, what we want to do is produce optimized individual portfolios for folks that are based on those goals.
And so, we're helping high-net-worth individual investors with that. We also do financial planning and trying to make sure that we're understanding not just the capital that we're managing for folks, but how that fits into their entire investment and financial plan, so that we're more likely to help them get financial success in the long term. And just one more thing, where I started this is, we believe wholeheartedly in creating a firm that we'd want to use if the roles were reversed, just like you guys when you started Stansberry Research.
And that means we've made certain decisions to try to make this informed, active, sophisticated investment management married with a holistic wealth management. And on top of that, we're eating our own cooking. So myself and every one of the members of the investment committee have full fee paying accounts that sit right alongside our clients, so we have skin in the game for every investment decision that we make.
Dan Ferris: Oh, that's great. That's good to hear. I didn't know about the financial planning, and I have to admit, I've never really known what that meant. When I hear financial planning, I think you're selling mutual funds or something – I don't know what it really means. So, what are some of the things you do or one of the things you do for a financial planning client? This is my own curiosity.
Austin Root: No, no, absolutely. So, at a high level, I think you can't get to where you want to go without knowing where you're starting. And so, for our clients that want this service, we will do a full financial plan that's sort of taking a look at their whole balance sheet, all of their assets, not just the ones that we manage on their behalf, but maybe their house, maybe other things. So we like to look at folks' lives as a financial statement, so we're looking at their balance sheet – we're also looking at their income statement.
And then, just as you or your team would or my team, then we're also doing projections. So, in evaluating kind of how to invest, we're projecting how their earnings picture will look, what their expenses are over time, where do they want to get. And then, I think the other real key piece to this is understanding the client from a little bit more of not just a quantitative perspective, but also qualitative. So, we may have two clients that they're thinking about their investments for the long term, so they want to grow their portfolio.
So we first think, "OK, what are your investment goals? What are your investment time horizon? What is your tolerance for risk?" And so we might have someone that's the same on those first two, their goal is long-term growth and they have a long-term investment horizon, maybe they're retired but they're thinking about their kids or their grandkids. So this capital is something they don't necessarily need in their own life, so they're thinking about legacy. But on that third vector, they're completely different.
One person is very tolerant of risk, and then the other family or couple or person is extremely risk-averse. We bring in the financial plan to sort of assess that and suss that out. Everyone says that they don't mind risk, but when you go through one of these plans and you kind of talk through things, then you can really understand if that's true or not. It's almost like the Mike Tyson thing, everyone's got a plan until you get hit in the face.
And so, it's a helpful exercise, it really is, and I think it makes my team better at investing on their behalf than if we didn't have that piece of it. And one more piece on that, to your point, many registered investment advisors that you might meet with, it's the same person who's doing the wealth management financial plan that's also picking your investments. And that person might just put you in mutual funds or what have you.
At Stansberry Asset Management, or SAM, those are two different teams. I run the investment management team and then we have a wealth management team. And so you'll have a dedicated wealth manager that's just focused on that financial plan piece of it.
Dan Ferris: Gotcha. Thank you for that. Thank you for walking me through [crosstalk] what you do.
Corey McLaughlin: Yeah, that's an invaluable thing to do at any point [crosstalk] check up . I remember you writing about that back when you were with us, just get your financial house in order first. Because if you don't have that taken care of, a lot of what comes next may not matter or be in the wrong direction.
Austin Root: That's right, that's right. We probably have all had an Uber ride where the Uber driver is asking you, "What's your favorite investment?" once they learn what you do. Well, first off, I don't provide stock pitches, but the first part of that is, "Well, listen, how is your financial house in order? Like, if you're racking up credit-card debt right now – " And that's something we're talking a lot about right now, this is the time to own productive assets, but only when you're not strapped with a lot of high-cost debt.
The first recommendation is, "Look, get your financial house in order." Like you said, Corey, pay down that high-cost debt before you think about trying to pick the next crypto.
Dan Ferris: That's good advice. I saw some data, recently, that suggested that the de-levering of the American consumer is over and they're back to zero. That's a little [crosstalk]. And we know credit-card debt is over a trillion dollars now, so.
Austin Root: Right. Yeah, I think it's a challenging market because it and challenging economy, because, to your point, we have those folks that don't have assets – so, I kind of break it up, if you're a low earner with no or low assets, this is a tough, tough market and economy and place to live. There are folks that have assets, that are seeing those appreciate, that feel pretty good. So if you have a lot of equity in your home or you're seeing your investment account go up, those folks are still spending. So when the headline numbers for the economy, it looked pretty strong, but there's certainly a chunk of the economy that is challenged.
Dan Ferris: Now, do you at SAM engage in any sort of, how shall I say, macro analysis? Does anybody at the firm pay attention to all the usual interest rates and employment data and all that kind of stuff?
Austin Root: Yes, we do. I think it's important, and there have been times, for example, that it has absolutely impacted the way we invest. Heading into 2022, when many financial advisors were telling their clients, "Just set it and forget it," 60% equities, 40% bonds, you're in good shape, we didn't own a single bond for our clients across any of our strategies. Because interest rates were extremely low, as you guys recall, and I know you were talking about this, too, Dan, I mean, this was a crazy amount of – trillions of outstanding bonds with negative interest rates.
So, on the macro, we were highly confident and the Fed was telling us that interest rates were going up. And so, even though people say, "Set it and forget it in your bond portfolio," there are two times when you don't want to own bonds. That's when interest rates are going to be spiking or default rates are going to be spiking. And we weren't so sure about that second one, we had our concerns. We knew for sure interest rates were going up, which will obviously then reduce the value of your existing bonds. So, yeah, the macro story definitely impacts the way we invest.
Dan Ferris: Interesting. I don't know if I was expecting that answer because, I'll tell you something, Austin, we've talked to hundreds of folks who manage people's money, and almost uniformly across the board, they say, "Well, we think about it a little bit, but we're bottom-up investors. We're value-oriented bottom-up investors." Almost no one, maybe Cullen Roche comes to mind, and then the other people who say, "Yes, I already know," because they're macro investors.
But the other folks who are picking individual stocks and bonds the way you guys are for your clients, they always say, "No, not really." But you just said, "Absolutely, yes," so.
Austin Root: One hundred percent. Now, I will say, Dan, I think you know about this about me, I'm a little bit of a tweener, though. So, the way that I would frame this, though, is even if you went back to that example, we still own world-class businesses for folks. So, as I think about the world right now, you and I would agree that the markets are expensive, but I don't want to be all in cash as a result of that. And I know you don't, either.
So the way we say it is we want to be strategic at the core of what we own, and then tactical around the perimeter. So, for me right now, there's two kinds of assets that I want to own in that strategic bucket in the middle, first and foremost, for everyone, again, so long as you're not on credit-card debt. But as long as you have a positive net asset position, every one of those investors should own these world-class businesses that we believe, or that you have high conviction, are durable, well-run, reasonable valuation, high returns on investment that you believe will be bigger, more profitable businesses a decade from now than they are today.
That's our first core. We've got another core that we think are super attractive on a risk-adjusted basis within private credit investments. We can talk about that. But then around the perimeter, we are being more tactical, we are holding a little bit extra dry powder right now. We have, in terms of on the fixed income side, we have a weird barbell approach. We think that we still own a lot of short-term U.S. Treasurys, and then we own some more high-yielding things that are sort of off the run.
They're either someone views them as a little bit distressed and we don't, we think they're money good, or there's something that they've been orphaned for some reason. One of our favorites are busted convertible bonds where some smart CFO, honestly smart CFO, raised capital at a perfect time in 2021. They could raise debt for sometimes 0% interest rates, or maybe 0.25, but if the stock did very well, it would convert into equity. And so those bondholders would benefit, and benefit better than if they had just owned straight fixed income.
But then the stock's cratered, so there's no value in the conversion feature of the bond. Those converts don't have a natural home – they tend to not be rated securities. And the convert arm folks are not invested in that, and so, we like to find – so basically my point is, one of the tactical things we do within fixed income is we like both sides, and the middle, corporates, corporate bonds, and even high-yield bonds, the spread to Treasury, so the incremental return you're getting for the definitive incremental risk is not really attractive for us.
Dan Ferris: I'm glad to hear you say that, because if you look at that ICE option adjusted index that everybody kind of uses, it's below 3%. I mean, it's one of the cheapest going back decades right now. And when I look at that, I looked at it recently, and I was shocked.
Corey McLaughlin: [Crosstalk]
Dan Ferris: You do? You have the ICE? [Laughs]
Corey McLaughlin: I was doing my weekly look at the charts I like to look at, at least once a week or two weeks, and, yeah, that one's lower. Which gets me a little concerned, because you get to this point where it's, like, are people just complacent now? I don't know, that's another prediction game, but, yeah, what I was going to ask you was, Austin, was you don't want to be in cash. I don't necessarily want to be, either, or too much in cash. Why? Can you explain why that is?
Austin Root: Yeah, so that's a great question. We do have, for some of our portfolios, cash balances, but the cash is in short-term U.S. Treasurys, where we're still generating north of 4% returns in very liquid. We all can argue that a 30-year U.S. Treasury is not necessarily a safe instrument, but a 3-month one I still feel pretty good is the safety and soundness of that, where we can generate a reasonable rate of return. So we'll sit with some of that.
Long term, to your point, and by the way, we also own gold on behalf of our clients, which we think is a better store of value than cash over the long term. And there's no doubt about that everyone has different analogies or points they make. But when Dan was up on stage, I noticed that he was wearing, last week, a very nice suit. If he had bought that suit on Saks Fifth Avenue 100 years ago, it would've cost him about an ounce of gold or $20.
Buying that now, it would have cost him about $2,500 to $2,600, or about an ounce of gold. So, clearly, the value of money over the long term degrades, and we think that debasement of fiat currencies across the globe will continue. So that's part of the reason, Corey, that you just can't time the market for the core of what you want to do. You need to own those productive assets. You know, Corey, you and I have talked about this, the best defense right now is for at least part of your portfolio playing offense, owning those productive assets that will protect your purchasing power the way that sitting in cash just simply won't.
Dan Ferris: Yeah, I agree. And I like having the four-plus, close to five, some, – you get the one-monthers, percent yield just daring me to do something riskier. When interest rates went up, and this was a couple of years ago at the Las Vegas conference, I said the good news is investing is back. Because now you have this risk-free rate of return and it's back to – it's actually more normal than it was when the 10-year went to 0.4% yield during the pandemic or whatever. [Laughs] Yeah, so, it's more normal, and that's a good thing.
Also, I have to say, for the benefit of our listener, I really like hearing a rational, fully hinged, sophisticated investor like Austin saying that he owns gold. Usually, it's my crew that's saying that you should own gold. But Austin is the real deal, right? He's not like me. He's the real deal and he owns gold, and you heard the good things he said about it. And he knows that I dress well, too, so that's valuable.
Austin Root: That's right, that's right. [Laughs] Now, I would say this that maybe is controversial for some of your investors, or some of your listeners and subscribers. And that is that, while gold is superior to any fiat currency, cash, in terms of being a store of value long term, I expect it to be inferior to owning those world-class businesses at stocks over the long term. Those will generate, I expect, earnings power growth and – whereas, I think of gold as protecting your value, not necessarily enhancing it. I don't know how you feel about that. I know there are certain goldbugs that say, "Look, no, over time, it's going to even do better," but I just, I'm not sure.
Dan Ferris: Yeah, I'll go you one better, Austin. You have the Dow Gold Ratio or whatever, it's 18 or 20 or something. When it goes to nine or five or something, I'm selling gold and putting that money into stocks. And even though gold has beat the S&P 500 and the Nasdaq this century, so far, these two decades, I don't expect that. And also, that's not necessarily your benchmark. You guys, you're picking the very best, most productive, most capital-efficient, cash-gushing, good balance sheet, good asset, good management businesses, and we're trying to do the same thing in the Extreme Value newsletter.
And across Stansberry, we generally do that. So, maybe we'll do even better, so, yeah, that's a good thing.
Austin Root: I agree.
Corey McLaughlin: [Crosstalk] Yeah, as wealth preservation, I mean, yes, of course. I never thought, when I got into this world, investing world, I never thought I would be bullish on gold as much as I am right now, just given everything I've learned along the way about currency debasement and what the central banks seem to have just going on as business-as-usual after a 40-year high in inflation, it's like they don't care, we've learned nothing. But gold is gold, and to a certain extent, I think bitcoin, maybe, too, for a different crew of investors, as well, may catch on more. Whether or not it is an inflation hedge, it may be believed to be that more and more, so.
Austin Root: One hundred percent. Yeah, I think that neither one is a very good store of value in the short term, because of the volatility, and that's especially true of bitcoin. But the longer you look out, we think it could be a fabulous store of value. And exactly right, for certain clients that have that long-term focus, it is a good thing, and we own it on behalf of certain clients. So, yeah, count us in for bitcoin, as well. Not as much some of the other cryptos where – there's this challenge between the scarcity value of something that makes something have less utility.
And so, a lot of those cryptos, you talk about how valuable they are, but then you can't use them as much. Ethereum, the fees to be on the Ethereum blockchain, if ETH goes up to 5,000 or whatever, then you'll just go use something else that's cheaper. So, anyway, not to get on that tangent, but we think of bitcoin as a good store of value, as well, for those that can hold it long term.
Dan Ferris: All right, yeah, I don't own bitcoin right now, and I've missed out. I was bullish some time ago and it worked out well, but I haven't gotten back into it. We don't even need to get into why. [Laughs] We'll just move on. So, I just want to make clear, though, usually, on the show, we like to tell listeners how to fish and then maybe feed'em a fish. But it sounds like you'd prefer not to do that, you'd prefer not to name individual stocks. Am I right about that?
Austin Root: I can do it. The way that we talk about this is, yeah, I don't do stock pitches, per se, but what we do, we talk about things, and I'm happy to do this in the context of an example of the type of company or investment we like for a certain strategy. So, I did have two in mind for this, that we maybe will get into one, and then if we've got time and you're interested, we can talk about another one. But, Dan, I think you've done a good job of pointing out to folks that the market's expensive, and by many different measures.
You and I could argue, I think we did even talk a little bit about whether the CAPE ratio, for example, is as valid now as it was 30 years ago, for different reasons, we could talk about it. But even if you agreed with me, you still would be hard-pressed to say that the market is attractively priced. So, we're trying to find businesses and opportunities that are trading at a reasonable valuation relative to our long-term outlook for that business, and ideally, at a discount to the overall market.
And so, one that I'll share with you that folks will know, will have heard of, in the context of we own this for folks that are looking for durable businesses, but long-term growth. So, today's best businesses that we believe will be tomorrow's best businesses, as well, with the idea that they're going to grow. And one of those that we own is American Express. So, American Express trades at a discount to the overall market multiple, even though it has historically and we believe will continue to grow at a much faster pace than the overall economy, and then the overall S&P 500 average earnings.
So, American Express has a business which is, for most of its profits, like Visa or MasterCard, they are a credit-card network that facilitates all sorts of payments across their network, and really makes it easier for commerce to happen. There has been, over the last 40 years, and there continues to be a transition from physical in-cash payments to digital payments, going over credit-card networks, taking more and more share of not just consumer payments, but all sorts of transfer payments and payments exchanges of goods and value.
And they're benefiting from that. So, we can see that American Express will continue to be a double-digit revenue grower, even in a scenario where the economy and markets don't grow that fast, we think earnings grow even faster than that. It's one of these businesses, if you talk about – are there businesses that you think will do well in an inflationary environment. Well, if that washing machine that you had to buy was $1,000 10 years ago and it's $2,000 now, some businesses may not generate as much profit from that.
Well, what American Express gets paid on that, that's a small part of the fee, will have effectively doubled. It makes it, for most of what it does, a percentage of the total transaction value. So, it's an incredible inflation hedge. In fact, it's one of the best inflation hedge type of businesses out there, because the cost of American Express didn't double over that period, and so, you can actually, in some cases, see them make more money.
Now, one risk is there is a part of their portfolio for which they're taking credit risk, and so that is a concern, just to follow that. Their customers tend to be businesses and higher net worth and those people of the economy we talked about that are still feeling OK, so their loss ratios are very, very low. But they've also tended to gain share in downturn. So, that's an example of business that, gosh, I'm confident will be – everyone likes how the credit-card networks work.
If we were to start the business today, we may have done it differently, but currently, consumers, businesses, it all works for all of us. And even when we've had new technologies enter, they basically ended up partnering, Apple Pay partners with the credit-card networks, etc. So, that's a business where we think that is a productive asset for folks to own.
Dan Ferris: Right, yeah, Visa, American Express – I think we have Visa in Extreme Value. They're hard not to use, aren't they, to pay for things in this world, it's hard not to use them, I think.
Austin Root: Yes, yep, that's right.
Corey McLaughlin: Yeah, I love that point about it being a great inflation hedge, just based on what its business is, as well.
Austin Root: Right, and we own Visa on behalf of clients that are also looking for growth, and that's an incredible business and they don't have the credit risk-ish component to it. Trades at a higher multiple, so it's one of those things that you have to be OK with.
Dan Ferris: I know, it's true, you provide a lot of insight, Austin, so I'm not saying that you don't. But as you point out, Visa is expensive and everybody knows this, right, at this point, it's well known.
Austin Root: Yeah, that's right.
Dan Ferris: And yet, here we are, and they keep growing, right? So it's –
Austin Root: I wanted to ask you, have you guys had Meb Faber on the podcast or have you been on his podcast?
Dan Ferris: Both.
Corey McLaughlin: We've had him on, yeah.
Austin Root: He talks, and I know he's done things with Stansberry Research in the past. He talks about a concept called shareholder yield, which –
Dan Ferris: Oh, I know it well, yeah.
Austin Root: Yeah, so, for folks that, for that's an interest, so we own a business that people haven't heard of, for folks that are looking for income, to generate income. And our income strategy includes this concept of shareholder yield. So it's not just the dividends and coupon payments, but it's also, if you're retiring shares or paying down debt, you effectively, as a shareholder, when a company retires those shares, you own more of the business over time.
And so, it can be a very, very good way to think about returning capital to shareholders and getting a return, getting a shareholder yield. And a name that's a great example of something we're looking for that trades at a discount to the market, trades at a discount to its peers, is called CRH. CRH is the third-largest construction materials company in the world. It traditionally was an Irish company, although it's now listed in New York.
It's 60% in the US, but we think of it as a world-class business that is making those right capital allocation decisions. So, it has a business that will benefit from infrastructure, needed infrastructure plans, aggregate, road building, etc., trades at a discount to the market. Only has a one-and-a-half or 2% dividend yield, but its shareholder yield is approaching 10%, because it's retiring shares at, we believe, an attractive price. It trades at a significant discount to the more traditional players in this space, like Martin Marietta, for example.
So, that's one where we really like it, and it's almost, if you just screened for dividend yields, you wouldn't appreciate how much it's returning capital to shareholders.
Dan Ferris: Yeah, man, I'm onboard with this concept. I've actually recommended Meb's SYLD fund, in one of my newsletters. And for years now, for years, in the Extreme Value newsletter, we evaluate every stock based on the five financial clues. And one of those clues is, essentially, shareholder – two of the components – actually, in another clue, we have all the components of it. We have the balance sheet, the debt paydown, and we have the dividends, and share repurchases is another clue.
So, I've long been a big believer in this, and I even admit, and I print this, there's a little blurb about the dividends and repurchases clue, in every issue, and I even admit that most companies aren't great share repurchasers, right. Most companies don't – they're not Warren Buffett waiting for the thing to trade at 1.2 times book, or whatever he's up to now. I think he might've raised it to 1.3 or abandoned it entirely or something.
But it's rare that you get a disciplined share repurchaser like that. And it almost doesn't matter if the business is great enough, because it keeps growing, and over time, a fantastic business that continues to grow and continues to have a durable competitive advantage, it takes time, but it proves to you that it was cheaper ten years ago than you thought it was. So that's why they can get away with that, right? It's brilliant and it works.
Austin Root: Yeah, I think there was a time that folks thought, "Well, gosh, if they're just buying back their own shares, they can't find anything interesting to invest in, be it M&A or some new project, and this is a big negative." But time and again, we've seen that those, to your point, those executives that were smart with their capital allocation, that invested and bought back shares at the right times, have benefited shareholders far more than some expensive acquisition.
Dan Ferris: Absolutely. And one of the benefits that I talk about now and then, to dividends and share repurchases, is that it imposes discipline on the management. It takes the excess cash out of their pockets. And we all know, most of us at some point, in our youth, perhaps, or throughout our lives, at some point, we've had cash in our pockets burning a hole in it. And we spent it when we probably shouldn't have.
And people who run big corporations are no different, they think they have to do something, "Well, we got all this capital. We have to do something," and that can be dangerous. So, getting it out of their hands and using it in a still productive manner to buy back the shares, it's got more than just one benefit for the shareholder. All right, so we've got two ideas, we got American Express and CRH, so, that's great.
Corey McLaughlin: Very cool.
Dan Ferris: Yes, very cool.
Corey McLaughlin: I do want to [crosstalk] we're coming out around election time here, how do you factor in the presidential election and/or global geopolitics into what you do? We got wars still going in Ukraine and the Middle East, still developing new things every day. And of course, the election. I was hearing people today on radio talk about how it seems like a lot of investors are in just kind of a holding pattern on things until the election passes. How do you think about it?
Austin Root: Yeah, no, we think about both of those things quite a bit. Maybe focusing on the election piece of it, I think we try to understand and suss out, if certain candidates were elected, how that would impact it. Particularly, in the case where there's a sweep, where Congress and the White House are the same way, then more things can get done. And are those going to be positive or negative for certain sectors and certain companies.
We do that, but at the same time, also, generally recommend to our clients, for the most part, to keep politics out of their portfolio when thinking longer term. First piece of that is, there's been some studies done where, if the party that you support is in power in the White House, you feel more optimistic about the world. And people have invested on that behalf, and when the markets go up, that's great. But if your party is not in power, that's been to your detriment if markets are going up.
Similarly, if things tank, it can be a challenge to you. So, people have actually – looking at the data, and folks have done this, it's a fascinating exercise. I think more important to us, though, is it's not only hard to predict how the election will go, but it also is hard to predict if stocks and certain sectors will be impacted the way you expect. So, I'll just give one example. In 2019, on the campaign trail, Biden's quote was, let me make sure I have it right, "I guarantee you we're going to end fossil fuel."
Not only did that not happen once he won, but we're now producing more oil and fossil fuels than ever before. And energy stocks, so that should've been bad for energy stocks, right? Since he took office to today, energy stocks have nearly doubled the S&P, they've done great and they've nearly doubled the S&P. So, it's a challenging thing to impact your entire portfolio with that. We do, however, want to – so, there are other pieces of this that are important for us.
We do think inflation will be a thing for a while. We may be able to tame it in the near term, but long term we want to have those companies that have pricing power, because we see inflation being a thing. And that is basically the one thing that both candidates agree on, that they're going to just keep printing money and deficit spend and the national debt be damned. So, the way we're going to do that is own industry leaders, so if we get into a downturn, they can benefit and take share in that.
And own those businesses that have productive pricing power and good returns on invested capital, because you do not want to be in a situation, when you own companies for which none of those are true. By the way, balance sheets, need to have good balance sheets, as well. On the geopolitical front, we probably are a little bit overweight, in general, on defense names and names that benefit from government spending. And that's been the right place to be, particularly, when we like those businesses long term. And I think we'll continue to do that.
Corey McLaughlin: Well, I'm sure Dan likes to hear that, yeah.
Dan Ferris: Yeah, I've got a few of those in both newsletters.
Austin Root: Yeah, yeah. I have a question for you maybe that relates to the question I have for both of you. You both write excellent daily pieces to folks. I know, Dan, you're generally once a week, and, Corey, you're three, four, five times a week, depending on the week. How are the politics and the current events impacting the way you're thinking about the world, when I think we probably would all agree most investors should be focused long term, for the most part, and yet there are some short-term things that can really, really impact things? How are you thinking about elections or other short-term things? And is it impacting your recommendations or the way that you invest?
Dan Ferris: Corey, you want to go first?
Corey McLaughlin: Sure. Yeah, it's rare we get a question, so this is nice.
Austin Root: [Crosstalk]
Corey McLaughlin: Yeah, I was just thinking about this today, actually, with the election, and it seems like there's this growing belief out there that – and this is just short-term thinking. I'm with you on – bet on what won't change, which is deficit spending, inflation continuing, high-quality companies, all of that. But when you're looking at the short-term direction of the market, there seems to be this growing belief that Trump's going to win, and I see the headlines about it, at least. But then you look back historically, every time the market's been up in the prior three months before an election, the incumbent, well, not every time, 85% of the time since, I think, in the last 100 years when the market's been up, the incumbent or incumbent party has won the White House.
And obviously, if there's a recession involved in that, that's another indicator, we haven't had a technical recession. So, to me, I don't know, if Harris ends up winning, actually, I think things could be a little volatile afterward, based on the fact that the expectations now seem to be favoring Trump. But we'll see. Very soon, we will see very soon. [Laughs]
Dan Ferris: So, there's two things for me, here. One of them is the actual bet on who's going to win and whether or not there is a bet. I bet on Trump to win in 2016, because he was plus-350 and I think Hillary was minus-120 or something. Basically, you bet 120 to win 100, so that was kind of sucky odds for her, meaning, she was absolutely a shoo-in. And plus-350 is bet 100 to win 350, so, wow, OK, and it worked out. But I didn't see a bet in 2020. I still don't see a bet here, although it's getting there.
There might be a bet on Harris to win, if the odds keep spreading and spreading from here, but I don't see it, yet. They're still both under 200, plus- or minus-200, so, no bet, yet. And actually, as an investing proposition, I implore people to ignore it, I really do. Whitney said, in Vegas, right, in 2016, people said, "If Trump wins, I'm leaving the country." And they said the same thing in 2020, "I'm leaving the country or I'm selling out, I'm selling all my stocks." Those bets were wrong both times, as Whitney pointed out in Vegas, and it'll be wrong this time, too.
And in both cases, what will you get for your – you're not sure what you're going to get, but four years from now, you're probably going to pay more for stuff, there's going to be more debt, there's going to be higher spending. They're going to spend, they're going to accrue debt, stuff is going to cost more, and they're both, I believe, going to make attempts to infringe on civil liberties. Trump has said he'd put people in jail for burning the flag, and Kamala said she favors mandatory gun buybacks.
So, I don't think this election will be any different from any other. Those threats are always there with all the candidates, generally speaking. [Laughs] And yet, we still have a really great life, and I think that'll continue, and you shouldn't sell all your stocks if one or the other candidate wins because you think they're going to end the world as we know it. So I'm still there. I can't place an investment bet on either one of these guys. I just can't do it. I've done it in the past and it's always been a mistake, so, yeah.
Corey McLaughlin: Yeah, I can't say I've placed a bet on either one of them, in an investment, that has to do with either one of them, other than that inflation's going to probably reaccelerate, I feel like, and long term, prices of everything are going to go up, so.
Dan Ferris: Although, I had a good idea in 2016 for Trump, but I didn't pull the trigger. I had my computer, it was election night, I had my computer. I was ready to stay up and short the peso, and it fricking tanked, and S&P 500 futures tanked, but I just didn't have the guts to pull the trigger. I wish I had done it, because it was the best crisis ever. It was over in a heartbeat, and you made a ton of money, just, like, oh, well, so, anyway.
Austin Root: Yeah, I think there's countervailing forces. I do think it's reasonable to argue that Trump is more pro-business and that the economy could grow, potentially, faster with him, and so that's bullish for equities. But everything he's talking about, the deficit could be higher for him, as well, and the number of people in the U.S. that are on the dole from the government could grow higher, and deficits and national debt. So, that's not positive for the long term, so there's countervailing forces, I think, that we see, and to your point, Corey, in either case, we want to own this productive assets, because either candidate's going to spend and debase and we see inflation as an issue.
Dan Ferris: Right, I think it always will be, right? When you have a fiat currency, people are people – if they can print money, they will. They want to make promises, they want to entice people to vote for them, and so they will borrow and print. And that's just the way life is, so we have to accept it and own businesses like Visa and American Express. And insurance companies, property insurance companies are another decent bet on inflation, I think.
Austin Root: Absolutely.
Dan Ferris: And do our best with that. So, we've reached the moment of our final question, and the final question is the same for every guest, no matter what the topic. And if you've already said the answer, by all means, feel free to repeat it, but the question is very simple. If you could leave our listener with a single thought today, what would you like it to be?
Austin Root: Yeah, I think that the first thing that pops up into my head, and I actually hadn't prepared for this, I think last time I was on, I did have prepared, but this is top of mind for me, or just off the top of my head. We started by talking about how great it would have been, Dan, or if we could ever do this, having you and Steve Sjuggerud up playing guitars, and maybe we could do that at some point. But one of the core tenants that he talked about was trying to own things that were cheap, hated, and in an uptrend.
So I don't want to leave folks with that. I think most of the time that works. I don't think it always works, but, gosh, it's a pretty great way to sort of think about it.
Dan Ferris: Good screen.
Austin Root: Yeah. What I caution folks about, particularly in this market, where the prices are elevated and it just feels like more and more pundits and investors are expecting a soft landing or a no-landing situation, is be very wary of the host stocks that are expensive, loved, and in a downtrend. So that opposite of what Steve's talking about there and they're out there and I think it's just be careful. There's some things that people are hoping will regain momentum, but you're trying to regain momentum from a very expensive part of the market. And particularly for a lot of these stocks that work, we are making sure to avoid those scenarios as much as we are trying to find world-class businesses or things that are cheap, hated, and in an uptrend.
Dan Ferris: I think you know me well enough to know that I love that answer. I love it to death. Thank you. It's excellent. And thanks for being here. I really appreciate it. It's always a pleasure to talk with you, man.
Austin Root: Absolutely. Fantastic. Thanks, you both for having me on, and look forward to seeing what happens in the next couple of weeks and maybe we can come back and think about what to do next.
Dan Ferris: Yeah, will do.
Austin Root: Thanks, Corey. Thanks, Dan.
Dan Ferris: You bet.
[Music playing]
Well, it's always fun to talk with our old friend, Austin Root, who's also, obviously, a very intelligent, experienced, sophisticated, knowledgeable investor, as well. And we got a couple of good ideas, so, a couple of good stocks. It's everything you, as a Stansberry Investor Hour listener, that you could hope for, and fun stories and all kinds of stuff. It was great.
Corey McLaughlin: Yeah, what else do you want? I'm sure you could tell us, but that was pretty good. The two stocks give you an idea of everything leading up to that, too, gives you an idea of how he thinks that over at SAM and applying, obviously, our research and other research, as well, to creating client portfolios. And then, obviously, how he goes about picking the stocks. And so, yeah, really smart guy, as always, able to – I like the point, a lot of the points are things we talk about all the time.
But just that point about even cash, he's more favorable to the gold than sitting in cash, which is something you wouldn't hear, I think, from most institutional portfolio managers, at least. Just kind of shows you they're not like everybody else.
Dan Ferris: I know, it's like I said, it's great to hear a fully hinged, rational investor saying it's gold, [laughter] rather than me. So yeah, I agree.
Corey McLaughlin: You're not fully hinged? Come on.
Dan Ferris: Eh, semi-hinged – I'm semi-hinged. [Laughs]
Corey McLaughlin: Yeah, we have to find a way to get your guitar riffs on here. Not riffs. Riffs is insulting. We have to figure out where to place this music is one of my takeaways, as well.
Dan Ferris: All right, well, maybe we can record a little something for the outro or something, I don't know. We'll figure it out, if it's – if the masses require it, I don't know, [laughs] I'll certainly serve them faithfully. But, yeah, and, if we can get Steve on here, too, that would be nice, too. That was not a terrible idea, and if he's ever up for it, it's fine with me. I'm happy to do so.
Corey McLaughlin: Yeah, take my spot, there we go. [Laughs]
Dan Ferris: Well, he doesn't have to take your spot, but he can show up and play a little music for five minutes, so, yeah. [Laughs]
Corey McLaughlin: I'm not playing the guitar, I can tell you that, yeah, OK.
Dan Ferris: OK, no, that's OK. At any rate, it's funny that you and I do this, Corey, where we have these interviews and then afterwards we tell our listeners how great they were. This just struck me as what we tell them after every interview, "That was really great. If you didn't think it was great, you're wrong." But the point is really to sum things up and point out the highlights. He thinks you should own American Express. And the other company mentioned which was definitely, he's right, it's a lesser-known company, CRH.
And I thought that was great. I was glad to hear CRH. I knew those guys owned American Express and I knew he really liked that business. But we got another one that is not the usual name that is thrown out by anyone, really, I've never heard anyone talk about that company. So, jot it down and do your own homework and decide whether or not you want to own CRH.
All right, that was fun. That was as fun as any interview we ever have here, which is to say a lot of it, for Corey and I and our guests. And that was another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we very truly did.
We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "Transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also, do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review.
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For my co-host, Corey McLaughlin, till next week. I'm Dan Ferris. Thanks for listening.
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