Episode 405: The Private-Equity Reckoning Is Here
On this week's Stansberry Investor Hour, Dan and Corey welcome Dan Rasmussen back to the show. Dan is the founder and portfolio manager of asset-management firm Verdad Advisers, as well as a bestselling author. His most recent book, The Humble Investor, came out just last month.
Dan kicks off the show by explaining what motivated him to write The Humble Investor. This leads to a discussion about why savvy investors should be skeptical of forecasts and why they should always consider whether other investors are looking at the same data and reaching the same conclusions as them. One area where this is a big problem is artificial intelligence ("AI"). AI is capital intensive with very little return thus far, yet investors are blindly buying into AI stocks on lofty expectations. Dan points out that the "Magnificent Seven" are riskier than most folks realize, and this overvaluing of U.S. stocks has made foreign investors begin to look at other countries' markets for opportunities...
It turned out that there's more foreign capital in the U.S. than there is U.S. capital in foreign markets these days... It's not like U.S. investors are massively overweight the Nikkei 225... And so, [there are these] global capital flows into the U.S. that now seem to be reversing.
Next, Dan talks about investors mistakenly being underweight gold for years, whether it's possible to predict a bubble, the pattern of credit crises, and the recent worrying signal of money drying up in private equity. He notes that this tendency for investors to take on more risk in private equity than elsewhere is a disaster waiting to happen. Dan then delves into which parts of the market he finds most and least attractive today. For example, he notes that changing corporate governance for Japanese stocks is an "obvious catalyst" for doubling your money, while short-term macroeconomic factors are keeping him away from U.S. Treasurys...
The median Japanese company has 50% of their market cap in cash and 50% of their market cap in cross-share holdings in other Japanese companies, which people don't realize. So [companies] can immediately get to 1 times book [value] by just selling [their] cross-share holdings or using [their] cash to increase dividends or buy back shares.
Finally, Dan discusses diversification versus "diworsification," the often-ignored problem with passive investing, and the "valuation drop-off" between S&P 500 Index stocks and foreign stocks. With the Magnificent Seven officially in a bear market, Dan declares that "the turning point seems to be upon us" for U.S. stock valuations to come down. And he concludes with a stark reminder for listeners...
Growth rates don't persist. Take the top 10% or the top quartile of growers and look at how they grow over the next three or five years. And there's no relationship, zero. It does not predict anything... Earnings growth is completely unpredictable.
Click here or on the image below to watch the video interview with Dan right now. For the full audio episode, click here.
(Additional past episodes are located here.)
The transcript is coming soon.
This Week's Guest
Dan Rasmussen is the founder and portfolio manager of asset-management firm Verdad Advisers, chairman of the investment committee for Plymouth Rock Companies, and a New York Times bestselling author. Previously, he worked at investment firms Bain Capital Private Equity and Bridgewater Associates. Dan was even named in Forbes' "30 under 30" list in 2017. He graduated summa cum laude with a bachelor's degree from Harvard College and earned his Master of Business Administration from the Stanford Graduate School of Business.