Please Scream Inside Your Heart

'The battle of wits has begun'... Vizzini never had a chance... The tale of 10,000 Tesla traders an hour... A 6-year-old 'man'... The same story in the 1930s and today... 'Bold, persistent experimentation'... Please scream inside your heart...

You're not always playing the game you think you're playing...

Take the 1987 hit comedy film, The Princess Bride, for example...

Early in the movie, a clever, mean-spirited Sicilian named Vizzini and his outlaw compadres kidnap Princess Buttercup. The "Dread Pirate Roberts" – a mysterious masked man, who is actually Westley, the film's protagonist – pursues Vizzini, seeking to rescue the princess.

When the two men finally meet, Roberts overwhelms Vizzini's protectors – the giant Fezzik and fencing master Inigo Montoya – and agrees to a "battle of wits"... to the death.

The two men sit down in a field at a makeshift table with two goblets on top. Roberts shows Vizzini a small vile of a fictitious poison called iocane powder before telling him that it is "among the more deadly poisons known to man."

Roberts picks up the two goblets and turns his back to hide them and the vial of poison from Vizzini's view. Then, he turns back around, puts one goblet on the table in front of each man and asks...

Alright, where is the poison? The battle of wits has begun. It ends when you decide, and we both drink... and find out who is right, and who is dead.

Vizzini spends nearly two minutes reasoning aloud about which goblet he should drink...

I (Dan Ferris) will let you watch the scene on YouTube for all the details, which are just as entertaining as the rest of the film.

Eventually, Roberts accuses Vizzini of stalling. And just as Vizzini is about to choose which goblet he'll drink from, he distracts Roberts by pointing behind him and saying, "What in the world can that be?"

When Roberts turns his back, Vizzini switches the two goblets. Roberts turns back around, and the two men drink... each from the goblet now in front of them.

Vizzini laughs, believing he outsmarted his foe... then drops dead.

Roberts frees Princess Buttercup and tells her that both goblets were poisoned... He had spent the past few years building up an immunity to iocane powder for this exact scenario.

A battle of wits, indeed.

Vizzini viewed his own intelligence – which was probably substantial and greater than Roberts – as an advantage over his adversary. But in reality, Vizzini never had a chance...

He wasn't playing the game he thought he was playing.

Today, many investors think they're Roberts – but they're really Vizzini...

Earlier this week, Bloomberg published an article with a Vizzini-inspired headline...

Yes, that's what it says... 10,000 an hour.

I'm sure this type of manic greed reflects something other than 10,000 day traders' deep knowledge of the game they're playing. I doubt many – if any – of those traders has any idea how Tesla's market cap and unit sales compare to its relevant automotive peers...

Tesla's market cap, at about $278 billion today, is more than $100 billion greater than Honda ($45 billion), BMW ($43 billion), General Motors ($38 billion), Ford Motor ($27 billion) and Fiat Chrysler ($21 billion) combined.

It's also more than Toyota's $175 billion market cap, even though Toyota sold 10.7 million cars in 2019. That's nearly 30 times as many as Tesla sold last year (less than 370,000), which was a record for the company.

You might be thinking... "But Dan, if you avoid Tesla because you think the share price is too far ahead of the fundamentals, you'll miss a huge multibagger return!"

That might be true. No one knows how high Tesla's stock will go... or when the party will end and it will come crashing down. But as astute Digest readers know, the underlying premise that you'll sell your Tesla shares right at the top and take a big profit is faulty.

Most day traders have trouble holding stocks over a long weekend. Those who do manage to hold on long enough to see big multibagger gains will have absolutely no idea when to sell and collect their profits... and avoid the big losses that always lie on the other side of those big gains in lousy companies.

So in the end, a truly prudent investor who understands that he doesn't completely ever know the game he's playing – the anti-Vizzini, if you will – will sit out while others buy Tesla's stock... and let it trade as high as it likes before the bottom ultimately falls out.

On Monday, Tesla hit an all-time intraday high just shy of $1,800 per share. It reached an all-time closing high of $1,546 per share on Wednesday. The stock started the year at about $430 per share... and traded around that level as late as March, when the broad market bottomed. So in less than four months, it's up more than 250%.

I believe these day traders are in for a rude awakening at some point... A year from now, I'd be willing to bet that Tesla will be closer to $200 per share than $2,000 per share.

I've seen this movie a hundred times. Even after eviscerating short-sellers again and again, it always ends badly for the stubborn folks who hold on too long.

Now, you must decide the solution to the Vizzini problem...

Is the solution to make it your priority to know the game you're playing, just like Roberts? Or is the solution to keep it firmly in your mind that you'll never know... and instead, you must focus on avoiding Vizzini's tragic, hubris-induced mistake altogether?

If Hall of Fame catcher Yogi Berra – who was known for his malapropisms and paradoxical statements – were alive today, he'd likely answer, "Yes." (He might even remind you that "when you come to a fork in the road, take it." That's the title of his 2001 book.)

And the thing is, he'd be right...

Ultimately, you won't find anyone like Roberts in the financial markets. Nobody gets it right all the time. Not even the world's greatest investors...

Berkshire Hathaway founder Warren Buffett has exhibited great skill over many decades and accumulated much wealth as a result. He knew about COVID-19 in February... And yet, he didn't sell all of his airline stocks until they got obliterated throughout March and April.

You must know as much as possible about the game you're playing... and still understand all the time that you're always acting based on incomplete knowledge.

Making money in the stock market is possible through luck. (Just ask those Tesla day traders.) But if you're only lucky, the bad trades will eventually find you and wipe you out.

On the other hand, if you're truly skilled, you might underperform for years at a time or make a mistake like Buffett's airline bet. But eventually, the cumulative effect of the good trades you make – the demonstration of your great skill – will generate good results... just like they have for Buffett, though certainly on a more modest scale for most of us.

If that sounds complicated, I agree... Welcome to the financial markets.

But wait. You're not done yet...

Given the need to make decisions with incomplete knowledge and the inevitability of mistakes, there's a key attribute that we haven't covered yet. To succeed as an investor, you must, as value-investing guru Ben Graham put it in Chapter 20 of his classic work, The Intelligent Investor (a must, must, must-read)...

Have the courage of your knowledge and experience... In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.

If it weren't absolutely certain that everyone makes a bad bet now and then, courage wouldn't be the supreme virtue for investors who have studied the game well enough to play it.

I'd add patience to the list of supreme virtues, too. But maybe I don't need to, since patience is born of courage. After all, patience in investing means not selling when everybody else thinks you're wrong... That takes a lot of courage.

And when it comes to courage, you also must take one final step to succeed in the financial markets...

Deep within yourself, you must find the intestinal fortitude of Bridger Walker...

Walker is a 6-year-old boy from Wyoming who acknowledged the possibility of death... and faced it like a fearless Spartan warrior to save his 4-year-old sister last week.

On July 9, a large German shepherd moved in to attack his sister. But before the dog could reach her, Walker stepped in between them. The dog bit deeply into his cheek... The resulting severe wound required a two-hour surgery and more than 90 stitches to repair.

Asked by his father why he jumped between the dog and his sister, Walker reportedly replied, "If someone had to die, I thought it should be me."

Investing isn't life or death – or maybe it is... Is it so difficult to imagine a scenario in which a large sum of money was the key to saving your life – or the life of a loved one?

Still, if you think Walker's story means we're not just talking about investing anymore, you're right... Investing well is part of a life lived well. And my point here is definitely that living well in 2020 requires Walker-style courage...

His selfless, man-sized courage is welcoming. It's a far cry from the mobs of masked cowards looting and rioting in U.S. cities and pulling statues down...

I acknowledge that the grapes of wrath in our cities are full to the bursting point. But the collective behavior of these mobs is inexcusable... And frankly, it's in no way meaningfully representative of – or even connected to – the peaceful protests in response to the tragic and unjust death of George Floyd at the hands of a Minneapolis police officer in late May.

Bridger Walker – again, a 6-year-old boy – is more of a man than many "men" you encounter these days. (And I'm directing that as much to the man in the mirror as anyone.)

He didn't hesitate to put himself in harm's way – actually, make that death's way – to save his sister. He's a wonderfully old soul in a young body. If a grown-up version of Walker had been on the Minneapolis police force the day Floyd was killed, Floyd might be alive today.

The world needs more Bridger Walkers. It needs more people who understand what real danger looks like... and don't hesitate to act in the blink of an eye to make the save.

Otherwise, we're left with too many so-called men like New York Gov. Andrew Cuomo...

In a moment of hysterical fear in April, Cuomo sent patients who had tested positive for COVID-19 back to nursing homes. In other words, he put the most vulnerable part of the population in harm's way, causing many more deaths than otherwise might have occurred.

Metaphorically speaking, Cuomo saw the dog charging... panicked... and used his little sister as a human shield. Cuomo's sister – or the poor, helpless elderly patients, in this case – never had a chance with him in charge.

Nor can you expect anything resembling Walker's brave behavior from the federal government busybodies...

They also run scared and routinely leave folks worse off than they found them. In a vain attempt to stem the spread of COVID-19, governments around the world hit the panic button and waged a global war against making a living.

And we're left with something like the world of the early 1930s...

The popular view throughout history is that the U.S. government under President Herbert Hoover didn't do enough to stave off the Great Depression.

Whether you agree with that sentiment or not, it's irrefutable that the government took enormous, unprecedented measures during his presidency...

Hoover's administration propped up prices and wages, crippled trade with tariffs, raised taxes, and ran huge deficits. In 1933, the U.S. federal government brought in $2 billion... and spent $4.6 billion. Prior to that, it had run surpluses every year in the 1920s and again in 1930.

In his speech for the 1932 Republican presidential nomination, Hoover admitted that his administration, "met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic."

It's the same story today with our government's out-of-control spending...

We're staring at the largest budget deficits in our nation's 244-year history in dollars spent, and the largest since World War II as a percentage of gross domestic product (which some experts expect to be surpassed within two years).

The federal government collected about $3.46 trillion in taxes in 2019. The White House believes the government will collect $3.7 trillion this year (though it's probably too early to estimate due to the COVID-19 fallout) and another $3.86 trillion in 2021.

The Congressional Budget Office is projecting the 2020 budget deficit will equal $3.7 trillion. And the Wall Street Journal reports that this astronomical figure could rise further if another emergency spending package is passed later this month.

But hey, it's cool... We can just print the money. Since, you know, that never works out poorly.

In the 1930s and again now, it's all one giant experiment with all of humanity as the guinea pigs...

We're led to believe that it's all being done by the equivalent of a team of the most brilliant doctors using the latest, cutting-edge tools. But in actuality, it's a band of imbeciles wielding hammers, manically acting on their fervent belief that every problem is a nail.

You think I'm kidding about the experiment thing?

Franklin D. Roosevelt was sworn in as president in March 1933 after soundly defeating Hoover in the 1932 election. But he had already made his plans clear by that point, announcing his intention to experiment on his country's population almost a year earlier during a May 1932 speech at Oglethorpe University in Atlanta. As Roosevelt declared...

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.

Bold, persistent experimentation... as if good government was some sort of high school science project. The idea of any politician admitting "frankly" to failure is laughable.

The results of Roosevelt's experimentation were perhaps best expressed in May 1939 by Secretary of the Treasury Henry Morgenthau. As he told the House Ways and Means Committee...

We have tried spending money. We are spending more than we have ever spent before and it does not work... We have never made good on our promises... I say after eight years of this Administration we have just as much unemployment as when we started... and an enormous debt to boot!

Gee, it's almost as if a multibillion-dollar – multitrillion-dollar, nowadays – economy is more complex than government meddlers and central planners can ever fathom. And they're more likely to make problems worse with their "solutions" than actually solve them.

These government decision-makers think and act like they're Dread Pirate Roberts, knowing what outcomes they're creating. But they're really Vizzini... and even worse, they're also poisoning all of us with their hubris and ignorance about the game they're playing.

And yes, I'm aware that I could have said all this stuff about history and unprecedented measures in 2008, too... Back then, like today, the measures were unprecedentedly large. And I could have made the same argument using the exact same historical references.

After that experiment, the market bottomed in 2009... and then we experienced the longest bull market in history. But was that time nothing more than a lucky trade?

Will everything work out OK this time, just because it did before?

With too few data points to study, we're left only to wonder how the unprecedentedly large experiment with our lives will turn out this time.

We should all be a lot more humble about the potentially devastating, totally unpredictable, and unintended consequences of throwing trillions of deficit spending at our economy.

Maybe it'll all turn out great. A bunch of people think that nowadays... They follow something called "Modern Monetary Theory," which as I understand, says that a country that prints its own currency can tolerate a lot more deficit financing than many believed.

I hate to ask them, "Want to bet money?" Because I know they'll say, "Heck yes!"

Truth be told, I don't know that they're wrong. But my point is... neither do they. Yet these folks act like Dread Pirate Roberts, too... supremely confident in the outcome that their actions will produce.

So... what, if anything, can you and I do about any of this?

I don't mean to be fatalistic, but maybe we should do what the owners of the Fuji-Q Highland amusement park near Tokyo recently advised roller-coaster riders to do...

The park's management asked riders not to scream while on the coaster, fearing that by doing so, they could spread COVID-19. Fuji-Q even produced a somewhat – OK, very – weird video of two straight-faced, mask-and-suit-wearing, completely quiet park executives riding the coaster for the entire four-minute ride without screaming. (Watch it right here.)

At the end of the video, a phrase is printed in Japanese across the screen...

Please scream inside your heart.

Ladies and gentlemen, that's your motto for 2020...

If you've watched Tesla soar to nearly $1,800 per share amid day-trader euphoria while your 401(k) limps back to life... please scream inside your heart.

If you've defended your home (like a Missouri couple did recently) against a violent mob that has allegedly threatened to kill you and your dog and occupy your house, and you get charged with a crime while the violent mob gets off scot-free... please scream inside your heart.

If Andrew Cuomo effectively put your grandparents to death by filling their nursing home with COVID-19 patients... please scream inside your heart.

And if you can't pay your bills because the government is waging a war on making a living...

Say it with me now, out loud, wherever you might be...

Please scream inside your heart.

New 52-week highs (as of 7/16/20): Quest Diagnostics (DGX), Emergent BioSolutions (EBS), Home Depot (HD), Lonza (LZAGY), TFI International (TFII), and Vanguard Inflation-Protected Securities Fund (VIPSX).

A quiet day in the mailbag. What makes you want to "scream inside your heart" today? We'd love to hear about it... Tell us at feedback@stansberryresearch.com.

Good investing,

Dan Ferris
Vancouver, Washington
July 17, 2020