In a week defined by Facebook's announcement of its cryptocurrency Libra – which, with the company's 2.5 billion users, may be the most powerful endorsement of cryptocurrencies to date – as well as sideshows like the deletion of Elon Musk's always-dangerous Twitter handle, there's a lot for Dan Ferris to unpack.

Then there are the serious warning signs – including the aftermath of the Fed's decision announced this week to hold off on raising interest rates. Dan reads the tea leaves to reveal what the Fed thinks chances of recession looming really are.

Dan then gets to this week's guest, Rod Collins.

For a long time, businesses have been focused on maintaining a sustainable competitive business advantage – which basically means creating a killer product business model. But now, Rod says, a shift is here as business models now only last an average of 5-7 years.

And with companies in your portfolio now so mercurial – Amazon is so much more than a bookstore, Google isn't a search engine so much as a pioneer in driverless cars, etc – how do you keep up with the sea changes?

We think you won't want to miss Rod's insights on how to stay ahead of the times – and help make sure creative destruction doesn't undo your own portfolio.

Male: Broadcasting from Baltimore, Maryland, and all around the world, you're listening to the Stansberry Investor Hour.

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Male: Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here is your host, Dan Ferris.

Dan Ferris: Hello, and welcome to another episode of the Stansberry Investor Hour. I'm your host Dan Ferris. I'm also the editor of Extreme Value, a value-investing service published by Stansberry Research. We have a really good show lined up with a really cool and different kind of guest. Really looking forward to that. Let's get to the weekly rant first, shall we? Every summer I go up to the Rocky Mountains for a few days and I meet with some of the smartest investors on the planet, really. It's an invitation-only kind of a conference, limited to 40 people, and everybody has to make a presentation of some kind. You could be five minutes. This year I just did five minutes, or it could be like a full-blown 15, 20-minute thing with Q&A and all this stuff and charts and graphs and the whole nine yards. And it's fun. We go out, this year I went fly-fishing up in the mountains; it was really cool.

It's great because it's constant presentations. People are presenting through dinner and afterwards during dessert; it's great. And then you know maybe you head over to the bar and talk more investing and other ideas into the wee hours. Those of us who are young and strong can stay up late, which I do not. So it's really cool. This year, by far, by far the most talked about and, as you'll see in a moment, controversial presentation was this fellow who we'll just call Dave, I'm going to keep this whole thing anonymous. And Dave pounded the table on his favorite stock to buy his favorite company, and it makes his favorite product. All three are the same, and his favorite investment idea, company, product, is Tesla, OK? Tesla, the electric car company that you've heard me criticize numerous times for it's flaky-founding CEO Elon Musk and for other real problems with the business, right. Enormous competition that's building among other car companies who are making electric cars and more recently, the obvious financial difficulties that Tesla is starting to have.

So I'll tell you what, Dave couldn't have been more excited. His presentation was like by far the most enthusiastic, emotion-filled, compelling thing we saw all week. And he kept saying, "It's a computer on wheels, it's totally different!" He was emphasizing the change in paradigm from internal combustion engine to electric car. The Tesla sits there in your driveway and the computer updates and you don't have to take it into the shop and get parts change. It's just a whole different paradigm. And he loves the company, loves the product, loves the industry, electric cars. He owns a Tesla of course himself, and he drove it to the conference, which is in Colorado, from his home in New Mexico. And he was talking about he stopped, charged up, and it was just a really good experience.

And he loves Elon Musk. He talked about SpaceX, which is another Elon Musk, which has apparently dramatically reduced the cost of putting a rocket up in space by reusing the rockets. NASA let them fall to the bottom of the ocean, but Tesla reuses them. So of course, he cited Musk's early success with PayPal and generally of the view that all the goofy behavior and criticisms about Elon Musk that it won't matter in the end. It might not be ideal, but it won't keep Tesla from being this groundbreaking company that's going to be really successful. And he wasn't totally irrational; this guy manages other people's money. He freely admitted if Tesla doesn't make 300,000 cars within a year, the stock will get crushed. I think he said 300,000. Frankly, I did not take one note while he was talking because he was just that fired up and fun to watch.

Now during his presentation, he said things like I should turn my fund into the Tesla fund, talking about his hedge fund where he manages other people's money. Implying that it's such a fantastic idea that he should put 100%of his investor's money into Tesla. Just super excited about this company. Now look, I want you to imagine for a moment, this guy was new to the conference this year; most of us never met him before. So imagine he's new to the conference. He walks into a room full of value investors. That's what this conference is; it's a value-investing conference every year. Brand new, room full of value investors, and he says he's long Tesla. Absolutely nobody in that room agreed with him, and he probably knew that coming in. He fielded one criticism after another, and he did it with a smile. He never lost his composure or enthusiasm for his idea. He held his head high. He handled all the negative comments very well. I mean people were polite. Nobody was rude or anything, but you know some people worded their questions like kind of implying "Are you serious?", you know what I'm saying?

So Dave might be right about Tesla. He might be wrong. He might make money; he might lose money. But no matter what, I think Dave has the right attitude. Dave is practically my hero right now. He's done the research. He's earned the right to make decisions on his and his partner's behalf; people don't just throw money at nobody you know. So he's earned their trust and respect. And as much as any investor I've seen or heard of, Dave has the courage of his knowledge and experience, the courage of his convictions. Courage, in fact, it's not just a good thing to have if you're an investor; it's an essential part of your business plan if you're managing money. Even if you're just an individual managing your own money, OK?

Let me read to you something that I have here. It is the second-to-last paragraph of The Intelligent Investor by Benjamin Graham. The last thing in the book is Graham's four principles of business-like investing. So he says investing is most intelligent when it's most business like, and then he cites these four principles. And the first one is know what you're doing, know your business. The second principle is don't let anyone else run your business unless you can really supervise them or you really trust them. And the third principle is don't do anything whether it's manufacturing something or managing money unless you've run some numbers and realize that you can succeed doing it and the chances of loss are small.

But the fourth principle is this; I'll read it right out of the book. "Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you; you are right because your data and your reasoning are right. Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and attested judgment are at hand." End quote. Wow, that's not just an inspiring passage, OK? It's Graham's fourth and final principle of business-like investing: Courage, the courage of your knowledge and experience, he says. Well, Dave, has courage. He's a professional investor handling other people's money, and he didn't get there overnight; he's no dummy. I'm sure he has plenty of knowledge and his judgment has been tested by now. So to me it was a pristine example of Graham's fourth principle of business-like investing in action.

Now at this point, you're probably wondering right now how do I know – I can see people writing this e-mail to me; I can just see the words on my screen. "How do I know when I have adequate knowledge and attested judgment? How do I know when it's time to act on it, like Graham says, and have the courage of my knowledge and experience?" OK. Well, if you have to ask, maybe you're not there yet. The truth is I can't answer this question for you; in fact, absolutely nobody can answer this question for you. Just think about a simple example, right? Say you don't know how to ride a bike. You get somebody to help you you know ride the bike, so there might be another person there but you don't need anyone to tell you when you're riding the bike. You know. Your feet are moving, you're upright, you're moving forward. Even if you go on to become a professional cyclist and you're racing the Tour de France or something and along the way you've had coaches and training and consultants or whatever you do to get that far with cycling. And you've had a lot of help, lot of people, but even then in the end it is up to you to decide when you're reading for the Tour de France, not anyone else. Your cycling is yours, whether you're a beginner or professional. Your investing is yours; your money is yours.

You know I can't tell you when you're ready to do something; only you can make that decision. Graham's emphasis on courage, I mean this is the last important new idea in the book. This is what he wants to leave you with is courage. It's striking to me. It implies that to be a great investor you have to deal with risk, with being scared of losing money, right? That's really interesting to me. It's also interesting considering the name of that last chapter in the book is "Margin of Safety as the Central Concept of Investment." So courage implies risk, you see? There's no risk, there's no need for courage. And this is the father of value investing writing a chapter called "Margin of Safety", and he finishes the chapter by talking about the role of courage. I never even thought about this until I saw Dave's presentation, so it's a pretty important lesson. If courage is involved in being a good investor, you have to figure out if you have courage. Graham was a very wise man. He avidly studied ancient classic literature, and it's really quite brilliant about how he bakes his insights about human nature into an investment philosophy, a philosophy about making money.

And in the same book in chapter eight, his parable about Mr. Market is another brilliant example of this. I won't tell you about that now; you can read the book. It's really good. I think Graham would have applauded Dave as enthusiastically as the rest of us did last week. We stood up and clapped; it was amazing. The guy was full of courage, and it was a pristine demonstration really of an investor with the courage of his convictions, the courage of his knowledge and experience. So you need to understand the role of courage in the management of your money. If a particular endeavor requires courage, as we said a moment ago, it involves risk. You want to know what those risks are so you can decide if you have the knowledge, the time-tested judgment and the courage to handle them. Hats off to you, Dave, if you're out there. If Ben Graham were alive today, he'd be proud to know you.

OK, that's the rant for this week. Now let's talk about what's new. [Music plays] OK, let's find out what's new in the world. Of course, there's a lot that's new. One thing is I mean this is as new as it gets here. Facebook has launched a cryptocurrency of its own. And you know Facebook has more than two-and-a-half billion users, OK. And Facebook and its partners, this could amount to a significant endorsement of cryptocurrency. Lots of people on Facebook, lots of people use it. It's embedded in their lives, and this can become a way to make the Facebook app, the Facebook ecosystem, just more deeply embedded in their lives. That insight is in a recent Bank of America report. They think Facebook is going to use cryptocurrency to, they say, facilitate a platform for, one, payments. Number two, commerce, you know shopping. And three, just applications and gaming. Actually, that last bit came from an RBC report.

So I don't know. Is it good for Facebook to create crypto? What will it do to the stock I guess is what most of you are sitting there thinking? At first, I don't know if it will do anything to it. I don't know if it will mean a whole lot. And frankly, I'm so admittedly utterly ignorant about cryptocurrency and where I think all this is headed. One thing that I feel about this, I'm always skeptical of when I hear that a new cryptocurrency is coming out because most of them, they just, it's two guys in a garage and they have some weird new idea that they think is different than the other literally like 2,000 cryptocurrencies. But this is Facebook, so if Facebook can't shove a cryptocurrency down the world's throat and make it work, who can? So for me just looking from the outside in, I don't have a dog in the fight really, although I do own a tiny bit of bitcoin just so I can have some skin in the game and can do some research and learn about it and just feel connected to it. For me this is just a huge test case just for the idea of cryptocurrency, and I'm really, really curious to see how it works out. I don't feel the need to know everything about this right now and buy Facebook tomorrow. I feel like I can sit back and let this happen and see how it turns out.

Now we talked earlier – here's another little news bit. I don't even know if you're going to believe this; I don't know if I believe it. [Laughs] We talked earlier about Elon Musk in the rant, and he made this statement in a tweet that said he deleted his Twitter account. But he put the statement in a tweet and the Twitter account still appeared to be active afterwards, so I don't really know what it means. So Musk is like, what is he, he's like Twitter bait. He comes out with something and all the fans pile on and say, "Yay, Elon," and then all the usually short sellers pile on and say, "This guy's an idiot." So Musk not having a Twitter account would be a fairly big change to Twitter, I would think. He's only months away from a settlement with the SEC regarding his Twitter use, and so we're just calling BS on this. He's not going off of Twitter. It would be like Donald Trump saying "I'm not going to use Twitter anymore." [Laughs] These people can't help themselves. They think very highly of themselves. They feel like they need to constantly be out there.

But isn't it just another Elon Muskism? It's another one of these things he says that we have no doubt that it's never going to happen. Unfortunately, a lot of those things are like production numbers for his car company, so. [Laughs] Oh, Elon. I wish I did know that guy because he's probably to have him as a friend it's probably so entertaining, if nothing else. Plus, he's a pretty smart guy; let's face it.

So what else is going on? I'll tell you what else. One thing I want you to know about is that Howard Marks' new letter to investors is out. Howard Marks wrote a book called The Most Important Thing that I recommend – I've recommended that book dozens of times; I continue to recommend it. I think it's excellent. It's highly readable and has lots of great advice. He has another book out called Mastering the Market Cycle and also very good. He's the cycle guy; he really understands cycles well. And his new memo is titled This Time It's Different, and he talks about the first time he encountered that phrase was in a New York Times article dated October 11, 1987. OK, so that's like eight days before October 19, 1987. Black Monday, the worst single day in stock market history with the DOW down 22%in a single day. So that article was written by a reporter named Anise Wallace, so Anise Wallace, amazing, wrote the This Time It's Different article.

And of course, when you hear the words this time it's different, it means that the cycle is probably near its end. People think the market is going to go up forever because it's been going up for so long. It's kind of a sign-of-the-top thing, a huge sign of the top. And so Marks in his memo talks about what he thinks is the analogue of people saying this time it's different nowadays, and he has this list of things, I won't read them all, but these attitudes that are out there where people are saying things like there doesn't have to be a recession, federal deficits can grow substantially larger without becoming a problem, national debt isn't worrisome, etcetera. Lots of things like that. And then he goes through them one by one and talks about maybe this is really kind of a silly thing to assume and people should be on the lookout for signs that the cycle is turning the other way and that we may be headed into a recession. And of course, that would probably lead to a bear market in stocks. Great stuff. You can go to that website oaktreecapital.com where Marks publishes his stuff, and you can sign up and just get it delivered into your e-mail inbox. Really good stuff.

And you know I tend to focus on some of these macro items, and I'm going to, just a couple things. A CNBC article that came out recently said Morgan Stanley economic indicator just suffered a record collapse. So it's the Morgan Stanley Business Conditions Index fell 32 points in June to a level of 13 from a level of 45. So the index went from 45 in May to 13 in June. Largest one-month decline on record, and economist Ellen Zentner said in a note to clients that the decline shows a sharp deterioration in sentiment this month that was broad based across sectors. And that's not the only one of these things. There's another article in The Financial Times, and the headline was something about markets being broken. Yeah, Are Markets Somehow Broken, by Robin Wigglesworth. And so it's the same sort of thing. Wigglesworth just goes through and looks at all these indicators. One of them is called the economic policy uncertainty index, and he compares uncertainty index with the VIX, right, volatility in the stock market is the VIX, and the move index is volatility in the bond market.

And so the volatility in the stock and bond market creeped up a little bit but they're still kind of low, but this uncertainty index, the economic policy uncertainty index, has kind of taken off like a rocket. It's up sharply just over the past several months, right. And then he's got the City Global Economic Surprise Index, and when that gets below zero, it just means that economic indicators are falling, are registering declines. And it's right now on its longest subzero-run on record, which that doesn't look good; nobody likes the sound of that. He's got another one. He's got the Bank of America Market Risk Indicator, which is kind of bumping along the bottom like the VIX and the Move and the other sort of market-based volatility kind of index, the things that indicate actual fear in investors versus the New York Fed Implied Recession Probability, which has just spiked from well below ten down near zero in 2018 up to 30%. The Fed thinks there's 30% probability of a recession, and yet the point of all of this stuff is that the economic indicators are saying one thing. They're saying, "Boy, things aren't so great." But the market is saying, "Huh? Things are great. I like things. Everything is wonderful."

I mean the market is like asleep, and people are buying junk bonds. They're buying triple-C rated, some of the junkiest junk. Triple C-rated debt has returned more than 8%. I mean that's like down in the deepest, darkest recesses of junk bonds. Again, it's this late-cycle weird, weird moment in history, so it doesn't surprise me at all that also in the news lately Paul Tudor Jones, who is a very famous kind of global macro-trader, and he was in one of those books Market Wizards. He was in one of the Market Wizards books. He's a pretty well-known guy, billionaire, global macro-trader. And his favorite trade for the next 12 to 24 months is gold, right. So he's looking at all the uncertainty and anticipating probably some Federal Reserve intervention, maybe a rate cut or something that in turn can I believe lead to really lousy capital allocation, and it kind of creates – you know the more they cut the rates, the more it fuels the future difficulties, right. You get a lot of misallocated capital, because money is so cheap and anybody can get it and anybody can do anything they want.

So maybe in an uncertain time like this we want to own some gold. And he thinks he says if it gets over 1,400, gold, over $1,400 an ounce, it'll probably ride like a rocket up to 1,700, so interesting. I tend to agree that gold is a good thing. I don't know if I have any view on where the price is going, although you can see in the market lately the market has been kind of battling it out around $1,350 an ounce, and it's bumped up against that level multiple times and tend to retreat back. So if it gets above 1,350, maybe it goes over 1,400, and then the momentum effect comes in, and before you know it maybe Tudor Jones is right and we see 1,600, 1,700. Interesting times, interesting times. All right. Let's get on with our interview.

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Dan Ferris: OK, it's time for our interview right now. This is going to be really cool. Our guest today is Rod Collins. He's the director of innovation at Optimity Advisors. Rod has more than 30 years' experience in management positions of increasing responsibility in the healthcare industry. He's an innovative executive leader with sustained success in achieving financial, operational, and market-growth objectives in challenging environments. He has extensive experience in serving as a catalyst for positive change and in building highly-collaborative organizations. Rod Collins, welcome to the program, sir.

Rod Collins: Thank you, Dan. Good to be with you.

Dan Ferris: OK. So, Rod, you're sort of a different type of guest for us. I don't think I've ever had a guest who came directly from another guest saying you have to have this guy on the program. And you also do something a little different. Your company is a little different than the normal fair that we get on the program. So maybe you could start by telling us about your company, Optimity Advisors, and what you do there.

Rod Collins: Optimity Advisors is a business-strategy consulting firm. And we approach consulting a little bit differently from traditional consulting, in so far as consulting like I think many disciplines based upon analytics and certainly investment is one, have relied upon a tremendous position that has been failsafe for probably almost a century, and that is the past is a proxy to the future. So I think a lot of investment analysis has been based on that. Certainly a lot of management and business analysis has been based on that. We feel that in these rapidly-changing times, strategic planning has been replaced by strategic discovery, which means that business leaders and I think by way of Carilary probably investment managers as well, need to become schooled in a whole new set of competencies where strategy is discovered rather than planned, and that involves a different set of competencies. It means that business leaders in particular have to get very good at envisioning a different future than existed in the past, and they have to get very familiar with experimental procedures to find out what works with customers and not with customers because that's the ultimate datapoint that counts in a business, and then how to execute upon that discovered knowledge. So it's a whole different approach to strategy, and that's the focus at Optimity Advisors.

Dan Ferris: OK, Rod. So what do you do there as the director of innovation? I would imagine that's a pretty important role in a company like that.

[Laughter]

Rod Collins: I work primarily with business leaders helping them to shift their mindsets, because they have to think very differently about markets. They have to understand that more and more the world is moving to network structures rather than hierarchical structures, that they're very, very different and they have to think of their business product and operating models differently. So in that sense, I mentor executives as well as run what we call business leadership reboot programs for business leaders so that we can reboot their skills into this new way of thinking.

Dan Ferris: Having to change people's minds as a main part of your job sounds incredibly difficult to me.

Rod Collins: It's extremely difficult. I think that the single-greatest risk, and I think this is important for the investment world, in businesses today is the mindset of their top leaders who have been schooled in traditional management in its traditional strategic-planning approach, who for example think strategy is about one-to-five-year plans. It's interesting that the best companies ignore the period one to five years and look our 10 years, and then they look out the immediate year. And they look out 10 years because it forces them to envision a very different future than they're in now. It's very hard to say, "I'm going to be doing the same thing 10 years from now." It's very easy to say, "I'm going to be doing the same thing three to five years from now." So I think one of the lessons out of this for investors is keep an eye on business leaders and see are they focused traditionally on the one-to-five-year timeframe, or are they looking at a larger timeframe?

You mentioned that this is where I think courage can come in, the courage to look a little bit differently perhaps than other investment analysts have and to look for business leaders who think differently. So shifting mindsets means accepting a whole new set of principles about how business works. So I'll give you one clear example. For the longest time, business leaders have been focused on sustainable competitive advantage, which means I'm going to produce a killer product or business model, and through cost efficiency I'm going to exploit it for decades. I'm going to be able to keep competition away because they'll never be able to deliver it at the cost efficiency that I could. Today, business models may not last more than five to seven years, so the only sustainable competitive advantage is not about preserving, if you will, the status quo product. It's the ability to evolve your company from product model to product model, business model to business model. And if you look around at the companies we admire, this is something for example that Apple does. Apple has been about three or four different industries and transformed them all.

This is what Google does. It starts out as a search engine but we know it now for its work in driverless cars. We know its movement into cloud computing. Look at Amazon. It started out bringing books to your doors. Now it's complete retail and moving into entirely different spaces and soon will have brick-and-mortar stars. We will walk in and end shoplifting because when you leave with a product, you didn't steal it, you bought it because they'll put in new technology. And so you can see in the companies that we know are changing the world, you can see a very different business mindset in play compared to traditional legacy companies who have been focused on extrapolating from the past and preserving the status quo. That's what I mean by a shift in mindset.

Dan Ferris: So yeah, in your book you mentioned those companies: Apple, Google, and Amazon. You also talked about companies that were incapable of making these switches like I think Blockbuster, Circuit City were two examples I remember. And it made me wonder could they really have sort of managed themselves out of their difficulties. It made me wonder are some businesses just doomed because things have changed so much, or is management really the most important thing and even Blockbuster could have survived?

Rod Collins: I think Blockbuster could have survived. There was a consultant that they had hired, I read his book. He advised them to purchase Netflix, and Netflix was willing to be bought. And they were angry at him because they told him, "We hired you. Your job was to come up with a way that we could convince our customers to get comfortable with late fees." Late fees were the entire profit margin of Blockbuster. And when he walked in and said, "What you need to do is to eliminate the late fees, your customers hate them. And you need to look at different models for delivering your product," and hence advised that they consider purchasing Netflix. They were outraged with him and he wrote in his book that he was so taken aback and so upset that he forgave his fee, the customer was so upset. Well it turned that his recommendation was exactly what they should have done. So imagine if Blockbuster had bought Netflix and more importantly had adapted the Netflix mindset rather than imposed its mindset on Netflix, where would they be today?

Similarly, you could look at Kodak. A lot of people may not realize the digital camera was invented by Kodak in the 1970s. And when it was presented to the business side, the engineers who invented it, the business people said, "We're in the business of film, and what you've just produced is going to kill that business. Put that thing on a shelf and hide it and don't let anybody see it." Well you can only hide it for so long, and Steve Jobs comes along and sees the tremendous power in the digital camera and thinks out of the box and says, "I'm going to create something that creates a portal to the internet with a digital camera. It'll store your music, and you can get your e-mail on it." And by thinking differently and applying the thinking again of strategic discovery rather than strategic planning, not trying to preserve a product model against all odds. These are things, quite frankly, if Kodak had engaged in strategic discovery rather than strategic planning around their existing models, Kodak probably had the wherewithal, the engineering knowledge, to have invented the smartphone.

And if they had thought differently, we might be buying our smartphones not from Apple or Google but from Kodak. So yes, I do think that you can see pathways where this would have happened. And this is why management mindset is so important and why I would suggest to your investment community as they look at the business changes in the 21^st century, that business mindset might be a new dimension that they want to add to the rest of their robust analysis.

Dan Ferris: You know as you speak, you mentioned Apple and Steve Jobs, and it makes me wonder, these innovative organizations we tend to think of them as being led by these charismatic heroes like Jobs. But what you're talking about is very different. Your book it's not called Wiki Heroes, it's called Wiki Management, right? [Laughs] So it's about recreating the entire organization. That's a hard job. I guess I keep coming back to how difficult it seems to me to tell an entire organization, "Well we have to do things completely different than what you've been taught when you got your MBA and that we've been doing for the last however many years." But you do have some – you have a means of guiding people to this in your book. It's these five disciplines. Let's talk about that a little. It doesn't surprise me that the very first one is understand what's most important to the customer. [Laughs] That's a feature of these companies, isn't it?

Rod Collins: Yes, it is. And so I call the book Wiki Management, and it's management for the wiki world. And for those who don't know, wiki is the Hawaiian word for quick or fast. And I think managing rapid change is what management is all about today; you've have to change just as fast as the world around you. Traditional management is the centralized hierarchy, and in the hierarchy the manager's job is to direct other people and the system is command and control. And the idea behind it is if the smartest people rise to the top and if they have the ability to direct and control the work of others, then the organization would be smarter than it otherwise would be. And at the beginning of the 21^st century, that probably was the right paradigm. But with all the technological change and especially the explosion of the internet, Wiki Management has an entirely different proposition.

It says that the smartest organizations are not those who leverage the individual intelligence of an elite group. It's those organizations who've got the ability to aggregate and leverage the collective intelligence in the entire organization. And so, what Wiki Management is about is it looks at organizations who practice this different form of management, who see their organizations not as hierarchies to be controlled but networks where connections need to be expanding. And so, when you look at the organizations who practice this type of management, and among them you've got the obvious ones: Google, Amazon. You've got some lesser-known companies such as Thread List in here.

There's a longstanding company that's been around for over 60 years, that actually surprised me when I discovered them in the research, and it's Gore and Associates, and they're better known as the makers of cortex. And they've been around for 60 years and they are a complete network in so far as there are no supervisors in this 10,000-person organization. It is completely self-organized in 30 countries around the world. And so, they're living proof that network management can work at its ultimate level. Now I do not recommend that any company, quite frankly, move to this. Gore was born that way, and there are a couple of other companies who are similarly boss-less but what they all have in common is that they were born that way. And most of the companies who use network management still have supervisors, but their roles are different. They are not meant to direct people. They're meant to coach, mentor, and facilitate. And these organizations tend to have highly self-organized structures.

And so the first focus is this – you don't focus on what's important to the boss. You focus on what's most important to the customers. And I think that the, I call it the Vanguard companies, have literally changed the fundamental purpose of the business. When I went to business school, I learned in business 101, the purpose of a company is to create shareholder wealth. Perhaps most of the audience thinks that as well. The Vanguard companies say not only no but hell no. The purpose of the company is to create customer value. And when you think about it, they are on to a better target for profitability. You see, shareholder wealth is a dependent variable; it's not independent. It is customer value that's the independent variable. So if a company is in financial trouble, don't look for ways that you can manipulate your financial statements to show more profit. Don't necessarily go cut costs. What you need to look at is what customer value am I delivering. How is it changing? This is why strategic discovery is important. In rapidly changing times, customer values can shift quickly.

The Vanguard companies never lose sight of customer value. They keep their eyes on it at all times, which is why they also tend to be highly profitable. They understand profit is the reward you get for delivering customer value. If you have a problem with your profitability, don't attack that. Look at the customer value, see what I need to do differently. Do I need to improve what I'm doing, or do I literally need to think about doing something differently? This is how you help evolve firms. So this I think is something that I would suggest your audience look at, is just how important is customer value to the management. Are they just about making money, or are they rivetted on customer value? I would argue in the long run those focused on customer value will be the most long-term profitable.

Dan Ferris: Makes a lot of sense to anybody who's been reading Amazon annual reports from the beginning, certainly, among others. But I noticed something about the other principles – go ahead, Rod.

Rod Collins: Just one last thought on this. One of the things that struck me about the Vanguard companies is to how many of them the most important number was not profit or loss, which surprised me. you know I've been around the business world for decades and I had P&L responsibility at an earlier point in my career. Their most important number was the net promoter score, and everybody in the audience is probably familiar with that because it's that question that says how likely on a scale of zero to ten would you recommended this to a friend, family member, or colleague. That one question is an indicator of whether or not you're delivering customer value, and so many of these Vanguard companies are focused on that. And I'm noticing more and more, especially in the last 12 months, you know ask the customer how much more I'm getting that net-promoter-score question from more and more companies, which is actually encouraging to me because it says to me more and more businesses are getting that message about delivering customer value.

Dan Ferris: Yeah, this is a very feel-good moment to me in business history, because for so long it seemed like you could make a fairly mediocre product and tell a story about it and shove it down the distribution chain, maybe buy some shelf space at the store and voila you were profitable for decades. But it's being wiped away it seems to me. Having a brand, for example, seems like a whole different thing than it was some few decades ago, actually not too long ago. This is in flux right now, isn't it?

Rod Collins: It is. And when the world is hierarchically structured, I think it was probably until the beginning of this new millennium, the bosses were in charge of the markets. They really could dictate what you would buy and what you didn't buy. Customer satisfaction was a variable, but it wasn't necessarily the strongest. I think in this new digital age and now that this distributed peer to peer network is a practical and pervasive model of social organization thanks to the internet and will accelerate with the internet of things, customers now are very, very connected. They are very self-organized, and word can spread like lightening.

Let me give you a practical example of I think something that got handled differently in today's world that would have had a very, very different result 30 years ago. And that was I believe it was a summer or two ago when Dr. David Dowe was forcibly removed from the United Airlines plane. The following morning the CEO sent an internal memo commending the staff for their handling of the situation. As far as he was concerned, the only problem was we had a belligerent passenger who didn't cater to our policies, and it was clearly written in his ticket that this is what should happen. And I think 30 or 40 years ago Dr. Dowe might have been charged with disorderly conduct and might have had to deal with that, because he didn't violate "the letter of the law" according to their policy agreement by not leaving that plane.

But not in the 21^st century. This thing was seen by 500 million people, the video of this forcible removal. And the customer's feeling was this is outrageous, no one ever seated should be removed. And so this played out very, very differently. And this is a very practical example of how the customer voice is far more meaningful today than it was 30 years ago. So even though Dr. Dowe did violate the so-called policies, they couldn't be held up in this hyperconnected world. And United Airlines has since adjusted its policy to be more consistent with what the people who had connected power had as opposed to those who had the charge power.

Dan Ferris: You mentioned connectedness, and it's sort of an interesting thing to me that connectedness like with social media and things we're finding out that it's not the healthiest thing in the world, but it's not the worst thing in the world either. It's really good for businesses and it's good for consumers trying to figure out what their best option is. So it's sort of the, I don't know, there's a silver lining to all this connectedness. And you have these five disciplines in your book, and it seems like all the other four relate to connectedness either of people within the organization or without.

Rod Collins: Yes, and connectedness is valuable in so far it's a pathway to collective intelligence. And I believe that collective intelligence is the game-changing phenomenon of the digital age. It's what we get when we connect people, because we have the ability to aggregate and leverage that intelligence. But you brought up social media, and right now I think a lot of us are seeing some of the shall we say dysfunctionality of social media. And I want to emphasize the importance of collective intelligence because I think Facebook is missing a tremendous opportunity to make a real social collaboration and instead has divided us into tribes. There was a great book, in my opinion, written in 2006 by James Surowiecki. He is a writer I believe from the New York magazine called The Wisdom of Crowds. And he indicated that in order to tap into this very high level of wisdom, which is collective intelligence, you need four attributes. If you don't have the four attributes, you can't get there.

You need diversity of opinion; everybody's voice matters. You need independent thinking; you're free to express your voice without fear of retaliation. You need local knowledge, people who are actually close to circumstances, people processes. And fourth, you need an aggregation mechanism. What we have with Facebook is the first three. We have diversity of people. We've got people are thinking independently all over the place, and we got a lot of local knowledge. And it's a cacophony and we've been divided into tribes. The aggregation mechanism is important because it calls out the best of everybody's thinking and finds a higher level of intelligence, which is collective intelligence. And if Facebook was designing aggregation mechanisms where it was pulling together the thoughts of the diverse thinking rather than algorithms that divide us into tribes, they could give us insight into how we can get past some of the very difficult problems that we're very much aware of and facing. And so I think that they are failing in their social responsibility by not developing this collective intelligence application.

To give you another example of collective intelligence, Google is the last search engine in, but why did it grab all the market? It was the first one to use collective intelligence to rank the pages. Before that we were using editorial experts, and they said, "Let's let the users let us know which are best." And by our own choices since most of us use Google, and we're doing it because the quality is the best, we by our choices are saying on some level we recognize that collective intelligence is a higher level. And so when you're leading networks, which is what I think more and more business structures are going to be doing going forward, the leaders have got to be very skilled at leading those networks. They have to be skilled at connecting people and understanding powers and that connectivity. And finally, they have to appreciate that the purpose in an organization is not to leverage their individual intelligence but to find practical ways in which they can leverage the collective intelligence with everyone in their organizations, including their customers and see them as part of their organizations.

Dan Ferris: Rod, I wonder in your position at Optimity you deal with business leaders. Have you told anyone at Facebook what you just told us about what they're doing wrong?

Rod Collins: I don't have contact with Facebook, but I've written about it before.

Dan Ferris: So hopefully they saw that. [Laughs]

Rod Collins: I really, you know, I think the social media companies could really advance humanity. And I think you know for your investment community if they see somebody out there who is focused on this type of activity, using social media to aggregate collective intelligence, that is probably something they want to keep an eye on. Obviously, that is what the first investors saw when they sat down with Sergey Brin and Larry Page and they outlined what they were going to do with Google. He immediately saw oh wow, this is going to be a powerful search engine, this is a great concept this use of collective intelligence.

Dan Ferris: You know, Rod, you're like the 5,000^th person who's told me in some intelligent, insightful way what a phenomenal business Google is.

Rod Collins: Yeah. They think differently. Their organization is run more like a network, but they're not the only one. You know in my own study I have yet to come across a company founded after the year 2000 that isn't following a network organizational model.

Dan Ferris: So companies founded after the year 2000, that's something we as investors ought to know about. That's good.

Rod Collins: Yeah. Those who have made it big I mean if you look around them they all are following more this Wiki Management model than the traditional command and control model.

Dan Ferris: Interesting.

Rod Collins: And there's one final thought. As the internet of things comes into play, which will happen over the next couple of years, this network effect will be accelerated. And more and more a business will move into network rather than hierarchical structures.

Dan Ferris: I haven't heard a lot of talk about the internet of things. Am I just not listening to the right folks these days? It was a big deal for a while and then I haven't heard much about it lately.

Rod Collins: The pieces you're assembling, if you will, kind of under the radar. And I think a big reason for it is we – Joshua Cooper Ramo wrote a terrific book called The Seventh Sense in which he really outlines networks and how they work. And I think his most important statement is, "We are at a very primitive point in our understanding of networks, and so we're not recognizing what's hidden in plain sight." But I believe by the end of the next decade every human and everything will be interconnected into a single global network, and this will be the platform upon which artificial intelligence will grow and develop. And so we're going to be able to rapidly, rapidly access, aggregate, leverage information in ways that are going to astound us, and it will happen almost automatically within this context.

And so this is a whole different type of internet because the first generation was people sitting down either at computers or with their mobile phones and entering information. This next generation will be far more powerful because there'll be sensors proliferated in almost everything, and we will be able to do all kinds of data analytics looking for unusual patterns, for example, that no human would ever recognize will be picked up by artificial intelligence. And so we're likely to see a great leap in productivity. But more importantly, a great opportunity for new business models, new product models, and I think that those investors who can spot these, you know wealth managers and so forth, will serve their clients well if they're able to spot these trends before others.

Dan Ferris: Rod, I usually ask my guests for one final thought, but I don't know if you can beat that. That was perfect.

Rod Collins: Let's leave it at that. And again, I wanted to make sure that this information was very useful to your audience, and I hope I've accomplished that.

Dan Ferris: Oh, you definitely have, in my opinion. And I'm sure we'll get lots of feedback, which we'd be happy to pass along. So thanks for being here, Rod. This was really great. I definitely recommend the book Wiki Management, and I also recommend that other book you mentioned, Seventh Sense, excellent book. And I hope you'll come back and talk to us sometime and keep us up to date with all of the work you're doing.

Rod Collins: Dan, I would love to, and it's been great being with you this past half hour.

Dan Ferris: All right. Thank you very much, Rod, and we'll talk to you soon.

Rod Collins: Thank you, Dan. Take care.

Dan Ferris: OK, you too. Bye bye.

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Dan Ferris: OK, it's time for the mailbag. The mailbag is extremely important to the show, folks. Write in with whatever is on your mind. Comments, questions, criticisms politely worded, whatever you like. And just e-mail us at feedback@investorhour.com. I read every single one of these things every week, and I respond to as many as we can, can't respond to all of them. And we have some pretty good ones, just a few. So let's get started. Number one is from Peter G., haven't heard from Peter G. in a little while; he's a really good correspondent. Peter G. says, "Dan, I listen to your podcast every week on my walks. My question is regarding deflation, which it seems we're in the midst of, and a strong dollar, which we have. If this oddity continues, how does this affect things like gold and other hard assets, real estate, etcetera, and stocks? We all know stocks hate inflation, but despite low interest rates one would think that the stock market also hates deflation with a strong dollar. Any comment? Peter G."

There's a lot going on in this question, Peter G. Let's take the easy low-hanging fruit. Stocks hate inflation, right? So if inflation really gets cooking, inflation is bad for business, right? It affects purchasing power and it takes more money to buy the same amount or less stuff, and that's just bad. And we all get how that's bad and how it could be bad for business and bad for stocks. But this other thing that you're kind of dealing with is a strong dollar, right. So this is deflationary, folks. This is when the prices of things fall relative to the dollars in your pocket, your dollar is getting stronger and stronger, and also strong is the relationship between the dollar and other currencies in the world. So there's two things going on here. What I would say is that I can't predict when these things change, but they don't go in one direction forever. And so you can only prepare. I don't think you can predict.

And of course, I'm telling people to buy gold. I just mentioned during the "What's New" segment, I mentioned Paul Tudor Jones and his favorite trade and I said, "Yeah, I like gold too." But that's kind of a prepare type of a trade. It's about having a balanced portfolio. And, Peter, that's all I got for you, man. It's tough. It's tough to know exactly what to do, but for me we're at the end of the cycle. Valuations are extremely high in stocks, bonds, real estate, everywhere you look. So just from a practical standpoint, the stuff is priced for poor returns. And when things that yield cash, when things are low and things that yield cash are really priced to yield dittly squat, you go to the thing that doesn't yield. Gold. And you hold cash. You hold gold. You be careful about what you own. Really great question. I hope that answer gets you something.

Number two. "Dear, Dan, you mentioned that the folks at headquarters encourage you to make your rants a little more rant-like, or something equivalent. If you decide to do that, you'll be following Porter's lead. Don't. I really value you being your own man. Best wishes, Steve C." Thank you, Steve. Yes, Porter does his thing, and there ain't nobody like him, man. He's got his own style, and I'd be crazy to try to copy him because there'd be no point to it, first of all, and I'd do a terrible job of it, second of all. So don't worry, you guys are stuck with me as I am. All right.

And last but not least. Last week of course I talked about my father, my parents a little bit. And a bunch of people wrote in and said that they enjoy hearing me talk about them and they sent in their own stories. So here's one from Shawn S. who is an Alliance member, member of the Stansberry Alliance. And he says, "Dan, my parents were born in 1925, dad, and 1927, mom." And if you remember last week, my parents were born those same years. He says, "Both made it past 85 but not in good health and died a few years back now. I'm sure you realize how lucky you are with your parents. It's wonderful to hear of such cases. My parents were married over 60 years." Wow, amazing. "My dad and both his brothers fought in World War II and all three managed to survive. Only very late in his life did I learn that my dad had a purple heart; I still have it today. I was born in 1964, very late in my parents' lives for U.S. culture at that time.

Depression-era parents had a fine example to follow in many ways. Debt, credit, savings, etcetera. Their example has guided my financial sense in the right direction from the very beginning. I bet it was the same for you with your parents. It was a treat to hear you talk about them. So similar to mine. Thank you for that. I didn't really think I would be interested in hearing your guest today, Dan, but I was wrong. You just don't seem to ever bring a lousy or un-interesting guest on the show. Quite the opposite and pretty amazing, really. I agree the word rant does not apply to you much of the time, and that is just fine because what you are doing instead is far more valuable. Like you said tonight, if you rant, it's to educate. That seems very appropriate to me given what you've chosen to educate your listeners about show after show. Best regards, Shawn S." Thank you, Shawn. And I read that because, Shawn, you're not the only one. Lots of people said similar things.

And the guest Shawn was talking about was Frank Bird who was really good last week. He talked about founder-led companies, just a whole different area, and a different way of thinking about investing, I think. Most people are kind of trading in and out of things based on what the business is doing, but Frank is looking for these companies that are led by the people who founded them, which is pretty cool. So thank you, Shawn, and thank you, everyone. My pleasure to come to you each week. I want to mention that we are having our annual conference in Las Vegas in October this year, and we've got all kinds of people. Dennis Miller, remember that guy? He's on Fox News sometimes. He was on Saturday Night Live. Comedian, smart guy, funny guy. He'll be there. Nouriel Robini, the guy who predicted the financial crisis. Jim Grant, Joel Litman, Mark Cohodas, Roddy Boyd, love Roddy Boyd. He always does a great presentation.

And we're going to have in Vegas a bunch of people who we've had on this show. Chris Irons, Mark Spiegel. And Chris Irons and Mark Spiegel they're both short Tesla and they were both talking about Tesla. Nomi Prins wrote some really good books. Diane Henriques wrote that really good book about Bernie Madoff. Maddy Duppler from the National Tax Payer's Union and Chris Cole from Artemis Capital, the guy who talked about volatility in a way that no one else does. So all those people and two or three times that many incredible speakers. Plus yours truly, I will be speaking. I will be speaking at the main event and at the Alliance meeting that we'll have after the conference. And I think they've got me signed up to play the guitar at the VIP reception again this year. Last year I gave a little book talk. I'd like to do that again this year if they can squeeze me in on the agenda.

So we have a special website, investorhourvegas.com where you can go and get a few hundred bucks off. You get a discount for hearing about it from the Stansberry Investor Hour Podcast. Pretty cool, huh? Investorhourvegas.com. So come on out to Vegas. It's a great time every year. Lots of great people and great fun. That's it. That's another episode of the Stansberry Investor Hour. Be sure to check out our website. You can get all the episodes there and you can see transcripts of all the shows. And you can enter your e-mail to make sure you get all the latest updates. Just go to www.investorhour.com. That's it for this week. Thank you once again, folks. I'll talk to you next week. Bye bye.

Male: 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 e-mail. Have a question for Dan? Send him an e-mail at feedback@investorhour.com. 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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