On this week's Stansberry Investor Hour, Dan and Corey are joined by Joe Austin. Joe is an editor and senior analyst at our corporate affiliate Chaikin Analytics. He spent four decades in the financial-services industry and now joins the podcast to share some of his insights and future outlooks.

Joe kicks off the show by outlining his background in finance and how he got involved at Chaikin Analytics. He delves into the usefulness of the Power Gauge, how he combines the tool with fundamentals to make stock-picking decisions, and what specific factors he finds most important. Next, Joe talks about artificial intelligence ("AI"). He says you can invest in the technology either by buying the companies developing AI or by buying non-AI companies that are implementing the technology to improve their businesses. Joe prefers the latter. He notes that certain industry groups are integrating AI more than others, and those would give you the biggest areas of opportunity...

In medical equipment or medical technology, there's probably a high potential for AI to have an impact. In Pepsi or Coke or Taco Bell or something like that, probably not a huge impact on AI, though they could use it to target customers. So you have to really consider both the industry the company's in and the company strategy within that industry to understand whether AI can have a big impact.

Next, Joe discusses the data sets which AI uses and why the companies with the best data will win out in the end. He gives medical-technology company Veeva Systems and tool manufacturer Snap-on as two such examples. Joe then shares how macro influences affect his investing process, what he learned about the insurance industry from working in it, and one particular company he believes will do well in the long term...

[This company is] a broker-dealer, primarily for hedge funds and people who trade a lot and borrow a lot of stocks, but they've also moved strongly into the retail market as well. And they have a very, very sophisticated platform. They're 100% automated. They have the highest margins in the business. No one even comes close to them in terms of their operating margin. And it's also an AI play because they're using AI from beginning to end to manage their customer experience.

Finally, Joe highlights specific industries he stays away from, the importance of understanding where you went wrong with an investment, and how he decides when to sell a stock. He notes that stocks that rise the most tend to fall the most... and that having fresh capital to use on new ideas is crucial. And he reminds listeners that having a defensive strategy is often more important than having an offensive strategy...

The stock market I see today is a loser's game. And avoiding unforced errors, sticking to your knitting, understanding the company, and investing in businesses you like and understand [are] the most important things. That has been kind of my North Star of the way I pick stocks and recommend them to people.

Click here or on the image below to watch the video interview with Joe right now. For the full audio episode, click here.

Additional past episodes are located here.)

This Week's Guest

Joe Austin joined Chaikin Analytics in July 2024 as an editor and senior analyst. He began his Wall Street career as a research analyst for the technology sector in 1984. Along the way, he also served as a senior portfolio manager on a $10 billion-plus value-equity product and an $80 million long-short science and tech hedge fund. And he provided research coverage of the tech sector for a $5 billion hedge fund.

In the second half of his career, Joe moved into marketing and business development for alternative asset managers. In this role, his strategies included global long-short equity, distressed debt and activist equity, and a natural resource-focused private-equity fund.

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 Joe Austin of our corporate affiliate, Chaikin Analytics.

Dan Ferris:                 Joe is a very smart guy and a very experienced guy who's got a lot of wisdom to share. Get your pens and pencils out. Take some notes. So, let's do it. Let's talk with Joe Austin. Let's do it right now.

                                    Joe, welcome to the show. Glad you could be here.

Joe Austin:                  Thanks, guys. It's great to join you.

Dan Ferris:                 Our listeners are unfamiliar with you, Joe, so maybe let's talk about how you got here. They should probably – I'll tell them up front that Joe has been with Chaikin Analytics for about a year now, almost a year, and so is technically a colleague of ours, I would consider him. But you've had quite a career, though, before that, long before that, starting in, what, the '80s?

Joe Austin:                  Yes, sir. Thanks, Dan. So, I started in the business in 1984. I worked at Bankers Trust Company. They've got Money Center Bank and I started covering technology in 1985. And I covered tech through – at various firms basically through around 2000 and then I segued more into managing investment management businesses and later on working in hedge funds and private equity. And when I met – I met Marc probably December a year ago and he gave me a test run of the Power Guage to look at. And it really spoke to me. It was very powerful. When I worked at – back in the '90s, I worked at AIG, the insurance company, and we used a system that was very analogous to the Power Guage in terms of picking stocks. So, when I saw [Marc Chaikin's] system, I instantly recognized what a powerful tool it was for ferreting out good investment ideas.

Dan Ferris:                 Yeah, Joe, Marc, of course, has been on the show a few times now and he's a wonderful guest. Great guy. I've really enjoyed getting to know him. But I'm always afraid that when we have him on, it's going to be – it's not going to be too exciting for the listener because I spend the whole time going "Wow" when he talks about the Power Gauge and everybody has that reaction. Everybody's like, "Oh, wow" because it's quite the powerful tool. So, tell me, do you – since you've been with him, are you working on the Power Gauge itself or do you use it as a tool? Or –?

Joe Austin:                  Yeah, so I – as I said, I recognized it as a very powerful tool. And first, one of the – a little bit of background on myself. I've always been a fundamental analyst. I think things like the economy and macro and what's going on in the world are certainly very important and interesting, but I've always felt my time is better spent looking from the bottom up at the individual company fundamentals. And I see the Power Gauge is my copilot. It's a powerful combination of both technical factors and fundamental factors. And I think blending the two tells you a lot about what's going on with a stock.

                                    So, I use it mostly to find new ideas, certainly ideas for our readers, and also to monitor existing ideas, because the Power Gauges is really great in telling you what the setup is for a stock, but also it's great at telling you when things have changed. And as you know, things do change and it's important to know those changes in terms of managing risk. So, it's really – for me, it's something that sits by my side, and it doesn't drive every – well, it does drive every decision I make, but in a way where I think it's complementary to doing – you say – you look at it and you go, "This is a great idea. I'll do some more work." And sometimes that plays out and sometimes it doesn't.

Dan Ferris:                 But it sounds like no matter how much more work you do, if the Power Gauge says "no" or "sell," you are highly reluctant, to say the least, to get in that stuff.

Joe Austin:                  Yeah. It's really hard to argue with a lot of things it's telling you. For instance, I think some of the readers may know about the Money Flow. And I always say that as football is played on the line of scrimmage, stock prices are set on the floor of the exchange. And big institutions don't move big dollars around unless they've got a good reason to do it. So, when you look at something like Money Flow, it's a powerful way for you to know the buyers and sellers, the ebb and flow, and the supply and demand for a stock. And that's an important tool to understand what's going on.

Dan Ferris:                 So, I guess if I wanted to push back, I could say big institutions move large sums of money around for dumb reasons sometimes, but it sounds like the important thing is they're moving the big sums. Their motivations are almost a side issue. To know that they're moving the big sums, to know that the stock price being affected, things are changing, that's the point of it, no?

Joe Austin:                  Yes. And with the Money Flow you can see if there is what I call accumulation, or people buying the stock, or distribution, people selling the stock. So, it's really not the magnitude at any one point in time but just whether it's going on or not, what the directionality is. If you – I can find a company and think it's a great company. But if other people don't recognize that idea, if other people don't recognize that idea and buy it, too, the stock's not going to go up. So, likewise, if you buy an idea and there are 10 sellers around, that stock's going to go down, so it's not going to be a great investment.

Dan Ferris:                 So, Joe, I have to ask, as a – you said you really like to know what's going on with the business bottom-up, and the Gauge has a lot of fundamental factors in it, I still have to ask if you really are highly reluctant to sort of bet on a stock when the Gauge is not with you. Why not just put the Gauge in charge altogether and not worry as much about doing bottom-up research?

Joe Austin:                  It's a combination of the two. The Power Gauge gives you an idea of which way the wind is blowing and it's your decision as to whether you go along with it or not. I have found it's mostly – in my now 18 months of using it I have it's best not to go against it. And there are things like the industry group, which are important, too. But in the end, no system is fallible – is infallible. You have to use things together. And the Power Gauge just gives you a great context to work within.

Dan Ferris:                 OK, got you.

Corey McLaughlin:    Yeah, I remember when Marc first – when I first met Marc, too, and he – or talked to him and he was explaining the Power Gauge to me and ran through it with me, and same thing. It was after COVID, I think, and he showed me – I just went through it and there was a Greek stock, Greek shipping stocks that were super bullish and I would have never identified that just waking up in the morning on my own. So – and so, that led me to "Oh, why is that happening?" And then from there – there's all kinds of different ways you could do it. Honestly, we're fortunate to have access to it. I probably don't use it as much as I should myself.

Dan Ferris:                 I'm glad you brought that up, Corey, because knowing what I know, especially about how they structure those companies, the Power Gauge could scream "buy" at me for a Greek shipping stock and I would say, "No, thanks." Even if it went up 200%, I would be like "I'm fine without that 200%" because these companies are so weird.

Joe Austin:                  Yeah. I'll tell you another example. It likes airlines right now.

Dan Ferris:                 There you go.

Joe Austin:                  It's giving recommendations on three airline stocks and I don't think I will ever buy. I like to fly on an airline but I'm not going to buy their stock. So, it's just a kind of a thankless industry. But that doesn't mean it's not a good trade, it's not a good decision. It's just telling you what it's seeing at that point.

Dan Ferris:                 Right. So, your experience, in other words, is valuable to you. You use your experience. You're not just letting the Power Gauge tell you where to look and what to do. It's, as you pointed out, a genuine combination. It really is just a tool for you.

Joe Austin:                  Yeah, for me, investing is all about pattern recognition. Have I seen this before? Have I seen something that looks like it before? Have I made money like this before or have I lost money before? It's all remembering those patterns and really looking at that. And the Power Gauge is a great, as I said, a starting point for all that analysis.

Dan Ferris:                 OK, so let's dig more in there, Joe. Let's – if you and I were – just met at the bar or whatever and we're clinking glasses and talking and we turn to finance and I said, "What kind of an investor are you?" what would – how would you describe yourself as an investor?

Joe Austin:                  So, in my career, I've worked for everything from full-on growth stock investors – we don't care what the multiple is – to deep-value investors. I worked for a distressed debt shop where we were activists and we looked for deep value situations. So, I worked a spectrum. I would say on that range I am more of a growth investor than a value investor. I see innovation as very important in terms of what I want to own. And I'm very focused on what I call owning the best horse. I feel like with a diversified portfolio, you don't have to own a little bit of everything. You don't have to earn – you don't have to own eight insurance companies. You can pick the best one and find that.

                                    So, what my style of investing is is I'm also, I want to say this, more of a long-term investor than a trader. I've never been good at trading, short term trading in stocks. So, I'm looking for things that I think are going to play out over at least six months to a year, if not longer. And so, I'm looking for the best horses that'll play out over time. And usually that leads me to more of a growth stock type mentality.

Dan Ferris:                 I see. So, right now then I would assume – correct me if I'm wrong – AI has to be a serious theme for you.

Joe Austin:                  Yes. It's huge. I view – I covered – started covering tech back in 1985. As a point of reference, Microsoft, I think, came public in '86. I was at Bankers Trust Company. I recommended what was then a hot IPO to our investment committee and they rejected me. But anyway... They said it was a pie – a flash in the pan.

Dan Ferris:                 Oops.

Joe Austin:                  So, we didn't we didn't get the first –

Corey McLaughlin:    The Internet. You said that.

Joe Austin:                  But I see AI as analogous to the PC, the web browser, the smartphone, in that it's – I see it as a disruptive technology. It's going to change everything. And I see their – basically, my view is there are two ways to play it. No. 1 is you can buy the tech companies themselves. You can invest in what I call the horse race or the arms race of AI. Or you can look at for companies that are using AI within existing businesses to change their business. And I'm particularly focused on the latter because I think picking the best company in tech, even though I've done it for a long time, is very difficult to do. But taking a business that's been around for decades and is a great-performing business and making it into an even greater-performing business is probably a more safe way to invest in the trend.

Dan Ferris:                 Right. I agree. Yeah. You look at the places where they've already got a great business but how is the use of artificial intelligence going to transform them? And are they already doing it? How far along? Yeah. That's sort of where we are, Mike Barrett and I, in Extreme Value, because we want the great businesses anyway, which sounds like that's where you're focusing, too. As soon as you said that I smiled. I was like "Yeah, I want the best one, too." I want the best insurance company and the best software company and everything.

                                    But I wonder, though – I'd like to learn to think about impacts on existing industries and companies and stuff. The company that I keep rolling around in my head is Accenture. Do you know that company?

Joe Austin:                  I do. I do.

Dan Ferris:                 Accenture. Yeah. So, when I think of Accenture, and I'll just read a little bit of the blurb just for our listeners. "Accenture provides strategy and consulting, Industry X, Song, and technology and operations services in North America, Europe, Middle East, Africa, internationally, systems integration, application management, security." It's a consultant. It's an IT consultant. So, do I replace Accenture with an AI-powered tool or does Accenture become the owner of the best AI-powered tools in the world? I'm scratching my head and I'm leaning towards the former, but why not the latter? I don't know at this point.

Joe Austin:                  So, I haven't really looked at Accenture expressly. What I did, though, is I took the Russell 3000 and I divided it into industry groups, into each individual industry group. And then I took the top 10 companies by market cap in each industry group and I went through their investor presentation, their 10-K, and kind of did a web search about what – how they were using AI. And what I found is some industries were much more prone to AI than others, i.e., in medical equipment or medical technology, there's probably a high potential for AI to have an impact. In Pepsi or Coke or Taco Bell or something like that, probably not a huge impact on AI, though they could use it to target customers. So, you have to really consider both the industry the company's in and the company's strategy within that industry to understand whether AI can have a big impact. A company like Accenture, I see them, from what I know about it, they would be more prone to help their customers understand how to use AI or strategically implement AI into their business. And then Accenture, I think they'll probably use it to lower costs and keep themselves out of trouble. Probably, they'll use AI more than anyone else.

Dan Ferris:                 Right. Right. They're going to lower costs as in get rid of the low-performing tier of consultants.

Joe Austin:                  Probably so. Well, it's not just that but it's about – what we're seeing in some companies today is AIs used for benchmarking. I've just written up a company for the Chaikin subscribers where we talk about a company that is using AI to help you monitor what all your competitors are doing, and they're rolling that into their user base as a way for their customers to save money and optimize their business. So, a company like Accenture can look across different businesses and understand where the efficiencies are, the inefficiencies are, and I think that's the kind of thing they'll probably use AI for more than anything else.

Dan Ferris:                 Right. Makes perfect sense. And there's something to the idea of them being like an educational firm almost. They're – like you said, they're going to teach everybody how to use this, because obviously the term AI is this broad encompassing thing, but when it comes down to an individual business there's a thousand – a thousand or more decisions and input and a process that takes time, weeks, months, years, I don't know, depending on the size of the business to implement. And by the time you've implemented, everything's changed again. So, you're – so maybe that's what we're looking at.

Joe Austin:                  And I would argue with AI we're still in the early stages of adoption. It's been around for 18 month and it's – it's been around for, what – not 18 months... It's been along for – around for a couple or three years, and I know at least last year it's all anything – it's the only thing anyone wanted to talk about. But remember the PC first came out and John Akers, the CEO of IBM, thought it was a joke. He sat down at one one day and said, "This is a great toy but no one will ever use it." And it took, I would reckon, six or eight years before anybody started saying, "Wow, PCs are really great. They're going to change the world."

Dan Ferris:                 Yeah. And now –

Joe Austin:                  So, I think we're still at the early stages. And it's not a binary thing either. It's not like you pass or fail within three months. It's something that someone could have an idea tomorrow that takes three or four years to play out in terms of corporate strategy. So, we're in the first innings.

Dan Ferris:                 One of the simple sort of obvious things I've learned about it is that from the very beginning the most primitive computer languages – somebody early on found GIGO, "garbage in, garbage out." So, when the academic paper that came out called "ChatGPT is Bullshit" – that was a real academic paper – and it made the point, it's like your highly informed but otherwise kind of not-so-bright relative maybe at the table on Thanksgiving, they know they seem to know facts about everything but they put it together in ways that are questionable. And that's what ChatGPT does. It spits out wrong things all the time. But that's because we're asking it general questions and it's searching the entire Internet. But if you put it on the right data and feed it the right data, like I know people in our business who are equity analysts who feed it 10-Ks and 10-Qs and then ask it questions about the 10-Ks and Qs and it can go through and find those things and give you those insights very quickly rather than making you read every word of it.

Joe Austin:                  Yeah. And I also think, as you point out, everything depends on what I call the dataset.

Dan Ferris:                 Yep, absolutely.

Joe Austin:                  The AI model learns based upon the data it has. I actually see this as another opportunity for our readers in looking at companies, particularly in a vertical market, with the best datasets in the business, because there are people out there that are gathering huge amounts of data, and I think that will give them a real leg up in the business because they've got the best datasets from which to learn. And not everybody is equal in this regard.

Dan Ferris:                 No, they're not.

Corey McLaughlin:    So, what's an example of that that you can share? Maybe just an industry where –

Joe Austin:                  There's a company in a medical tech called Veeva Systems, the symbol is VEEV. And they're kind of like an outsourced data provider to biotech and pharma companies for drug development. Now, Veeva will tell you they don't own the data. If they're doing – working for XYZ pharmaceuticals, they're managing all their drug discovery, all their clinical trials, all these type of things, they don't own that data but they have access to it. So, they can use that data to develop a language model that looks specifically at drug development and discovery and drug approval. So, to me, that's a particularly kind of powerful dataset that really no one else can replicate because they've got not only – they've got the data from everyone in that field. And they've got more data than anyone else. So, I think that's a great example of something.

Dan Ferris:                 We just – I can't reveal the ticker because it's a brand new recommendation, but we just covered another very, very similar firm that has the largest dataset of its kind in a slight – in a different area in the pharmaceutical industry. Same thing. Huge dataset of very high quality focused on one area. It's a – it's mission-critical information for pharma and government and all kinds of other – research universities and things. And if you're putting a good AI tool on that data, you're going to get a result.

Joe Austin:                  Yeah, the bigger the data –

Dan Ferris:                 And it's going to – you're going to get that result without a lot of massive capital expenditures like you're building a copper mine or something.

Joe Austin:                  Yeah. There's a direct relationship between the amount of data and the quality of the model. And I think the companies that are vertical that go deep and narrow are going to really – and they may not come out on top but they're going to be very interesting from an investment standpoint at the very least.

Dan Ferris:                 Absolutely. At this point, we've had enough decades of potential for collection of data so that we can get some of these massive, focused data sets. And I'm glad we got on to this because that – you're right, go deep, go narrow. That's a good – I hope listeners are making notes because that's kind of a good insight, I think, that you've provided. Deep and narrow.

Joe Austin:                  And it's – sometimes it's in places where you don't expect it. I know a company we're not recommending right now, Snap-on Tools, an old industrial company. But as it turns out, Snap-on has all this diagnostic equipment that pretty much knows the maintenance and repair data on every type of machinery out there. So, there's a company with a seemingly germane business and germane dataset, but where AI could come in and – if they were to embrace it – would be very powerful for not only them but for their customers, too.

Dan Ferris:                 Yeah, another one is massive insurance companies. I mean, the underwriting at some of these is really, pretty, pretty great. And how does it get better? I don't know. But if – but they've got the data, so I guess we'll find out in five years who's able to – I don't know – I'm not saying they'll make great strides in underwriting, but you never know. The date is there. We'll see what they do with it.

                                    Another one is – one of my very oldest picks that's still active is ADP. And of course, they have data on – they hand out everybody's paycheck every week or whatever and they direct deposit everybody's paycheck. And at least they ought to have a heck of a lot of data about who we are and how much we make at any given moment and where we all live and all the rest of it. So, yeah, I think we're in a good place here for where to tell listeners to focus their efforts rather than looking for a company that has AI in the ticker and has zero revenues and questionable ideas about –

Joe Austin:                  That's certainly been a roller coaster. And I don't – I'm not fond of roller coasters, at least with my money.

Dan Ferris:                 Yeah, well. So, that brings me to another question that I always ask all the folks who are kind of focused from the bottom up learning about companies and industries. Does the top-down considerations – do the top-down considerations, inflation and what happens in the bond market generally, that kind of stuff, political developments, I don't know, do those macro considerations play any role in your investment process?

Joe Austin:                  I think it plays a role in my frame of mind. If a company is – and it depends on the company. If a company has a new technology that's critical to business success for other people, I don't think the economy really matters that much. If you look at data security right now, I don't – AI is actually creating as many problems in data security as it's solving. Criminal – the criminal use of AI is incredible. So, I don't see those companies as being affected. If it's a cyclical manufacturing company, I'm a little more hesitant right now, because you don't know where the economy's going, you have a – you kind of feel like inflation is going up but you don't know that. So, I – what I don't do is I don't begin with a macro view and then go find investments to meet that view. What I do, though, is I find an investment, I think, is a good idea and I kind of reality check that against the macro environment to say, "If the economy is going to contract, does this company still make sense or not?" And that's where it becomes key.

Dan Ferris:                 Right. Yeah, and it's critical in some industries where – like you mentioned, manufacturing. If it's got a cyclical economic component to it, watch out. But otherwise, yeah, there's plenty of businesses that are – they're critical to our everyday lives and they're critical to everyday lives of various other companies. I'm not going to stop using any Microsoft product because of the economy. Nobody's going to stop using Microsoft Word.

Corey McLaughlin:    One of those businesses, Joe, that you worked at, insurance, which is one of our favorites at Stansberry, Dan just reminded me – or told me two weeks ago that he was responsible for one of our longtime picks, W.R. Berkeley. What did you learn about investing while working at – in the industry? What's the big – a big thing that you learned from your time?

Joe Austin:                  Oh, wow. That's a tough question because I worked at a very special company. I worked at AIG, which was owned by, at the time, owned by a guy named Hank Greenberg. And we were the superstars of insurance. Nobody else had a AAA rating and nobody would write the kind of insurance that AIG would write. What I did learn, which I think is kind of relevant in the discussion of insurance companies today, was that what AIG was really, really good at was underwriting and underwriting risk. And in terms of back to my looking at the Russell 3000 and going through these companies, the opportunity I think in insurance and AI is underwriting because it's their biggest cost of doing business. Whether they pass or fail at the end of the day is how they underwrite the lines of business.

                                    And so, what I learned in AIG and what I think is still relevant today, is if you can underwrite really well, you can – I worked in the investment department at AIG and Greenberg used to say, "We take a lot of risk on the investment side. We take no risk on the investment side." I think we were the biggest holder of AAA bonds in the world. But that underwriting mechanism is very important and it's a great way that AI can improve insurance companies' results.

                                    And if you look across the insurance universe, some of them are making huge investments in AI. I think there's one company I found this week that has appointed a chief technology officer that comes directly out of AI development. So, that tells me that company is – it's critical for them.

Dan Ferris:                 I have to ask if – were you there during the financial crisis or no?

Joe Austin:                  No, I left in – long before that. I left 1993. So, I was –

Dan Ferris:                 For a minute I thought that was going to be a story about what went wrong.

Joe Austin:                  Actually, it's interesting. Shortly after I left the company, I reported to the chief investment officer, and he passed away several months after I left, and that's when Hank brought in the financial products people and that whole business took off. So, that all started right after I left but it wasn't going on while I was there.

Dan Ferris:                 I see. All right, you're off the hook. We'll let this guy go. All right. So, at this point I have to ask if there's a particular company that you're willing to share with our listeners. If not, I understand. Some people are – you have to protect their process for their subscribers. But is there a ticker you could share that you're particularly excited about these days?

Joe Austin:                  Happy to share one with you, which we've recommended before, and I think it's just a fantastic company that kind of everyone should know about. It's a company called Interactive Brokers.

Dan Ferris:                 Oh, yeah.

Joe Austin:                  Some of you may know it, some of you may not. But Interactive Brokers is one is a broker dealer, obviously, for – primarily for hedge funds and people who trade a lot and borrow a lot of stocks. But they've also moved strongly into the retail market as well. And they have a very, very sophisticated platform. They have a – they're 100% automated. They have the highest margins in the business. No one even comes close to them in terms of their operating margin. And it's also an AI play because they're using AI from beginning to end to manage their customer experience. I don't know if you've ever had an account at Interactive Brokers, but basically the one thing you can't do with them is get someone on the phone to help you. Everything goes through an automated customer service system that is second to none. And I would add that may not sound like a great thing, but their customers are very happy and they're growing explosively.

                                    Besides all of that business, which is doing very well, they also have a betting business, which they've been kind of fermenting for a couple of years or growing for a couple of years. And that's where you bet on – you place a wager on whether it's going to rain tomorrow or whether the Red Sox are going to win a game or all these kind of things. And I see that as kind of a wild card. And I think they're an interesting company in that business. I'm not exactly enamored with the business but I think they're an interesting company because they're operating in some 40 or 50 companies – I'm sorry, operating at some 40 – operating in some 40 or 50 countries around the globe now, so they have a lot of scale that their competitors don't have. So, that's a very interesting company to me.

Dan Ferris:                 I'm glad you – yeah, glad you mentioned this. My wife actually was the one who told me that they had gotten into the betting market. And I have to say if you had asked me to pick likely – companies likely to get into the betting market, I think that would not have been on the list. It frankly kind of shocked me.

Corey McLaughlin:    Yeah, it does. I've heard their ads. They advertise the financial trades that you can make. But yeah, I would think, too – like when Robinhood Markets added sports betting, that made sense to me from that – that made clear sense. But yeah – but I guess a company like Interactive Brokers doing essentially something similar but maybe more –

Joe Austin:                  Yeah. That's a cherry. That's a cherry on top of a great company doing other wonderful things every – each and every day. And so, you've kind of got on a wild card, what I call a kicker with that.

Dan Ferris:                 Right. Yeah. It is – it was – I suppose I should just leave it at "unexpected" and not try to say, "Hmm, has the culture changed?" The same guy's been in charge for some time. And it's just well known that this is a very-high-quality business, good culture, good management, etc., etc., etc. And the founders are still there.

Joe Austin:                  I would say if you think about the amount of risk they have to manage on a daily basis, they're dealing with – they're the counterparty to highly leveraged hedge funds. So, the amount of risk they have to monitor on a daily basis I would think gives them – it's got to give them some sort of leg up in that betting business, which is kind of the same thing. So, we'll see.

Dan Ferris:                 Yes. And if anybody wants to take that as a statement on what hedge funds are doing at any given moment, I'm kind of with you, I think. Great. IBKR. And is this like – this is just a great business that you think people ought to know about? Or you think it's a particularly attractive thing now? Or maybe just that cherry on the top makes it more appealing now? How would you characterize right this minute your view? Buy? Sell? Hold? It's interesting. Keep an eye on it?

Joe Austin:                  I don't know what's going to happen in the market tomorrow, next week, next month, or in the next six months. I think probably other people have much stronger opinions on that than me. I see Interactive Brokers as a kind of company you can buy tomorrow and if you wake up in three years, I think you'll be doing fine. It's a solid business. And who knows what's going to happen in the world tomorrow, but it's not the kind of company that's going to go away. That's my view.

Dan Ferris:                 Not going away is an extremely important thing. Not failing. People don't appreciate how important not failing and not losing and not making mistakes is.

Joe Austin:                  Yeah, you're buying a strong and solid business. I think if you buy a weak business in this environment, you're making a very risky decision. And as I said, who knows what's going to happen tomorrow? But this is a company that's going to be around.

Dan Ferris:                 Yeah, and your advice there – or, not advice, but idea of it's a great business, high quality business, you could buy it tomorrow and wait three years, I feel like you've just summed up our Extreme Value newsletter that that Mike Barrett and I write. That's everything we do. It's like "Well, we're not saying it's going to go up in the next three months or even six months but it's got excellent long-term prospects. It's in a great competitive position, extremely important. And good management, good balance sheet. Lots of cash flow. Lots of options that poorer-financed companies don't have, etc., etc." So, I hear you on that. Nobody's going to come back in a month and say, "Oh, that Joe, he led us wrong." That's not going to happen.

Joe Austin:                  Thank you.

Dan Ferris:                 All right. How about industries overall? We talked about AI and looking for companies, high quality businesses that are already good businesses that are going to make good use of it. But – and you spent time at AIG, so we've broached this topic of insurance companies. Do you think insurance is a particularly great business? Do you like – do you – what – actually, here's the question. Sorry, I could have formed this question much more quickly. As Warren Buffett might say, what do you see as your circle of competence? Put it that way.

Joe Austin:                  My circle of competence is getting up in the morning and getting ready to do work. It doesn't – I don't know if I – I would say it extends – I've done what I've done for a long time and I've been very blessed to have a career that I enjoy what I'm doing. I would say –

Dan Ferris:                 But as far as –

Joe Austin:                  I would actually answer – can I answer your question in a little different way?

Dan Ferris:                 Sure.

Joe Austin:                  I would say there are two industries where I never really wanted to put money into. We talked about airlines earlier. I think there are more airlines going bankrupt than – as a percentage of the companies in business than any other. The other one I've always had difficulty with is banks. My dad ran a bank. I grew up in the banking business and I know as much about banking as I think most people do. But when I go to look at a bank as a stock, you really can't see into their loan book. You don't know whether they've got class A office properties or gas stations outside of Topeka, Kansas. You don't know what these loans are against. So, it's always been very difficult for me to say – obviously JPMorgan is better than some fly-by-night bank in, I don't know, Idaho or something but – nothing against Idaho, but some are safer than others. But I just really – there's an opacity to the banking business that I've never been able to get around.

Dan Ferris:                 And if I'm really being honest, too, that really does exist in insurance as well because in both cases it's the particulars of underwriting. It's particularly noticeable among the reinsurers. You have no idea what's in there. And they aren't going to share the underwriting parameters with you, certainly. So, you're basically assessing those companies – it's their history is really all you get. You don't – you can't look inside them. They're ultimately black boxes. I've realized that banks and insurers, to an extent, they're underwriting risk. They're underwriting loans. They're underwriting insurance risks. And you never get to look inside them. Reinsurers are a particular example. You just never get to look inside. You don't know what the – the reinsurers have zones where they write so much of their net worth around the world and you don't know how they're drawing the map. That's just one example. So, yeah, they're black boxes. I have the same problem.

Joe Austin:                  Some people can focus – I have a friend who's a banking analyst. He's done it all of his life and he can get them out. That's a level of specialization I will never have. I'm more of like a Peter Lynch. I buy businesses I like, I love, where I can touch it or feel it or understand it. That means a lot to me.

Dan Ferris:                 So, you're a bottom-up, but mostly a bottom-up generalist who has a "too hard" pile, which Charlie Munger might say. Some things are just in the too hard pile.

Joe Austin:                  And there's so many good things to buy out there. Just be happy.

Dan Ferris:                 That's right. Don't be greedy. You don't have to do the banks and you don't have to do the Greek shipping or the airlines. You just be happy with what you have.

Joe Austin:                  Yeah. If you want to invest, it should be fun. It should be something you like, you love, where you think you're going to make money, and where you can understand where you went wrong. If you can't understand where you went wrong, you're never going to learn.

Dan Ferris:                 I'm glad you mentioned understanding where you went wrong. One of the most remarkable statements I've heard Warren Buffett make was when he was asked about postmortems and how they think about investments that didn't work out. He essentially said "We don't spend any time thinking about that. We did the work that we did and we invested when and at what price and everything that we did. And that's what we do and we recognize that it doesn't work out 100% of the time." And I think he saved me a lot of anxiety and a lot of time because I've heard about people doing detailed postmortems and I've thought, "Oh, gosh, here's another big workload that I need to saddle myself with if I'm really going to do this right." And then I came away thinking "Well, my process has actually produced a pretty good track record. And it continues to do so. Why would I worry about the few times or even – even if it's 40% or 50% or 60% of the time, it's the magnitude of the gains, not the frequency." If the process is working and producing good returns against your benchmark, what do you care? Right?

Joe Austin:                  Yeah. And I'll tell you –

Dan Ferris:                 How much time do you really spend thinking about things that don't work out, I guess, is the question, Joe?

Joe Austin:                  How much time do I spend about it? I will do a brief postmortem. I would say I like – you're a value investor, so you understand. Value investors do all their risk management before they make a – before they buy the stock. They – Warren Buffett will tell you that any business is a good investment at the right price. So, you do your kind of pre-buying.

                                    But again, pattern recognition, you have to understand where you went wrong, so I think it's important to keep that in mind. But I also think it's a great thing to operate with stop losses. In every recommendation we make we give a stop loss. And I think that's critical because if you're down 30% in a stock, either you've made a terrible mistake or someone knows something you don't. And so, I think at that point it's a great idea to take a pause, make the sale. And when you do that, it gives you fresh capital to put into new ideas. I've always found that my best ideas – my new ideas are my best ideas or have the most potential. So, when you sell, whether it's because you've been successful or whether you're wrong, it gives you that fresh capital to put into new ideas.

Dan Ferris:                 Yeah, when to sell, man. That's a big one, isn't it? We all start out young and strong, worried about what to buy and that's all we spend our time on. And then one day we learn that there's another part of this that's really kind of important if you want to keep the money you've made. So, maybe we should ask you to address your sell discipline and how you make that decision.

Joe Austin:                  Well, I think about it most on the downside. As I said, if you're down 30% in stock, something's wrong. Move on. Another way of looking at it, which a very wise and rich investor told me, if you're up 30%, sell a third and be happy. Don't be – don't think you have to own it for a specific gain. Some people like to work with specific price targets. I'm not that kind of person. I think it's – everything is an evolution of the idea. And as long as the idea is working, I'm fine to stick with it. But I also believe if you made 30%, sell a third and be happy. If you're up 50%, sell half, be happy. Keep that capital fresh, because two things: No. 1, stocks that are up the most are generally the ones that fall the most. So, you want to avoid speculation. And second, as I said before, having that fresh capital is for your new ideas, and go find – for me, the excitement is the hunt. So, that gives you an opportunity to have money to go buy something else. I also believe if an idea is kind of working OK, that's fine. But if you find something else with a lot more opportunity, definitely go for it. Sell the bad one and go for the other one. Depending on what trading platform you're on, most trades are "free" now. I know nothing is free, but if you're in liquid stocks, you can get in and out every day. So, keep your portfolio fresh and make sure you're always on the best horses. That's a great thing to look at.

Dan Ferris:                 Yeah. These are –

Corey McLaughlin:    Yeah, when I first heard, when I first – somebody told me that something similar: Sell half. And I was like "Oh, wow, I can sell half here. This is –" up until that point. I hadn't really thought of it that way. But –

Joe Austin:                  The key and the hard part is to be happy.

Corey McLaughlin:    Yeah, you can be half right or – and with that advice you could be half right or half wrong and –

Joe Austin:                  Be happy and find something else to do.

Corey McLaughlin:    – be OK.

Joe Austin:                  I think Dan hit on it. Doing rigorous postmortems where you sit there and cry in your oatmeal for a month is really not happy for anyone. And we've all made mistakes and we all had investments that didn't play out as we thought. So, believe in yourself. I don't know, this is – again, believe in what you do, stick to your knitting, and if it's not working, move on.

Dan Ferris:                 And here we are. And I always say this. Here we are once again, right, Corey? We always wind up here. Get rid of the – cut your losers, let your winners run. It's Jesse Livermore. He's in everybody's head.

Joe Austin:                  But I want to say one other thing. You never learn from things you do right. You always learn from your mistakes. So, whereas I'm not for these huge postmortems, do remember what went wrong and keep that in your pocket for future reference.

Dan Ferris:                 That's – I think that's as well as you could put that. And the earlier comment about just being happy is the important part, too. You want to do things that reduce your level of anxiety, not ramp it up, like throwing good money after bad. We want to reduce our anxiety so that we can continue to work our strategy in a systematic way. It's hard to stick with a strategy, isn't it, Joe?

Joe Austin:                  I don't know if I agree with that. I've had a pretty good – it depends on what you mean by strategy.

                                    [Crosstalk]  

Dan Ferris:                 Well, you've found a method that works for you.

Joe Austin:                  What?

Dan Ferris:                 You've found a method that works for you, so presumably by this point in your life it's not hard to stick with it. But I'm willing to bet most of the folks listening to us could tell me the times when they say, "Well, I'm this kind of investor, but on this occasion, I did – I held too long. I put more – I sent good money after bad." Just all the usual mistakes. I think our core readers and subscribers at Stansberry, I'm willing to bet that they're nodding their heads when I say it's hard to stick with a strategy. You see your friends making tons of money buying something you don't understand and you're like, "Well, I'll just buy a little." It's not hard for you to stick with a strategy. I'm not talking about you.

Joe Austin:                  I'm just saying for me it's pattern recognition. You know the things that have worked for you in the past, you know where they haven't. Tips for me have never been great. "I've got a hot tip. This one's really going to double, Joe. It's really going to double." I was a tech analyst and everything had this off to the right, up and to the right – every trajectory was like that. So –

Dan Ferris:                 Oh, right. That's what I'm talking about. That's not a strategy. Yeah.

Joe Austin:                  It's not a strategy. It's –

Dan Ferris:                 Exactly.

Joe Austin:                  But the real key – and you talk about your strategy – is less about the offensive elements of your strategy but the defensive elements of your strategy. What things are you willing not to do? And I think, honestly, I've seen investors – I'm no guru on retail investor psychology, but I think that most people know when they've made a mistake or they've done something that's outside their comfort zone.

Dan Ferris:                 Yes.

Joe Austin:                  And that's where you have to pay real attention.

Dan Ferris:                 Exactly. Via negativa. "The learning of life is about what to avoid," wrote Nassim Taleb in one of his books. The "what not to do." Charlie Munger often told the story of the fellow who says, "I just want to know where I'm going to die so I can never go there." And it's a joke but it's profound. What to avoid. Because you take a flyer with a big chunk of your portfolio, you're YOLO-ing, as people like to – have liked to say in the past few years. And then you lose a big chunk of it and now you've got the work of building it back up, sort of like the gambler who bets it all to try to recover what he's lost. Terrible habit, terrible thinking, not the way it works. I'm glad you mentioned that. What not to do. Another thing that all the great traders and investors we interview always come back to. Risk management. What to avoid? It's not sexy but it'll help make you wealthy a lot more than YOLO-ing half your portfolio in some speculative garbage.

                                    So, yeah. All right. We are at the moment when we ask our final question, and it's the same final question for every guest. Marc Chaikin has answered it a couple of times. No matter what the topic, even if it were a nonfinancial topic, I would be about to ask you the identical question. If you've said the answer, feel free to repeat it. And it's simple. For our listeners, please, could you give us, Joe, just one thought you'd like them to take away? Just one thought today.

Joe Austin:                  I think the main thought, and I forget who wrote it, but there was a famous book back in the '70s called The Losers Game. You may know who wrote this book.

Dan Ferris:                 I think it's – was it Charlie Ellis?

Joe Austin:                  Yes, Charles Ellis.

Dan Ferris:                 Yeah.

Joe Austin:                  And what Ellis talked about was what I called unforced errors. And I think his analogy in The Loser's Game.

Dan Ferris:                 Yep.

Joe Austin:                  Professional tennis players win the game because they're good at it. And I think – and people who play tennis casually win a game because they're lucky or because they don't make a lot of errors. And you lose – if you're an amateur tennis player, you usually lose because you didn't play a good game. And I think that's really true today, especially in the environment we're in. The stock market I see today is a loser's game. And it's avoiding unforced errors sticking to your knitting, understanding the company, investing in businesses you like and understand is the most important thing. And that to me, that's been kind of my north star of my – the way I pick stocks and recommend them to people.

Dan Ferris:                 Ladies and gentlemen, we have a winner. That is one of the greatest answers. I love that book. I love the story about the tennis. I highly recommend it. It's called Winning the Loser's Game – and then there's a long subtitle to it – by Charles Ellis, who is a brilliant guy who worked for Capital, I think, for many years. Thank you so much, Joe. That was a great final answer. And it's been a lot of fun talking with you.

Joe Austin:                  Dan, Corey, thanks for having me here today. It's been a pleasure.

Dan Ferris:                 You bet. We'll talk again soon.

Joe Austin:                  Yes, sir. Thank you.

Dan Ferris:                 Well, I guess it doesn't surprise us that the guy who works with Marc Chaikin is enamored with the Power Gauge and a really sharp guy who's been around for years. This wasn't a big surprise that this guy knew what he was talking about.

Corey McLaughlin:    No, yeah, I wouldn't think that Marc would hire – would make a – speaking of not making mistakes. I don't think he would make a mistake hiring somebody, so – who works on stocks especially. So, yeah. No, I loved that last answer, too. And it – we have somebody – Brett Eversole, who's a descendant of Steve Sjuggerud, has written that about that book. as well and used that analogy as far as the importance of not making mistakes, unforced errors in tennis. And yeah, I used to teach youth tennis a long time ago.

Dan Ferris:                 There you go.

Corey McLaughlin:    And it's totally right. Most people you double fault, you hit two serves in the net or out, double fault, and you never even get in the point. So, that's one unforced error. Another is just making stupid shots. Just hit cross-court forehands instead of trying to beat people down the alley and whatnot. And I could go all day with this analogy but I won't. But there's something to be said for in amateur tennis, yes, not making mistakes is – will get you pretty far. You might go up against somebody in a final or something who's a better player eventually, but you won't be knocked out of the game early, which is the point.

Dan Ferris:                 All the weekend duffer, like the guy who wins, who hits it back last. Just hit it back. Just hit it – just keep hitting it back and getting it in and the person who does that last wins. And it's the same with investing for most people. You're definitely not Warren Buffett, therefore, you need to avoid mistakes. And frankly, saying you're not Warren Buffett is like – he's not a master – he's not like a pro tennis player. He's like the person who doesn't make mistakes. He's the master of not making mistakes. He's the master of – and that's the point of the Ellis book. For everybody investing is like being a weekend duffer. There are effectively no professional tennis players – or very few. You could tell me that the folks at Renaissance Technologies are the analogous professional tennis player because they're making – at one point they're making 80% a year because they've got every physics Ph.D. they can get under one roof finding all this crazy stuff in the market. And so, maybe that's the few people you can call especially good. Or a Stan Druckenmiller or somebody like that. But Warren Buffett, he's like the guy who just avoids the mistakes better than anybody. Don't sell a great business, which is the biggest mistake I've ever made. If people read Extreme Value and never sold the stocks, they'd be doing better than I've done with my sell advice. So, yeah.

Corey McLaughlin:    Yeah.

Dan Ferris:                 Important point.

Corey McLaughlin:    And we should also say that we talked about the Power Gauge and AI a bit there, too, and they have – at Chaikin Analytics have some new stuff coming out around the Power Gauge and a new way to use it and a new feature, basically, is what I've what I heard. And so, you can actually try that out at, I think, prediction2025.com is the link if you're interested in learning more about that and what Joe's doing over there with Marc. So...

Dan Ferris:                 OK. Prediction2025.com. That's good.

Corey McLaughlin:    Yeah.

Dan Ferris:                 All right. Well, that was really fun. Joe's a great guy and a very smart guy. Experienced investor. A lot of good wisdom there. I hope you were taking notes. If not, go back and listen again. Take notes.

                                    So, that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it every bit as much as we really, 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. Follow us on Facebook and Instagram. Our handle is @InvestorHour. On Twitter, our handle is @Investor_Hour. Have a guest you want us to interview? Drop us a note at feedback@investorhour.com or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week, I'm Dan Ferris. Thanks for listening.

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