On this week's Stansberry Investor Hour, Dan and Corey welcome their colleague Whitney Tilson back to the show. Whitney is the editor of multiple newsletters at Stansberry Research, including our flagship Stansberry's Investment Advisory, Commodity Supercycles, and the free Whitney Tilson's Daily.

Whitney kicks things off by discussing how he became a "make money" investor, his simple method for picking winning stocks, and a few lessons he has learned from decades in the market. He advises listeners to let their winners run and to hold them for a long period of time, as that's the only way to outperform index funds. Whitney also shares the story of missing out on Netflix's 100-bagger gains, makes a bullish case for Salesforce, and gives his thoughts on particular players in the AI space...

AppLovin and Palantir [Technologies] are probably the two most overvalued stocks – not only in today's market, but among large-cap stocks with $100 billion-plus market caps. They may be two of the most overvalued stocks I've ever seen in my life... Palantir is trading at over 100 times trailing revenue and almost 300 times earnings... Palantir could fall by 90% and there's not a value investor on the planet that would buy it. There's no floor there.

Next, Whitney talks about the cannabis stock bubble, scam Chinese stocks, and why he's "pounding the table" on Alphabet and Meta Platforms. Using Adobe as an example, he tells listeners to start considering how AI will affect existing businesses and their share prices, especially if it's in negative ways. Plus, he goes in depth on index funds – their benefits, how his strategy has shifted to include market-cap-neutral funds, and which funds he likes today...

I used to just say put 100% in the S&P 500 Index... And I've just become concerned that 10 stocks are now 40%... The No. 1 stock in the index, Nvidia, with an over-$4-trillion market cap, has 1,000 times the weighting of the 500th biggest stock, Enphase Energy, which has a $4 billion market cap. So $4 billion versus $4 trillion. That's a 1,000-to-1 difference.

Finally, Whitney explains the power of compounding and discusses the opportunity today in clothing maker Lululemon. Despite "really struggling with" the stock, he believes it could be a big winner down the line. The secret, Whitney says, is finding good companies with headwinds that knock the stock way down but that are temporary. And to close the show out, Whitney covers the pitfalls of short selling, why you should never bet against companies that make products people love, and his most speculative stock idea today...

My favorite speculation right now reminds me of Tesla 12 years ago... They make EVTOLs, electric vertical takeoff and landing, like air taxis, jets, and stuff... I spent an entire day at the company two years ago. And my cousin, a Stanford engineer, came with me... And after visiting, he's like, "Whitney, this is the greatest collection of engineering talent outside of Tesla in the world. These guys are for real."

Click on the image below to watch the video interview with Whitney right now. For the audio version, click "Listen" above.

(Additional past episodes are located here.)

This Week's Guest

Whitney Tilson is the lead analyst and editor of Stansberry Investment Advisory, our flagship newsletter. He's also editor of Commodity Supercycles, The N.E.W. System, and Whitney Tilson's Daily.

Whitney graduated magna cum laude from Harvard University with a bachelor's degree in government. Upon graduation, he helped launch nonprofit organization Teach for America. He then went on to earn his Master of Business Administration at Harvard in 1994. He graduated in the top 5% of his class and was named a Baker Scholar.

In his professional life, Whitney founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, he grew assets under management to more than $200 million. Whitney is also an accomplished writer, having published four books and co-authored two books. On top of all that, he has appeared dozens of times on CNBC, Bloomberg TV, and Fox Business Network, has been profiled by the Wall Street Journal and the Washington Post, and has written for Forbes, the Financial Times, Kiplinger's, the Motley Fool, and TheStreet.com.

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 Whitney Tilson, lead editor of our Stansberry's Investment Advisory.

Dan Ferris:                 Get out your pens and pencils, folks, because Whitney has a head full of knowledge that he will share with you now. He loves to share it, and you should write it all down. Let's do it. Let's talk with Whitney Tilson. Let's do it right now.

                                    Welcome back to the show. Always a pleasure.

Whitney Tilson:           The pleasure is all mine. Thanks for having me, Dan.

Dan Ferris:                 You bet. The first thing – our listeners know you well, so I'm just going to dive into the deep end and we'll talk about stuff. The first thing that I – that's on my mind about you today is – I read your daily. For those who don't read it, they're really missing out. Whitney goes through individual stocks in some way, shape, or form just about every single day and other topics too. It's really good. Anyway, he's a colleague, so take this however you will, but I promise you won't be disappointed. So, yesterday –

Corey McLaughlin:    Yes. I will second that. I read it every day. So – almost every day if I can.

Dan Ferris:                 So, yesterday, Whitney, you mentioned Salesforce, and there were two things. One is, I'm wondering if you're continuing to look at the stock because it sounded like you really were getting interested in it. And the other thing was, if I can quote you here, you said, "This isn't a company or sector I've been following closely over the years. The valuations have always been too high." I know you're a value guy at heart, but I know, also, years ago, you started describing yourself as a "make money investor." You didn't want to be called a value investor. You want to be called a "make money investor." So, we can talk about either one of these things first, but I wonder if you wouldn't mind addressing both of them.

Whitney Tilson:           Sure. Well, let me give a little bit of context and background for what I mean by "make money investor." I would say for most of my investing career – in any investing – everybody basically who's actually investing as opposed to, I don't know, day trading or using quant models or whatever, but anyone who's actually looking at companies, the world tends to fall into growth investors and value investors. I consider myself a value investor. I've been to 26 Berkshire Hathaway annual meetings. I pray in the church of Graham, Dodd, Buffett, and Munger. And so, everyone is balancing. They want to buy good businesses and they want to buy cheap stocks. And unfortunately, there's – most – 95% of the time or 99% of the time there's a tension between those two because good companies tend to have richly valued stocks.

                                    So, as a value investor, I would say what I did is I took the 100 cheapest stocks in the universe and then I tried to find better businesses among those 100 cheap stocks. And in hindsight, that's exactly backwards. What I do now and what I would recommend that anybody do if they want to be a successful long-term investor is find the 100 greatest businesses in the world that you understand very well. Don't get outside your circle of competence or anything like that. Just find 100 great businesses, study them closely, and then try and own 10 of them, maybe 15, at any given time. And try and buy them or add to them when their stocks get sold off, when the market makes a mistake.

                                    So, a classic example, probably the best example I could think of in the last five years was Facebook, Meta Platforms in 2022. They were investing heavily in the metaverse. They were getting hit by the rise of TikTok. The stock went down by almost 80%. And I wrote a five-part series in my daily. I gave it away for free to my 100,000 readers of my free daily and I said, "This is one of the two greatest businesses on Earth." I cited Google/Alphabet as the other one. "And the stock's down 80%. And these are all fixable problems." And sure enough, the stock's gone from 90 to 700 or something. So, I'm sort of doing the same. I'll stop with the long lecture here. But I'm always looking for situations like that. And yesterday, as you mentioned, I mentioned another tech stock, Salesforce, that the stock's down 33% this year, and so I'm poking around seeing if that might be a good opportunity.

Dan Ferris:                 Right. And so, the comment about valuation is – you gave that a pretty nice context, I feel. You can't get stuck in Cigar Butt Land but you also have to have some respect for how much you pay. I get that. Also, I note your evolution from looking for the cheap to looking for the quality, I went through the same thing. I started looking for great businesses around 2004, 2005, 2006 because all the cigar butts that were around in 2002, 2003 a little bit, they went away pretty quick because they always do. All the busted net-net tech stocks that had lots of cash, more than the market cap or whatever, that disappears. And then what do you got left? And a lot of them turned out not to be great businesses in the first place, as you point out. And I feel like a lot of folks – I mean, I know Porter Stansberry has made a similar kind of evolution, not exactly that but very similar. And this – and Buffett himself made this evolution, didn't he? Nobody sticks with the cigar butts. They just – they can't do it anymore.

Whitney Tilson:           Yeah, the problem with cigar butts is you have to trade them because they're not high-quality businesses. They're probably declining over time. And eventually, no matter how cheap you buy them, if the business continues to deteriorate, the stock's going to do so as well. So, I will say – so, you made an interesting comment there, though. You said there were a bunch of cheap stocks. I remember buying McDonald's, Home Depot, some incredible businesses back in '02 and early '03 during that sell-off. And then you're like, okay, then they go up and you've got to sell them. And then how do you replace them? And what I – again, I would say the second biggest mistake in my investing career, other than the one I mentioned earlier about fishing among cheap stocks as opposed to fishing among better businesses, the second mistake I made is I didn't let my winners run. And I would argue had you bought Home Depot and McDonald's at depressed prices in 2002 or early 2003, if you were sensible, certainly with the benefit of hindsight, you should still own them more than 20 years later. You never should have sold them. And that was the mistake I made. The stock doubled; I sold half. It doubled again and I was out. And I felt like a genius. And instead, I was an idiot. I left – I made double my money or three times my money and I left a 10-bagger on the table.

                                    And so, that's the other key to long-term investment success. And I would particularly argue today when you've got so many super computers and the U.S. market is so efficient, I think the only way to beat the market over time – and there's no shame in index funds – to beat the index funds, you have to do what the index funds do, which is hold for a long period of time. And in particular, hold on to your big winners, because if you pick – if you buy 10 stocks and you do it well and you've got 10 quality companies, two of them are going to drive all the returns of your portfolio. But you don't know which two.

                                    But here's the other key. If you sell them after they double, they're not going to be the big winners that you need to drive the overall portfolio's return. So, you've got to let those two or three stocks after they double – there's no – it's sort of a tautology to say there's no such thing as a 10-bagger that first – it first has to double. But you'll never get a 10-bagger if you sell everything after it doubles, right?

Dan Ferris:                 Right. I'm going to implore my listeners to Google Robert Kirby, the coffee can story, and read the coffee can story and notice that one stock overwhelmingly generated the bulk of the returns in that portfolio. And his secret was that he just held. He never sold. Ever. I mean, the guy – the story began when the guy died. So, that's how long you hold these things.

Whitney Tilson:           Right. Right. I mean, they've done – there's a professor. He may be at Arizona State. You can Google this but he goes back and looks at the entire U.S. stock market's returns and something like 2% of stocks account for virtually all the returns, like over the past 100 years. And here's the key.

Dan Ferris:                 I know this one.

Whitney Tilson:           The index funds bought Apple 20 years ago and they still own it. They bought Amazon 20-odd years ago and they still own it. Over and over. The top 10 stocks today account for 40% of the value of the S&P 500. That's an all-time high. And what that means is that anyone who owned an index fund owned those 10 stocks and rode them and rode them. And the problem is virtually no active money managers have the patience and discipline to let those winners ride. In the case of Apple, I mean, I owned it at 35 cents, Dan, 25 years ago. And then it went up to 36 cents and had a bad quarter and I sold it. And if I had just held on to $10,000 of that, I'd have many more millions to my net worth. Right?

Dan Ferris:                 Yeah, exactly. And you're right. As advantages go, this is simultaneously absolutely the lowest hanging fruit on the one hand and yet emotionally really difficult on the other for most people.

Whitney Tilson:           Right. Okay, and here's the thing. If you can be smart 364 days a year, but if you're dumb on one day, you didn't get a good night's sleep – I remember Netflix after – that was – I nailed the stock of the – I wouldn't say stock of the century but stock of the decade for sure – 13 years ago in 2012, October 2012. I nailed it so publicly. I went on national television, on CNBC. I spoke in front of a conference with 500 people and I said Netflix – I compared Netflix in 2012 to Amazon in 2002. And 10 years apart, they had almost identical economic characteristics. They both had $3 billion in revenue. They both had 30 million customers. But I said Netflix is an even better business. And I said – so, here was my exact quote: "Netflix is this decade's Amazon." And Amazon over the previous decade had been a 20-bagger, 20 times your money. And it turns out I was dead wrong. Netflix was a 100-bagger. I was much too conservative.

                                    So how did I play it? Did I make a hundred times my money? No, it doubled and I sold half. It doubled; I sold half. It doubled again; I sold and I was out. And I still remember one of those dumb days when I finally exited. It was because a well-known short seller, who I won't shame here but his name would be known to any of you, contacted me and said, "Hey, I'm shorting Netflix. Are you still long it?" He wanted to hear the long thesis. And this was after the stock had gone up 8X. And that spooked me out. I was like "Geez, this really smart friend of mine is shorting it, surely I don't want to short it –" I had the good sense not to short it – "but maybe – I certainly don't want to be long it." And so, after making eight times my money, I left a 15-bagger on the table after that. The stock from then today over the last 13 years, up about 150 times.

Dan Ferris:                 Wow. I know we've talked about this before, but it's been a couple years and it's worth talking about because – for probably more than one reason, but I like this story of yours because you didn't – as you say, you're a guy who looks at businesses. You're not – it's not a quant thing; you're not a trader. You're really looking at businesses. And you changed your mind; you did a 180 on the business. Right?

Whitney Tilson:           Yeah.

Dan Ferris:                 And it continued to be that business. And yet, like you say, like we've all done – I've done it, believe me, plenty – and yet you exited for whatever other reasons. That to me is the kernel here. It continued to be a great business. We all know great businesses don't necessarily continue. There can be a time to sell but there never really was.

Whitney Tilson:           And interestingly, at one point, I don't know, 10 years ago, I was dumb enough to be long – or, excuse me, I shorted Salesforce in my hedge fund. And fortunately, I got out and saw that – my analysis was that the company had virtually no net income, GAAP-reported profits. But then I realized that's because the company was deliberately – wanted to – was reinvesting in the business, was paying, using a lot of stock-based compensation, but the actual underlying cash flows were booming. And this was a real growth business. So, I figured out my analysis was wrong, I got out and – I  should have gone long given the stock, how well the stock did. But now, today, the stock's pulled back and I'm more of a "make money investor." And so, with the stock trading at 19 times next year's earnings for a very high-quality, recurring-revenue Software as a Service business, I think that's pretty interesting. Now I need to evaluate whether AI is going to really impair the business and cause this to turn into a melting ice cube. That's the bear case. That's why the stock is down a bunch. But I've had tremendous success in my investing career, not very many cases where I was once short a stock and then I turned around to go long, generally at a lower price.

Dan Ferris:                 Right. I'm glad you mentioned AI because it's – at this point, in my opinion, for a guy like me, it's difficult to tell. You look at something, and I looked at – one of the things I looked at was Accenture, which if you just look at their cash flow, the results, it's like, wow, okay, something wonderful has happened here. Something incredible has happened here. Why was Dan worried about this thing being supplanted by some other piece of software? In fact, a business like – and I think CRM is in the same category – it could be like dramatically improved and made dramatically more efficient by AI, or it could be, how does one say, supplanted entirely by it. And it's difficult to tell at this point.

Whitney Tilson:           Yeah, it's very interesting you mentioned that because a bunch of my readers have said, "Hey –" because I get a lot of my best stock ideas from my readers e-mailing me and just saying, "Hey, Whitney, have you ever taken a look at XYZ company?" And Salesforce in fact was two of my readers. So, Accenture, it's funny, is on my list and I'll probably take a look at it in the next in the next week or two.

Dan Ferris:                 Yeah, talk to the Altimetry guys. I think they know something about it. All right. Well, what else you got?

Corey McLaughlin:    While we're on AI real quick, I know one of the things – and letting winners run – one of the things you've been – you've written about a few times recently, I think, in your daily is if people sitting on a huge position in Nvidia or big gains in Nvidia at this point, using these lessons that you've learned over time, how do you –  maybe you could talk about just a little – share a little bit about if somebody's riding some huge AI winner right now, what advice do you give to kind of manage that position?

Whitney Tilson:           A couple fold. I mean, we recommended Nvidia five years ago in one of our promos related to autonomous driving and electric cars. And interestingly, Nvidia at the time was not an AI play, but they were making chips that would be used for autonomous cars. By the way, I rode in my first Waymo in San Francisco on Friday or Saturday just a few days ago and it – I felt like I was seeing the future. It was incredible. And there were Waymos everywhere. Like, every third car in San Francisco is a Waymo now. And it was so smooth. And I was like "Wow, I'm never going to go back." Given, the choice I prefer not having a driver.

                                    And so, Nvidia, getting back to your question, was one of our recommendations and we never pulled that recommendation. And we recommended five stocks. And four stocks collectively probably did a little worse than the S&P, but it didn't matter as long as you held that one stock. But you had to hold it. So, I've been covering Nvidia for many years since then. And I basically told people, "Look, if you own it –" it's always been too richly priced for me to really pound the table on it, as it's up probably 20X since then. But I've said, "If you own it, if you have big gains in it, this is the kind of stock you've got to let your winners run." And this is a classic example of just an incredible business that's riding multiple waves,  but primarily AI. And I said, "Look, if it becomes 75% of your portfolio, you might trim it for that reason. You've got to be able to sleep at night." And I also suggested putting in a stop loss. That's what I should have done with Netflix, where after I'd made eight times my money, why did I sell it entirely? The business was absolutely booming. Revenues were growing 40% a year. They were moving internationally. They were raising prices. Everything I could have possibly hoped for was actually happening. The fundamentals were incredible. And that's where you've really got to let your winners run.

                                    So, I'm not saying never sell anything, never take any money off the table. But if you're thinking of selling all of it, at least put in a 10% or 20% trailing stop loss. Now with a volatile stock, maybe you want a 30% or 40% stop loss. So, you're still going to get out and keep an enormous part of your gains, but you're leaving the upside intact. And in fact, I went and looked back. If I had – Netflix never had a huge pullback for at least 10 years after I got – after I was pounding the table at about $8 a share. Well, I could have – even if I had kept a fourth of my position with a stop loss that never got hit, a fourth of a 5% position that goes up 100-fold is – you only need one of those in a lifetime. So generally speaking, I don't use stop losses. For example, if I get into a stock at $10 and it goes down to $8, I think it's – I'm not a believer in "Oh, you just have to sell it." But on the other hand, using a trailing stop loss to protect very large gains, I can see how that makes sense.

                                    But here's the other key, is there are sometimes stocks that go up. Let me give you an example of a stock I've written negatively about: AppLovin or Palantir are probably the two most overvalued stocks, not only in today's market, but among large-cap stocks with $100 billion-plus market caps, they may be two of the most overvalued stocks I've ever seen in my life. And so, it does – those are stocks – I'm not sure – if somebody owns Palantir today and they've made 20 times their money, I'm not sure I'd say sell it all tomorrow, but I might – I would be – I have a different view of Palantir versus Nvidia. Nvidia is trading at 28 times next year's earnings. In other words, the stock's up 20X, but the earnings are up 20X, whereas Palantir is trading – I'm not making this up – it's trading it over 100 times trailing revenue and almost 300 times earnings. So, that's a stock – if Nvidia falls 25%, value guys might start buying it. There's a floor there. Palantir could fall by 90% and there's not a value investor on the planet that would buy it. There's no floor there.

                                    So, there's some techniques about using a trailing stop that I would apply. But also, you've got to understand the companies and whether the current valuation is in any way warranted, and are the fundamentals supporting the stock as it's rising? The dream scenario is the stock goes up 40% a year for 10 years and the earnings go up 40% a year, or at least the revenues, which is what happened with Netflix. That's what I'm saying. I should have been riding Netflix. And by the way, McDonald's back in 2002. McDonald's never traded at 50 times earnings or something where you sort of have to sell it. The stock grew in line with earnings.

                                    And those are the ones you can – Berkshire Hathaway is, of course, the classic example. Berkshire never traded at 5 times book value or whatever. It traded between 1 and 2 times book with Warren Buffett running it for – almost for free. I've got a friend who bought Berkshire at a few hundred dollars a share and it's now over $700,000 a share. And he still owns those shares he bought in the 1970s.

Dan Ferris:                 Yeah, for folks who want a different perspective that sort of underscores what Whitney is talking about with earnings and share price growing apace, there's a paper called "Agency Costs of Overvalued Equity" by a guy named Michael C. Jensen. And he talks about all the terrible incentives created by a drastically overvalued stock. And an early example in the paper is Enron. He said it's probably worth $30 billion and the market said it was worth $70 billion or something – so, $40 billion of excess equity. Management could have been honest and tried to temper the market's expectations, but instead they tried to fraudulently work their way into a higher valuation – to justify the higher valuation. So, valuation, when it gets this crazy, like Whitney just described, folks, pay attention. He has a serious, serious point here. Just wanted to –

Whitney Tilson:           Right. It was funny, just last week I was at dinner with my cousin, who I hadn't seen in a number of years, and we were sort of laughing. He was in one of the great stock bubbles of all time back in 2018. It was the cannabis bubble, and he owned Tilray. Remember Tilray?

Dan Ferris:                 Oh, yeah.

Whitney Tilson:           That stupid stock – it's a Canadian pot company – had gone from, like, $10 to $150.

Dan Ferris:                 Insane.

Whitney Tilson:           And he told me, "Hey Whitney, I own this thing." And I had just been on television warning people about that this was an obvious bubble. It had no earnings. It was trading at over 1,000 times revenue. I'm not making this up. And so, I told him, "All right, Kyle, put in a 10% stop loss." And sure enough, the next day the stock doubled to $300 and then crashed to $100. And he's like, "Whitney, I got stopped out." And I was like, "Yeah, you should be thanking me. That stock today is at $1.18." It was down by 90% within a month. And then you think, "Oh, it can't go any lower." It's down 99% after falling 90%.

                                    So, that's another good lesson, by the way. Don't get tempted by some obvious fraud or bubble. They are, by the way, a whole bunch of Chinese companies trading on U.S. markets where they're being promoted by unscrupulous people and WhatsApp groups and all. And there, by the way, a stop loss, a trailing stop loss doesn't help you because when the promoters are finished promoting it, the stock drops 80% or more on one trade. There's nothing in between. They take a dollar stock, they pump it to $10, and then the next trade is at $2. And so, there's no chance to get out with a stop loss. You just can't get involved with these. So, by the way, let me check the stock price today. It's the craziest stock I've ever seen. The ticker is QMMM.

Dan Ferris:                 Oh, yeah, sure.

Whitney Tilson:           And it's a blatant stock fraud. It's an outrage that the markets are letting this thing trade. But the stock –

Corey McLaughlin:    Yeah, we just had Edwin Dorsey on from The Bear Cave on here, who –

Whitney Tilson:           Yes. Yes. He's been writing about this. And a credit to him for identifying a bunch of these stocks.

Corey McLaughlin:    Yeah, he created a whole website – yeah, he's created a whole website for this.

Whitney Tilson:           But this stock has gone – it has a 52-week low of $0.54. And just last week, they got pumped to $303 a share. A week later, it's already back to $100. But I'm telling you, sometime very soon, I would guess in the next week, the next trade on this stock will be at $10. It'll be down 90% on one trade.

Dan Ferris:                 Whitney, what was the guy's name – remind me. I think he's a European guy, short seller, specialized in situations similar to this where they would just like evaporate overnight and go to zero. I want to say his name began with a "g." Do you know how I'm talking about? I bet you'd know –

Whitney Tilson:           Oh, Gabriel Grego?

Dan Ferris:                 Yes, thank you.

Whitney Tilson:           Yeah, yeah. No, he's my buddy and he nailed what was the Greek jewelry company or apparel company and – he has many notches in his belt.

Dan Ferris:                 Yes.

Whitney Tilson:           Yeah, where he identified – Folli Follie was – now I remember – was the name of that Greek company where, by the way, the managers went to jail. He identified a total fraud. What's interesting is Folli Follie actually had a real business, but they were just fraudulently saying they had more stores than they did and all. But they actually did have some stores or whatever. This QMMM, for example, there's no business there. It's just a PO box in Shanghai or something like that and it's just a completely manipulated stock.

Dan Ferris:                 There you go. I'm glad you brought up cannabis, pot stocks.  In part it's another case where you can actually identify something happening legally and in society generally and just the investment thesis doesn't play out. I and many people I know have been hosed buying MSOS, the ETF, the cannabis ETF. We just decided to blow it out of my wife's 401(k) because we got tired of looking at it minus – she only did minus 40%. Other people have been absolutely obliterated on that thing. But you can get these trends right and still the investment thesis is wrong. And in a similar sort of a vein, we were talking about AI, and AI looks to me like – it kind of looks a little bit like the Internet, which the dot-com mania was true. It was right. Trillions and trillions and trillions of dollars of value have been created. But that doesn't mean it was easy to invest directly in it at the time. And I feel like AI has the potential to go the same way.

Whitney Tilson:           Yeah, I mean, those are – these are three interesting case studies. I, at one time, was bullish on cannabis and after it had fallen by 80% and the MSOS ticker was sort of a way, the ETF, to play it, and I, too, realized I was wrong and got out. And thankfully I did because it fell a bunch more, but it was it was a painful experience. What I got wrong there was the fundamentals ultimately ended up being terrible for the public companies. Every state and Canada has different legislation. It's still a Schedule 1 drug, so they couldn't access the banking system, etc. But fundamentally, what happened is there's a tremendous black market out there, and so the legal players are paying 50% taxes or whatever. And just look around New York, they've shut most of them down, but after New York legalized cannabis, all these little pot shops popped up all over New York City and they weren't paying any taxes and whatever and they undercut the legitimate players and all. So, the market hasn't grown nearly as much as I thought it would. But more importantly, the profitability has just never emerged because everybody in the sector is sort of being undercut by the black market. And I'm not sure that problem goes away. And then, of course, you just had all sorts of charlatans and con men, like every good bubble as well, that has hurt the sector.

                                    So, the Internet – you're right. The Internet got way ahead of itself, but it was a world-changing development. And the people who hung in there through the bust, who rode the bubble in 1999 and early 2000, then there's – the Nasdaq went down by 80% between March of 2000 and October of 2002. I remember it well. The stocks emerging from that – Amazon, Booking Holdings, the travel company, Apple, of course – these have been thousand-baggers in some cases. How AI plays out is interesting. Look, the spending is very real. I just saw a chart of – just the four big tech companies, their spending on AI, mainly the chips, mainly made by Nvidia, gone from $25 billion to $400 billion in the last few years. And there's no sign it's letting up. I just saw an interview with Mark Zuckerberg, who says, "Look, we're going to spend hundreds of billions of dollars on this. And I'm perfectly willing to accept that many tens, even hundreds of billions of dollars is wasted because we cannot afford to miss –" what he calls super intelligence.

                                    So, that's another – that's the reason. And gee, if I owned Nvidia and I hear that from the biggest customer or one of the biggest customers of Nvidia, I'm going to keep riding that winner. Right? I might trim it a little bit, I might have a stop loss to lock in some gains, but this is going to keep going. So, I think AI is going to be revolutionary, but I do urge investors caution that you see all sorts of "me too" companies and charlatans and all coming in and they slap AI on – the name on it. It reminds me back of the dot-com days, right? And so, investors should be careful. Nobody really knows how this is going to play out. But AI is, I believe, as legitimate and 20 years from now will be as world-changing as the Internet. But as you pointed out, a lot of people got wiped out investing in the area along the way.

Dan Ferris:                 And I'm glad you mentioned the hyperscalers, because they're simultaneously investing, as you said, hundreds of billions, just the top hyperscalers, investing hundreds of billions in admittedly real infrastructure. Over time, we – if that performed like all the fiber they built and the revenue is cut in half while the usage soared 1,000-fold over 20 years, that wouldn't surprise me. But those same businesses are also huge players at the edge of the network. They're meeting the user head on with stuff people just love. They're voracious for these products, for social media, or whatever Amazon's selling today and all the rest of it.

Corey McLaughlin:    Streaming.

Dan Ferris:                 Yeah, streaming. That's right.

Whitney Tilson:           The real thing I think investors need to do is make good judgments on where AI is going to hurt versus help versus be neutral [for] companies. So, I've been pounding the table on Alphabet – Google, for example, because I signed up for ChatGPT and, I don't know, I pay $10, $20 a month for it. But I really don't use it very often because I just use my regular Google search that I instinctively have been using for 20 years or whatever. And now it gives me an AI answer. Google has built AI into their standard search. And so, I'd say 98% of my usage of AI searches or queries are just done through my traditional Google search, but it pops Google Gemini up at the top and that gives me a sufficient answer. So, I don't even need to go over to ChatGPT. So I've been arguing and pounding the table, and the stock has really –  I've been proven right so far that Alphabet is an incredible company, and AI is not only not going to hurt the business but may help the business.

                                    The question getting back to Salesforce is the bear case, the reason Salesforce has sold down is their customer relationship management, "CRM," software is perceived to be vulnerable where their customers could start using AI to replace Salesforce's software. And that's – by the way, a number of my readers I included in my daily today make comments that this is also why Adobe has sold off, another software maker that makes Adobe Illustrator and products for creating graphics. And I don't think those concerns are crazy. But the question is at what point are insanely great businesses with very sticky customers, recurring revenue businesses, at what point do businesses that have historically traded at 35 times earnings are now trading below 20 times earnings where, yeah, even if there's a little bit of an AI headwind – and by the way, they're scrambling to incorporate AI into their products the same way Google has done. At some point, the sell-off is overdone. The question is Salesforce is down 33% – it could fall 50% if they report a weak quarter. So, that's the dilemma of value investors like me buying fallen growth angels, I would say.

                                    So,  this is why investing is hard. You've got to predict the future. And particularly when you have the introduction of something as massive as AI, it's hard to predict the future. But I've been pounding the table on Google. I've been pounding the table on Facebook. Even with their very high spending on AI, I think it's going to pay off in many, many more years of high growth.

Dan Ferris:                 Yeah. I agree with – I think with all of that. I want to run another idea by you that falls hard upon this. I think that if you have your list of 100 greatest businesses in the world, let's say, or even if you own the S&P 500, perhaps, anywhere in between there, lots of high-quality companies in a portfolio, it seems to me like over time, if you make virtually no effort to be invested in AI and you still hold this fantastic portfolio of great businesses, you'll be invested in AI. It will happen. The greatest – many of the greatest businesses will figure out how to incorporate this. They'll become more efficient or they'll offer new products, whatever it is that they will do. If you own that large – largeish portfolio, not just 10 names – so, I'm talking an index fund or something, it'll be in there the same way the Internet got in there over time.

Whitney Tilson:           Yes. That's the beauty of owning index funds. And that's why index funds outperform virtually all active money managers. And by the way, my default recommendation for anybody is you don't have to go become an expert on AI or have an opinion on Visa and Mastercard or the pharma companies or whatever. You  can just buy an index fund and forget about it. That's what my sister's done for her entire career. She's never owned an individual stock, and she has a very nice nest egg because she did the basics right. She has been regularly employed with growing income, has built a nice career, but never had high income. She works for – in international development, working overseas on maternal health projects, that kind of thing. But every – she's had decent income. She has always lived beneath her means and has always had money deducted from her paycheck, put into a retirement account and – critically – automatically invested in the S&P 500. And she's done that for about 30 years. Lo and behold, never having high income, having gone through two divorces, etc., she's got a $2 million nest egg in that retirement account. And through – and never picked a stock in her life. And that's the track I've got my daughters on.

                                    The only little tweak I will add, by the way, is that I wrote about in my daily probably two weeks ago, which is I used to just say, "Put 100% in the S&P 500 index, the Vanguard mutual fund or SPY, the ETF that tracks it." And I've just become concerned that 10 stocks are now 40%. It's a market-cap-weighted index. So, what that means is that the No. 1 stock in the index, Nvidia, with over a $4 trillion market cap, has 1,000 times the weighting of the 500th biggest stock, which at the time I last looked two weeks ago was Enphase Energy, which has a $4 billion market cap. So, $4 billion versus $4 trillion; that's a 1,000-to-1 difference.

                                    And so, effectively, in owning the S&P 500 today, you're disproportionately owning sort of the Mag 7 tech stocks, etc. And I don't think they're in bubble territory, but I do – I have seen historically when such a small number of stocks account for such a big percentage of the index, they've tended to underperform. So, I shifted from 100% S&P 500 – I took that down to 40%. And by the way, this is in a tax-free account. Don't do this if you're going to have to pay a lot of taxes. I don't feel strongly enough about it, that if there's capital gains to be paid, don't do it. But if it's in a retirement account…

                                    I took 100% of SPY down to 40%. Then I bought a market cap-neutral S&P 500 fund. So, Enphase Energy and Nvidia, if one of them moves 10%t, the other moves 10%, that's the same impact on the index. There are a bunch of ETFs. I think RSP is the name of the one that I found.

Dan Ferris:                 RSP, yep.

Whitney Tilson:           And then I put 20% in an international index fund that excludes the United States. I think it's called VXUS, which is a Vanguard ex-United States, meaning excluding United States is the ticker of that one. So, honestly, I don't think it's going to make a huge difference. It might be a 1% or 2% per year difference. But yeah, so it's still all indexed. But it's 40/40/20 instead of 100% SPY.

Dan Ferris:                 Interesting. Yeah. Interesting idea. And kudos and congrats to your sister, man. That's awesome. There was a story, I think, in the – that Little Book series that Wiley puts out and the one by John Vogel had, I think, had a story of a guy who never made more than $25,000 and he was a millionaire just doing that very, very same thing.

Corey McLaughlin:    Yeah. I was thinking about that too.

Whitney Tilson:           Yeah, I mean, those stories generally, they bought some shares of Microsoft or Berkshire or something. Those are the stories that the media writes up. But vastly more common is just people who bought index funds or maybe even sort of a high-quality mutual fund, which honestly they're all tracking the S&P minus their fees, but they still do okay, even though you would have been better off in an index fund. And you just let the miracle of compounding work. And the numbers are over – compound out even 5% or 6% over 30 or 40 years for – my sister's 56. I think she'll live till she's 96, so – we've got good genes in our family – so, she still has a 40-year investment horizon. She's not even halfway through her lifetime of investing here and she's already got a good nest egg. But she was – she's in between jobs right now, so for the first time in her life she doesn't have income right now. And so, she was thinking of putting a bunch of it in cash or whatever. And I was like, "Look, you have no debt. You've got a nice nest egg and you still have a 40-year investing horizon. So don't change. Don't change anything."

Corey McLaughlin:    Yeah. Isn't that one of the things you – the one of the famous things people say about Buffett, is how much he made after what age?

Whitney Tilson:           Exactly. He's made – I forget the numbers, but since turning 60, he's made 99% of his net worth.

Dan Ferris:                 Oh, yeah, the compounding effect. Look, listeners, if you've got Excel, even if you're not good at Excel, just do this: Put one penny, 0.01, in a cell. Then below that put that cell times 2. And then just drag it down for about 30 cells and it becomes $1 million in 30 days.

Whitney Tilson:           Right. Right.

Dan Ferris:                 And you notice – and this is how all compounding works – all the money is in the last three or four days. That's also how it works over 20 years when you're compounding at 10%.

Whitney Tilson:           There's a famous old story, going back a zillion years where some guy came along and came up to the king and provided some service and the man – and the king said, "How much would you like to be paid?" And the king said, "Just give me one grain of rice" and took a chessboard. And then he said, "Put – each square next to it, just put double." So, one grain. The next square is two grains. Then four, then eight. And there are 30 squares on the board. And the king agreed to it not realizing that by the last square it was all the rice in the world.

Dan Ferris:                 That's good. I vaguely remember hearing that one. That's a good one. Excellent way – I'm going to look that up. I've got to use that. I need material for Digests. Corey and I both do. So, thanks for that. All right. Well, we've talked a lot of principle here and we've mentioned a few stocks. Is there any stock on your mind that you're really excited about that you can talk about maybe that maybe your readers already have known about it or just anything you're really excited about now?

Whitney Tilson:           Well, I would just generally – shameless plug for my daily. I'm constantly throwing out interesting stocks. And just this morning, I got an e-mail from one of my readers. Two weeks ago, I wrote about Office Depot, a stock I owned back in 2002. It was the second-best performing stock in the entire S&P 500 in 2002. By the way, what was the No. 1 performing stock? Nvidia. Which cracked me up because Nvidia didn't go anywhere for 20 years but it happened to have caught a pop that year. And Office Depot is a dying business, a melting ice cube, but still produces positive cash flow. And I said, look, I generally don't like to speculate on takeovers, but someone's going to buy this company. And sure enough, just yesterday, the news broke that someone's acquiring the company. The stock was up 35% yesterday. And one of my readers e-mailed me today and said, "Whitney, thanks so much. I just made a quick 35% because I read your article two weeks ago." And it wasn't even really a recommendation so much, like a formal recommendation. It was just, I laid out the analysis and said, "This is pretty darn interesting." And so, I'm constantly doing that.

                                    I'll tell you one stock that I'm really struggling with, but I think it could be a big winner is Lululemon, the maker of athleisure clothing. The stock is down more than 60%. Maybe even 70%. It's just gotten hammered. And I love their clothing. My favorite tennis shorts, gym shorts, bathing suit, shirt are all Lululemon. One of their problems is their products are so good, they last forever. So, I don't shop there very often because their clothing doesn't wear out.

                                    But I checked with my daughters who are more the demographic of – buying yoga pants and all and they rave about the products. But there are competitors out there – Athleta, Vuori, etc. – that are coming in. They're being affected by tariffs. And also, there are good reasons the stock has sold off. But it reminds me of Five Below, another very different retailer but it got hammered. The stock went from $200 to $50 and bottomed because they import most of their cheapo products from China. So, back in April when tariff fears were at their peak, the stock sold way off. And the stock's doubled or tripled in just a few months since then. It's a very good business, and it just got hit by short-term concerns. And there's still somewhat longer concerns, but the sell-off was way overdone. So, we haven't formally recommended Lululemon in our newsletter yet, but it's definitely one that I'm encouraging my team to take a look at.

                                    You want to – I mean, generally, the goal of successful investing, what I've always tried to do, is find really great businesses that are producing a lot of cash flow, have little or no debt, etc., and they encounter headwinds that knock the stock way down, and then I try and figure out, okay, are these headwinds permanent? And has this turned into a melting ice cube? Or will these things either go away or at least won't get any worse? Because keep in mind, when you're looking at retailers, everything depends on your year-over-year comps. Well – and not just retailers, but for example, my thesis on Facebook when it got hammered was one of the things hammering them was TikTok came out of nowhere and was attracting a lot of eyeballs. But TikTok had already done an S-curve and was plateauing. So, I figured, "Okay, I don't think TikTok's going away but I don't think it's going to be any worse 12 months from now than it is today. So, the year-over-year comps are going to look really good a year from now."

                                    So, I would say Lululemon. We already talked about Salesforce. We didn't end up recommending Adobe sort of on a similar thesis that the AI concerns are overblown. And actually, that stock's just about flat. I think we recommended it about six months ago. So if you're going to bottom fish and look for turnarounds, look for companies like Adobe or Lululemon or Salesforce that have incredibly strong balance sheets and maybe their margins have been knocked down, but they started at 25% and now they're at 20%. In other words, they're still minting money. Those are the kind of turnarounds you want, not – generally speaking, I don't bottom fish in things like Office Depot, which is clearly a melting ice cube. But in that case, they still were generating enough cash flow, had a decent enough balance sheet that I figured, yeah, someone will probably come in and buy them. And I was right on that.

Dan Ferris:                 Nice. Nice call. Do I have you confused with somebody else? Were you not short Lululemon at some point, many years ago?

Whitney Tilson:           Honestly, I don't remember. Right when they were first coming public and they were trading at, like, 100 times revenue or something crazy, I was like, "This is ridiculous." And you want to hear a funny story? You know why I got out of the short before it destroyed me?

Dan Ferris:                 Why?

Whitney Tilson:           A fellow short seller told me, "Whitney, never, ever short a stock that sells a product that makes a woman's rear end look smaller, because there is no price that a woman won't pay for that product." And it's sort of sexist, it's sort of crude, but he was exactly right.

Dan Ferris:                 Yeah. Yeah. That's right. I mean, is Spanx public? If Spanx ever goes public, stay out of the way.

Whitney Tilson:           Yeah. Yeah, I mean, one of the things I have learned, again, over the years of short selling – and by the way, 99% of people should never short a stock their entire lives.

Dan Ferris:                 Period. Yes.

Whitney Tilson:           I learned a lot of lessons because I did a lot of short selling, activist and non-activist, but you just never want to short anything where people are crazy about the product. Look at the people who got destroyed shorting Tesla because people love their Teslas more than their wives. Another total fraud was the Green Mountain Coffee. They made the Keurig coffee pods and all, where instead of having to brew up a whole pot of coffee, you just pop the little pod in, press the button, and you've got one cup of coffee. And that – and I know for a fact – one of my friends was at their warehouse and saw them committing inventory fraud to make their numbers one quarter. They were literally taking coffee pods out of one entry bay of their distribution center and transporting it 100 yards into another entry bay and declaring it a sold product. It was total fraud. And they exposed it, and nobody cared because it was a great product that and people were buying it. And the fact that they were fiddling around at the margins to boost their sales or profit 2% or 3% or 4% at the end of a quarter to make their numbers, yeah, it was total fraud but it didn't matter at the end of the day. Somebody came in and bought the company for a big premium.

Dan Ferris:                 Here's to fraud, that my cup is full of Keurig coffee every day.

Whitney Tilson:           Exactly.

Dan Ferris:                 Yeah. I was just looking at –

Whitney Tilson:           By the way, the inverse of this is obviously don't short any of this, but try and go long. Shame on me for – I visited Tesla's factory 12 years ago in Fremont, California. A friend of mine actually who I just – my cousin who I just spent the weekend with last weekend, he's a Stanford engineer out there. He knows all the other engineers. He heard I was short Tesla. He's like, "Hey, Whitney, a couple of my Stanford engineering friends work for Tesla." And he arranged through his friends to give me a tour of the plant. And I was smart enough to get out of my short, but I should have gone long. And I'll tell you – here's the most speculative idea I'm going to give for you and your listeners, anyone who's stuck around till the end of the podcast. My favorite speculation right now reminds me of Tesla 12 years ago: Joby Aviation. JOBY is the ticker. And they make EV TALs – electric vehicle takeoff and landing – like air taxis, jets kind of stuff. And they have an aircraft that seats a pilot and four passengers. They're going through FAA approval. There's another company, Archer, in the space but Joby is the leader. That's my favorite. And they are going to start commercial flights between Abu Dhabi and Dubai next spring because they don't need FAA approval for that. And I'm going to fly over there just to fly in this thing.

                                    I know a senior executive there. I spent an entire day at the company two years ago. And my cousin, the Stanford engineer, came with me and he knew all the engineers there. And after visiting, he's like, "Whitney, this is the greatest collection of engineering talent outside of Tesla in the world. These guys are for real." And I said, "You know what? They have no revenue. Who knows when the FAA will approve them? Who knows if flying air taxis will be a viable business?" But I think that they are working – in order to make a flying air taxi, there are a thousand things you have to do right, but the two most important things are developing super-efficient battery packs because the weight of the batteries in an aircraft is obviously really critical, and then you need super-efficient electric motors.

                                    Now, those two things are not unique to aircraft. So, I figured if these engineers come up with a 5% more efficient motor or a 5% more efficient battery pack and this company has a $3 billion market cap and Tesla has a trillion-dollar market cap, Elon Musk would buy this company so fast just to get a 5% improvement in a motor or a battery. So, I just sort of figured – and Tesla, I'm just throwing out Tesla. And by the way, Joby – the stock's done well. The stock went up from $5 to $20. It's now back to, I don't know, $14 the last I looked. So, it's had that little pullback. Still has no revenue. Still highly speculative. But I've consistently in my career underestimated what the world's greatest engineers in emerging technologies are capable of and what the stock results can be. And I'm sick of missing those moonshots. And so, I've got a small – I'm recommending Joby but size it small.

Dan Ferris:                 All right. Thank you for that. And thanks for being here, too. It's time for our last question, which is the same for every guest, no matter what the topic that we've been discussing. And you can answer it any way you like. It doesn't have to be financial. The question is simply this: If you could leave our listener with a single takeaway today, what would it be?

Whitney Tilson:           The surest way to get poor quickly is to try to get rich quickly. And I see it all the time. I hear stories from my readers and all. There's a massive, massive industry designed to suck people into get-rich-quick schemes. And I still to this day – I no longer think bitcoin is worthless just because there are enough people who think it has value, but it is purely an instrument of speculation and I have no regrets about missing it. There's no way to value it. There's no intrinsic value. There's no cash flow, whatever, right? But I mean, that would be among the best speculations out there. It's sort of done well. These China scams that are – I mean, we're talking tens of billions of dollars. And then, people get called up and they get sucked into these romance scams and so forth that drain their life savings in this highly interconnected world, especially older people who aren't as sophisticated. Those are the targets. And so, they get sucked into stocks, scams, promotions, etc. And they end up getting destroyed. So – and it's people feel financial pressure. Every human being on Earth wants to get rich quick. And getting sucked into trying to get rich quick is the absolute surest way to get poor quick.

Dan Ferris:                 Amen. And thank you for that and thanks again for being here. It's always a pleasure to talk with you, man.

Whitney Tilson:           Likewise. Thanks for having me.

Dan Ferris:                 Hey, man, it's another Whitney interview. We got tickers, we got insight, we got advice, we got everything. It's just another great session with Whitney.

Corey McLaughlin:    Yeah, and I'm glad I get to take advantage of these supposed – all these mistakes that he's made throughout his career and listen to this advice –

Dan Ferris:                 And don't make them, yeah.

Corey McLaughlin:    – and just hold winners and don't sell them for the most part. And hopefully I can take that advice and listen to it myself for a long time. But yeah, no, that was great. He went through a lot there.

Dan Ferris:                 Yeah, he did.

Corey McLaughlin:    It was pretty good.

Dan Ferris:                 Yeah, a guy – I mean, his daily, he's just constantly sort of rummaging through the market. He's constantly going through the market stock by stock by stock. So as everyone just heard, he's got all this information just right online. So, it's – he's like a must-check-in-with-a-couple-times-a-year kind of a guest for us. When he mentioned bitcoin, I thought of you immediately because he's like "Well –" yeah, he's like – because I know you own plenty of it. And he's like, "No, not my thing at all. Can't value it. Don't know what it's worth. Pure speculation."

Corey McLaughlin:    Right. I mean, well, yeah, it's pure speculation, as much as anything else, I would say. But you're right, you can't value it traditionally, conventionally with cash flow and that sort of thing. But neither can you, say, a commodity like gold, I would say. So –

Dan Ferris:                 Same argument. Yeah.

Corey McLaughlin:    Yeah, so that's fine. I mean, I'm not – I'm happy to have had some returns from bitcoin and a lot of other people are too. So far. But it's like anything else. You've just got to be careful when it's getting to those levels, those mania levels, and just know that it also can go down 80%. It's not the end-all-be-all, like anything else, I would see. So, I totally agree for the speculative point there.

Dan Ferris:                 I read something the other day that suggested that bitcoin's days of 80% declines are over. And my normal reaction to that is "Oh, sure they are. That's probably a sign of the top or something." But my new reaction is, "I don't know anything." It could be true. I have no idea. I mean, I don't – like, all these halvings that occur and all this stuff behind bitcoin that makes it value and that people like Michael Saylor say makes it the most valuable thing that humanity has ever created or whatever, they may have gone too far as people do in sort of bubbly speculative situations, but they didn't say it for no reason at all. So, I don't know.

Corey McLaughlin:    Yeah, I'm with you. I don't think anybody truly knows. It's still something that's still less than 20 years old at this point. So, bitcoin. And so, we'll see. But yeah, if you're not following Whitney's daily, I mean, you really should.  I'm a little biased because – I think I mentioned this before – I edited it for a little bit when I first worked with him. And I was just like, "How is he possibly reading all of these things every day and putting these into a daily newsletter?" And he's still doing it. And he's more recently taken an angle of getting into the individual company analysis that, as he mentioned, a lot of readers will just write in and say, "Hey, take a look at this stock," and he'll go through it and give a first look, I think he calls it. And yeah, no, it's great. And then he just kind of culls a lot of stuff from what's out there in the financial investment – we used to call it the blogosphere, but the Internet I just suppose we can call it now. And yeah, and also you can find him in our Investment Advisory too, where he's the lead editor, where we do the formal recommendations and portfolio and all of that sort of thing. So, yeah.

Dan Ferris:                 Right. Cool stuff. Yeah, that's where you go. The Stansberry's Investment Advisory is where you go if you want to find out what he's saying you should buy right now this month or whatever. So, another place to find him. Smart guy, cool guy. I've known him for many years. I've known him probably for more than 20 years. I think I went to the very first Value Investing Congress, which was more than 20 years ago, I think, as I recall. Early 2000s or so. My memory is not great, so if it wasn't 20 years ago, sorry. But yeah, I used to attend every single one of those because he and his partner, Glenn Tongue, were really, really smart guys who attracted lots of other smart guys, that they went to Harvard or Princeton or wherever they went. So – as well – and people like Bill Ackman and David Einhorn would show up and it would be amazing. So,  learned a lot from him over the years and I know we'll continue to do so.

                                    So, yeah, that's another interview, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it and benefited from it as much as we really, truly did.

Announcer:                 The opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company, or affiliates.