On this week's Stansberry Investor Hour, Dan and Corey are joined by Eric Fry. Eric is the editor of multiple newsletters at our corporate affiliate InvestorPlace, including Fry's Investment Report and The Speculator.

Eric kicks off the show by discussing his time working alongside legendary financial publisher Jim Grant and his top-down approach to investing. His strategy involves finding industry leaders that have fallen on hard times but still have favorable underlying dynamics. Eric says that with this method, he has collected 100%-plus gains in the past few years in companies like Amazon and Corning. He also talks about investing in foreign stocks, the unbalanced risk in microcaps that many investors don't consider, and three industries he stays away from. He advises...

Invest in what you know. Start at least there... If you know something about the industry – a little bit even – you'd be able to say, "OK, that makes sense. Tesla's selling more cars than it was before. Tesla's selling less cars than it was before. I kind of get that." You have to have some basic knowledge of what you're investing in, or you're not going to know when you're wrong and when to get out.

Next, Eric shares his time horizon for investing, whether he recommends adding to existing winners, his past experience with bitcoin, and the advice he gives his subscribers on position sizing and risk management. He notes that investors will often overstate their risk tolerance and understate their investment goals, which can cause problems. This leads to a conversation about the advantages of long-dated options versus short-term options...

The fun thing about those long-term ones is that it forces... discipline... It forces you to stay in the position. So if you buy a long-term option and it goes against you immediately, well, you could sell it at a loss. But why not just hang in there? And many, many times I've had options that will go down 50% or 60% or 70% but end up being a double, a triple, or a quadruple. Hard to do that if it's a stock. If you're in a stock that falls like that, you're panicking and you want to bail out. But in an option, it's much easier to stay in there... for an ultimate payout.

Finally, Eric breaks the world of AI investment down into four groups: builders, enablers, appliers, and survivors. He says most of his current investment ideas are focused on the survivor category – and he names three such stocks he likes today. This includes a for-profit thrift-store chain, an English beverage company with rising U.S. sales, and an international food-delivery company that just became profitable. Speaking about the AI space, Eric observes...

As a professional investor, I'm not finding a ton of opportunity in... the AI builders and the AI enablers... There are lot of great companies there, but the prices are very inflated... I am finding opportunity in the other two categories, the AI appliers and the AI survivors. And many of the survivors are so overlooked... People tend to think that in the middle of a boom like this, you must be close to the boom in order to make money. And actually, history tells the opposite tale.

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

(Additional past episodes are located here.)

This Week's Guest

Eric Fry is an author and the editor of the Fry's Investment Report, Eric Fry's Smart Money, and The Speculator newsletters at InvestorPlace. Eric has specialized in international equities for nearly two decades. He got his start as a brokerage assistant with E.F. Hutton. And after more than 10 years as a professional portfolio manager, he joined James Grant's prestigious Wall Street-based publishing operations. There, Eric helped launch Grant's International before starting his own boutique firm, Apogee Research.

In 2016, Eric won the Portfolios with Purpose competition – Wall Street's most prestigious investment competition – beating 650 of the biggest names in finance with a 12-month return of 150%. In professional circles, Eric is known for his extraordinary long-term track record, which includes numerous 10-bagger calls. His record on the short side of the market is just as remarkable, though, as he successfully shorted numerous technology stocks before the dot-com bust. Eric's work has been published in Time magazine, Barron's, the Wall Street Journal, Bloomberg Businessweek, USA Today, the Los Angeles Times, and Money.

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 Eric Fry, editor of Fry's Investment Report, from our corporate affiliate InvestorPlace.

Dan Ferris:                 Eric is an old, old friend but I haven't talked to him in years and I cannot wait to do it again. Literally, first time in more than 10 years. So, let's not delay one more second. Let's talk with my old friend, Eric Fry. Let's do it right now.

                                    Eric Fry, my friend. It's been a long time. Welcome to the show.

Eric Fry:                     Thank you, Dan. Nice to be here.

Dan Ferris:                 I can't even remember how long it's been, honestly. I want to say 10-plus years since we've spoken or run into each other at a conference or anything.

Eric Fry:                     Yeah, something like that. I think I saw you in the outskirts of the Grant's Conference or something like that. I'm not sure.

Dan Ferris:                 Possible, yeah. Although, it's been a while for me at Grant's, too. So, whatever the case, a pleasure to see you again, as always. So, as you see, I have been graced with a cohost, Corey. So, we're going to do our best to find out what you've been up to.

Corey McLaughlin:    Yep.

Dan Ferris:                 Maybe that's what we should start with. What have you been up to these last many years and what are you up to today?

Eric Fry:                     Well, I'm producing a couple newsletters. One's called Fry's Investment Report and it has a pretty healthy circulation. And then, I've got an options service and a sort of a small-cap-focused service as well.

Dan Ferris:                 All right.

Eric Fry:                     That's it. I've just been putting out investment ideas trying to make some money for subscribers and enjoying it.

Dan Ferris:                 All right. Love it. Eric and I have known each other for a long time ago you worked for Grant's, did you not? Grant's Interest Rate Observer.

Eric Fry:                     Yes. In the – from '98 to '02.

Dan Ferris:                 That has to be a pretty good place to sort of cut one's teeth in this business, I would guess.

Eric Fry:                     I think there was no better place. I've thanked Grant's – Jim Grant – a number of times for the opportunity and he's just a brilliant financial mind, witty guy, great guy. I couldn't have asked for a better mentor.

Dan Ferris:                 Yeah. And a hell of a writer.

Eric Fry:                     If your viewers don't read Grant's, they probably should. I'll put in a plug for Grant's Interest Rate Observer.

Dan Ferris:                 I agree.

Eric Fry:                     He's done it for 40 years, I think, and it's still a fantastic read.

Dan Ferris:                 Yes, it is. It's better than ever, in fact.

Corey McLaughlin:    Yeah. It is. I write a daily newsletter but it's one of the daily newsletters I read for that reason. Just the short little even recaps of what happened during the day are great.

Dan Ferris:                 Yeah. Nobody does it like them and nobody says it like Grant's. All right. So, the Grant's commercial is over. But the point is, you learned quite a bit and went on to do your own thing. So, tell me about – you've got three areas – small cap and options and stocks –generally, I assume. If somebody asked me, "What are you into?" I'd say, "Well, I started as a value investor and now I'm kind of growth-at-a-reasonable-price type investor." If I asked you, "What kind of investor are you?" What would I get? What would be the reply?

Eric Fry:                     Sure. I have a top-down approach in general. I'm looking for large trends driving large multiyear moves in a sector or a particular national market. And then, from that analysis, looking for really turnaround stories. That's my bread and butter, is just looking for, not second-tier stocks but truly industry leaders that for whatever reason, whether it's a cyclical phenomenon or just the company made some mistakes, fell on bad times, or harder times, and have failed to perform as a stock... But the underlying opportunity, the underlying dynamics are still favorable, where the company is still a genuine leader in the industry. So, those are the kind of names that I look for.

                                    And so, it's a contrarian bent but I'm not a value investor in the classic sense. I'm not just going to sit there forever waiting for something to maybe germinate. You know how that goes. You buy these value stocks and they sit there forever and don't do anything, many times. So, you need something. You need a catalyst. You need something that's going to get this baby going. And so, that is where both the top-down analysis comes in and then the company-specific analysis, where you really want to have both things going in your favor. You want a favorable macro trend and you want to have some plausible reason why the company is going to perform within that trend.

Dan Ferris:                 OK. I think I see where you are here. It doesn't sound like – are there a lot of these?

Eric Fry:                     Yeah. Surprisingly. Yeah, because there are niches in different markets. I mean, I could tell you some – just in the last there years – when I say a company or a stock has fallen on hard times, it doesn't mean it's gone – fallen 95% or something. It could be down 30%. It could be failing to keep pace with a booming market. There's lots of ways of qualifying it. But just in the last couple of years I've gotten a 100% gain at least out of names like Amazon, Alphabet, Corning, AMD, Micron. Those aren't unknown stocks.  

Dan Ferris:                 No, they're not.

Eric Fry:                     But if you – Oracle most recently.

Dan Ferris:                 Oh, yeah.

Eric Fry:                     That's a stock I recommended about a year ago. It's up around 96%, 97% from my recommendation. Obviously, a very well-known name, but it was, I thought, undeservedly lagging in the midst of this crazy AI boom. And so, everybody is buying up the Mag Seven and completely ignoring a company that I thought had a great shot at becoming essentially the backbone of AI infrastructure for many of the hyperscalers. And that's exactly what we're seeing play out with that name.

Dan Ferris:                 Well, the market fixed that little mistake pretty darn quick, didn't it?

Eric Fry:                     Who did?

Dan Ferris:                 The market. The market fixed –

Eric Fry:                     Yes. I mean, maybe they're starting to err on the other side, but yes, they corrected that error for sure. So, those particular ideas are not – when I recommended them, those are not ones that I thought were going to deliver a 1000% gain or anything like that. What I'm really looking for is an opportunity that is extremely solid, that is going to significantly outperform the market in a positive way. So, I don't sit there and go, "OK, this is a 10-bagger" or "It's a five-bagger" or whatever. I just say, "Wow, this thing is going to be much better than the market for the next six months, year, two years, three years. And then, sometimes you get a big surprise and it ends up going just like that: 500%, 600% or whatever.

                                    So, I have plenty of those in slightly lesser-known names but they're still industry leaders, or they are least niche leaders, leaders in their particular part of a market.

Dan Ferris:                 OK, do you do that in your small-cap letter too? What do you do in there?

Eric Fry:                     Yes. I mean, the difference is that you won't find an Oracle in my small-cap letter. The small-cap letter is not necessarily small cap, really. It's just more obscure names and things that have less liquidity. So, sometimes it's a large cap that just trades overseas... I've been trading international stocks – I think you know this – I've been trading international stocks for a very, very long time and really specializing in it for most of the last 30-plus years. And ironically, there used to be a much larger base of U.S. investors and/or U.S. newsletter readers that would be interested in investing in foreign stocks, directly in them, meaning buying them on the Paris market or London market or whatever. That generation seems to have either died or gone on to something else... But they don't really exist anymore. So, that means that when I want to recommend a foreign stock, it has to be actively traded in the U.S. as an [American depository receipt ("ADR")]. And if it doesn't, if it's not that, then I almost never do it. But what that means is you have a stock like Campari I recommended recently. That's your large Italian-spirits company, right? It trades very actively, millions of dollars a day of stock in Italy. It doesn't trade much here, but there is an ADR that trades actively enough to accommodate that number of readers that are subscribing to that newsletter. But I couldn't recommend that to Fry's Investment Report because there are too many subscribers there to be able to invest in a stock like that.

Dan Ferris:                 Got you. I see. So, that's pretty cool to me, too. So, your overall focus, like many, actually – I'm kind of proud to say many of us at Stansberry and many of our guests, you want a quality business. It sounds to me like you steer clear of what I might call "speculative stocks."

Eric Fry:                     I definitely try to. I know your work and I know we are very simpatico about this. You're looking for an asymmetric opportunity, right?

Dan Ferris:                 Sure.

Eric Fry:                     Something that gives a much higher percentage of potential reward than the unit of risk that you're assuming. And if you, meaning somebody like you, or any investor, really, is diligent and disciplined, you can find those opportunities. You don't have to go fishing in like, the minnow waters of trying to find some $30 million market cap stock that might go up or might blow up. I don't like those kinds of opportunities. Those are not asymmetric; they're symmetrical. It might go up. It might blow up. That's not a great way to make money over time.

Dan Ferris:                 No.

Eric Fry:                     I mean, I have a screening system that I developed that starts with 14,000 securities and then winnows it down to a handful. And I run it every day. It's something I've developed over the years. But the starting point is 14,000 securities, right? So, there are a lot of fish in the sea. And by the way, those 14,000, that's only stocks over a billion in market cap. So, there's thousands more, but within that universe – tons of stocks that are going to occasionally set up really attractive risk-reward asymmetric opportunities.

Dan Ferris:                 Yeah, if you're looking at a universe of 14,000, there's too much to do, more to do than you can handle every single day of the year.

Eric Fry:                     That's true. I was going to –

R;                                I think that kind of answers my earlier question. "There aren't a lot of these are there, are there?" "Oh, well, there's 14,000 of them, Dan."

Eric Fry:                     Well, out of those 14,000 stocks. I mean, when I run the screens every day I end up generally with less than 10. Sometimes zero. So, yeah, the kinds of stocks that are offering that opportunity that have that have come down significantly from their highs, that are beginning to show some upward momentum, that have some revenue momentum or – those are the metrics and some others that are in my system, that universe is pretty small. But they're there all the time, right? You've just got to look for them.

Dan Ferris:                 Yeah, that number 14,000 suggests that you are agnostic as to industry. Any industry.

Eric Fry:                     Mostly true. Where it's not true is I have explicitly eliminated a handful of industries from that group. So, I don't deal with any financials. So, no financials. I do deal with payment processors, like a stock like PayPal or whatever. I mean, that's in the group. But a traditional financial, out. Biotechs, out. Even metals and mining are out, even though I do a lot of work there. And the reason those are out is that those kind of industries tend to be very, very binary as far as the investment results that you receive as an investor. What I say about how about banks, for example, is that they work great until they blow up. It's just a matter of time. It's a cycle. So, you can go, "Oh, gee, great. Citigroup, great stock." Right. OK. Yeah, it can be for a number of years and then it will zero out and then it will come back to life and work again for a while and then zero out. So, I don't like being involved in those. Biotech, same deal, really. You're very, very dependent on what the FDA does, says. And those industries don't lend themselves to the kind of modeling that I use. So, nothing wrong with biotech. You can make great fortunes. Nothing wrong with banks. You can make fortunes. But it's just not something that I do.

Dan Ferris:                 Do you include insurance in the finance group?

Eric Fry:                     Yes, I do.

Dan Ferris:                 OK. Got you. Yeah, they don't. Those businesses – the metrics are all different. It's a different animal. And as you point out, there are some boom-bust dynamics in the banking –

Eric Fry:                     Yeah. Oh, and they're equally opaque. There's a lot of off-balance-sheet activity that's very hard to quantify and very hard to measure as far as trend is concerned.

Dan Ferris:                 Yep. Yeah. And there's a black-box aspect to virtually every finance business. Even the great insurance companies, you see all the results, you have reputation and history and lots of results and data to look at, but technically speaking, you can never be 100% sure what they're doing in there.

Eric Fry:                     Yeah, anybody who's been at this for a while tends to focus on some areas more than others, whether they think they do or not. There's just a comfort zone with different areas of the market. And there are experts in finance, there are experts in biotech, and I'm neither one of those. So, that's for somebody else.

Dan Ferris:                 Yeah, they almost beg for a special expertise, I agree. It reminds me of [when] Warren Buffett said, "You can't kiss all the girls." Right? You've got to make a decision and – about what – and he also – of course, he's the famous circle of competence mental model, which applies here.

Eric Fry:                     I don't remember the exact quote, but Charlie Munger, his partner, said they have three buckets. It's something like "yes," "no," and "too difficult."

Dan Ferris:                 Yeah, the "too hard" pile. That's right. Yeah.

Eric Fry:                     Too hard. Yeah. So, that's where I put those industries. Too hard.

Dan Ferris:                 Yeah, they are. I agree. I had to learn that the hard way about reinsurance many, many years ago, about 20 years ago. I finally said "I talked to them and they tell me they're doing this, but it turns out they're doing that." So, just too hard. Can't tell what's going on in there, so you've got to take a pass. I think this is a real good point for our listeners. You can't know everything and you can't invest in absolutely every industry all the time with confidence. Eric, isn't it true that you hold on to a winner through its ups and downs until it becomes a much bigger winner mostly because you know the business and you have some confidence about your understanding of it, so you say, "Well, this sort of thing happens. They're just having an off quarter," or whatever it is. You get the confidence to hold and make big gains through research and through understanding the business and through – on the negative side saying, "No, can't invest in in those types of business."

Eric Fry:                     Yeah, I mean, I actually think that cuts both ways. I started smiling because I forget – some hedge-fund guy said this to me once. It was about, "the names he knows best are the ones that are underwater," because as they're falling, you're constantly questioning your hypothesis about it and "Where am I wrong?" Or you remember you're averaging down. So, you know your losers cold. Your winners you don't know as well. But I agree with you. If you're going to have winners consistently, it needs to be in an area where you can understand why it's working or why it isn't working. That's one of the things that I tell people when they ask me "Well, how should I invest? What should I invest in?" And I always say the same thing. I say, "Invest in what you know." Start at least there. Don't invest in what you don't know. Don't invest in what somebody told you as a tip because you have no way independently to determine whether it's on the right track or not on the right track. If you know something about the industry, a little bit even, you'll be able to say, "OK, that makes sense. Tesla's selling more cars than it was before. It's also selling less cars than it was before. I kind of get that." You have to have some basic knowledge of what you're investing in or you're not going to know when you're wrong and when to get out.

Dan Ferris:                 Right. You can't just buy something without understanding what you want because sooner or later you will be down 20% or 30% and you will have a decision to make. And if you don't have the knowledge to make it, you're going to be taking a constant string of those losses because you'll be too scared to stay in it.

Eric Fry:                     Exactly right.

Dan Ferris:                 Yeah. This is something that I need to learn to tell better stories about because it's such an important thing. And if you tell a good story about something, people will remember it. If I just say to the listeners, "This is very important," like I just did, maybe it doesn't land. We'll have to figure that out together sometime.

Eric Fry:                     All right. Sounds good.

Dan Ferris:                 And it reminds me of something else. But first I want to ask you, your general time horizon sounds like it doesn't extend more beyond a few years.

Eric Fry:                     I typically set out to realize some kind of success within, we'll say a one-to-three-year window. I'm expecting initial success in that window. And then I'm not often really expecting it in the first 12 months. I mean, certainly not the first six months. Hoping. But when you're buying the kinds of stocks that I typically recommend, it's very easy to be off a bit, right? Maybe you buy a little early or whatever. I never actually worry about a quick down 20 or quick down 25 or 30. I don't like it but I don't worry about it because the premise is still intact and I'm expecting to get paid in a one-to-three-year window. So, that's what I would say is the starting point.

                                    Once we get into that window, two years, three years. I mean, I have stocks in my newsletter portfolios that have been there for four or five years and they're holds because they're up a lot, but I think they're holds. I mean, if you have been in this name for a while, it's delivered great gains for you, maybe you want to trim the position, but I think this is a position to be holding longer term because it's still delivering kind of growth that we want.

Dan Ferris:                 Sounds good. I tried to remember this on the last interview we recorded and I just spaced out and forgot it, but I heard a trader once say, "You can't be a great trader unless you've added to a winner." And ever since then it has been gnawing at me and I thought, "That's interesting" because some of the stuff that I've recommend – owned personally and recommended, some of the stuff I've recommended in the Extreme Value newsletter from – there's a couple in there from 2009 and the 2010s and stuff. And I mean, we kept upping buy prices as we saw fit, so that's as much as you can add to a winner in a newsletter, right? So, that was adding to winners. But I think it's a good point. Do you have any sort of mechanism for this in your newsletters?

Eric Fry:                     For adding to winners?

Dan Ferris:                 Yeah. Like, raising buy prices and –

Eric Fry:                     That's a great question. It's a really a hard question because the – so, I used to manage money for a number of years and it's not the same process as running an investment letter. The delivery mechanism is not as immediate, is not as precise. When you or I put out a recommendation, we know that not every single reader is going to act on that. Some will, some won't. And they self-select, as they should. The idea is to bring them ideas that they could think about and process and go, "OK, yeah, that one I like. That one I don't like." Whatever.

                                    So, the problem, then, when you have successfully said, "OK, whatever, buy IBM at $100" and then you've done that and now the stock goes to $160. Do you want to, then, to a new subscriber say, "OK, now buy this at $160"? I don't like to do that because I know about how people actually use the material. I know that they self-select. So, I would rather that they get engaged in the newer recommendations as they come along. And they can read all of our old research on IBM if they want to. They can buy up if they want to. But the second that I recommend it again at $160 and then it goes down to $120, now I get, "Hey, why did you tell me to buy that at $160 when really I should have bought it at $100?" So, in a newsletter setting, I don't generally raise buys that much. I try to provide continuous updates on open positions. And then I'll remind them "OK, I recommended it at $100. I still think it's a solid stock here at $160 but it's not as solid as it was at $100." So, yeah.

Dan Ferris:                 OK. Got you.

Eric Fry:                     Buy the cheaper one. Buy the new one.

Dan Ferris:                 Yeah, it's –

Corey McLaughlin:    Yeah, it is tough in a newsletter setting, I think, to do that as well. But, Dan, I've been thinking about that quote since you said it on our last recording too. Personally, I'm in this gold trade right now and it's going parabolic basically almost, and in my head I'm like "Oh, should I trim a little here?" And then I'm thinking about what you're saying. "Wait, should I just add more?" Work with the unrealized gains already?

Eric Fry:                     I don't think there's a right answer, honestly. Gold is great example because gold is the ultimate non-stock. It's not an operating company. Many people have disdain for gold and silver, including Warren Buffett. They call it a forever unproductive asset. So, gold is in a separate category for us who produce investment research because any positive mention of gold is an immediate ding to your credibility. It's like, "I thought you were a stock analyst. What are you talking about gold for?" You might as well be talking about, I don't know, tea leaves or something.

                                    And that said, I have recommended gold stocks, a handful of them. I've recommended platinum stocks. They're in essentially all my services. Not in a huge way, but they're there. But then, early summer, I saw what I thought was a set up for a trade, a really good trade in silver in particular. So, I came out and I recommended a new trade on essentially silver. But I framed it as a trade. "This is a trade." A trade, not a traditional one-to-three year investment. I framed it as a purely optional thing but it was doubling down essentially. I already had open positions in the portfolio that were up 200%, 300% in gold and silver, right? So, why would I recommend a new thing?

                                    I was recommending a new thing because I thought it was legitimately a new opportunity for a new subscriber. I thought it was – "OK, even though I've already recommended it in the past, I think this is the new thing that will work right now." And so, that kind of answers your question. It was doubling down in a way, but it was a new idea.

Dan Ferris:                 Yeah, you can know your strategy, you can know yourself, but you can't know what is going to appeal to you. You can't know what you're going to find. And this sounds like one of those. Like you said, it's like "Where did this come from?" your reader might have been asking. And you just explained it pretty well. That happens. I've recommended some things – like, if you told me even couple of years ago that I was going to put an earlier-stage uranium company in Extreme Value, where I'm focused on cash-gushing, wide moat, et cetera, all these businesses like Costco and Berkshire and all the other stuff, I would have said, "Nah, we don't do that there." Or that I was going to pick a whole portfolio of this stuff and make it a separate category that you had to pay more money to get and all this stuff of mining stocks of different kinds, including uranium, I would have said, "No, we don't really want to do that." But when things are attractive, they're attractive. And to a certain extent, you've got to listen to what the market's telling you. I agree with that. You've got to remain flexible, don't you? No matter what your strategy, you have to remain flexible.

Eric Fry:                     I mean, I know this from feedback that I get from readers... It's very helpful to be to be transparent. And if something looks like a strategy departure, you have to deal with it dead on. I mean, like 95% of what I recommend, no one's going to be scratching their heads. They're going to say, "OK, well, that's consistent with what he does. I get it."

Dan Ferris:                 Exactly.

Eric Fry:                     But if you go a little bit away from there, you have to say,
"I understand this is not what you – basically, it's not the reason you bought the newsletter. Let me tell you why I think it's worth doing." So, that's all. I don't think you or I or anyone really wants to make a habit of departing from your core strategy because that's what leads to your success. You have to stay disciplined on your core strategy. I can't just one day wake up and go like, "OK, well, today I'm going to buy microcaps in Indonesia just because I feel like it." There has to be a reason why you're doing that.

Dan Ferris:                 Right. I raised a few eyebrows by recommending bitcoin in a newsletter called Extreme Value. So, yeah, I know where you're coming from.

Eric Fry:                     Well, it would have worked. I'm sure no matter when you recommend it, it would have worked.

Dan Ferris:                 Yeah, we did all right. Do you own bitcoin? Do you write about it?

Eric Fry:                     No.

Dan Ferris:                 No?

Eric Fry:                     A long time ago, I wrote about it. '17, something like that. '15. I don't remember. A long time ago.

Dan Ferris:                 Wow.

Eric Fry:                     And I'm actually – yeah, I did recommend it in a special report. It came out in, I think, '15 or '16. I don't remember.

Dan Ferris:                 Nice.

Eric Fry:                     But I recommended it sort of, I mean, really as a speculation on a phenomenon. At the time it was around – it was less than $1000. I know that. I forget exactly where it was. It was less than $1000. And when it had that first run toward $17,000, I followed it up and I said, "OK, I'm tapping out." And I haven't touched it since. I haven't written about it negatively, positively, in any way. So, I'm not a crypto guy.

Dan Ferris:                 Not a crypto guy. I don't fancy myself a crypto guy either, but I've recommended it and I own a little. And I feel like it's almost like this call option without an expiration date sort of thing. And if you size it that way and just forget about it for 20 years, I think it could work out well. That's pretty much all I can do right now. I need more homework to do anything more than that. And the sizing is important. Do you address position sizing in your letter?

Eric Fry:                     I do in some of the introductory material. I don't address it on an ongoing basis.

Dan Ferris:                 Nor do I. What's the Eric Fry introductory pitch on sizing?

Eric Fry:                     Less than 3%.

Dan Ferris:                 I see.

Eric Fry:                     But the guidance is much more, call it personalized or holistic than that. I know from managing money, speaking to individual clients over the years, I think everyone knows this really who's been in this business... There's a wide chasm in between how [someone] will self-describe and what the reality is about their risk tolerance and their actual investment objectives. And typically, they will overstate their risk tolerance and understate the investment objective. So, they'll say "Well, gee, I just want to make 10% but I'm willing to take risk to do it." The reality is they want to make, like, 400% and they're willing to take no risk to do it. So, I try to address that realistically by saying, "Look, only you know you, and you have to err on the side of caution, meaning being able to stick with the position. So, if you want to take a 10% position, that's great as long as you absolutely positively realize, can you take a 5% hit immediately? In other words, lose half of that immediately. Are you OK with that in pursuit of getting a 10-bagger or whatever? And if you're not, then don't take a 10% position. Take a 2% or a 1% at whatever the number is. But you have to determine that realistically for yourself." And that's different person-to-person. So, there's not a one-size-fits-all when it comes to position sizing or any kind of risk abatement, we'll call it, in your portfolio, risk management in your portfolio.

Dan Ferris:                 Right. Whether you realize it or not, you have broached the topic of time travel, right? You must project yourself forward in time to that 30%, 50%, whatever-it-is loss and say, "How do I feel now about my 10% position?"

Eric Fry:                     Right. Well, that's one reason why – so, I run an option service and I only do long-dated options, the ones that are called LEAPS. So, things that are – at purchase – are longer or out more than a year. A year or two years. And I love that service. We always have a hard time selling it because just the word "option" is "Aah, scary!" And then, most people who trade options or who run options services are focused on the sort of three-to-six-month option window. Hardly anyone does options out in time. So, they don't realize the huge difference between those two types of securities, one being very speculative, the short-term ones, one being much less speculative, the long-term ones that I do.

                                    But the fun thing about those long-term ones is that it forces the individual into all the things that we want to do. If you have a bad trade, if you have a bad investment, you're forced out of it because your option expires worthless, right? So, you can't keep like, "Oh, gosh, I'm going to add more." No, there's no such thing. You're out, right?

Dan Ferris:                 Yep.

Eric Fry:                     And then if you want to be in again, you can be in again, but you have to buy a new option. And so, on the one hand, I've done that actually several times. I've done it with – Freeport-McMoRan is a great example where I had an option trade on that stock that went to zero. The next option I recommended on that went up 1500%. But if you're sitting there bellyaching about the trade that you had that didn't work, you're never going to be involved in the next one, right? The option forces that discipline.

                                    And on the other side, it forces you to stay in the position. So, if you buy an option, long-term option, and it goes against you immediately, well, you could sell it, sell it a loss, but why not just hang in there? And many, many times, I've had options that during the course of their lifetime will go down 50% or 60% or 70% and end up being a double, a triple, or a quadruple. It's hard to do that if it's a stock. If you're in a stock that falls like that, you're panicking and you want to bail out. But in an option, much easier to stay in there. So, I like the discipline that it imposes on the process. It makes it actually easier to minimize losses and to stay in there for an ultimate payout.

Dan Ferris:                 That's a good point. I could never and have never and probably will never do an option service because I personally trade them but I only do two trades. It would be the most boring thing in the world. We'd be doing vertical put spreads for two weeks and then we'd be buying out of the money puts two years out, as far out as you can go, and they'd expire worthless half the time and – or more until they made you several times your money. And it would drive everyone nuts. Nobody I know would look at what I do and – at any given moment in time, if you just took a snapshot, everybody would look at what I'm doing and say, "You're an idiot. This is never going to – this doesn't work." But it actually does. We had a guest on the show called Hari Krishnan, and he he does the second one. He does the buy-out-of-the-money puts every two years or something. And there's always a drawdown. You'll always eventually get to take some kind of little gain. But in the meantime, the deterioration over 18 or two months is, like, minus-90%, could be. It could be minus-90% the day before it's a five-bagger. It's insane. It's insane. Nobody would do it. But anyway, enough about me. So, your options sound like your long calls and long puts. Is that it?

Eric Fry:                     Correct. Nothing more exotic than that.

Dan Ferris:                 OK, very good. We have a guy who's pretty good at that too, Greg Diamond. I think he's the only one. I think everybody else at our firm are option sellers mostly.

Eric Fry:                     And is he sort of short and intermediate term or is he doing –

Dan Ferris:                 Yeah. Short/intermediate.

Eric Fry:                     Yeah, that's a more normal strategy. What I do is really – I mean, I describe it this way, is they're stock proxies. They're really stock proxies. When you go out that far, especially in the first six months of owning them, they trade and they behave very much like stocks. They don't trade like the options that most of us imagine.

Dan Ferris:                 Right. Right. It doesn't feel as much maybe like a lottery ticket as folks fear.

Eric Fry:                     That's exactly right. Yeah.

Dan Ferris:                 OK. There we go. And nobody wants to be – nobody at least wants to admit they're gambling. I mean, they may want to be doing it, but nobody wants to admit it.

Eric Fry:                     [Inaudible] someone is winning. Right?

Dan Ferris:                 Right. All right. So, look, if you don't want to give us any new names because you have paying subscribers, I understand. But if you do have a fairly new – it doesn't have to be a brand-new name, but just something you still like right now that you want to share with the listeners, they'll love it. They'll love you for if you do want to do it.

Eric Fry:                     OK. Sure, I'm happy to do that. So, I'll just – I'll preface it by saying that I have written several times the last few months about this idea of AI is obviously the story. I agree that it is the story for lots of reasons. But I also, even thinking that, for me that doesn't mean that you have to buy stocks that are directly related necessarily to AI, certainly not in the first the first sort of builders group, like the hyperscalers or the Amazons and so on.

                                    So, I break the world down into four categories of AI investment. One is the AI creators or builders. So, those are the stocks that have done really well going back the last three or four years. So, those are the most obvious AI plays. That is your Nvidias and Amazons and so on.

                                    Then I get to the AI enablers. So, those are companies that provide something essential to the buildout of AI. It could be a software company. It could be could be a company like Corning, one I've recommended that's providing fiberoptics for data centers. Anything that's powering a data center. Some of the mining companies that are providing copper or whatever to AI infrastructure. There's a huge group that are enablers.

                                    Then the next two categories I call the AI appliers. That's the largest group by far because that can be anybody. That could be any established business that is making some attempts to apply AI to its business. In most cases at this stage that's not being done very successfully or profitably. Companies are struggling to figure out how to integrate this new technology in a way that actually expands margins, but there are some that are having some success and there are going to be a lot more as time goes on.

                                    And then the final category I call the AI survivors. So, these are the companies have nothing to do with AI and never will and that provide, let's call it, a uniquely tangible human experience type of thing.

                                    So, I'm sort of over recommending the first group. I don't do much there at the moment, although I was very active there for a while. So, I'm more active in the final three groups – the final two groups, rather, the appliers and the survivors. So, that's a setup for, in the survivor category, I've recommended a company called Savers Value Village: SVV. It is a for-profit thrift-store chain. And the metrics are fantastic from a retail standpoint. And you have a Gen Z tailwind. Thrifting is a big deal. People show their thrift hauls on TikTok, yada, yada, yada. So, a lot going right with this company. That's one of them. 

Corey McLaughlin:    Is that the name of their stores, Savers Value Village? Or do they operate –

Eric Fry:                     That's the name of their stores. Yeah. And as I said, the symbol is SVV.

                                    In a similar – this is quite different, but I've recommended a company called Fever-Tree out of London.

Dan Ferris:                 Oh, yeah.

Eric Fry:                     It's sort of, again, a Gen Z play. So, Fever-Tree makes gin and tonic, ginger beer, things like that. But it's the first sort of branded, chichi, organic mixer, right? So, it used to be in the world of Canada Dry or Schweppes, whatever. In comes Fever-Tree and Fever-Tree is taking market share really rapidly from those old-school companies. And if you, now that I've mentioned the name, go in any bar, walk down your grocery store aisle, you will see Fever-Tree literally everywhere.

                                    So, the company had a sales slowdown in Europe, which caused the stock to fall quite a bit. But now we're seeing sales stabilize there and also increasing significantly here in the U.S. So, this is a situation that that stock is still underwater from where I recommended it – not by much, single digits underwater, but it's underwater – and – but that's one that I like a lot on a – again, sort of one-to-three-year situation.

                                    Let's see. I'll give you one more. Delivery Hero. Do you know that one?

Dan Ferris:                 I do not.

Eric Fry:                     DELHY is the symbol. It is a DoorDash/Uber Eats company that operates – it's the No. 1 delivery – food-delivery company in most of Europe and in parts of Asia, parts of South America, parts of the Middle East. And this is a company – like many companies of its type, bleeding cash forever just to build the infrastructure, to make targeted acquisitions, and finally reaching that wonderful pivot where it's starting to pivot toward a positive cash flow, positive numbers. And I think that as you look into next year, the year beyond, you're going to start to see positive margins really ramp up. And the sort of payday is coming for that stock. Also very actively involved in robotic and drone delivery, which I think is cool. It's had some pilot programs in Scandinavia where it has a robot delivering stuff all over Stockholm.

Dan Ferris:                 That is wild. That's wild. But is the robot just like a little cart that propels itself or –?

Eric Fry:                     Yeah, yeah. It can navigate low curbs and things like that. It's already – it's delivering to 50,000 homes in Stockholm now.

Dan Ferris:                 Whoa, that's cool.

Eric Fry:                     I don't know if it has to put on little skis for the wintertime, but…

Dan Ferris:                 Yeah. But yeah, in that regard –

Corey McLaughlin:    So, with that one, with Delivery Hero and Fever-Tree, are you talking about the ADRs? Are those both ADRs?

Eric Fry:                     Fever-Tree, I actually recommend the London-traded stock, which the symbol is FEVR in London. It's very, very [inaudible].

Corey McLaughlin:    OK. But the reason I asked – yeah, the reason I asked that is I know you've written about this and done research on this extensively and shared it with subscribers. What does somebody need to know if they've never bought an ADR before about what they're doing?

Eric Fry:                     Nothing about ADRs. Well, I won't say that. I just – Delivery Hero is a liquid ADR. So, it's not difficult – in other words, it trades on a pretty narrow spread. Not a problem to buy it. Many ADRs trade on a super wide spread because they hardly trade here. And so, if you just toss in a market order you are going to get harmed. So, you don't want to do that. You need to know what the underlying stock is worth. That's why it's too complicated for most people. It's not actually very complicated, but it's more than most people want to deal with. Well, in the case of Fever-Tree, I think there is an ADR here but it's hardly ever traded.

Dan Ferris:                 Right. The average volume on the Fever-Tree ADR is 900 shares basically.

Eric Fry:                     Right, so you can transact that stock, but you would have to – so, for example, Fever-Tree closed today in London at 874 British pence. So, now you need to know, OK, what's the exchange rate? Find the exchange rate in dollars. Once you do that, then you find out, OK, how many London shares per ADR? What's the actual dollar value of an ADR that trades here in the U.S.? And once you determine that, then you can put in a limit order at that price. So, that you can put a limit order for the dollar equivalent of the British pence price and then you won't get screwed.

Dan Ferris:                 So, Eric also just mentioned the spreads on some of these things, and the Fever-Tree spread is like driving a truck through it, $10.70 bid; $12.09 asked.

Eric Fry:                     That's what I'm talking about. So, Fidelity, Schwab, all the others are very, very – it's very easy to trade on an exchange like London. You can't trade on it just anything, but the London Exchange and the Toronto Exchange, those are some of the easiest ones to trade on. They'll do it for you. You can put in an order in London. They do the currency transfer exchange automatically. That's much easier actually than buying the ADR in this case.

Dan Ferris:                 OK. Got you.

Eric Fry:                     It's optional. As I said, investing is optimal. You don't have to buy a London stock. That's just one that I like. I cited two that are U.S.-traded.

Dan Ferris:                 Yep. All right. Good. Well, thanks for that. I'm sure lots of people who are listening to this wrote all the tickers down and they're probably more interested in knowing what you have to say about them too. So, we're getting to the end of our time here and I have to ask my final question, which is the same for every guest, no matter what the topic. If you've already said the answer, feel free to repeat it. That is totally cool. The question is simple. It's for our listeners' benefit. If you could leave them with a single takeaway, a single thought today, what would you like that to be?

Eric Fry:                     Well, I can answer that question pretty easily, actually. I just mentioned the four categories of AI investment. And I'll just say as a professional investor, I'm not finding a ton of opportunity in those first two categories. It's pretty picked over, meaning the AI builders and the AI enablers. Those are stocks and storylines that are all over CNBC every single day, have been for months. There are a lot of great companies there, but the stocks' prices are very inflated, and so I'm not finding a ton of opportunity in those categories.

                                    I am finding opportunity in the other two categories: the AI appliers and the AI survivors. And many of those survivors, in fact, are so overlooked. It's like the last thing anybody – I just mentioned Savers Value Village. That's the last kind of name that anybody wants to talk about at a cocktail party, right? "You just bought a thrift-store stock. What, are you an idiot?" And people tend to think that in the middle of a boom like this, that you must be close to the boom in order to make money. And actually, history tells the opposite tale, that if we go back, the thing that's most like this in my memory and I'm sure it's probably true for Dan as well, is the dot-com boom and then subsequent bust where many people believed in '99, '98, 2000, you had to be as close to the boom as possible. And that worked great in '98 and '99. It worked miserably in 2001 to the extent that – I think many people know this, but not everyone knows this – that a great company like Amazon fell 90%, lost 90% of its value during the bust phase. Ditto for Microsoft. Ditto for – name your tech stock. They all fell a minimum of 80% during the bust phase. And these are companies that – Amazon, no one doubts that that's a world beater. And it's gone on to be one of the most spectacular success stories of American capitalism. But the stock fell 90%.

                                    So, during those phases, you can't just go, "Well, gee, I've got to be in." No, you don't have to be in. You actually have to be out. You want to be places where you're not going to get steamrolled by the bust. So, during that period of time, I was producing investment research. I was with Grant's and then I produced a subsequent research service, I wasn't recommending those names. I was recommending shorting those names. More importantly, I was recommending stocks that had nothing to do with the dot-com boom. So, in that period, I recommended Christian Dior; Humana; Sturm, Ruger, a gun company; Service Corp; a funeral-home operator, things like that that produced great returns over that subsequent five-year period when the big heroes of the dot-com era were getting destroyed.

                                    So, long way of saying I would be tiptoeing away from the stuff that's really close to ground zero of AI. The big names, I would lighten up. And I would be looking for opportunity in the other areas, the AI appliers and the AI survivors. And I think there are a lot more opportunities in that area. And then, when the inevitable whatever, sell-off – it doesn't have to be a bust, but the inevitable retreat comes, you have a chance of not just losing less than if you had purchased Nvidia, but making money. So, that's my advice.

Dan Ferris:                 Very good. I like your four-part AI stock paradigm. I think it's really good. I might have to steal part of it.

Eric Fry:                     Steal away.

Dan Ferris:                 All right.

Eric Fry:                     Only if it works, though.

Dan Ferris:                 That's right. So, if it doesn't work, don't steal it. Yeah.

Eric Fry:                     If it doesn't work, you can blame me.

Dan Ferris:                 Yeah, that's right. All right, Eric. It was a pleasure to speak with you again after all this time. Maybe next time we'll only wait, like, six or 12 months or something instead of, like, 15 years or whatever it's been that we can't even remember. How about we do that instead?

Eric Fry:                     Sounds good. I like that plan.

Dan Ferris:                 All right. Thanks a lot, man. Great to talk with you.

Eric Fry:                     OK. Thank you. Thanks, Corey. Thanks, Dan. It was a pleasure.

Dan Ferris:                 Hey, I just want to tell you about a video that Eric Fry made recently that has gone crazy viral. It has more than a million views, OK? And as you probably know by now, he's a really great trader, great analyst, great investor. And he's got some crazy calls, like when he makes a call and people go "What?" and it turns out to be right and they make a ton of money. Like sell Nvidia, sell Amazon, sell Tesla, that kind of stuff. And people are going "What?" And he turns out to be right. He's got a presentation and you can see it. It's free. You can go to 7FreeTrades.com. The number seven, F-R-E-E-T-R-A-D-E-S.com. 7FreeTrades.com. And see what he's all about and hear his very impressive presentation and get a feel for his style and how he does this, how he makes so much money making these kind of crazy calls. All right, 7FreeTrades.com. Check it out.

                                    It was really great to talk to Eric, having known him for at least 20 years and not spoken to him for 10 or something. Great investor, very smart guy. I'm happy that he's still doing the foreign stocks. He was always pretty good at that and he gave us a couple of good ticker symbols. Eric gave us some good ticker symbols, man. He delivered on everything. Ideas, tickers, the whole nine yards. It was great.

Corey McLaughlin:    Yeah, those are some cool names to hear that I was not familiar with at all. And some nice tips on international investing too with ADRs and how to get the right price, because that's a tricky thing for a lot of people. For everybody.

Dan Ferris:                 Right.

Corey McLaughlin:    I like his breakdown, too, of the AI, the four sections of AI-related companies, one of which are not related to AI at all. The survivors.

Dan Ferris:                 Right. It really is three, isn't it? Yeah.

Corey McLaughlin:    Yeah, it's three plus the survivors. So, that's cool. And yeah, it just seems like he really cares about guiding subscribers along the way and explaining why you're doing a certain thing and sticking to – but sticking to his plan overall. So, yeah, I was happy to have to listen to him.

Dan Ferris:                 I realized after we spoke with him, we have heard about Fever-Tree before. My memory is not informing me which guest mentioned it, but I know somebody has mentioned it. So, we've heard that one before, but the other two just came out of left field for me. I've probably seen Savers Value Village on screens that came up and just looked past it, which sounds like it might have been a mistake. And Delivery Hero, never heard of it. But that's pretty cool though. It's pretty cool when you get a stock like Delivery Hero and it's at the point where Eric says it is, where they're going to start generating some positive cash flow, maybe become profitable within the next year. That can be a really exciting time to buy it, just before that happens, because the story up to that point is they're not making a penny and then all of a sudden they are. It's a pretty neat moment. Can be. Can be a neat moment. But that was cool. That was a fun interview and a fun episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really truly did.

Announcer:                 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.