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If you suffered losses and would like a davenport investments ii llc formation consultation with a securities attorney, then please call Galvin Legal, PLLC at Rule is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. Galvin Legal, PLLC is a national securities arbitrationsecurities mediationsecurities litigation, securities fraud, securities regulation and compliance, and investor protection law practice. First Name required. Last Name required. Phone Number required.

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Bullion On the other end of the risk spectrum is real, hold in your hand gold bullion Some of the most popular one-ounce coins include South African krugerrands, American gold eagles, and Canadian maple leaves. You can expect This can get costly if you re trading large quantities of gold But it s actually one of the pros of bullion: It s difficult and expensive to buy and sell.

So you re less likely to buy it on impulse when prices are high and sell it in despair when prices are low. Another pro: It s no one else s liability. If cash becomes worthless, the banks close, and the global monetary system collapses And it s likely gold will still be money. But that makes it a liability for you. If you own physical gold, you need to figure out a safe place to store it. Collectibles If you re looking for hold in your hand gold with a little more upside potential, consider collectibles My colleague Steve Sjuggerud has done more work on this idea than anyone I know.

He likes the idea of owning semi-numismatic gold coins. These are abundant enough that there s a liquid market for them If folks get enthusiastic about collectibles, your upside on these higher-quality coins could be hundreds of percent. Of course, you run into the same storage problems as you do with regular bullion Plus, you want to make sure you know what you re doing and you re working with a reputable dealer.

The biggie in this category is the popular gold-tracking fund GLD. And because it s a closed end fund, it occasionally trades at a discount. And your broker will charge the regular commission for buying and selling shares. In terms of safeguarding your assets in a meltdown, these options don t match hold in your hand metals.

But they re easy ways to profit on a bounce in the gold price. Royalty Companies This is the steadier, safer way to add gold-stock exposure to your portfolio These companies don t mine any gold of their own. Instead, they finance lots of early-stage mining projects, then earn royalties on mine production if things work out.

Rather than owning a company focused on one big strike, you own a diversified and growing portfolio of claims on lots of different mines. These companies don t have any of the operating risks and expenses of gold mines But they do give you leverage to the gold price.

So they re volatile But over the long term, their results look a lot better than the gold miners. Take a look at the chart below. You can see that gold miners measured by the HUI index have underperformed gold, while Royal Gold has outperformed. But if the gold price rises, these stocks could soar. If you re thinking about investing in gold, make sure you keep this toolkit handy.

In this chapter originally published in the April issue of his Stansberry Resource Report Matt Badiali discusses a set of supposedly legitimate rules mining companies use to defraud investors. This is one of the most dangerous things a resource investor will encounter Knowing how to protect yourself from the biggest "cheat sheets" in the mining industry could save you a fortune They found Michael de Guzman's body in the jungle.

It was decomposed beyond recognition. Some people claimed he was murdered. Some claim he committed suicide because of a guilty conscience In the mids, de Guzman's employer was a global sensation. A geologist, de Guzman served as the exploration manager for Bre-X Minerals A gold deposit of 10 million ounces is considered huge by today's standards. But Bre-X claimed it was sitting on more than 70 million ounces of gold, with the potential for million An outside company audited Bre-X's claims.

It agreed that Bre-X had a stupendous find. Investors went wild. Wall Street funds bought up shares. Canadian pension plans bought up shares. Giant mining companies wrestled to get control of possibly the largest gold find in human history. Then the truth came out On March 19, , de Guzman fell to his death from a helicopter feet above the jungle. His body was found four days later, decomposed and partially eaten by jungle creatures.

A great unraveling of the story followed De Guzman had faked Bre-X's drill samples. He had "salted" thousands of rocks with gold flakes before they were tested. The company had duped everyone. If you're a longtime resource investor, you know the Bre-X story.

You know it was an incredible hoax. You know about de Guzman's suspicious death. NI is a set of rules public companies in Canada must follow when reporting information related to their mineral properties. It was intended to protect investors from mining frauds But it has likely led to more investor losses than anything Bre-X ever did. It is one of the most dangerous things a resource investor will encounter What follows is a brief history of NI how mining companies use it to defraud investors This chapter isn't going to win me any friends in the mining industry It's not protecting you guys in any way, shape, or form.

Conway has decades of high-level mining experience. In September , at banking giant Scotiabank's big mining conference, he gave investors the warning above. I've talked with dozens of mining executives, insiders, and analysts. Many echo Conway's thoughts on NI But as you can imagine, not everyone in mining wants to be on the record criticizing securities laws.

It's best to keep your head down, run your projects, and avoid rocking the boat. However, many insiders have allowed me to quote them on the condition of anonymity. One CEO of a well-known exploration firm put it like this: The NI report was thought to be the end-all, be-all of disclosure and we would never have frauds like Bre-X again. Frauds will happen again because crooks don t play by the rules. The illusion of [NI ] being a safety blanket that financial analysts could use to plug into their spreadsheets has collectively been more damaging then the out-and-out frauds.

How could such a well-intentioned idea protecting investors generate such criticism? How could it cost investors millions of dollars every year? How can it be more dangerous than the greatest mining scam of all time? To get the answers, we need to cover exactly what NI is supposed to do The goal of the NI is to "ensure that misleading, erroneous, or fraudulent information Investors can find these reports on the companies' websites.

Each provides the same information in increasing detail: the amount of metal in the ground "resources" , the amount of metal that can be mined economically "reserves" , and the economic value of the project. These reports are spaced out over the life of a project Companies can go years between publishing them. These documents assign a dollar amount to the mining project.

Investors can and are encouraged to use that value to estimate how much the company is worth. On the surface, the numbers appear legitimate. The rules require that the three reports be produced and certified by independent experts.

But every year, stockbrokers, investor-relations firms, and even mining companies themselves use these reports to push up the share price. It has reached epidemic proportions because it's so easy to do While the NI requirements make investors feel good, they've actually made it more dangerous for investors today than things were before Bre-X.

In this chapter, we're going to focus on the biggest "cheat sheets" in the mining industry Although pre-feasibility and feasibility reports are just as likely to have flaws, the PEA is the least-expensive report to create and requires the least detail So it is the easiest to "fudge.

Companies can usually find an incompetent or amoral engineer to certify the information. It can gobble up generalists faster than lightning, all under the guise of professionally certified data! My team and I spent hundreds of hours on these documents. I want you, my readers, to be the best-informed investors out there. I want investor-relations folks to stammer and stutter when they talk PEAs with you. In this chapter, we'll go over all the ways that mining executives can deliberately or not use a PEA to dupe investors And I'll use an example that shows just how easy it is for even a well-known company to fool you.

Gold's bull market was in its 10th year. It showed the world that the project was terrible. The results were so bad that the study couldn't make them any prettier. Investors who had purchased shares based on the PEA and previous information from management suffered large losses upon the release of the new study.

The problem was Livengood's fundamentals. It is a giant, low-grade gold deposit with a huge price tag. That's a huge hurdle for any mine, but if the price of gold kept going up, it would be worth all the work That is the kind of critical information we can glean from PEAs.

The engineers who write these reports estimate all kinds of things, from the price of diesel fuel to the price of metals to the cost of construction. And they must disclose those estimates to us. That's why one of the largest stock brokers in Canada told me: The assumptions page is far more important than the executive summary. It's in the assumptions that most companies try to fool us.

That's where they "put the lipstick on the pigs" to make them attractive to unwary investors. The Livengood project was worthless. THM was not trying to defraud investors. It did something many mining companies have done over the years. It followed a bull market in gold and went after a bad project.

For investors like us, understanding the problems with assumptions is the only way to approach PEA reports. We lack the technical expertise to make informed investment decisions based on the details of the deposits. However, we can look for potentially disastrous estimates, like a gold price that's too high or a discount rate that's too low. It will get a little dense, but stay with me.

If you invest in mining companies on your own, this will be the most valuable information you read. What is the price of the metal or metals? What discount rate does the company use? What is the value of the project after taxes? We'll continue to use the Livengood gold project as an example, but you can apply these guidelines to any NI reports that contain net present value NPV.

First, check the gold price. Anything over the current gold price is too high. Next, check the "discount rate. And make sure you're looking at values after taxes. Here's why The next table comes straight out of Livengood's feasibility report from July It shows just how sensitive a big mining project can be to changes in the gold price.

But as we know, at prices, this project and THM was worthless. And that's exactly what we want to avoid. How to Find the 'Right' Gold Price The first question we should ask of every project is: What would it be worth at different metal prices? The Livengood report didn't even consider those prices. The industry usually uses a trailing three-year average gold price as a rule of thumb.

That has worked out to be a great price for them, since gold This is a big problem in many of the published PEA reports. NPV is an estimate of the value of a project today. Some investors just assume that the NPV is equal to the numbers presented Investors must dig into the details. Not doing so is a great way to lose a lot of money. To be successful mining investors, we have to understand how companies can manipulate the NPV.

There are three major ways for companies to cheat on that calculation: cash flows, discount rate, and gold price. We've already discussed gold price, so let's look at the other two. A project becomes more valuable as its net cash flows revenues minus expenditures increase.

Of course, these are forecasts. No one really knows what will happen in the future. We've seen how small changes to the gold price can have gigantic effects on the cash flow. There are two areas where companies can "pad" their net cash flows: capital expenditures and taxes.

Global consulting firm Accenture conducted interviews of 31 mining and metals executives in The purpose of the talks was to assess how We can take that to mean most of these PEAs underestimate capital expenditures. The result will be a lower project value, but it will likely be more accurate based on recent history. Companies can also pad their values through taxes.

PEAs generally present the value of a project before and after taxes. Taxes on mines vary from region to region and country to country. A company can inflate the value of its projects by showing investors a pre-tax NPV. Make sure you find the after-tax NPV in the study.

The most common way that companies can fool us is through the "discount rate. Think of this as the interest rates charged on mine-construction loans. The higher the discount rate, the more expensive the use of the money is The discount rate should also reflect the risk of the specific project But it almost never does.

The projects take too long to build, are often over budget, and last just a few years before they are mined out. That's if they are built at all. These kinds of risks would send most lenders running. But the "official" value of most projects, certified by outside experts, is based on a discount rate suitable for a nearly risk-free lending situation.

I believe it's one of those, "this is how we've always done it" rationales. And the lower the discount rate, the higher the value. I spoke with a mining-finance expert who reviews these numbers all the time. Given his impressive success rate, we want to follow his lead.

This will give you a conservative estimate for the project. Some knowledgeable resource financiers use higher discount rates in their private, in-house valuation calculations. But mining companies themselves often use ridiculously low discount rates to make the projects look more valuable.

Again, we can use a real table from the Livengood PEA for an example of how a higher discount rate one that makes more sense drastically changes the value of a project. Notice how much the value changes even when the gold price is the same. If we use the same gold price, but a As you can see, simple changes in the assumptions take this from a project worth owning to something we need to avoid at all costs. To Sum Up NI was a well-meaning piece of legislation that did improve mining-industry sentiment in Canada.

But it's also something mining promoters and stock brokers use to sell huge amounts of stock to the public. NI reports are no safety blanket for investors. They are not fact. Their "exact values" carry huge assumptions. Those values can change radically in response to small moves in commodity prices and interest rates.

Don't think for one second that the PEA is your friend. As you've seen, it's more often the resource investor's enemy. Use it as a jumping-off point for deeper research only. Another style selloff? Gold stocks never breaking out of their funk? Maybe a depression that slams our standard of living? Though those things are possible, we don t see that as your greatest threat. Master speculator Doug Casey summed it up well: Your biggest risk is not that gold or silver may fall in price.

Nor is it that gold stocks could take longer to catch fire than we think. Not even the prospect of the Greater Depression. No, your biggest risk is political. As bankrupt governments get increasingly desperate for revenue, any monetary asset held domestically could be a target.

It is absolutely essential that every investor diversify themselves politically. In fact, at this point, it is the one action that should be taken before anything else. Doug Casey, September We know many reading this are prudent investors. You own gold and silver as solid protection against currency debasement, inflation, and faltering economies.

You set aside cash for emergencies. You have strong exposure to gold stocks, both producers and juniors, positioned ahead of what is likely the next-favored asset class. You feel protected and poised to profit. Yet, despite all this preparation, you remain exposed to one of the biggest risks.

Similar to holding a diversified portfolio at a bank without checking the institution s solvency, many investors keep their entire stash of precious metals inside one political system without considering the potential trap they ve set for themselves. While storing some of your gold outside your Consider the exposure of the typical U. Viewed in this context, the average U.

The remedy is to internationalize the storage of some of your precious metals. This act reduces four primary risks: Confiscation: We don t know the likelihood of another gold confiscation. But we do know that things are working against us particularly for U. Under the FDR gold confiscation in the U. Capital Controls: Many prudent analysts believe some form of capital controls lie ahead, limiting or eliminating a citizen s ability to carry or send money abroad.

If enacted, all your capital would be trapped inside the U. Although you might be able to leave the country, your assets could not travel with you. Administrative Action: There are plenty of horror stories of asset seizure by a government agency without any notice or due process, possibly leaving the victim without the means to mount a legal defense. Having some gold or silver stored elsewhere provides what could be your only available source of funds in such a scenario. Lack of Personal Control: Having gold and silver stored elsewhere adds to your options.

You will have a source of funds available for busi- These risks can be reduced, not eliminated. There is no perfect solution. But absent a crystal ball, the political diversity of asset location is an essential strategy against an uncertain future. Foreign-held assets also require greater awareness and planning Access to your metal or sale proceeds may not be quick. Therefore, this option is for those with some gold and silver stored at or near home.

We do not recommend storing all your precious metals overseas. That defeats one of its purposes: to have it handy for an emergency. While we think the U. The risk varies by country and is generally greater within the banking system than with private vaulting facilities. Understanding and complying with reporting requirements is essential.

The bottom line, though, is that foreign-held precious metals can mitigate risk and give you more options. And as your metal holdings grow, diversification becomes more crucial. Given our current rapacious climate, it s likely that simply buying gold won t be enough.

We strongly suggest every investor diversify their bullion storage outside their current political regime. The option may not be available someday, leaving you vulnerable without a secondary source of bullion. We advise taking advantage of the opportunity before it is gone. Today, we have more than a dozen different one-click ways to play gold. But the differences start to show in the long run. Futures contracts expire, so the funds that use gold futures are forced to sell their old ones and buy new ones Each time they do it, it costs a little bit.

That s why these funds consistently underperform the commodities they track. And each futures fund tracks a different basket of futures, based on a unique index. The subtle differences in the indexes can mean a big difference in your account. And that s just the unleveraged funds DGP offers the ability to speculate on gold with leverage: It tries to return twice the rise in the spot price.

What does this all add up to, besides a lot of confusing choices? Well, these funds are there to make the banks money This company holds a mix of actual gold and silver bullion to back its shares. But you have to be sure to buy CEF at the right time.

You see, it s a closed-end fund, meaning there are a finite amount of shares. Keep an eye on this number. As of January , CEF shares traded around a You can find out how high the premium is here: sbry. Or you can call the Central Fund of Canada at They track the spot price well and are liquid enough to buy and sell easily.

There s no substitute for real gold. But if you can t or won t go out and buy bullion, the bullion funds are the next best thing. SGOL holds real gold stored in Swiss vaults, rather than futures or mining stocks. Take care not to buy these shares at a premium. David Eifrig Investing in gold comes with two problems. First is where to store it Gold is heavy, and it needs to be put some place safe. Some gold bugs even bury it in their backyard. The other problem is gold doesn t generate any income.

Unless you own a well-run mine that passes on cash flow to you, gold is just a boring hedge with no income. I ve found an investment that solves both of these problems. Here s how it works GLD is an exchange-traded fund that buys and owns gold bullion. By owning shares in this trust fund, you own actual gold That solves the first problem: storage. But simply investing in this fund doesn t fix the income problem. The gold just sits in the trust s vaults, gathering dust. The trust doesn t pay a dividend.

So in order to get some income from your pile of gold, you can sell covered-call options on the shares. If you re not familiar with trading options and find the idea uncomfortable, rest assured: this call-option strategy is easy and safe. The upfront income this trade generates makes it safer than simply buying shares in GLD.

Selling a call option simply gives someone else the right to buy your GLD shares at a specific price the strike price before a specific date the expiration date. In exchange for that right, the investor pays you money up front called the premium.

Here s one way to think about it You collect rent no matter what. And if the price goes up, you get the gains up to a predetermined price. In other words, it s a very, very safe investment. Here s how it can work out: If your GLD shares never trade for more than the strike price, you keep the premium and the shares. You can continue to sell call options against your shares. If the share price exceeds the strike price on or before the expiration date, your shares are automatically sold for you, you book any profit up to the strike price, and you still keep the premium.

Those will give you plenty of cash up front and still leave you some upside on your gold. If you haven t sold options before, you should talk to your broker about the best way to take advantage of this opportunity. Please don t rush out and do anything you don t understand. But as I said, this trade is one of the safest, easiest ways to own gold. It s a fantastic hedge against calamity and the collapse of the dollar. You see, the IRS doesn t view gold as a normal financial asset like a stock or a bond.

The IRS views gold as a collectible. And the IRS taxes the gains made in collectibles at a higher rate than conventional assets. This more-than-one-year rate is called the long-term capital gains. If you buy a stock, hold it for less than a year, and make a profit on it, the gains you make will be taxed at your ordinary federal income tax rate. This less-than-one-year rate is called short-term capital gains.

The higher your income, the higher your ordinary income tax rate. Collectibles like art, stamps, and gold coins are in a different boat. And despite a precious-metal ETF s stock-like attributes, it is backed by gold bullion, so the IRS calls it a collectible. That s why an investor should consider a gold and gold stock strategy to minimize taxes. Here s what I mean: An investor looking to keep his hard-earned gold returns away from the taxman should consider a gold stock for his taxable account The savings can be significant You hold it for three years.

Gold goes on a bull run during your holding period, doubling in price. This is an investment fund that diversifies your dollars into a basket of the world s biggest and best gold-mining companies. I don t know about you, but the less I have to pass on to Uncle Sam to finance bank bailouts, welfare handouts, wars, and other ridiculous boondoggles, the better.

This rule is to keep folks from placing their life savings into a Picasso or something like that. That s right. Your tax-advantaged IRA will shield your gold profits from the government. Now, before you get excited about tax-advantaged gold, be aware that gold stocks are more volatile than gold itself. These companies are sen- As with all tax-related questions, it s best to consult with your own advisor before taking any major action.

But if you want a low-tax way to get into gold and you don t mind a little volatility, consider the gold-stock fund GDX. Steve Sjuggerud Your cash in the bank earns you next to nothing Meanwhile, the government has the ability to print all the money it wants to. In short, your wealth in the bank is steadily eroding. Your dollar is losing purchasing power year after year.

What can you do to protect your savings? My friend Frank Trotter of EverBank has an innovative solution Hold some of your savings at the bank in gold. Frank and I go way back. I like him a lot, and I like his firm. His team has taken good care of my readers over the years. And in case you re curious, I have no business relationship with EverBank, and neither does my publisher, Stansberry Research.

Over dinner one night, he explained to me that, through EverBank s Metals Select Gold accounts, you can keep a portion of your savings at the bank in gold instead of in dollars. So, Frank I could keep my everyday money in my regular checking account But what if I need to convert my gold at the bank into cash to pay for a big expense? No problem. How long will it take to get my cash?

A day or two? How do you hold my gold? However you want. You can have gold with your name on it, so to speak, which has a storage fee. Or we can hold it for you as unallocated gold, where there s no storage fee. Will you send me my gold if I want it? It s your gold. I hadn t heard of U. But Ever- Bank does. And it s a pretty convenient way to hold gold Imagine your house needs a new roof, and you need to get the money out of savings.

If your savings are in gold coins in a safe deposit box, you have a serious hassle You have to go to your bank and get your gold coins. Then you have to find somebody to buy them from you at close to full price Either take them to a local dealer or mail them off to a reputable dealer.

You re taking a bit of a risk, having them on you or putting them in the mail. Then you have to wait on a check. Then you deposit that check in your bank. Then let it clear. Then you can write a check for a new roof. What a pain! With your gold at EverBank, you tell them you need to convert your gold to cash and move that cash to your checking account. It ll take a day or two from when you say sell my gold. Then you can write that check for the roof.

Your checking and savings accounts are, of course. But if the price of gold goes down, the value of your gold account goes down the FDIC isn t going to help you out there. But with the bank paying next-to-no interest and a government with the ability to print money at will it makes sense to hold a portion of your savings in gold.

Holding gold in your bank account keeps your life simple. EverBank offers a hassle-free way to do it. For more details, go to That s why we sat down with the team at Casey Research to talk about the best places to buy and store physical gold. They are some of the most knowledgeable gold investors in the world.

We think you ll find their tips on buying and storing gold extremely valuable over the coming years Stansberry Research: Let s get right to how to own gold What forms of gold do you encourage people to buy? Casey Research: The average Joe may not be aware of it, but gold is very mainstream these days Meaning it s easy to invest in, and there are plenty of choices.

But physical gold should be where your first dollar goes. What we recommend everyone buy is the one-ounce gold coins. Bars are fine, and people with significant wealth should use them. But we d rather have gold coins than a ounce bar of gold. The one-ounce coin is easily recognizable and easy to sell if you need to. If you have it in smaller denominations, you can sell only what you need if it comes to that. And gold is easily transportable. And no one has to know about it.

As far as the rare and numismatic coins, they ll certainly rise in an inflationary environment. But you have to be a little more careful here because values are based on their rarity and their condition, and the average investor can t judge those things. But it s a tricky area for the novice, and you can lose money if you don t know what you re doing.

He actually helped create the standards for PCGS. Stansberry Research: Who else do you trust when it comes to buying gold, particularly the one-ounce coins you mentioned? Casey Research: For online buying, there s Kitco [ ], which charges a set dollar amount over spot, versus a percentage as most dealers do. This can work in your favor as the gold price moves up, although Kitco does change its prices from time to time. You can also buy gold and silver in their pool account at just pennies over spot.

The Coin Agent [ , is a small shop and the prices can t be beat. Border Gold [ ] is in Canada and sells primarily the Maple Leaf. Another one is Asset Strategies International [ ]. When you re shopping, keep in mind that you want a fairly common coin such as an Eagle, Maple Leaf, Krugerrand, or Philharmonic.

You don t want an obscure coin and have someone question if it s real if you sell it someday. Other than that, you re just looking for the best deal from a reputable dealer. Casey Research: Sure, but that rule of thumb is a floating number.

The way to avoid paying too much is to shop around, and that only takes a couple calls or clicks. Casey Research: Yes. If you want to buy online, go to Kitco. If you want to talk to a dealer, call one of the other places we mentioned.

What you want to avoid are the large houses you see advertised on TV or online. But quite frankly, that s usually an enticement to get you in the door. They make a much higher commission on numismatic coins. So if you buy from them, some day you re likely to hear, You know, my friend, we have a great deal right now on this rare coin. Let me tell you about it Stansberry Research: Something where the uniformed novice can get taken advantage of.

Casey Research: Yes, it happens regularly. Save yourself some hassle and avoid those guys. Of course, you can go to your local shop, too. But at times, my local shops are more expensive than the other places we just talked about, even after shipping. You may like him, but that s unacceptable in an environment where premiums have come way down. Stansberry Research: How about paying for physical gold with cash?

For the completely hypothetical person who doesn t want to leave a paper trail? Casey Research: You can certainly pay with cash. In that scenario, you ll be going to your local coin shop. Stansberry Research: Once you ve bought it, where do you store it? But you can only get to the gold when the bank is open, and you re not insured if the bank gets robbed. If you do decide to use a safe deposit box, make sure you use a local bank. You want to be able to get it in an emergency.

Another option is to hide it in your house, which is good for small amounts of gold. Avoid jewelry boxes or cookie jars. The risk here is fire or flood. You could consider a safe, bolted to the floor. Talk to a bonded safe company. Or look for safes online with tags like floor safe or personal safe or home safe. Sentry is probably the leading brand. If you get a safe, put it somewhere you can place something over it, like a refrigerator, because you don t want it visible to strangers or easy to find if you re robbed.

And for obvious reasons, you should install it yourself. Some of the kits make it easier than you might expect. Stansberry Research: What about midnight gardening? Casey Research: This got its name from people burying their gold at night so their neighbors wouldn t see them digging.

If you bury your gold in the daylight, find another reason to dig like fixing a pipe or removing a stump. The advantage to burying your gold is that you don t have to worry about it getting stolen or losing it if your house burns down. But make sure you store it in something airtight and waterproof, like a hiker s water bottle or a bit of PVC pipe with capped ends. Find somewhere on your property that you ll remember but that isn t easy to guess if someone learns you ve buried something valuable.

Stansberry Research: Right. What if you can t remember where you hid it? Casey Research: You should definitely let one person know the details someone you trust. They need to be able to access the gold if you get If you use a safe deposit box, put that person s name on the registration. And make sure to tell him or her where you put the key. But don t tell more than one person. And most of the time, your kids aren t going to be a good choice. Kids talk, and you definitely want to keep quiet about your gold Stansberry Research: Would you ever sell your gold holdings?

Casey Research: Well, since gold is insurance, you cash it in when calamity hits either you personally or the economy. That said, only sell your gold if you absolutely have to if you lose your income or if the world comes to an end Mad Max style.

Stansberry Research: Thanks for your time and insight. Van told him how and where to buy gold and gave him three must-own gold investments. By the time you read this research, a few time-specific numbers may be out of date. That doesn t matter in the slightest. Van is a legend when it comes to gold and gold coins and he s one of my good friends.

A few things from his resume As a dealer, he has possibly bought and sold more dollars worth of rare coins than anyone on the planet. Van is a mentor of mine. I give him a call and ask him his opinion when I m considering buying an alternative investment even beyond gold and coins. Having collected and bought and sold so many different things over decades, his experience is priceless.

This time, we kept it simple I asked him: What s the best way for the typical American to own gold? The most widely traded gold coin is the U. Gold Eagle, Van said. If you re new to gold, and you want to physically own gold bullion, the U. Gold Eagles are the way to go.

It s easy to buy Gold Eagles. I ll show you where and how at the end of this essay. I asked Van why we should want these in particular For example, my parents owned Krugerrands which are gold coins from South Africa. Well, you can own those you mentioned But when a customer sells a Krugerrand or a Maple Leaf, a dealer has to fill out a Form about who bought and sold and mail it to the government. We don t have to do that for Gold Eagles. All things being equal You can also hold these coins in IRA accounts.

Also, importantly, they re the most liquid coins How much should people hold in gold bullion like Gold Eagles versus stocks or rare coins? Right now, personally, I m about equally split between those three I might have a bit more in gold stocks. For customers, it s their decision. If you want to have a speculative element to it, you should have gold stocks and rare coins. Some people don t want rare coins. And some people just want bullion. It s your call. How should people store the stuff?

Once again, it s your call You can put it in a safety deposit box, in a home safe, or bury it in the backyard. One thing, I do not recommend having a dealer store or hold it for you. Any concerns? It s no big deal. We typically send coins by registered mail, insured. We also use FedEx.

The only complaint we hear is when registered mail takes more time to deliver than the customer expects, and they start to get antsy. But buying coins is as easy as when you order a book on Amazon. For where to buy In my nearly two decades writing investment letters, I ve dealt with a handful of dealers that have handled thousands of our readers and have proven to treat them right. And you re welcome to call around or buy locally. I m just letting you know these dealers have handled thousands of orders each from my readers over the years.

And I ve had few complaints about them and never anything serious. They each have decades of experience. In sum, if you want to get started owning gold bullion, the best starting point is U. Gold Eagles. Don t worry if you ve never bought gold before. If you buy from one of the dealers above, it s as easy as ordering a book on Amazon and having it show up on your doorstep! My talk with Van didn t end there Van doesn t have all of his gold investment in bullion.

And I was gonna practice and try to get into the…enter the Guitar Foundation of America competition, which at that time, I think they held it in the LA area. They held it in Southern California. And I was practicing like crazy and playing lots of guitar, and I was doing pretty well. And then one night, we were at the Mean Bean Cafe and I had played guitar, and I knew the owner and another friend of mine was there. And we used to close the place down and lock the door and raid the… You know, the owner was there so she let us raid the wine cabinet and stuff.

And we cranked the stereo up. And we were dancing around and I was making people follow me around the couch like doing this crazy dance, you know. And I was a skinny young guy, and they were all like kind of older, heavier people. So I thought it was funny to hop on one leg.

By the end of that night, I had a searing pain in my lower back. And I had my first of two back surgeries one year later. And of course, I was screwed for the competition. So that caused me to think twice about it. And I wound up writing a letter. I had this friend of mine who lived across the street from me and I was sitting in her kitchen and she had just gotten a job at this publishing company.

And I took them home with me and I wrote Bill Bonner a letter. Bill Bonner, the founder of Agora, the publisher, and he actually hired me. He tells people that he hired me off the street, he says. Had you been interested in investing prior to that, or? But gold seems to be creeping again up in price and starting to bring all the bulls out again. And what was the sort of transition, you start focusing on the mining sector?

What was the kind of eventual runway there? Dan: Okay, so when I first got hired, I had really only…the only equities I knew anything about at that point were gold stocks. S Global Investors was called United Services. I think they had a fund that was called the world gold fund or the global gold fund, something like that.

And it was one of the only funds you could buy that actually had the small-cap stocks in it. Because I wanted that juice, that leverage to gold price. And this was in…there was a run-up in the mids in gold and this was around that time. That was the first thing, to me, it was a levered play on gold.

So I was interested in it more about the…I was more interested in the commodity than the equities. But eventually, when I was hired by Agora, the first thing I wrote about were natural resources stocks. So it did effect a transition from, you know, before I did this for a living, you know, to when I started doing it.

Totally focused in natural resources and that lasted for a few years. And then I started working for Porter Stansberry. I mean, for me, it was, you know, I was coming of age in the sort of Internet bubble and biotech, you know. You know, we hear time and time again. By the way, did they give you a pen or anything for the year anniversary? I feel like you should have received some sort of, you know, jacket or a medal or something.

Dan: I think the only person who noticed was Porter and that was because I wrote it in the Digest and hundreds of thousands of people saw it. He was the only one who noticed. Talk to me a little bit about what your framework for thinking about investing is now? And you can take this question as…feel free to tell it as an evolution from, you know, the mids forward or just talk about it now.

How do you think about the world of investing, and then we can start to get into some concepts, and ideas, and themes, and stocks and all that good stuff? And a lot of them, as you say, they started looking at things that move. They started looking at the biotechs or, you know, there was maybe a bull run on gold or some other thing, and they got into it the way you and I did. You know, hopefully, you evolve past that. And rather than trying to go through all the steps, eventually, some of us wind up where I am, which is certainly a bottom-up fundamental one company at a time kind of an investor, but who has a powerful…has developed by experience and mistakes, a powerful respect for the effect of cycles.

And when it gets down to individual companies, we made a bit of a change from the traditional way. As you know, as maybe even listeners know, the traditional way of establishing the intrinsic value, which is what value investors do, right. And then they establish an intrinsic value and they like to pay less than that. The traditional way of doing that is something called discounted cash flow.

And without going into all the technical details, basically, to do this model, you gotta predict things, you gotta just project revenues. At least revenues, margins, you know, maybe tax rate, a few other things, and you wind up with cash flows.

But the basic idea is, you plug in all that stuff, instead of projecting all those numbers and discounting them back to the present, you plug in whatever future projections you need in order to equal the current share price. Meb: And a great example of that, as he talks about…I imagine a real-world example today would probably be like Beyond Meat, which just hit I think 13 billion in market cap today, you know, and it has 50 million or million in sales.

But you can really kind of come up with any input you want, or output you want of that model just by, you know, turning a few dials. Dan: Exactly. To really just get that extra data point. How many companies have grown like this, or whatever it is? And I think in the case of Beyond Meat, some possibilities are definitely eliminated by doing that kind of analysis. But apparently the Beyond sausage is their best tasting one. Okay, so I interrupted you. So I described the basic change that we made and the basic thing that we do.

There are like these five metrics that are kind of traditional value metrics. But after a while, you know, you get burned on a few dozen of these and you start screening for good businesses, and things you can keep on your radar screen.

So we have these five, what we call the five financial clues, which is basically a screen. So not everything that it puts out is gold, right? But we find these five things often go with the really, really great businesses. So gushing free cash flow, consistent margins, and it could be consistently razor thin. But obviously, it is a wonderful business, you know, they turn a lot of inventory, you know. And the reason for that is that we think in capitalism, a consistent margin should attract competition of some kind, and be winnowed away.

So the next one is a good balance sheet. There are different types of good balance sheets, basically, we put them in two camps. And Apple is a similar story, even larger. But, you know, it could be a business like Walmart that turns over so much product and the cash just comes in the door, you know, every split second of every day for 24 hours globally.

And they have decent, you know, interest coverage from their earnings. Just dividends and share repurchases. And we like dividends too, a consistent dividend payer. So we want them to regularly get that cash out of their hands because, you know, when you get a lot of cash in your pocket, it burns a hole in your pocket.

And maybe you get used to making some bad decisions. So, you know, we like companies that have a really good business where they invest all they can and then the surplus is paid out to shareholders. And then the fifth thing is return on equity. This is like… You know, return on equity is like, if a business were a bank account, return on equity is what you make on all the money you leave in it, right?

So you know, we make all that a part of the kind of business screening process. And you know, then at some point, you just have to look at what they do and decide if you think it has a future or not, right? And I think of all the things that help us quantitatively with the qualitative part of figuring out if the management team has their head screwed on right and all that, probably, you know, the acquisitions they make, the investments they make, how they handle the balance sheet.

We got really attracted to Sturm Ruger a long while back because the management changed, and they started taking cash out of the working capital, which was bloated. And you know, that can be a real neat thing. And so just kind of puts you in the right general quadrant of kind of where to look around for decent opportunities, you know. Because the CEOs would just empire build, and waste it, and acquire other companies and pay themselves tons of money.

And to say, well, you should use that excess to pay people more or whatever it is build daycare. Meb: Politicians will be politicians. How do you move from, say, you know, something being either attractive on the screen to actually becoming a recommendation? Are there any particular catalysts? Is it just getting comfortable with it? How do you think about actually tossing these into your portfolio? Dan: Okay. And now the Department of Justice has expanded the inquiry to the Dreamliner.

But we could get interested at some point if we thought that maybe there was, you know, a point of maximum extreme worse than this pessimism. And that, you know, maybe they add another aircraft or two to the inquiry, and then that really, you know, ticks the market off and the stock goes down even more. But just say 5 billion for compensating the Max customers with discounts and cash payments and various things. There could be another one of those to come.

But we follow the… You know, Ben Graham has these principles. Ben Graham, the father of value investing, the father of security analysis. But the trained security analyst, he should be able to find almost anything is cheap enough at a given price and way too expensive at another. So Boeing can get cheap enough for us. Meb: Talk to us a little bit about the general sort of portfolio, is there a certain amount of names you typically keep in the bucket?

How often are you holding these? Is it like a couple of months? Is it a couple of years? So there are 17 names altogether and, you know, we could probably go into the 20s, we could get close to 30 names, I think, and be comfortable. But the average days held is about 1, at this point. I was thinking about, you know, how hard it is to sell, right. Figuring out what to buy is almost like the easy part compared to what to sell, you know, when to sell.

And you keep this capital at work in something that the rest of the world finds useful. So I think that partially explains why we wind up a longer holding period than the average newsletter has. Because it goes back to that old sort of Buffett if you only had, you know, 10 bullets in your chamber, you know, how would you allocate them and knowing that you may never be able to sell them.

How do you put it into practice? And then we sell them when they get expensive. But after 10 years of a pretty serious run-up in equities. So any decision to sell a decent business in the last 5, 10 years has been a bad one.

And I was just guilty of that value investor, this thing looks kind of expensive to me selling. So we try not to make that mistake. Otherwise, Meb, I have made an enormous change. But in particular securities and you start cheering for them. And you start, you know, trying to only find confirming evidence on whatever your position may be all day long.

And you know, as analysts and PM, our job should actually be mostly doing the opposite, you know, trying to find holes in the stories. March of And it was a Graham and Dodd net-net. Meaning that their net cash and liquid assets, cash and equities, you know, they had more net liquid assets than market cap.

Plus at that time, they had this one royalty that was paying all their expenses. And then they had a portfolio of these exploration prospects. And they waited until , five years to buy the first one. And got obliterated for, you know, really four solid years there, and then some. And if they expand the mine, you know, it can wind up even more. And the sentiment in potash has been poor because the prices were kind of pushed down. And those potash royalties are beautiful things.

And I think that the cash from that alone, you know, could really…it could attract a lot more investors than it currently is. And these things are gonna be around multiple mines for hundreds of years. Some of them like a few hundred or , , you know, much more than 1, And they bought others, you know, they have a bunch of royalties, they have iron ore and copper, and a few other things.

Canadian, it trades in Toronto ticker symbol, ALS. Oh, Canadian, sorry. So yeah, , you know, your single-digit multiple of royalties. And, you know, gold royalties, precious metals royalties routinely change hands at like 20 times. Twenty times royalties or, you know, 15, to And there are many more… They have dozens and dozens of prospects, mineral prospects, and on each one of these things, they take a royalty. But the thing is all you need… I mean, to move the needle on a million market cap stock, one royalty can be worth 50, , million.

So the day, you know, that one of these mines goes into production, you know, this thing will get a big lift.

STATE DEPARTMENT FUNCTIONAL BUREAUS INVESTMENT

They started looking at the biotechs or, you know, there was maybe a bull run on gold or some other thing, and they got into it the way you and I did. You know, hopefully, you evolve past that. And rather than trying to go through all the steps, eventually, some of us wind up where I am, which is certainly a bottom-up fundamental one company at a time kind of an investor, but who has a powerful…has developed by experience and mistakes, a powerful respect for the effect of cycles.

And when it gets down to individual companies, we made a bit of a change from the traditional way. As you know, as maybe even listeners know, the traditional way of establishing the intrinsic value, which is what value investors do, right. And then they establish an intrinsic value and they like to pay less than that.

The traditional way of doing that is something called discounted cash flow. And without going into all the technical details, basically, to do this model, you gotta predict things, you gotta just project revenues. At least revenues, margins, you know, maybe tax rate, a few other things, and you wind up with cash flows. But the basic idea is, you plug in all that stuff, instead of projecting all those numbers and discounting them back to the present, you plug in whatever future projections you need in order to equal the current share price.

Meb: And a great example of that, as he talks about…I imagine a real-world example today would probably be like Beyond Meat, which just hit I think 13 billion in market cap today, you know, and it has 50 million or million in sales. But you can really kind of come up with any input you want, or output you want of that model just by, you know, turning a few dials.

Dan: Exactly. To really just get that extra data point. How many companies have grown like this, or whatever it is? And I think in the case of Beyond Meat, some possibilities are definitely eliminated by doing that kind of analysis. But apparently the Beyond sausage is their best tasting one. Okay, so I interrupted you.

So I described the basic change that we made and the basic thing that we do. There are like these five metrics that are kind of traditional value metrics. But after a while, you know, you get burned on a few dozen of these and you start screening for good businesses, and things you can keep on your radar screen. So we have these five, what we call the five financial clues, which is basically a screen. So not everything that it puts out is gold, right? But we find these five things often go with the really, really great businesses.

So gushing free cash flow, consistent margins, and it could be consistently razor thin. But obviously, it is a wonderful business, you know, they turn a lot of inventory, you know. And the reason for that is that we think in capitalism, a consistent margin should attract competition of some kind, and be winnowed away.

So the next one is a good balance sheet. There are different types of good balance sheets, basically, we put them in two camps. And Apple is a similar story, even larger. But, you know, it could be a business like Walmart that turns over so much product and the cash just comes in the door, you know, every split second of every day for 24 hours globally.

And they have decent, you know, interest coverage from their earnings. Just dividends and share repurchases. And we like dividends too, a consistent dividend payer. So we want them to regularly get that cash out of their hands because, you know, when you get a lot of cash in your pocket, it burns a hole in your pocket.

And maybe you get used to making some bad decisions. So, you know, we like companies that have a really good business where they invest all they can and then the surplus is paid out to shareholders. And then the fifth thing is return on equity. This is like… You know, return on equity is like, if a business were a bank account, return on equity is what you make on all the money you leave in it, right?

So you know, we make all that a part of the kind of business screening process. And you know, then at some point, you just have to look at what they do and decide if you think it has a future or not, right? And I think of all the things that help us quantitatively with the qualitative part of figuring out if the management team has their head screwed on right and all that, probably, you know, the acquisitions they make, the investments they make, how they handle the balance sheet.

We got really attracted to Sturm Ruger a long while back because the management changed, and they started taking cash out of the working capital, which was bloated. And you know, that can be a real neat thing. And so just kind of puts you in the right general quadrant of kind of where to look around for decent opportunities, you know.

Because the CEOs would just empire build, and waste it, and acquire other companies and pay themselves tons of money. And to say, well, you should use that excess to pay people more or whatever it is build daycare. Meb: Politicians will be politicians. How do you move from, say, you know, something being either attractive on the screen to actually becoming a recommendation? Are there any particular catalysts? Is it just getting comfortable with it?

How do you think about actually tossing these into your portfolio? Dan: Okay. And now the Department of Justice has expanded the inquiry to the Dreamliner. But we could get interested at some point if we thought that maybe there was, you know, a point of maximum extreme worse than this pessimism. And that, you know, maybe they add another aircraft or two to the inquiry, and then that really, you know, ticks the market off and the stock goes down even more.

But just say 5 billion for compensating the Max customers with discounts and cash payments and various things. There could be another one of those to come. But we follow the… You know, Ben Graham has these principles. Ben Graham, the father of value investing, the father of security analysis. But the trained security analyst, he should be able to find almost anything is cheap enough at a given price and way too expensive at another.

So Boeing can get cheap enough for us. Meb: Talk to us a little bit about the general sort of portfolio, is there a certain amount of names you typically keep in the bucket? How often are you holding these? Is it like a couple of months? Is it a couple of years? So there are 17 names altogether and, you know, we could probably go into the 20s, we could get close to 30 names, I think, and be comfortable.

But the average days held is about 1, at this point. I was thinking about, you know, how hard it is to sell, right. Figuring out what to buy is almost like the easy part compared to what to sell, you know, when to sell. And you keep this capital at work in something that the rest of the world finds useful.

So I think that partially explains why we wind up a longer holding period than the average newsletter has. Because it goes back to that old sort of Buffett if you only had, you know, 10 bullets in your chamber, you know, how would you allocate them and knowing that you may never be able to sell them. How do you put it into practice? And then we sell them when they get expensive.

But after 10 years of a pretty serious run-up in equities. So any decision to sell a decent business in the last 5, 10 years has been a bad one. And I was just guilty of that value investor, this thing looks kind of expensive to me selling. So we try not to make that mistake. Otherwise, Meb, I have made an enormous change. But in particular securities and you start cheering for them. And you start, you know, trying to only find confirming evidence on whatever your position may be all day long.

And you know, as analysts and PM, our job should actually be mostly doing the opposite, you know, trying to find holes in the stories. March of And it was a Graham and Dodd net-net. Meaning that their net cash and liquid assets, cash and equities, you know, they had more net liquid assets than market cap. Plus at that time, they had this one royalty that was paying all their expenses. And then they had a portfolio of these exploration prospects. And they waited until , five years to buy the first one.

And got obliterated for, you know, really four solid years there, and then some. And if they expand the mine, you know, it can wind up even more. And the sentiment in potash has been poor because the prices were kind of pushed down. And those potash royalties are beautiful things. And I think that the cash from that alone, you know, could really…it could attract a lot more investors than it currently is. And these things are gonna be around multiple mines for hundreds of years.

Some of them like a few hundred or , , you know, much more than 1, And they bought others, you know, they have a bunch of royalties, they have iron ore and copper, and a few other things. Canadian, it trades in Toronto ticker symbol, ALS.

Oh, Canadian, sorry. So yeah, , you know, your single-digit multiple of royalties. And, you know, gold royalties, precious metals royalties routinely change hands at like 20 times. Twenty times royalties or, you know, 15, to And there are many more… They have dozens and dozens of prospects, mineral prospects, and on each one of these things, they take a royalty.

But the thing is all you need… I mean, to move the needle on a million market cap stock, one royalty can be worth 50, , million. So the day, you know, that one of these mines goes into production, you know, this thing will get a big lift. Same thing as a money manager, you know, you want people that have a long-term time horizon, rather than chasing deals that may not be as economical.

I have to look into it. You got time for another idea? Owning and operating a mine is kind of a terrible business, not kind of, it is a terrible business. But Altius Minerals is on the two ends of that, that make so much sense and are so highly capital efficient. They spend small amounts of money on a couple of dozen mineral prospects that they can do things with, very capital efficient. And they also, you know, make these investments in royalties.

The prospect generator model is really wonderful. You do some original work, some original geological work, you stake out a prospect, usually for very little money. Then you get a partner, and you get them to spend money and earn in, you know, a majority share of it.

And you know, it can wind up working out very well if they actually can develop it to the point where somebody wants to buy and make a mine out of it. But a key thing to know about this model, and one of the foibles that companies get into is that they fall in love with one of their prospects, right, and they wind up with kind of a flagship project. The model is do the work, stake the prospect, spend a little bit of money, maybe punching a hole or two in it, enough to attract a partner who wants to spend a lot more money to punch a lot more holes in it.

And then you move on, right? Do your deal, move on, stake it out, do your deal, move on. And you never wanna violate your underwriting parameters. One in 3, of, you know, these mineral prospects a year is gonna become a mine. So I love as a spectator following the entire space of natural resources.

We got time for maybe another idea. And it had a good day today. So I was like, wow. And we thought that people were too pessimistic on the business because they know how mature it is in the United States. And I asked Mike to run it through the Pricing Expectations model. And the competition is not nearly as good as people think it is. Meb: And still a country of largely tea drinkers. Dan: I know. But Starbucks, you know, these people are becoming wealthy. They love luxury goods, and they love Starbucks, and they love all kinds of things.

And that just bowled me over. And they run smaller stores, you know, like 50, square feet or so. So Walmart runs these behemoth stores with, you know, , SKUs, , items on the shelves. And Dollar General runs a smaller store and mostly in a lot of rural and kind of more depressed communities. Or the fixtures or anything. And it kind of takes me back to, you know, the early days of Walmart, and I think it has a similar future ahead of it if they continue to run it the way they do.

Meb: Interesting. So look, I got another two pages of questions. So I wanna definitely ask you about a few more things. But Dan, you talk a lot about historical books. First one is the influential books and then, you know, you told me like, I refer to specific chapters and pages and things. And that helps me have discipline and focus on the right thing. And Graham has his four business-like principles in there. And it just underscores how complex the process really is.

And yet, Marks has taken each of those pieces that together constitute a complex undertaking. So those two like are really huge for me. In this extraordinary video, Porter Stansberry takes the marketing of his newsletters to new heights. Released in late , it was heavily promoted in media as the flagship for a new campaign from the Baltimore-based investment tipster.

Among Stansberry's predictions were the literal collapse of the United States, and among his suggestions — apart from buying gold, silver and other metals — was that investors might want to stock up on canned food. Although no data was released from Stansberry and Associates, all the signs were that the project was a success for the advisor, if of mixed benefit to investors who did not see the fall of western democracy.

Official website. From Wikipedia, the free encyclopedia. American writer. Main article: Death of Rey Rivera. The New York Times. Retrieved August 3, The original URL is www. And It's Grim". Yahoo Finance. Archived from the original on February 19, Baltimore Sun. Retrieved September 26, Retrieved June 30, Retrieved January 30, The Baltimore Sun. Retrieved September 14, Fox News.

Retrieved October 21, NY Times Graphics. Retrieved October 7, The Washington Post. Washington: University of Washington. June 11,

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To listen to Episode on iTunes, click here. To listen to Episode on Stitcher, click here. To listen to Episode on Google Play, click here. To stream Episode , click here. Comments or suggestions? Interested in sponsoring an episode? Email Justin at jb cambriainvestments. Summary: In episode we welcome our guest, Dan Ferris. Dan then provides a high level view of his framework for how he thinks about investing.

He discusses bottom-up value investing, and developing a powerful respect for the effect of cycles. When it came to evaluating companies, he took issue with traditional DCF analysis, and focused more on using DCF as a tool to provide guide posts to probabilities of various outcomes. Next, Meb asks Dan to walk through the Extreme Value portfolio.

Dan also touches on his thinking behind the sell decision. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates.

For more information, visit cambriainvestments. Happy summertime. Welcome to the show, Dan Ferris. Dan: Thank you. But I appreciate the compliment. Meb: You know, I mean, even if I listened to you at 2x, which is my normal for podcasts, actually this morning, while at the gym listening to you, and another favourite writer and analyst, Mike Mauboussin, I always massacre his last name. But that was a fun podcast you guys just did, a really highly recommended one.

Dan: Yes. I was really so thrilled when he agreed to get on. He has a very particular way of looking at the world. Just thinking probabilistically and finding ways to make decisions. And it was awesome to talk to him. Meb: Dan, we gotta do this. Just you and the bald eagles and what else?

What are you up to this summer? Dan: Well, lots of trees. Meb: I love it. The nice thing about that is quite ways away from Wall and Broad streets, which is great, I think when it comes to markets. Even in Los Angeles, which is, you know, world global large city, you know, it feels like the main business here is still media, which is nice and refreshing.

How does a guy that at one point, loved just playing guitar ,end up in the financial markets? What was your background? Give us a little origin story, Dan Ferris origin story. Well, just start with just before I got into the business of giving people financial advice for a living. I had kind of dabbled around in the mining stocks. So you know, I knew of the existence of this company, and I had actually made a little bit of money in gold stocks after reading some Doug Casey stuff.

And actually, I hurt my back, was what happened and it kind of slowed me down. I had quit my job, I forget what I was doing. Oh, I was like waiting tables or something. And I quit my job because I had made some money in gold stocks. And I was gonna practice and try to get into the…enter the Guitar Foundation of America competition, which at that time, I think they held it in the LA area.

They held it in Southern California. And I was practicing like crazy and playing lots of guitar, and I was doing pretty well. And then one night, we were at the Mean Bean Cafe and I had played guitar, and I knew the owner and another friend of mine was there. And we used to close the place down and lock the door and raid the… You know, the owner was there so she let us raid the wine cabinet and stuff.

And we cranked the stereo up. And we were dancing around and I was making people follow me around the couch like doing this crazy dance, you know. And I was a skinny young guy, and they were all like kind of older, heavier people. So I thought it was funny to hop on one leg. By the end of that night, I had a searing pain in my lower back. And I had my first of two back surgeries one year later.

And of course, I was screwed for the competition. So that caused me to think twice about it. And I wound up writing a letter. I had this friend of mine who lived across the street from me and I was sitting in her kitchen and she had just gotten a job at this publishing company. And I took them home with me and I wrote Bill Bonner a letter. Bill Bonner, the founder of Agora, the publisher, and he actually hired me.

He tells people that he hired me off the street, he says. Had you been interested in investing prior to that, or? But gold seems to be creeping again up in price and starting to bring all the bulls out again. And what was the sort of transition, you start focusing on the mining sector? What was the kind of eventual runway there? Dan: Okay, so when I first got hired, I had really only…the only equities I knew anything about at that point were gold stocks.

S Global Investors was called United Services. I think they had a fund that was called the world gold fund or the global gold fund, something like that. And it was one of the only funds you could buy that actually had the small-cap stocks in it. Because I wanted that juice, that leverage to gold price. And this was in…there was a run-up in the mids in gold and this was around that time. That was the first thing, to me, it was a levered play on gold.

So I was interested in it more about the…I was more interested in the commodity than the equities. But eventually, when I was hired by Agora, the first thing I wrote about were natural resources stocks. So it did effect a transition from, you know, before I did this for a living, you know, to when I started doing it. Totally focused in natural resources and that lasted for a few years.

And then I started working for Porter Stansberry. I mean, for me, it was, you know, I was coming of age in the sort of Internet bubble and biotech, you know. You know, we hear time and time again. By the way, did they give you a pen or anything for the year anniversary?

I feel like you should have received some sort of, you know, jacket or a medal or something. Dan: I think the only person who noticed was Porter and that was because I wrote it in the Digest and hundreds of thousands of people saw it. He was the only one who noticed. Talk to me a little bit about what your framework for thinking about investing is now? And you can take this question as…feel free to tell it as an evolution from, you know, the mids forward or just talk about it now.

How do you think about the world of investing, and then we can start to get into some concepts, and ideas, and themes, and stocks and all that good stuff? And a lot of them, as you say, they started looking at things that move. They started looking at the biotechs or, you know, there was maybe a bull run on gold or some other thing, and they got into it the way you and I did.

You know, hopefully, you evolve past that. And rather than trying to go through all the steps, eventually, some of us wind up where I am, which is certainly a bottom-up fundamental one company at a time kind of an investor, but who has a powerful…has developed by experience and mistakes, a powerful respect for the effect of cycles. And when it gets down to individual companies, we made a bit of a change from the traditional way.

As you know, as maybe even listeners know, the traditional way of establishing the intrinsic value, which is what value investors do, right. And then they establish an intrinsic value and they like to pay less than that. The traditional way of doing that is something called discounted cash flow.

And without going into all the technical details, basically, to do this model, you gotta predict things, you gotta just project revenues. At least revenues, margins, you know, maybe tax rate, a few other things, and you wind up with cash flows. But the basic idea is, you plug in all that stuff, instead of projecting all those numbers and discounting them back to the present, you plug in whatever future projections you need in order to equal the current share price.

Meb: And a great example of that, as he talks about…I imagine a real-world example today would probably be like Beyond Meat, which just hit I think 13 billion in market cap today, you know, and it has 50 million or million in sales.

But you can really kind of come up with any input you want, or output you want of that model just by, you know, turning a few dials. Dan: Exactly. To really just get that extra data point. How many companies have grown like this, or whatever it is? And I think in the case of Beyond Meat, some possibilities are definitely eliminated by doing that kind of analysis.

But apparently the Beyond sausage is their best tasting one. Okay, so I interrupted you. So I described the basic change that we made and the basic thing that we do. There are like these five metrics that are kind of traditional value metrics. But after a while, you know, you get burned on a few dozen of these and you start screening for good businesses, and things you can keep on your radar screen.

So we have these five, what we call the five financial clues, which is basically a screen. So not everything that it puts out is gold, right? But we find these five things often go with the really, really great businesses. So gushing free cash flow, consistent margins, and it could be consistently razor thin. But obviously, it is a wonderful business, you know, they turn a lot of inventory, you know. And the reason for that is that we think in capitalism, a consistent margin should attract competition of some kind, and be winnowed away.

So the next one is a good balance sheet. There are different types of good balance sheets, basically, we put them in two camps. And Apple is a similar story, even larger. But, you know, it could be a business like Walmart that turns over so much product and the cash just comes in the door, you know, every split second of every day for 24 hours globally.

And they have decent, you know, interest coverage from their earnings. Just dividends and share repurchases. And we like dividends too, a consistent dividend payer. So we want them to regularly get that cash out of their hands because, you know, when you get a lot of cash in your pocket, it burns a hole in your pocket.

And maybe you get used to making some bad decisions. So, you know, we like companies that have a really good business where they invest all they can and then the surplus is paid out to shareholders. And then the fifth thing is return on equity. This is like… You know, return on equity is like, if a business were a bank account, return on equity is what you make on all the money you leave in it, right?

So you know, we make all that a part of the kind of business screening process. And you know, then at some point, you just have to look at what they do and decide if you think it has a future or not, right? And I think of all the things that help us quantitatively with the qualitative part of figuring out if the management team has their head screwed on right and all that, probably, you know, the acquisitions they make, the investments they make, how they handle the balance sheet.

We got really attracted to Sturm Ruger a long while back because the management changed, and they started taking cash out of the working capital, which was bloated. And you know, that can be a real neat thing. And so just kind of puts you in the right general quadrant of kind of where to look around for decent opportunities, you know. Because the CEOs would just empire build, and waste it, and acquire other companies and pay themselves tons of money.

And to say, well, you should use that excess to pay people more or whatever it is build daycare. Meb: Politicians will be politicians. How do you move from, say, you know, something being either attractive on the screen to actually becoming a recommendation? Are there any particular catalysts? Is it just getting comfortable with it? How do you think about actually tossing these into your portfolio?

Dan: Okay. And now the Department of Justice has expanded the inquiry to the Dreamliner. But we could get interested at some point if we thought that maybe there was, you know, a point of maximum extreme worse than this pessimism. And that, you know, maybe they add another aircraft or two to the inquiry, and then that really, you know, ticks the market off and the stock goes down even more. But just say 5 billion for compensating the Max customers with discounts and cash payments and various things.

There could be another one of those to come. But we follow the… You know, Ben Graham has these principles. Ben Graham, the father of value investing, the father of security analysis. OK, […]. Trading service from Tom Dyson and the Palm Beach Letter folks that focuses on steady income from selling options. Not that […]. Apparently the world has royalties on the brain this week … or at least, the part of the world that lives in Florida and has worked for Porter Stansberry.

Frank Curzio, who writes from northern Florida, I think, has been pushing for royalty stocks, most recently patent and pharmaceutical royalties, for his expensive Phase 1 […]. And it so happens that it teases a company I have owned […]. At that time I did not own shares personally, but I now do own shares and have an additional limit order in to buy more if the price drops.

The ad has still been running recently, and […]. And lots of folks have been asking about this one, […].

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Can I Avoid Investing in China? - Dan Ferris

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