Speaker 1: So it's been the must buy stock because it's a
good company and they're killing it what they do, and
it's been the must buy stock because everyone's buying it.
So more people are buying it because everyone's buying it,
which means more people are buying it, So perhaps it's
share price shouldn't be what it is now. The Chinese
Communist Party has come for Nvidia and said, yeah, we
think you might be a monopoly. Certainly nothing political there,
we'll talk about that, plus sort of you should probably
be alarmed about a company that's making a lot of
waves and sucking a lot of people in, and it
might be speculation if people are investing this. We'll talk
with Zach Abraham, who had a fascinating piece on the
Twitter machine about how to speculate in the market in
a way that's responsible. What starts with understanding what speculation is.
We'll chat with Zach about this with the help of
God Almighty.
Speaker 2: But Todd Harman show is one disapproved by big pharma,
technocurrency and sway from the high mountains of Free America.
Here's the Emerald City exile.
Speaker 3: To her Man.
Speaker 1: Today is today the Lord has made in These are
the times so which God has decided we shall live.
My friend and brother, Zach Abraham, joins us. Zach, welcome
back to the program.
Speaker 4: Good to be back as always, sir, Thanks for having me.
Speaker 1: Pleasure just reading a little light reading here about the
Biden administration spying us through our bank accounts and our
financial data and targeting Trump supporters. Certainly a reason to
have a lot of zeal about continuing to bank in
America and feeling very very good about our government.
Speaker 4: I'm feeling good. Well, I mean, I'm I mean, I
know there's plenty of people that aren't feeling good. The
Lord knows right. I mean, it's it's and you know
what's really interesting, man, And you're seeing it in a
lot of different places, and some of it is somewhat surprising,
and I'm starting to hear other people starting to pick
up on it. There is and you see it in
the small business data. You see it. And there I
thought about you. There was a funny funny. Do you
know anything about this guy? He's primarily an investment journalist,
typewriter or whatever. But his name's Rick Newman for Yahoo Finance.
You ever read that? Okay, He is a water carrier
for the last. Yes, right, So all this good economic
news is coming out post election, right, Like, so a surgeon,
new cars being purchased, right, did you hear the reason
he offered for that? Well, people are probably buying new
cars because they know Trump tariffs are going to make
the cost of cars go through through so they're getting
in before it gets nasty. And I'm sitting there going, Okay,
first of all, no matter what Trump does, there's no
way he's going to do to the price of cars
what your homeboy Joe Biden did, right, Okay, first of all, Second, Rick,
I don't know of any consumer base that goes out
and purchases expensive, durable goods in anticipation of things getting.
Speaker 1: Bad's that's a strong point, sorry, not how it works, right.
Speaker 4: And then what's also funny is that married right up
on the same day that car report came out. It
married right up with the Jolts Report, which is job openings.
And there's been a surgeon job openings. So new cars
so surging, new job opening surging. But it's all because
everybody knows that it's gonna be so far these people, man,
and I've I've been choking on that, guys, I've been
choking on that guy's writing for years, just because I
make myself read his nonsense just to know what idiots
are thinking.
Speaker 1: Yeah, and I continue to watch with wide eyed fascination, amazement,
and sickness. Is that where people screaming about fascism is
on the way.
Speaker 3: It's right around the corner here.
Speaker 1: Comes to urge fascists. And I'm reading this report from
Life site News. This is financial monitoring of our finances.
This is through they purchased third party information they do.
It's no warrants, They've just got and purchased the information.
And of course they can use finsend for purchasing above
a below ten thousand bucks, all sorts of ways you
can go get this. If you buy bibles or firearms,
you are flagged as an extremist. This is from a
House report. Purchasing bibles or flyrearms flags you as an extremist,
and the committee says your beliefs are your bank account.
Speaker 3: You can't have both.
Speaker 1: That they're building up a database for prospective dbanking. And
this is of average people because they've got out and
they've dbanked the big guys, some of Team Trump. But
they've been monitoring all of us and stacking us up
into these little corners of baddies. But it's Trump that's
the economic fascist and the social fascist.
Speaker 4: No, naturally, naturally, yeah, well, I mean you understand where
they're coming from, though, I mean, when you understand his
plans to put gay people and minorities in concentration camps,
you know, I mean that it shouldn't have any freedom
loving person pause.
Speaker 1: Right, That's that's obviously why they removed the objection to
same sex marriage from the Republican platform.
Speaker 3: That's obviously to get to the.
Speaker 1: Concentration camps, because that makes things easier by having Peter Teel,
who is an openly same sex attracted man, being one
of their top strategists and then one of the choices
for Secretary of States as well. So maybe maybe that's
not right.
Speaker 4: Well, yeah, you get. I mean, I think you're right
on top of this here. And I think the other
thing that you got to consider too, is that all
of this is pressed are precipitated by the fact that
Donald Trump has become he is a founding member of
the extreme religious conservative right. Right right, I mean, bottom
line is, all Donald cares about is what's in the Bible.
He wants to reinstitute test law. He's a Limitic law.
Speaker 1: He can't quote the Bible by his own admission, but
whatever's in it is that's what he wants.
Speaker 4: Yeah, you know the historical interviews with Clayboy. I mean
this guy, right, He's a Christian extremist.
Speaker 3: Is what he is?
Speaker 1: Right, that's clear for everybody. There's a form of extremist
economic extremist. You have educated me about in relation to
share price, and I want to talk about this with Nvidia,
and then I want to work into an analysis you
did on Twitter about how to speculate in responsible ways.
So I want to use two examples in video and
I want to use this micro strategy and then walk
I want to walk through your your thread here because
if people want to speculate, I want them to do
this in a wise way. I'm using a product that's
whyse It's called Wisdom. It's a Bible based herbal blend.
I'm holding it now and in fact, if friend of
the video service, you notice I'm taking a dropper out
of this. I'm having it that gets almost sweet, like honey,
this is so good, I could drink this. This was
inspired by doctor Patrick Send tempo, and he was in
the Holy Land walking where Jesus walked. He's a doctor,
he's a health freedom guy, and he got to thinking
about how often sacred herbs are mentioned in the Bible.
This is gmo free, it's gluten free for those who care,
it's vegan, and it contains sacred herbs. But he did
something else. He infuses this to sound waves and light
waves and he makes it in cold brew small batch,
so it locks in the potency of these herbs.
Speaker 3: What do they do?
Speaker 1: Healthy immune response, healthy response to inflammation. You can actually
harness inflammation for muscle gains if you do it the
right way. Joint relief, a feeling of relaxation. All of
this inspired by the Bible and the skills that doctor
jin Temple has been given by God to Steward.
Speaker 3: So try this. Go to try.
Speaker 1: Wisdom noow dot com slash todd Try Wisdom now dot
com slash todd. You will get thirty three percent off.
You will also get free shipping. You'll get one hundred
and eighty day money back guarantee at triwisdomnow dot com
slash todd. So a couple companies and then we'll get
into this speculation thread that Zach gifted the world with
so in video shares fell after China said it's opened
up an investigation over possible violations of monopoly law. Now
that's interesting coming from the Chinese Communist Party, which controls
every company in China. There you go, Hey, all of
a sudden, maybe in Vidia is not quite the.
Speaker 3: Safe bet that everybody said.
Speaker 4: Well, and this is this is kind of illustrates or
highlights of a fear and issue I've had for a
really long time, okay, which is so if you look
at the world, and we look at the world in
the context of like pre COVID and post COVID, right, actually,
you know what, what's funny? And you could even do
this with eight O nine because I think that was
actually the pivot point. And I think that it's become
abundantly clear since twenty sixteen, you know, via the election
of Trump Brexit that things have progressed, but the world
has become decidedly less collaborative, right yep. So, and and
you know, the whole the whole push towards geo uh,
you know, global economy, all that kind of stuff.
Speaker 2: You know.
Speaker 4: I think the thing that we do when we critique things,
especially for those of us more on the conservative side
of things, and I think especially those of us that
are more on the Christian conservative side of things, I
think that we need to be the place that becomes
synonymous with being factually correct.
Speaker 2: Right.
Speaker 4: We need to have reliable, reliable information and reliable data
and and know what we're talking about. So if you
look like I said, so, if you look at the
world is becoming less collaborative, and and there were benefits
to globalism, right, globalism for instance, it it there were
a lot of benefits. It helped the explosion and a
lot of technological advancements. It also was a big component
in the unbelievable profit growth that we've had here in
the United States. The problem is is it came at
a cost too high. Right. So, so like everything you know,
getting more globalistic in the nineties was probably a right
idea what we do, we went we took it too
far right, And so the world is getting less collaborative. Well,
when you look at the dominating nature and dominating in
a complementary fashion. So I'm not saying it in a
pejorative way at all, But if you look at the
dominate the dominating nature of the giant tech companies. This
is one of the issues I've had looking around the world, going,
do you think a bunch of these other countries, especially
the ones that have some real stroke on the on
the global stage, meaning they really make waves, the China's
of the world, right, the Indias of the world, do
you really think they're going to allow our tech companies
to come in there and do to them what they
have done to us, meaning open up the you know,
open up the door to being in koots with government. Uh,
what about all the profit that they extract that? What
if it's just an economic argument where they're like, hey,
we love your tech, but here are the constraints that
we're gonna put on you operating in our country or
being listed on our stock exchanges, because we don't want
you extracting all that value. We want Indian or we
want Chinese companies to play that role. Right, And China
has already taken several steps in that direction with the
restrictions they put on Amazon operating in their country. Right,
so that we we've already seen that. Well, now you go, okay,
if you look at Trump in office, we're in a
we're in a less collaborative place than we were with
Biden clearly, yep. Uh. Part of it's probably because you
know Trump, you know, or or excuse me, Biden. You know,
we're no longer getting back alley deals from the Chinese.
They're gonna pay one of Trump's sons three million dollars
a year to sell on the board, right, So there's
like there's less ties that bind, if you will, and
so so I think that what you're seeing. I think
one of the biggest issues with the value euations of
these companies, like in Nvidia, like Apple, like you know,
Mike Microsoft, like Google. One of the one of the
things that we hold my biggest concern on holding Google
on a valuation basis. Uh, Google is a little bit
different because it's trading so much cheaper than those other
companies are, though, so it's got some bad news priced
into it, and we really think it's really undervalue. But
you look at these other tech companies, you have so
much of that you know, that that excitedness, right, that
euphoria built into the price of these companies, And I
just think everybody's really overestimating in a more competitive world
that these countries are just going to open the door
and allow these tech companies to roll in there and
extract that much profit from their economy. I just don't
see it, and I think that is going to be
one of I think that, and honestly, a cut in
regulations is going to be something that is not helpful
to big tech.
Speaker 3: Get got it?
Speaker 1: And people continue to buy in video because people are
buying in VideA. We've been talking about like it's a
great company, but it is not a company that's free
from controversy or risk, and it's a pretty big risk.
If the Chinese Communist Party says, yeah, no China market
for you, that's a pretty enormous risk. There's another company
we need to talk about that is not and this
is coming from you, and I trust you, not a
good company, and I think I want to compare them,
Zach to your speculation thread that you put up, and
we'll do this here at a second, guys, don't speculate
on your body.
Speaker 3: Don't do this.
Speaker 1: I mean, yes, it's one thing to try a supplement
that I endorse and I always try these and that's.
Speaker 3: A low risk. But please hear this.
Speaker 1: If you have a surgical team who's telling you you
have to have back surgery. Do you know the success
rate and back surgery for some forms of back surgery,
it's flat almost zero. And so please please please get
a second opinion from renew that healthcare in Mexico. Please
just let them have access to your MRIs. They'll tell
you if they can help you. You might avoid surgery
with ethically gathered stem cells that can rebuild ustle, intended
even cartilage. Same thing applies to your knees. And there's
one thing that I don't like talking about because it's
an uncomfortable topic, but it occurred to me.
Speaker 3: I've never mentioned this so for I hate this man.
I can't believe I'm about to say these words.
Speaker 1: Erectile dysfunction. It happens to people. Sometimes it's a nerve thing.
Sometimes it's an age thing. There's surgeries, there's pills, there's shots.
Can I tell you something I talked to the guys
that we knew about this. A stem cell approach to
this re grows cells, it re animates. Okay, I want
to be very careful and respectful. You don't need to
have shots, you don't need to have surgery. Okay, The
ethically gathered stem cells regrow body parts and cartilage, tissue, muscle,
and then the very very serious one traumatic brain injuries.
I'm familiar with now three cases where renew has seen
incredible results using these ethically gathered stem cells. Never anything
to do with abortion, not ever to help people recover
from traumatic brain injuries from horse riding accidents, car accidents,
biking accidents. Okay, please do not buy what the American
pharma and surgical complex is telling you. Find out for
renew if they can help you, and I promise you,
I promise you. If they cannot help you, they'll tell you.
They told me and I talk about them publicly. Hey,
we can't help you avoid surgery, Todd, We're sorry, but
we can help you recover a thousand times faster.
Speaker 3: And they did. It's Renewed.
Speaker 1: Go to our e n U E dot Healthcare. That's
our e n U E dot Healthcare. So, Zach, there's
a thread you put up. We'll go through this. I
want to go through this quickly, and then I want
to apply this company to this and use this thread
for a discussion you wrote. I think Dash, I know
speculation can be a wonderful source of alpha, and you
need to explain it.
Speaker 2: To us.
Speaker 1: When deployed executed, it can actually decrease risk and volatility.
Speaker 3: Here's the problem.
Speaker 1: Most market participants don't know how to speculate a thread
and will unpack these. I'll just give thee highlights. First,
speculation isn't an investment, it's a bet. Second, speculation isn't
a trade. Third, you must truly understand convexity and learn
to target only convex setups. Fourth, you cannot speculate using leverage.
Speaker 3: Fifth, be selective.
Speaker 1: Lastly, you must memorialize your wins. And we'll go through
and we'll pack the greater statements you've made. But let
me bring into this a company that's getting a huge
amount of attention. And you said a lot of retail investors.
That's people like me and a lot of the podcast
family are investing this. It's this company called micro Strategy,
which has valued itself at some enormous amount of money.
They just turned around about another two point one billion
dollars in bitcoin and drawing increased scrutiny from regulators. So
what is micro Strategy and explain this to us? And
you seem deeply concerned about people getting really taken for
a ride.
Speaker 4: Yeah, and One of the one of the nice things
about this conversation is it sounds funny, but I like
having financial discussions, or I guess the best way to
put is that financial discussions or investment discussions that I
like having the most are ones that are independent of
my opinion, you know, meaning because this industry is so
filled with so many opinions. And one of the things
I've learned is that given given up a certain place
or certain time, any opinion is almost viable. Right. Like,
this stuff, but I'm going to tell you today, though,
is purely fact based. It is law based, it is
regulation based. Because I want to try to pull out
as much opacity and smoke out of this and so
people really understand what's going on. I also there's also
kind of a weird little preamble here, but I mean
this earnestly. I think that it is going to be
a much easier thing for your audience to absorb because
of the percentage of people that are spiritually spiritually focused, right, meaning,
one of the things that you have to do in
an environment like this is you have to what is
going on in this environment right now? Is A good
buddy of mine called it financial nihilism, which is, we
don't care. How. All we care about is just making money.
If we make money, great, we don't care how right,
So we don't care, right, Yep, We're gonna go buy
ridiculous things because we think there might be a short
squeeze even though we know that it's not worth this. Right,
it's I don't care, you know, yolo, right, you only
live once?
Speaker 2: Yep.
Speaker 4: Right, financial nihilism, and so in that, in that context,
what has defined a good or bad investment has been
purely the movement of the price. Okay, so price goes up, people,
what's not a fraud? The price is gone up, and
you're like, well it usually does, right, That's kind of
a hallmark of most frauds. But what I mean by
that is I see a lot of I see a
lot of Christians getting caught up this too, a lot
of people that would you know that talk about you know, look,
at the end of the day, what is price price
on any short term basis in any market? Is opinion?
Speaker 2: Right?
Speaker 4: Does the generalized opinion that only fans is a wonderful
thing for sex workers? Does that open the door for
your listeners to go become only fans? Members and pay
s description fees.
Speaker 1: Well, pray God not since it's also adulta in fornication.
Speaker 4: Right. But my point is is that regardless of what
public opinion is, as christ followers, there's a set of
rules that we know always hold true, right, right, And
there's a set of rules that regardless of what society says,
we're going to hold to them right right. Investing is
very similar, meaning when you look at periods of times
of people that have made really good money and people
that have lost it or people that have maintained it,
one of the constant threads you see in successful investors
is the complete willingness and ability to cut against popular opinion, right,
to sit there and to value data and intellect and
wisdom and math above price movements, and having the discipline
to allow those price movements to go against them for
an extended period of time. Right. But the key part
to it is we as Christians need to be able
to identify what is the good stuff and what is
the bad stuff, and we cannot allow that to be
you know, polluted by opinion, right a popular culture. So
now with that preamble, I pardon the length, but getting
into a discussion about micro strategy, the ticker symbols MSTR,
and this has been all the rage the stocks going
through the roof. Okay, it is going through the roof
for I wouldn't say fraudulent reasons because the company is
being very open about what they're doing. So, and I
think we've talked about it before, but they're a tech
company that sells some tech hardware. It's a decent business,
but really nothing in and of itself. Probably on a own,
it's a one and a half to two billion dollar business. Okay,
so not a bad business, but nothing like this, okay.
And so what they've done is they have issued a
bunch of zero coupon meaning death it doesn't pay any
interest rates they and I believe the structure is they've
issued it. I don't want to get your people lost
in the weeds, but basically they've issued it as a
discount to par. And the way that the bond holders
that buy these bonds can make money is the value
of the bond can go up over time because it
can reach par value and they're using borrowed money. Basically,
they're levering up the company's balance sheet with unbelievable amounts
of money. I mean, I think they've got like something
like sixty or seventy billion in debt or maybe not
that much, but anyway, they're they're stacking on unbelievable amounts
of debt to buy bitcoin, okay, and they've created this
whole narrative and all the bitcoin people are all excited
about it. They're like, oh, you got to own bitcoin
and master Okay, So let's take a step back first
of all. Okay, first of all, what they are doing,
and it's more complicated, it's more convoluted. Remember when we
talked about one of the quickest ways to avoid scams
or ways you're going to lose a lot of money,
one of the simplest ways to identify things you want
to stay away from are things that have unnecessary complexity, right,
So unnecessary complexity. Here they are levering up their balance
sheet to buy Now remember you don't they're not paying
interest on that debt. So that's one saver for them
because the zero coupon debt. But that debt has terms
on it. Okay, so they've either got to repay the debt,
which they have promised not to do because they're not
going to sell any bitcoin. When You've got a company
that's worth one to two billion dollars and you own
how many I think? I mean, I don't know. They
own billions, tens of billions of dollars worth of bitcoin. Right,
if the bitcoin starts going south, you'll be forced to
sell it. The business can't support it. Right, it's forty.
Speaker 3: One billion in bitcoin they own?
Speaker 4: How much?
Speaker 1: Forty one billion, and they're gonna they plan to raise
forty two billion so they could get up to eighty
three billion in bitcoin right now, it's forty one billion
they own.
Speaker 4: Yeah, so they're just issue in debt like crazy, okay,
and everybody's all excited about this. What the investors in
micro Strategy do not understand is that they have zero
claims on that bitcoin. Zero. So if that company were
to get liquidated because it can't pay its debts, they
get none of that bitcoin.
Speaker 2: Right.
Speaker 4: Meanwhile, all of that market cap evaporates, right, And the
reason they don't is because the creditors come before equity holders.
So if they go on, so these people are buying
the stock and bidding it up, now check it out,
the debt converts into stock. Okay, So what now? Remember
all the bitcoin people the reason they love bitcoin so
much is it's anti fiat currency. Right, they can't make
any more of it. It's like digital gold, all this
kind of stuff. Well, now they love this company. This
company is using leverage to purchase the bitcoin of which
the shareholders of the company have zero claim to none.
And oh, by the way, the one thing that they
can bat on is they're going to get diluted, right
because why that debt is going to convert into equity.
So literally, they are buying bitcoin in a vehicle that
nullifies all of the advantages and reasons they like bitcoin.
Speaker 3: But they're not buying it, they're renting it.
Speaker 4: Yeah. Well, you know it's even worse. They're buying shares
in a company that's renting it.
Speaker 1: So they're buying shares in a company that's renting bitcoin,
doesn't even really own it. And there is an absolute
promise that we don't owe you a dime if it
remains debt and if it converts to equity, Congratulations, you
have equity in a company that's renting bitcoin that doesn't
own it.
Speaker 4: Yeah, and so what and so and here you need
to understand the thinking that goes behind this too, the
bet that he's making or the bet that these well,
most people aren't. They don't understand what we're talking about.
But the bet that he's making is what he's what.
The people that understand this bet that think it can work.
I don't understand why they think it can work, because
these schemes have been tried many times. This isn't the
first time somebody's gonna lever up their balance sheet to
buy a non cash flowing asset. Okay, Now, it never works, right,
just because eventually there becomes there becomes an imbalance. Now
this is a little bit different because they are zero
coupon bonds, okay, but the impact to the underlying shareholder
is the same because what they're betting on basically is
that the price. The way, the only way this works
is if bitcoin keeps going up into perpetuity, right, It's
the only way it works, Okay. And then eventually what
you do, and I don't even know how that works,
because eventually you've got to pay down the debt. But basically,
what you're what you're hoping for, I guess is you're
hoping that bitcoin accelerates at a rate that outpaces the
rate you're being diluted at either way you sit there
and go, guys, just take the money and go buy bitcoin.
Speaker 3: That's my point. That's the needless complexity.
Speaker 1: Right, You're giving this money to this company, this renting bitcoin,
so you don't even you don't even rent it, they
rent it. You just give them money that they say
right up front, we're never going to pay you interest
on this. It might convert to equity. But then again,
worldly renting the bitcoin when you could just save up
some money go buy some bitcoin. Yeah, then you actually
own the bitcoin and all of the advantages of the bitcoin. Well, gosh,
I wonder why regulators are starting to look into this
a little bit.
Speaker 3: That's that's well so fascinating.
Speaker 4: Yeah, and it's and look, here's the one thing that
I can tell you is that we are getting into
the silly phase of this whole thing. Apple now has
hit a new all time high Apple and Apple has
grown six percent in the last two and a half years. Okay,
And if I pulled up a chart, it'd make your
eyes water. But we show a chart that shows the
valuation of Apple on one line, and then we show
the increase in profits on one line, and the two
lines tod have gone like this.
Speaker 1: Yeah, evaluation straight up and profits are flatlining.
Speaker 4: You you will remember this, I doubt you won't remember this.
You remember Scott McNeely of Sun Microsystems, Yes, very well, okay,
you remember the famous speech he gave two or three
years after the crash and they were like, you know,
your stock crash. And he kind of looked at very
and he goes, what did you think was gonna happen?
He goes, I'm not the one that determined the price
of the stock. And he gives this lecture and he goes,
you guys, bid the stock up to where it got
up to ten x revenue. Yeah, and he goes, do
you understand what that means? Not ten times profit ten
x revenue. So he kind of walks through, how ridiculous
of the evaluation is that? Yeah, Apple, the largest corporation
in the history of public markets and in the history
of commerce, is now trading at ten x revenue and
it isn't growing.
Speaker 3: So so insane.
Speaker 1: All right, let's apply your speculation thread to some of
these things, or zach in a second, people are heading
into Christmas, prices have gone up and time has gone down.
Speaker 3: Notes only two weeks left.
Speaker 1: Hey, is the shipping it to come on time, and
are people gonna make it on time?
Speaker 3: And are you going?
Speaker 1: You know, I have a friend of mine who's arguing
with his wife. Are we going to Arizona? We're staying here?
Might be that after thirty years of marriage, I have
a Christmas apart and there's bad blood and she wants
her family up here, and it's sis so stressful for people.
Speaker 3: Here's a hack.
Speaker 1: Right, In addition to the Word of God and taking
all spirits captive, here's a hack. Magnesium Breakthrough is a
full spectrum magnesium suppent with seven forms of organic magnesium.
One of its superstar outstanding capabilities is to reduce stress
by helping to control the stress hormone cortisol. When it
does that, you feel less stress, you feel more relaxed.
It allows you to enjoy things better, and incidentally, you
will probably sleep better. It'll be doing a lot of
great things in the background, like helping you absorb carbohydrates
more efficiently. But the primary thing in this season is
please don't allow it to stress you out. Try to
do stress your holidays. Good to biptimizers dot com slash
Todd use promo code Todd to get an extra ten
percent off magnesium breakthrough. That's biptemizers dot com slash Todd
promo code Todd. So Zach, you put on the twittershx machine,
this really interesting thread, and then we need to start with
just decoding some things for folks. Yeah, he wrote, I
think dash. I know speculation can be a wonderful source
of alpha when deployed executed correctly, it could actually decrease
risk and volatility. Here's the problem. Most market participants don't
know how to speculate a thread. What does funding alpha mean?
Speaker 4: So alpha would be any type of excess return you
generate over any type of given data set or market
or index. So meaning like let's say I'm index to
the s and P five hundred. If the SMP is
up ten percent in the year and I'm up thirteen,
I've generated three percent of alpha.
Speaker 3: Got it.
Speaker 4: That's a that's a very simplified way to think about it.
But that's that's the basis of it, all right.
Speaker 3: So first paragraph for our first tweet.
Speaker 1: First you write, speculation isn't an investment, it's a bet.
Speaker 3: So it's all about sizing.
Speaker 1: A good place to start is speculating with no more
than your investment portfolio yields. What with no more than
your investment portfolio yields. If you do more than two
x your bet, sell half and pay your portfolio back.
If you lose it, you're done for the year. So
help us understand that too.
Speaker 4: So, so you hear all this talk about speculation, I'll
just give you some. I'll give you some classic examples
of what we've done. Yeah, First of all, you need
to understand the difference between speculating and investing. Okay, when
you are investing in a company, you are doing it
based on numbers. You are doing it based on data.
You are doing it and saying, Okay, this company generates
this level of profit, I am asked to be paid
this much. When I compare that amount to other opportunities
I have, it's attractive, meaning I'm getting more back for
my invested dollar. Right I am investing for fundamental reasons.
That is a calculated decision based on math. Right now.
It doesn't mean it's always works out, because things happen
and things change, but time tested, it's been pretty proven
that investing that way over the long run is the
best or one of the best ways to invest in
terms of overall returns over a long period of time, right,
And the biggest reason is because if you follow that path,
you will miss the biggest losers, right, and losses are
far more impactful on long term returns than short term.
So first of all, we have to identify that. And
one of the biggest things that you see that happens
in every bubble, but is happening writ large in this one,
is that those two things are being conflated. They're being
completely crossed up.
Speaker 3: Right.
Speaker 4: So people have begun to think that speculating is investing,
buying a buying shares. A classic speculation would be buying
shares in a company like micro Strategy, meaning there is
no discernible, fundamental or measurable way to evaluate that company
and make a decision. So therefore you are buying the
stock for one reason and one reason only you think
and hope it goes up. Okay, that is just be
honest with yourself. That is making a bet, just like
you would in a casino. Right, same thing. Okay. Now,
people that can sound bad when done correctly, it's not.
And I'll give you a perfect example of this. So,
coming out of Covid, a company that had been very
cheap for a very long time. That had a lot
of issues. But you know me and valuation, It gets
cheap enough and I'm to stop and look at anything.
But it attracted us for a long time, but there
were issues that we just couldn't quite reconcilence, so we
never pulled the trigger on it. And a company was
called bed Bath and Beyond Well coming out of Covid.
That was a stock that wasn't recovering off its COVID lows.
And the reason it wasn't is because the narrative about
the stock was they have no online presence and Covid
is going to be their quick death. Well that was
a ridiculous assertion because people that were saying that didn't
know anything about the company. We had been studying the
company and they were drastically and radically increasing their online
sales as a percentage of their overall revenue. The new
CEO was doing a great job at ramping up that
side of the business. So we thought that was a
great opportunity because what was pushing the stock down was
negative opinions that were unfounded, right, but that was still
a speculation on our part. Why because it wasn't based
on a runway or a trajectory of the company that
we could look at and we had any confidence on
over the long term. It was more looking at a
company that we felt was not about to go under,
that we knew wasn't about to go under, like as
in the next six to twelve months, and it was
a company that was doing considerably better in that environment
than what people thought. And it seemed like a great
place to take a bet because we were buying it
at its low market for like the last fifteen year, okay,
And so why did that feel like a good place
to take a bet Because we knew really quick when
we wanted out of the bet. We wanted out of
the bet when it broke below that previous all time
low and created new lows. And then we're like, okay,
we'll get in and out of this thing quick, but
we'll take a flyer on it. Okay. Well, we ended
up buying the stock at about somewhere between three fifty
to four dollars a share. Fast forward about three months,
we sold it for thirty eight It right now here.
Here's why it works. There's plenty of speculations that we've
lost money on, but we structure it.
Speaker 2: In a way.
Speaker 4: Remember, because if it goes down, we don't buy more.
And why because we just made a bet that it
went up. We lost the bet. We take our loss
and we move on. We put that six or seven
percent loss in our pocket and we move on. We
take it on the chin like a big boy. Right. Well,
we can take a few of those shots here and there,
knowing that the bed Bath and Beyond the GameStop bet
that we made that we made five x on right
when we hit them. If we're disciplined about them and
cut our losses early and stay disciplined, which we have
to about speculations, right, they're you probably won't win most,
but if you do it correctly, right can vex situations
meaning situations that appear to have load very little downside
but a lot of upside potential. Right, you want to
see the right setups and then you still don't bet
them big. When we bought bed Bath and Beyond, it
was only a three percent slice to the portfolio. But
when that when three percent slice to the portfolio goes
up ten or twelve x, that's a big win. You
don't need to bet big to win big, right, And
so what we're saying is Look, I'm not encouraging everybody
to go out there and speculate because it's something that
I haven't close to mastered. It's something that nobody will
ever master. But it can be like clients will last
me all the time, Zack. I've got my own little
trading account here that I'm wondering if I can buy this,
And my answer to them always is yes, you can
buy anything, just don't buy it in big size and
have very district rules. If it does what you think
it's gonna do, or you hope it doesn't, it goes up, great,
right it. But if it doesn't do what you think
it's gonna do, take your loss and move on.
Speaker 2: Right.
Speaker 1: So great, Yeah, because a great explanation. I want to
talk about why it isn't a trade and why you
cannot speculate using leverage. We'll talk about that with Zach Abraham,
Chief Investments or Bulwark Capital Management. This is a guy
who you want to talk about speculation. This is a
guy who placed a bet and this is a stupid investment.
Speaker 3: You think about this.
Speaker 1: This guy just started to start a company with a
meth addict, cocaine addict, gambling addict, a guy who was
sleeping on a couch like screwed up. His family life
completely messed up. He was a joke in his hometown.
People knew him as a drinker and a drugger loser.
So he decides to start a company with this guy. Yeah,
he bet on himself. His name is mich Lindell. He
bet on himself, and my Pillow became very famous because
he went to trade shows. His daughter made the logo.
Speaker 3: Did you know that?
Speaker 1: The first logo and the existing logo for my pillow
his fortes. I think she was fourteen when she made it.
Because he couldn't afford anything else, traveled the country, going
to trade shows and fairs, sand and there, Hey, come
and check out my pillows and look, I'll put him
in a dryer and the puff up. He did that
so long that finding this thing broke through. Then he
decided to express himself. He didn't think the election was fair.
He spoke out and boom, Enemy of the State, Boom,
the FBI coming up to Amys in line to buy
Chick fil A, taking.
Speaker 3: His phone away from him.
Speaker 1: Boom, retailer's canceling orders. It just happened again, A big
retailer just canceled in an order with my product. Mike
Lindell got in touch with us. Could you guys come
in and help? And yep, we haven't worked with Mike
in a long time, but we're glad to do it
given what he's done for free speech and election integrity.
So here's what we're doing. When you go to my
pillow dot com slash todd, use promo code Todd, you're
going to get the lowest price ever on the class
my pillop.
Speaker 3: This has never been this low.
Speaker 1: Go to my pillow dot com slash todd use promo
code toad to get the standard my Pillow for.
Speaker 3: Only fourteen eighty eight. It has never been that low.
Not once.
Speaker 1: Use promo code tod for discounts on the entire my
Pillow collection. Plus know this, they're extending the money back
guarantee period all the way through March first, twenty twenty five.
When you place an order between now and the twenty
fifth of December, all of the pillars are on sale,
but none of them as dramatically as the MyPillow classickets
My pillo dot com slash Todd promo code Todd. So Zach,
you talk in this thread very very well about what
is and is not speculation. And you say that speculation
is not a trade. So what helped me understand that part?
Speaker 4: Would I say it's not when I say, and the
speculation is on an investment?
Speaker 3: No, you say it's not a trade.
Speaker 1: You write Yeah, you say, you write this, You must
understand speculation. Second, speculation is in a trade, meaning there
must be rules and parameters set out at the jump
before any position is taking.
Speaker 3: You need a bat a plan how much you're willing to.
Speaker 1: Risk, at what price do you take, at what point
do you take profit?
Speaker 3: Failing to plan is planning to fail?
Speaker 4: Yeah, so I probably miss I probably missed type there
because what I was trying to say was, at its
very nature, speculation needs is a trade.
Speaker 3: It needs to be.
Speaker 4: Like a trade, not a trustment.
Speaker 3: Right, okay?
Speaker 4: And what happens, and this is where it goes wrong,
And this is where it goes back into kind of
crossing up with our moral with our moral guidelines. Right,
price go up does not mean that you made a
good investment decision. It means that you're on the right
side of a trade for now. Okay. And here's the problem.
Even when speculations work. Guess what happens The investor forgets
that it's a speculation because it's worked, right, So then
it becomes oh, I love that, don't get rid of it.
I'm like, well, yeah, because it made you money. But
treat it like a car. Hey, it's supposed to get
you to work. Once it does that, you get out, Okay, right,
you know, just sit in the car all day long.
Speaker 2: Yep.
Speaker 4: So understand Now, an investment is different. Now, get investment
is something that you can buy and hold for a
long time because it stays within your parameters and you're
not freaking out about that, right. So what I mean
by this is saying any time the so much pain
can be missed by investors if they properly evaluate what
they're going into when they go into it and classify It's.
One of the things we do at our investment meetings
every single week is when when one of our analysts
comes in with a new idea, the first question we
ask is is it a trade or an investment? And
they all know what that means, right, Meaning if it's trade,
here's how we're gonna look at this. We're gonna have
an exit point. We're gonna have an entry point all
that kind of stuff. If it's an investment, we want
to have enough confidence and have done enough research and
understand that company. The litmus test for me is do
we understand it enough to where if it's down twenty percent,
we buy mode?
Speaker 3: Right?
Speaker 4: You do not do that with a speculation. You just don't.
Speaker 2: Okay.
Speaker 4: And I can tell you story after story after story.
And it's one of those things where either take my
word for it or you will learn it on your own.
But learn it you will, because that is the price
to play this game. The old guys in this game say, look, son,
you've got two options learning that lesson. You can take
my word for it, you can learn it on your own,
but you learn it. You're going to learn it. Yeah.
Just and and that's where I get back to it
circles back to this whole micro strategy thing. Why do
I talk about it and set certain terms because because
this is done, this has been done so many different ways,
so many different times. Okay. When when you are levering
up your balance sheet to buy a non cash flowing asset,
even if that debt quote unquote isn't costing you any interest,
you have an imbalance, and at some point you will
get shook out. And that's why in investing, if you
look at the history of markets, time has always been
on your side right, no matter how bad it got.
If you held on, markets came back well. When you
add leverage in debt into that, you have officially started
a clock. Right, You've taken away your greatest advantage as
an investor, which is time you can sit and wait.
Right once you add leverage in now you know it's
hard enough picking an investment the right way or getting
it right, but getting it right in the right timeline.
The minute you add leverage, you now have to be
right about the bet itself, the investment itself, and you
have to be right on the timeline. If you're wrong
on either, you've got big problems.
Speaker 1: Okay, that explains to me. While you don't buy, you
don't speculate with leverage. That makes all the sense of world. Okay,
this is the most poetic thing that you write. I think,
and this is so, this means something to me. I
want you to explain this to people. I know we're
short on time with you. Fifthy right, be selective. You
have to wait for your pitch. I cannot emphasize this enough.
You're right, learn it from others' mistakes or from experience,
but learn it you will. I find that it run
into one or two highly high convexity, high conviction bets
every twelve to six months. You cannot chase the trade.
They have to come to you on their own, so
you it sounds like you're going to have heart I think.
And then but every twelve to sixteen months, it's really
that infrequent that you place a bet or speculator.
Speaker 4: No, we might place bets, but meaning you know, little
opportunistic things we see. But probably the best, probably the
best example I can give.
Speaker 2: You is.
Speaker 4: Well, uranium earlier this year was one where you know,
like it lined up at the price it was at
and to us it just looked like go time it's up.
Since then, we've hold those positions for a long time.
But probably the best, probably the best example of this
was going into twenty twenty two. At the end of
twenty twenty one, were really pounding the table just saying
we really, we really firmly believe the best place to
be as long energy in short tech. Had you followed
those trades, had you put your entire portfolio long energy,
short tech. In twenty twenty two, the market was down
twenty one percent, that trade was up like fifty wow.
So but it had been since going into COVID that
I had felt that kind of certainty, and you just
don't know when it comes. It was sort of like
game Stop in bed Bath and Beyond. Those just came
to us too, and we'd watched them for a long time,
and all of a sudden, the stars aligned and you
kind of go there it is. And I joke with
my buddies that manage money. When you see it, you
see it. You can't fabricate it. Where you get in
trouble is when you've seen them a few times, you
start trying to create seeing them and you just can't.
And I don't have a good reason for that. It's
like life, like why do you go out on the
golf course some days and shoot seventy six and other
days you feel like you can't break eighty five to
save your life. I don't know it's right, the very
ability of human beings right, But it just every good
investor I know goes through these periods of times where
they feel like they're so bloody hot they can't miss.
And then other times where they're like, I don't this
looks like Japanese to me, right, like it nothing makes sense.
And one of the reasons you don't you don't want
to play those bets or speculate unless you see it
is when you're in those times where you don't see it,
is where you lose.
Speaker 3: Tons of money.
Speaker 4: You gotta let it come to you, and you got
to let it play out. And yeah, you just can't.
You can't create the opportunity.
Speaker 1: And then of course census is betting. And you wrap
this up really well, you call it memorializing your wins.
In other words, pocket the money, move on the car
got you to work.
Speaker 3: This caeculation was a car. It got you to work.
I say the same thing with people who go win
money and casinos, great, fantastic.
Speaker 1: Now take the money that you paid to gamble, put
it back in your bank accounts, and if you want
to keep gambling, just use your winnings.
Speaker 4: Yes, yeah, investings the same way, right, And that's what
I mean by in memorializing our wins, meaning, look, I
don't care if you take that profit and you dump
it into the S and P five hundred. I don't
care if you take that profit you dump it into treasuries.
I don't care if you take that profit dump it
into a red or dump it into like a blue
chip dividend paying stock. Right, Just something that you know
five years from now will be there. Right Because now
you hit a bet and you are turning that bet,
you are memorializing it. That win will not escape you.
It ain't going away and it's going to be there.
And that is just as important everybody thinks about the
wind has You know, I don't want the stock I'm
buying to go down. I really want it to go up.
But if you do not memorialize your wins, it won't
matter because you'll whatever you win, you'll give back.
Speaker 3: Yep, yep. I love it. That a great way to formulate it.
Thank you so much.
Speaker 1: Please say hi to your beloved bipocks.
Speaker 4: I will certainly do that.
Speaker 1: I'll say hi to my why pucks over here, Zach Abraham,
Chief and Vestment Officer, Bulwark Capital Management. Know you're risk
Radio dot Com eight sixty six seven seven nine Risks.
This is the Todd Herman Show. Please go be well,
be strong, be kind, Please make every effort
Speaker 3: To walk in the light of Christ.