Listen to the podcast embedded above or on the go via Apple Podcasts or Spotify.
- 3:00 – Fed rhetoric and interest rates
- 8:15 – Recent bank earnings, what it means for the financial sector.
- 17:10 – Options and retail investing
- 23:40 – Charles Schwab (SCHW) absorbing TD Ameritrade is a big deal nobody’s talking about it.
- 31:15 – Charting Bitcoin’s course
- 45:30 – Stock-picking strategy – different metrics for different sectors
- 58:26 – Strong energy stocks
Recorded on April 14, 2023
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Rena Sherbill: Kirk, welcome back to the show. Welcome back to Investing Experts. It’s great to have you on. A lot of great discourse last time we talked more than a couple of weeks ago at this point. It’s great to have you back on and excited to what we get into today.
Kirk Spano: And real happy to be back.
RS: So getting into it right away, something that the end of this week has brought, has been financial earnings. Talk of what the Fed may or may not do in a few weeks. How are you thinking about it? It’s April 14. How are you thinking about this past week and going into next week?
KS: Well, the dark period for the Fed starts next week, I believe. And I don’t think that there’s going to be much different expectations from what I gave you last time. I think that we see a quarter point increase. I think that the jobs numbers yesterday support that. But I think the rhetoric out of the Fed this week supports that. And I think more and more of the experts and people who really are Fed watchers have come around to my way of thinking.
I think the interest rates are going to be higher for longer. I don’t see a single rate cut this year. I think the market, especially the retail market has been very wrong. We are in the midst of what I would consider the great normalization. And the story that I tell the investment group subscribers over at Margin of Safety Investing is this. There was a lunch between Ben Bernanke and David Einhorn and a bunch of other investors and hedge fund guys, I think Ackman was there, where Bernanke said, I don’t expect interest rates to normalize in my lifetime.
Well, I think he was probably right, except COVID hit. And we put in $10 trillion or $11 trillion into the economy, between monetary and fiscal stimulus, which was more than we needed. But again, I’ve argued that that was pulling forward the eventual baby boomer bailout that we probably were going to need, which I think we’ve mitigated at this point. So we’ve raised interest rates aggressively for about a year now. People are like, well they have to go back lower. And I think eventually they do lower interest rates.
And I think that, because of the financing of the debt, you’re going to have to see interest rates on the Fed side come down to around 3%, because you need those to be net zero. They need to be real zero. So if inflation is 2% to 3%, then you can’t have a Fed funds rate and longer term treasuries much above that. Otherwise, it gets very expensive for the government to finance the debt. So you need a real interest rate in that zero to one range. Otherwise, it just gets too expensive.
So that will eventually happen. But in the next year, I don’t think so. I think that all the indicators, especially employment, show us that a soft landing is not only possible, but I think it’s probable. I think that if we get a recession that short and shallow, events can change that, war, as I tell those subscribers, never know when an alien shows up. They’ve talked about the mothership out there somewhere scouting the universe. From the Pentagon — that’s from the Pentagon.
So something out of the ordinary, Black Swan, some weird oil spike, I mean, it doesn’t look like that’s going to happen either, can cause that Armageddon zombie scenario. But I just I just don’t see — without a big event, I just don’t see so many bad things happening. I think things are being handled well. I like what the Fed and the FDIC did with the banks. I liked the implication for what they will do with the banks. Jamie Dimon just said, hey, if we have more banks go under or get into trouble, we have a way to deal with it. It’s not going to get out of hand. And a lot of that comes back full circle to all this capital in the system.
I work with private equity firms, hedge funds and family offices. Nobody has a shortage of cash. There is cash out there, trillions of dollars, ready to go into the system and bail it out privately. I don’t know if that’s good if the richest people get all the bargains. You can have that socio economic conversation, but there is not a shortage of capital and the counterparty risk that we saw in 2007, and ‘8 and ‘9, stuff that I warned about in 2005 and ‘6, just doesn’t appear to be there.
So unless there’s escalation of tension on the geopolitical stage, and I just don’t see a lot of horrible scenarios. And again, I’m the guy they call perma bear. So let’s take it for that. I think the evidence suggests that things are going to be okay. The Fed has a ton of cover to keep those rates higher for longer too, because we just don’t have unemployment. And I don’t see much changing that, because we have so many baby boomers dribbling out of the workforce over time, that we can’t fill all those spots without immigration. And when are we really going to get immigration policy that makes sense? We’ve been waiting on that for 20 years. 30 years? It’s been a long time.
RS: Yeah. Policies, that makes sense sometimes we have to wait a long time. So sticking for a second on the financial earnings that we — that are just trickling in really as the hours develop today. And last time you were on, you were talking about liking regional banks in this environment. And you mentioned a couple specifically. What would you say at this point, I think the headlines point to some positivity out of banks like Citigroup (C) and Wells Fargo (WFC) and JPMorgan (JPM), and what would you — how would you contextualize those earnings and what big banks are bringing to the marketplace? And then maybe speak for a second about how this affects regional banks or how it doesn’t affect regional banks?
KS: Anybody listening to the earnings today, I think they had to be pretty impressed from Citigroup today… By the way, the earnings calendar at Seeking Alpha, it’s spectacular.
RS: Thank you. We work very hard on that.
KS: I’ve used 10 other ones. And I’m looking at this, and I’m not trying to plug this. I’m just looking at it, and it’s so easy, and it has the companies with the earnings for the day, last quarter EPS, whether it be hit or miss, expectations, the estimates. It’s really pretty well laid out.
KS: It was impressive. They beat the trading profits in the bond market. So they were able to offset potential portfolio stresses that they could have had if they went too long and broke the rules of banking and bought at long and lend at shorts. You are supposed to do it the other way, right. So if you take a look at that, I think the big banks are in really good shape, because they’re all going to have similar experiences with more trading in the bond market.
I think most of them from what I’ve seen, did not go very long on the duration for their bond portfolios. So I think the big banks are in really good shape. Now I don’t think they’re going to take over or absorb any of the regional banks to get in trouble because I don’t think you want to see the bigger banks, the big banks get bigger. I think the more likely scenario is that they provide some of the funding to help these regional banks get over the hump, like they did for First Republic, right. They got a $30 billion lifeline.
I think the mergers and acquisitions are coming in the regional banks, as several of the CEOs probably say, we’re in a position where we’re vulnerable, even though we like our bank, and I like being the CEO, and I like being the Chairman. But it probably makes sense for us to merge some of these regional banks to create more national banks. And they’ll find a way to get paid, right. So they’ll have their change of control bonuses and whatnot. And that’s always a big deal, right? If the executives don’t get paid, then they tend not to do anything until they can get paid. That’s just the nature of the corporate beast.
So I think the regional banks are going to see a lot of M&A. Even among the good ones, I think first was the First National and then Fifth… First Republic (FRC) — yeah, Fifth Third (FITB), I mean there’s — I get the name, there’s, I have a list of like 15 of them. And they all First bank or Corp., or whatever in their name. They should come up with clever names like Google (GOOG) or something and Google (GOOGL) thing. Oh, wait, Google Bank? Well, that would be interesting. Big Tech has all this money sitting around. What could they get into with that would be interesting.
The bank charter rules require bank holding companies to be formed. And there’s all sorts of restrictions. It’s one of the reasons Berkshire Hathaway (BRK.A) hasn’t done it. But I think there’s big piles of money out there, that where there’s a will, there’s a way. Where there’s a politician who can be influenced, I won’t say bought, I’ll just say influenced. I think there’s a way to get some of the giant capitalists out there involved in the banking system in a way that doesn’t negatively impact their other business, or tie them together officially.
So some sort of bridge corporate mechanism. I mean, it’s out there. It’s just — they have to write the rules to allow certain things and then regulate it, which is hard in a world with Elizabeth Warren, who I have great respect for, but she’s just wrong about certain things. I think the regional banks are in great shape. In the long run, I don’t think that means that you can’t see prices go down 10%, 20%, 30% more, as we realize what the dilution is going to look at, in the, — say maybe the bottom quintile of that group, right.
So you’re going to have your four, five, six, seven, eight regional banks that really do come up on hard times. They’re going to have to dilute a massive amount, probably. I think, First Republic needs 80% to 90% dilution. And I don’t see how they avoid it. So if they do that that’s a miracle of capitalism and smart regulation and a Fed that takes care of them, I guess. But to me, First Republican needs 80% to 90% dilution, which we talked about last time, but I think that’s largely reflected in the share price already.
So we’ll see how that goes. We’ll see if they find a way to get Uncle Warren into banking, or Apple (AAPL) or Google or Microsoft (MSFT) or Walmart (WMT). I mean, there’s just hundreds of billions of dollars out there that could do it. They have to figure out a way to make it happen. And usually things that make sense, and this has always been my experience, usually things that make sense eventually happen. The problem is eventually, right.
We just mentioned policy a second ago. Good policy eventually happens. But and eventually can be decades. So we’ll see. Somebody asked me in that last article that we had the podcast up on, or maybe it was my banking article, Dale Roberts, he’s a writer here at Seeking Alpha. He’s been kind of asked me some probing questions. And he openly wondered, is there a worry for contagion? And I just said, no, I don’t think there’s a real high probability of contagion.
I think that the Nouriel Roubinis of the world are wrong. He’s a great author, and he hit a grand slam 15 years ago. But that doesn’t make him prescient on everything. And I don’t think that contagion is a real big risk. Just in a world where we will accept monetary policy, the way that we accept it everything is fixable. Everything can be stretched out over time. And as long as we work towards smarter fiscal policy over time, it probably all works out.
One of the reasons I was negative about markets going into 2018, which ended up being a down year, and into 2020, which I think was going to be a down year without COVID. But we’ll never know now, was because I just thought that the speculative mania was too much. I mean, I thought there was too much speculation. And now I think that the speculation in the use of gamma squeezes, which that’s a big conversation.
But the way the options markets work and the way that investors who use social media and chat rooms and Discord and Reddit, the way that they gang up on certain stocks, that creates a lot of volatility. But now you have mixed in these zero-dated options and you’re seeing volatility moves that spike straight up for one day and then they come all the way back down to normal within a day or two, right.
So I think that might be the biggest story here going into earnings is, where do we see the hyper reactions in markets from all sorts of retail traders running in one direction for a day or two, and then running all the way back the next day or two? I mean, I think you’re going to see some wicked spikes in certain stocks. I think it’s going to happen mostly in the small stocks, because those — some of those indexes that are getting traded. But I’ll tell you, people are overlooking the option market, because it’s rocket science to a lot of people. And I get it. I mean it took me years to learn it. But you’re going to see some pretty sharp moves up and down, I think, through earnings and into the Fed meeting.
And people have to not panic, because you might see a 30% drop in a stock, in under a week. And it might be all the way back within a month. So I just think that I want people to get ready emotionally, for what this earnings season and the eventual realization by the markets that interest rates aren’t coming down.
RS: Yeah, and you would be, I think, in disagreement with many prognosticators at this point about that point. I’d be interested, maybe even if you could straddle the line between novice and the more experienced retail investor, if you could expand just a little bit, the role that the options markets play here, and how as investors they can use it or how it affects the marketplace.
KS: I think for four out of five people, you shouldn’t be a trader. I think that the competition to be a trader is immense. I’m good at it. And I still don’t do much of it. I have a swing trader that works for me, who is supernatural. I mean, you think of the movie, The Matrix, where at the end of the first one, Neo starts picking the bullets out of the air, because he can just see all the code.
Yeah, there’s people like that out there. And you don’t want to compete with them. And you don’t want to compete with the supercomputers and you don’t want to compete with Citadel, and everybody else who’s got mountains of money, and better technology. And they can get their trading a little quicker, and a little smarter, because they have more data than you. And they really know where the price points are, that are drawn value investors.
Competing with the really good traders, which is maybe 1% or 2% of the people out there total that are in the markets is almost impossible. It’s why 80% of traders report losses to the IRS year over year is unless you are a skilled, excellent trader, you are better off having a job and just tweaking your investments weekly, based on what you want to buy and sell or add a little bit more of or trim a little bit of and most folks should not have hundreds of trades per year. They should have — if you have a 30 stock portfolio and half of those in ETFs, if you turn that portfolio over once a year, that’s a big deal.
So I think that most people need to just understand what the competition is. And then they will probably govern themselves better. The option market relation to that comes in, because you have the speed of things so amplified, right. We went from monthly options to weekly options to daily options. And now we have these zero time to expiration options, and that can create super spikes in volatility. And that’s very scary for people who see, oh my gosh, why did that go up 30% or down 30%?
And it’s just what — I say this in my chat room all the time, just traders being traders. If the traders give you — and this is how you beat them. As an investor, this is how you beat them. And we’ve been doing it for a long time and more lately, is when they create those super spikes are super troughs, just have limit orders that you update week to week, that are way, way far away from the current price. So if there’s a stock out there, that you think fair value is $25 and it’s trading for $30. You’re like, well, if this thing dropped to $20, I’d be getting a 20% margin of safety against the fair value, right. So $20 a share versus my fair value of $25. And right now, it’s 20% overvalued.
Maybe what I’m going to do is I’m going to just set my limit order at 15. See how close I can get, when I wake up in the morning, and see if there’s been a huge move. It happens, we’ve seen that happen lately. So just set your limit orders, 3%, or 5% or 10%, lower than you think you should to get that 20% 30%, 40% 50% margin of safety, which is, what margin of safety is if you’ve any of the books out there, or just listened to Buffett. If you can buy a dollar for $0.80, or $0.70, or $0.60 or $0.50, it’s pretty good deal.
So you build in some fungibility on your estimates and what you think fair value is, you put in your limit orders real low. And you might get the traders to give you a gift when you wake up in the morning. And that’s usually when it happens. What is it, 80% of the price movement in the market now happens overnight. It’s because of the way the Asian markets move, and the way markets move around the world. So the big moves happen between — I think it’s four in the morning, and the East Coast and then the open on the market. And that has to do with closing out in Asia and Australia.
So it’s kind of amazing that all these things are linked around the world. If you just are super greedy, when it comes to buying super cheap, let the rest of the stuff take care of itself. Say I want to own Microsoft at $150. I know Microsoft is — I don’t think that could ever happen. But I want to own Apple at a certain price. I just want — I know because I’m looking for it. Apple can easily go down to $120. Now can it get down under $100 again, maybe, right? If there was a panic. So I set my prices at I’m going to buy a little bit at $120 and I have a back of the truck price at $85. That’s really what I have out there.
So I’d add a little bit more at $120. And if the traders decide they want to give me a present, well, then you’re — I’m backing up the truck at $85. And I can look at it too. If the move reverses. And I still want more. I’m allowed the buy as it goes up, that’s allowed. That’s called permitting [ph]. And you just add the position sort of going up. What did Will Rogers say, I buy stocks that go up. It’s really not that hard a logic is if it’s going up, you can always trim it back if you get uncomfortable with the price.
RS: Yeah, speaking of price volatility, and thanks for that breakdown of things. And I will add that something that I’ve always liked, as I’ve learned more in my investing journey. I’ve been at Seeking Alpha a long time is really encouraging the investing side of the marketplace as opposed to trading and what deep insight you can gain if you choose that route. And avail yourselves to real experts. And I think that’s what we’re trying to do here is lend the expertise and democratize it a little bit.
So I think that breakdown may help many people or at least to continue to think about things in the most advantageous way possible. One of the stocks that has come out in the fallout of the Silicon Valley Bank (OTC:SIVBQ) implosion that a lot of investors were talking about is Charles Schwab (SCHW) and they announce earnings at the beginning of next week. We had CashFlow Hunter, a Seeking Alpha analyst, on a few weeks ago talking about Schwab and why he likes them in light of everything that’s happened.
I’m curious, I don’t mean to get set on one stock, but there’s something about Schwab that I think is representative of the financial sector. And I’m curious just what your thoughts are on a company like that, given everything that’s happening.
KS: So interestingly I had assets with my investment advisory firm over at TD Ameritrade, which Schwab is in the process of taking over. So that deal was made two years ago, 2.5 years ago. So I’ve paid a lot of attention to Schwab, because I’m going to have the assets on their platform now shortly. And I’ve already moved my IRA over there. So I wanted to learn how they worked. The last experience I had with them was 2008 or ‘9, when the firm I was with back then was adding platforms.
We had been at Pershing, so we added TD Ameritrade, and we added Schwab. And then after I left they eventually added Fidelity, so they had all the major platforms. Back then Schwab was growing, and they were very aggressive. And they’ve been very aggressive. This TD Ameritrade takeover is a super aggressive move. And they’re going to have to get some economies of scale from that, which I don’t know that there’s money to be had, because both operations are running pretty lean.
I think Schwab has a lot of their staff out of Chicago. TD Ameritrade, I think has a lot of staff down in Phoenix area. I don’t know that there’s a lot that they can close down, because we bring in all these advisors and retail clients from the TD Ameritrade platform, you still need a lot of customer service. And while AI is going to help that and whatnot, that conversation is important for an investor to have with themselves, because what are their margins going to look like after this merger is complete?
Now the problem everybody’s talking about now is how is their portfolio of their own assets going to operate and what our trading profits going to look like in the future? I’d say probably a lot like the past. We’ll just keep going through cycles. And when Schwab gets beat up in share price, because there’s a down cycle, it just means that there’s an up cycle coming. And I think that’s probably true for them.
What I don’t know is real Schwab get cheaper yet, they are down about 40% over the last year or so. I haven’t done a really thorough fair value evaluation of them. However, I think the transition to them absorbing TD, which isn’t getting talked about, is a big deal. And I know this from the inside. I’ve had my brokerages that I’ve been with. I used to be with an outfit that I just had a platform that I used was called Broker’s Express, which owned Options Express. And I don’t even know if TD Ameritrade bought them or Schwab bought them but that’s all going to end up in the same place now.
So you have all these brokerages over the last decade that are basically either owned by Schwab now. I think Fidelity bought a couple. They’re not very aggressive there. And I think Interactive Brokers did one. I think Pershing, which is New York Bank Mellon (BK), I believe the parent company has eaten a few. So you’ve seen a lot of little brokerages get consolidated or E-Trade who bought them Morgan Stanley. And then Bank of America bought somebody. All the big banks have bought these brokers all over the place. And the one truth here is that scale matters, Schwab will have it. But integrations can be difficult.
And I will say that the culture at Schwab and the culture at TD Ameritrade among the people is very different. So Schwab is a bureaucratic organization. They’re more likely to tell you, we don’t think so is their default answer. And at TD Ameritrade, their default answer is let’s figure it out. So they’re going to have to merge those two worlds.
And I’ll tell you in the past, I did not like working with Schwab. I thought that they were just too hard to deal with. And I thought it was an arrogant organization. And I thought that they were predatory at not only the corporate level for taking over other businesses, which is fine if you don’t get over your skis. But I think that you also have the idea in the head of advisors and I know this is true. There’s a lot of advisors. Most advisors, I would say, are afraid of Schwab poaching their business because they have their own wealth management platform.
So this merger of Schwab and what’s really a takeover TD Ameritrade I think is going to open the opportunity for other brokerages to add business, because the minute the Schwab sends your client an email that says, hey, we have some wealth management services, you are like, okay, let’s look around. Let’s go look at Interactive Brokers or look at whoever. And I will say I much prefer Interactive Brokers for me, and my trading. It’s just a fabulous platform. However, they’re forward-looking. They’re retail facing website sucks, and they’ve been making it better. But it’s still hard for people to use, because it’s just overwhelming.
And for whatever reason, they haven’t just copied the front page from the other brokerages like Fidelity and Schwab, they said here, this is what the retail client looks at. It’s nice and easy. So that has made buttons that has many tools, versus what the trader or the money manager would have. Eventually they do it. And there’s a half a dozen other brochures, I think E-Trade is a great setup. Merrill is the one that Bank of America ended up getting out of the financial crisis. I’m not a big fan of that.
So I don’t know who the winners will be from this merger. Will it be Schwab in the long run? Sure, because they picked up all those assets. But if I’m an investor looking for a brokerage to invest in, I probably look for the companies that benefit from advisors leaving Schwab because I think that that is inevitable. The people who were with TD Ameritrade, I don’t know that they necessarily stay with Schwab. I am just because I want the platform to offer to my clients, Schwab or Interactive Brokers, Fidelity, I guess I could add, at some point. I really like Fidelity, I do use them on the consulting side.
So when you look at the brokerage industry, I don’t think that the cursory view — I don’t think that the top down haven’t been inside view is going to be the most helpful thing for investors. So I don’t know if Schwab can go lower or not. But I don’t think the upside is as great as what people who are bullish think, if that all made some sense.
RS: No, that’s great. That’s great. I actually, I’m leading to a different question. I want to get into Bitcoin, talking about the development of money and consolidation of financial houses and brokerage firms and the way that the financial industry is developing. Part of me wants to ask how you think that’s all going to play out, but I don’t want to get too theoretical, and I don’t want to get too off course.
So let’s stick for a second with the Bitcoin conversation because it’s something else that we saw this week. You and I were talking about the desire to add more zeros to things and last time you were on saying that you don’t see Bitcoin, you know, going below $300,000. And this week it passed 30,000. So sticking up another zero, how are you thinking about Bitcoin in, in this day?
KS: So a few weeks ago, Bitcoin was what $27,000. And the backstory here is, I first got to involve a Bitcoin in a significant investing way in 2016, rolled that first spike up, sold, bought back down, rolled that spike up sold, and then I’ve been accumulating it again, since last autumn when I wrote the article for Seeking Alpha. And I think that the number one theme with Bitcoin, and I’m not going to argue all the theoretical stuff. Look, Bitcoin exists because people are using it, period, the same reason that the dollar exists, people use it.
You don’t have to have a government behind a currency necessarily, if all sorts of people with money decided to use it. So Bitcoin, above all other things, is an adoption story. And it is getting adopted by lots and lots of people, organizations and nations. So that’s what makes it important. Now will it be what we use to buy our pizza, right? The famous story about the guy who spent 11 or 12 bitcoins on pizza, back in whatever it was 2010. Those are some bitcoin not well spent. Better been a really good pizza.
It’s not going to replace the dollar. And it’s — but what is going to replace is the need to keep tweaking your foreign currency reserves that use for Bitcoin is as a hedge against mainly the dollar getting too strong. But it’s also a hedge against the dollar getting too weak, which I think is the less likely scenario. I’ve talked about a bullish dollar scenario for over a decade. It’s proven to be true. I think it’ll be true as the baby boomers retire, and the millennials become the peakers, which is happening right now. I think the petrodollar becomes not a thing in 10 years. It’s just not important. And we’ve seen Saudi Arabia and China do more with Russia.
So what role does Bitcoin play in that? Well, if not all the countries in the world love America for a while to operate on our terms, or if you’re an emerging market, that needs a hedge against the dollar getting too strong that it crushes your economy? Or if you are family office wealthy, if you’re either nine or 10, figure wealthy, what can you hold that will give you some freedom from the dollar becoming oppressive, or the U.S. government becoming oppressive.
Bitcoin is one that were. It’s not going to be Dogecoin it’s not going to be any of these other coins. Bitcoin is the thing it is digital gold, that’s what it is. It’s going to keep getting adapted. And it’s going to keep going up. Yes it go to $1.5 million, like Cathie Wood speculates, maybe on a spike. But back in the napkin math as very simple adoption rates show it’s going to go to probably six figures in the not too distant future, next two, three years. I think $300,000 is my fair value for it.
Once everybody has just enough to hedge against dollar displacements, or disputes with the U.S. government, what’s going on between China and the United States and Russia and the United States, OPEC and — the middle, and the rest of the Middle East, and the United States and the West in general. It’s all the old arguments about hegemony and imperialism, and nations that compete the Wealth of Nations, you know, that’s Adam Smith. So if you go and look at all this stuff, you go, okay, do we buy our pizza with Bitcoin? Does it replace the dollar? No. But is it a valuable hedge in the system that we have? It’s very valuable.
So we just charted Bitcoin this week to see okay, what are the pullback levels? The first pullback level for Bitcoin is about $27,000. Basically erasing this two week path that we had, I think that’s probable and that’ll happen. You’ll get a chance to buy Bitcoin at $27,000-ish. Will you get a chance to buy Bitcoin at $25,000, which is our next support level? Maybe. But those mill support levels are tricky. You don’t know how much money the retail investor has, which is driving some of the price appreciation.
The initial supports were in the middle teens, which is I talked about a year ahead of time when it was trading for $50,000, I said it for sure goes to $30,000 and then probably goes under $20,000 for a hot minute. It actually stayed there for what four months. And there were buyers. There’s relentless buying of Bitcoin in the teens. Somebody had a bid there. And it was all those actors that I just talked about.
So these rallies typically get met with your regular type of pullback. Our regular type of pullback is from trough to peak, right. So from the low point of the price recently, to the high point, and we usually see about a 50% retracement.
So $27,000, $25,000 and then $22,000 are the big support levels we see for Bitcoin. I think the only thing that drives it below $22,000 again, is a financial crisis, which we just talked about. I don’t think it’s terribly likely, unless there’s a geopolitical event. And if you’re holding cash, and you get a geopolitical event that makes everything cheap, invest, don’t sell more. Same thing with Bitcoin.
I’ve been telling people since COVID when it crashed, buy Bitcoin when it was under 10 grand and they asked all the way up, shall I buy it now, shall I buy it now. And I’m talking with my hands here. So I think I’m probably making my co-host laugh here, because you can see me talking with my hands. But yeah, that’s the thing. People get FOMO rather than thinking in terms of value, and where’s the price support.
I loved quant way before it was cool. And I was getting head hunter calls from the East Coast back in 2005, ‘6, ‘7, just I put up just a handful of notes back then. And they said, you want to come out East and be a quant? And I’m like I got kids, I don’t want to move. And I didn’t do it. I ended up freelancing, some work with some hedge funds and whatnot. I correctly get the credit collapse for the most part. I was selling in 2007.
I didn’t know enough back then on how to get rich on that. But I’ve done pretty well on some of the other big corrections. Right for COVID, I told everybody, sell almost everything. I ended up doing a lot of shorting and did well. In April of that year, I told everybody Tesla and all those stocks that became meme stocks, and come full circle.
I think that if you can buy these dislocations, which the underlying structure of the market allows for, in which social media and the fact that we have twice as many traders shouldn’t, but we do, just use these whipsaws whether you want to get into Bitcoin, because you don’t own any. I mean, I’d say don’t buy it until you at least understand the basics. And don’t buy much, single digit percentage of your portfolio for sure. But think of it like digital gold. Back in the day people said buy, put three to 5% of your portfolio in gold. Why? Same reason you would do Bitcoin?
So if you want that hedge, I think Bitcoin is much more likely to give you a big price appreciation than gold. Not that I don’t like gold. Like I said last time, buy some gold bars, if you can find the old coins, buy old coins, if you like old jewelry, buy old jewelry, because gold is an element and it can’t be replicated cheap. Bitcoin is digital gold. You can carry it around, you can transfer it somewhere else. And there is a market for it that already exists. And that market isn’t going away.
And I hate to be on the other side of Warren Buffett and Charlie Munger on stuff like this. But what they have ingrained in them is the Bretton Woods monetary system. Bitcoin is the hedge to that. And that is why it exists. It’s not to replace the dollar. It’s to be a hedge for people and countries that don’t necessarily agree with the United States, which — the dollar is so strong because nobody else can do what the dollar does. Nobody has our economy. There’s no way to compete with the dollar.
Bitcoin was the way to pool the economic resources and the overlapping interests of people who are afraid of the dollar and the United States. That is what it is. And it’s going to keep going up. I don’t think that there’s any way to logically argue against that. The only thing that could stop it is if it got simultaneously banned in all the Western countries. And even then I don’t think that’s good for the dollar. I think that, that would be something that hurt America if we did that. Because then everybody would say look at the tyrant.
RS: Yeah, I think that’s a pretty sober articulation of Bitcoin’s position in the marketplace at this point. And I would just like to point out also, we talked about this towards the end of our last conversation, but you have a great article about the practicalities around how to really own Bitcoin for investors wondering how to practically own it. I would check that out from November of last year. Kirk has a great article on that.
The question that I wanted to ask about Bitcoin, you mentioned what could take it down possibly. But what are the catalysts that bring it up? Is it a continuous series of catalysts? Is it a couple of big price explosions? How do you see it growing, if we can get into the theoretical side of things a little bit?
KS: So it’s two things, just like everything else? On the one end, you have the value buyers, right? People who want it and they look for a price. They look for an opportunity to buy it. That’s mainly what I do. On the other end, you have the traders who will chase it and FOMO it and create narratives to push it up. So you’re going to get more pronounced in Bitcoin, because it’s still largely unknowable to people, right?
There’s a lot of people who talk about Bitcoin as a Ponzi scheme and this, that and the other thing. Look, if you can talk about Bitcoin as a Ponzi scheme, than you could talk about the dollar as a Ponzi scheme. So it’s not like those arguments can’t be made. I trained in rhetoric way back in college. I’ll tell you what, I can argue for or against the dollar, I can argue for or against Bitcoin. And I’m just telling you, there’s a place for both.
So I think that just like small cap stocks get beat to oblivion by investors and traders, mainly traders ganging up on them, until the real investors step in and say, okay, we’ll take that off your hands. The same thing just happened with Bitcoin. Everybody beat it up. The investors, the people who want to own it long term stepped in and said, $15,000, we’ll take that off your hands. Now it’s $30,000, four months later, five months later, whatever it is. And you’re getting this FOMO rally.
I mean you’re not supposed to have price movements of 100% every year. But it happens, right? So at the one end — and where I am, the one where I look for — I look for big institutional interest or big money interest, right. Grandpa said, follow the big money. And I look for where the big money comes in, because I know that it’s pretty safe place to invest. I know that once the big money starts coming in, not much downside left. That is where 80% to 90% of investors are scared to sell and selling it for cheap, right, because they get emotional.
And I’m buying it from them. I’m just trying to do what Buffett said you should try to do, which is buy when fear is high. Sir John Templeton, and some other people said, buy when there’s blood in the streets. That’s all I’m trying to do. Now if I want to try to be a formal trader, because I’m super smart, and I can compete with Citadel and I can compete with all the superstar traders who used to work on Wall Street and now manage their millions sit in their bedroom, really they usually have pretty big home offices. I’ve seen some of them.
Matt Tuttle, with the Anti-ARK FUND, I interviewed him I think for Seeking Alpha. And you should have seen the room that he was working from. I was like, man, I want to build one of those out at my house. That’s who you’re competing with. You’re competing with these people who have data and insights and experience and technology. They can — they’re, just going to beat you 80% of the times, maybe 70% of time. It’s just like poker.
If I push aces in and over and over again, I’m going to win 80% of the time. It’s the same way trading is, and the numbers prove it. So I would encourage people to look for value, whether their value is in the value of the asset that you’re looking at, or the value of the current earnings and the outlook, or the potential growth or the transition, that small companies go through as they move out of the CapEx phase and into the revenue and earnings phase.
Look through the value, and have an outlook that is three to five years, because that’s enough time for things to develop and it’s not so far away that you can’t see it. That three to five year window, which is what Value Line has always used and proven that it works, Jim Rogers the famous commodity investor says two to four years, fine. I had a CIO of what is now a $10 billion investment firm. It’s the one that I used to work at. We started it with a couple of $100 million, and now it’s $10 billion. He goes, Kirk, I read your stuff. And then I put it down, and I come back in a year. I’m like, okay, why? Because you’re always early. So when he told me that over a decade ago, I decided to get a little bit better at the trading and hire people who do the trading.
So things that I’m looking at now, I might not buy for now because we’ve gotten better at that. But the outlooks, the control of emotions, the way the prices move on small cap stocks, large cap stocks, Bitcoin, whatever, it’s all about the same. You have big money that creates the floor. And you have speculation that creates the ceiling. And somewhere in the middle is fair value.
RS: So speaking to how you look at the marketplace, something that I wanted to ask. And we touched on the different sectors that you cover in the last conversation and the interconnectedness of those sectors. But I’m also curious from an investing standpoint, are there different metrics that you use and different ways of thinking about each sector as you’re looking at stocks in those sectors?
KS: So I think we’ll talk about two different places. Let’s actually talk about three. Let’s talk about banking. Let’s talk about real estate. And let’s talk about everything else, because that’s really the three things — ways that I look at it. Let’s start with everything else. I’m very Peter Lynch on that, price to earnings to growth ratio, right? If you can get a price to earnings to growth ratio around one, right where the growth and the P/E are about the same, so that ends up being one. So if the P/E is 25, that means that you should have a 25% growth rate. That’s what you look for on all stocks, is you’re looking for a PEG close to one, the Greenblatt stuff, the little book that beats the market. That’s all good. The magic formula. That’s what he has the magic formula. Shareholder yield. Meb Faber, I interviewed him for Seeking Alpha.
So between PEG, magic formula, which is earnings yield, and then shareholder yield, which is the combination of buybacks and dividends, less whether debt is going up or down. If debt’s going up, then shareholder yield is less valuable because they’re borrowing money to buy back shares, or pay dividends. And that’s not usually a good long term recipe.
But if debt is staying the same, or coming down over time, then dividends plus share buybacks is a great way. To take Munger’s [ph] side on this we love companies that are cannibalizing their own shares, right. So all the talk about buybacks are bad. I agree with Buffett on this one too. It’s mostly BS. There — I used my farmers words, I’m sorry about that. Buybacks are good for the investor. And there’s nothing wrong with them in the economy. The money just gets recycled and other stuff.
So you can’t tell Company A, hey, don’t buy back your shares, go invest in something. We’re like, yeah, but we’re good at this. We know what we’re doing. Don’t tell us to do something else. We’ll just give the money back to the investors and they can pick and let the capital market allocate. That’s the thing about capitalism is its really good at allocating way better than governments and that’s why we should always understand that capitalism has proven itself because of the way money moves, which is based on our psychology, which is based on what we all want in the world, which is to be happy and safe, and have life be easier.
Let’s face it. I mean, think about how easy life has really gotten in the last 20 years since we got iPhones. So I mean these things can literally launch a rocket ship. So you know, think about that. That’s what I look for on everything else.
With real estate, AFFO, right? Everybody knows about FFO, but adjusted FFO, which is net of all those expenses they have coming up, or that they’re working on or paying, the CapEx, is important. There’s a whole list of things.
Somebody wrote a good article about AFFO on Seeking Alpha, High Yield Landlord, one of the only services I’ve ever belonged to. And I know that there’s four or five others, Brad Thomas, Colorado Wealth Management. There’s a lot of REITs services. The reason I don’t subscribe to REIT services is because there’s only a dozen ideas I need. And I don’t — I just don’t need those services. So I have my own REIT basket. And I pick my companies based on AFFO. I look at these companies based on okay, what really is the story. And I’m famous for not liking Simon Property Group (SPG), or infamous or whatever.
And people are like well, but they’re so smart. I’m like what? They just handed back the keys on a mall in my neighborhood, that’s a really good neighborhood, because they didn’t want to invest $100 million to upgrade it. And that’s actually the plan that got put in place by the new owners couple years later. So I think the Simon Property Group, if you just look at the interest rate cycle, has basically moved lockstep with interest rates in the economy.
Nothing special about Simon Property Group, can make a ton more money with smaller REITs, which is probably a better place for people to look at. Because the AFFO is much easier to synthesize. It’s much easier to look at a smaller company and say, okay, what is really going on there, that some big sprawling thing. And if you can figure out, okay, FFO is this. This is a reported number.
What are the adjustments are going to come to that? What is the CapEx this company really needs. And that’s why a lot of the commercial REITs are in big trouble is because the conversion of a lot of these REITs — and I’m going to San Francisco and I’m going to see the Salesforce (CRM) tower that’s getting emptied — A lot of these REITs own buildings, not only with loans that have to reset this year and next year, because that’s a big wall of loans from 2018 and ’19 coming up, but they have to redevelop a lot of these buildings, and it’s going to cost a lot of money.
So not only do they have a tough loan to refinance, but they have huge CapEx that they have to put out over the next several years. And that’s why a lot of buildings are going to get handed back to the banks. So at the REIT level, their FFO goes down, because they’re trying to avoid the A, the adjustment, and they just give the keys back.
Okay, so now the banks. The banks own these buildings now. And it’s going to be 5%, 10%, maybe 20% of these loans go bad, and the keys get handed back? Well, nobody really knows yet. So it can be 5%. I think that’s the low estimate that I’ve seen. 6% is pretty consensus. I think people I respect are saying 10% to 15%. I think that’s probably what I agree with, looking at it as a private equity investor with some of my partners. And like I said, if the aliens land or geopolitical things go bad, it could be higher. But I think 10% to 15% of the commercial loans out there are going to be keys getting handed back to the banks.
So the banks are going to have these properties. And the regional banks have really extended themselves on commercial real estate over the last five years. That’s really where a big hunk of it has gone. And a lot of these banks have loans, and it hasn’t happened yet, just a little bit. But over the next two years, there’s going to be certain banks and certain geographies, and that’s what you got to look at that are going to have a problem. And those are going to be the banks in (KRE) that have to get — go to zero and pull that ETF’s price down or get highly diluted.
So at the bank level, you have to understand their portfolios. If you really truly want to understand it, and if you can’t do these things, then just wait for the ETF to bottom out because it’ll probably have a really good run after it bottoms out. We think the bottom in KRE is the middle-30s But it can be a little lower, a little higher. We’ll know who at the bank level, you have to understand their portfolios. If you really truly want to understand it, and if you can’t do these things, then just wait for the ETF to bottom out because it’ll probably have a really good run after it bottoms out. We think the bottom in KRE we know. If the retail investors decide to short KRE, if they get to that level of sophistication and it gains our interest, it gets — it tweaked a little meme thing in their head that flashes on and off, they decided to beat it up, maybe it goes down to 30, who knows.
But mid-30s is what it looks like. I think you get a lot of big investors in there. I think that’s where if we get the sniff of a banking crisis, the politicians start rewriting the rules, so that that big money can come in. And I really think that’s likely. I really think that there’s a moment where the banks are just beat up in the next year or two, that there’s panic, there’s emotions, there’s calls for action. And politicians never let a good crisis go unused.
So I think bringing the big money from tech and Walmart and Berkshire, and some of the giant private equity firms, I think they’re going to create a structure that allows them to own shares, and have some sort of limited control via directors and the boards of bank holding companies. So there’s going to be a mechanism that allows these companies to invest in bank holding companies without completely tying their other firm into the bank holding company. So they’ll be able to have 80%, 90% ownership without having those liabilities transfer over to, say, Berkshire Hathaway, or Walmart, or Google or Apple or whatever.
If it doesn’t happen that way, it will happen that way the next time. I mean, at some point, the money talks, and the politicians respond. And the situation warrants a lot of things have to line up. But I can see that set of things lining up. So with banks, the short answer is, you better know what’s on their balance sheet? Is it loans, is it government debt that they borrow too long? What did they do?
So just understand the basic rules of banking. And I think the easiest way to look at banks is based on their geography. What do you know about Texas Banks? Lot of oil. What do you know about California banks? Lot of tech, right. You just go area to area. What do you know about Midwestern banks? A lot of industry. So you go around, East Coast banks what do you get? Old money.
You have to know what’s on the bank balance sheet. If you’re investing in Citigroup, I mean, take a look at their history. Where did that company come from? An insurance company, a bankrupt can manufacturer and a bank? I mean, what do you mean a bankrupt can manufacturer?
Yeah, I mean, the guts of American Can Company is inside of the DNA of Citigroup is because the executives of American Can Company figured out, manufacturing is going to move overseas let’s sell this thing, and take the financial assets and pile it in over here. And then you got all those mergers. And Citigroup has effectively been bankrupt twice, and got bailed out. That’s why too big to fail is a safe place to be in the very long run. You can have a bad year or two. But the Fed’s coming to the rescue.
RS: It’s interesting how you just described Citigroup as kind of how you’re thinking about the evolution of these sectors and industries and companies as they move from industry to industry and take on different businesses as it makes sense for them. I assume you are bearish on Citigroup.
KS: Oh, no, the big banks I just ignore. I just ignore them. I think that they’re important to see how they’re operating. Because it tells you about the economy where we are in the cycle. But Jamie Dimon, said it today. He said, look, we’re not really tightening lending standards across the board, we got a couple spots that we’re tightening up on. But if they’re extending credit, that’s good. And I’ll tell you my credit lines doubled, maybe close to tripled in the last year and a half And I’m trying to do things right but I don’t ask for these credit increases. They just send me off or say you’re pre-approved for this. Hey, can we just increase your — I guess get the email says, we just increased your credit limit by double, whatever, that’s fine.
So I don’t think that we are at a point where you’re going to see credit, contract on a linear basis. And I don’t think you’re going to have a fall off the cliff waterfall sort of thing either. I think they’re just going to pick their spots. I think the regional banks probably hand out fewer credit cards, but that’s not only their business. Who robs the big credit card companies? They are giant banks, and then you got few specialty companies. But it’s JPMorgan, it’s Bank of America (BAC), it’s Citigroup.
Those are good businesses to be in. Are they going to have to write off some loans? Yeah, but they have that provision for it. And since employment is high, and they know employment is high, and they know that it’s not going to go down much, right? Because they own the Fed. And if they say to the Fed, hey, too many bankruptcies, the Feds going to say, oh we’ll all start tightening them.
And that’s who they — that’s who Jerome Powell listens to. So I don’t think that the big banks are bad places to invest. I don’t think they’re great places to invest. If you can buy them on a dip and the dividend’s big enough to buy the dividend, because that’s just what you want at your stage of life, then fine. Are they cheap enough right now? Not to me. But I don’t think that they’re going to oblivion, either.
I just think that if you get one of those spots, and you’re the person who says, I’d like a big bank in my portfolio, because it’s got a 6% dividend, if I don’t know if anybody’s close to 6%, right now, then maybe it makes some sense, because it’ll track the S&P 500 more or less, fine. And if you want to track the S&P 500, through more income and loss appreciation, because you liked the mailbox money, fine. By the way, I’ll teach you how to write a covered call here and there, you can get more mailbox money.
RS: So as we wind down, and we’re looking ahead to next week, anything that you would share with investors specifically for this week, or that you would point to investors to be thinking about right now?
KS: Well, we haven’t talked about energy yet. And I will say that I think this was a pretty good trade going on right now. Little pullback we had was a refresher, I think. But I think there’s a handful, a very small handful of fossil fuel stocks that are good investments. And I think that all of them have a common thread is that they have a tie in to the energy transition.
So with Occidental (OXY) it’s carbon dioxide, and carbon capture. With Kinder Morgan (KMI), same thing, carbon dioxide, transportation. They’re the biggest transporter of carbon dioxide, and gas pipes unlike oil pipes. Gas pipes can be converted into hydrogen. So that is something that I think is coming. I mean, it’s about a decade away. But when you talk about pipelines, everything’s about a decade away. So I think that Kinder Morgan is real nice.
I don’t think a lot of the frackers are exciting. But the companies that are almost exclusively in the Permian, and this is why that big Permian deal with the former Encana, now Ovintiv (OVV) just got done. And why Exxon (XOM) is talking about — or rumored to be talking about making a bid for Pioneer (PXD), companies that are exclusively or almost exclusively in the Permian are in good shape, infrastructure, best rock, right? That’s something that if you don’t know that phrase, if you don’t know what rock is, you want the best rock, you want the best drilling places. You can look in the Permian for that.
So Occidental and Permian Resources (PR) are the two that I’m in. I think carbon capture and renewable natural gas, and sustainable jet fuel or aviation fuel are big deals.
I’m invested in Metis, that I wrote an article about that in January. It’s down 50% since then. You’re out of your mind if you look at the price and say I hate it, rather than looking at what their company is doing, who’s behind it, and what the money situation really is. Because I still think that stocks going to go to 50 and…
RS: Why do you think it’s gone down so much?
KS: You’ve got short trade — it’s got a huge short interest. It’s just going to tack, no big deal. When Jeremy Grantham is buying a stock that I like, I’m pretty good with it. You know, GMO was in there and you got some big investors in there. And they’re getting up to their threshold limits for ownership. So you’re going to get two or three or four more institutional investors in there, and the shorts are going to get squeezed into oblivion. There will be a chance to right size, your position, because I probably own too much in the long run.
But I do think that that’s a $3 billion to $5 billion company at some point. Could it be more? Maybe. I know that the CEO wants that. But I don’t know what the path is to that. I think at $3 billion to $5 billion they get bought out by Chevron probably is who they’re closest to, but could be Exxon, could be BP. BP just bought Travel America. And I think that having a renewable natural gas producer would be attractive to them.
So you take a look at the companies that I’m in, and there’s a half a dozen energy companies, I think that those are good if you want some of the old and the new. And then the other thing with energy is you’ve just capped on clean energy. And I think the two ETFs that I’m going to use for investing are QCLN, which is the First Trust Clean Energy. It’s got a very long name. And then you’ve got (PBW), which is more — that’s not market cap weighted, that’s level. And it’s very skewed towards small and mid caps, globally.
So with PBW, and Q Clean (QCLN), and I’m going to write an article about using these together. And I’ve mentioned them before, you’ve got to figure out a way to scale into those, because the biggest industrial transition in history, bigger than all the other ones. And it seems like each one gets bigger. But I don’t know if it’ll be a case after this. I guess maybe space travel. But the industrial revolution that we have now in technology and energy, fourth industrial revolution impacts energy.
The shift to clean energy that’s going on over the next 20 to 30 years is so big, it impacts so many things, you’ve got to be involved with it at the energy level. And I’m not a huge Cathie Wood fan, because I think she’s a bad trader. Her big picture thinking is about right, with the exception of the Arthur Laffer stuff. But the world is changing. And industries that benefit from cheaper energy or AI are going to do the best, because they can lower the cost the most. And if they’re stacking up recurring revenues, like managing energy, or software, or any other type of service where there’s just a contract, and we’re just going to keep paying you money for the service, like a subscription investment letter, that is going to do well in the future.
Subscription revenue businesses always do well if they can get critical mass. So you have to find the ones that are getting critical mass and invest in them. I think that’s pretty amazing. I mentioned space travel, I’ll just put this in there to close off.
I think that the space industry has the potential of being the next giant thing, after the energy transition, or being partially simultaneous. There is a basket of satellite stocks and other space technology stocks that we’ve been investing in just a little bit. But some of them are down 70%, 80% 90%. Some of them were SPACs so they have that built in heat, and other ones are just small caps are easily attacked.
Some of those stacks aren’t going to be 10 baggers. Some of those stocks aren’t going to be 20 baggers, some of those stocks are going to go up 50 or 100 fold. And I don’t know which ones, so I just, I just spread my bets a little bit into the basket, because space is going to be a massive industry over the rest of this century. And those are types of investments that may not help you much in next few years. But if you’re thinking about 10 years out, if you’re thinking about what I’m going to leave my kids, imagine the people and I’m talking directly to these people actually, folks who inherited Exxon stock 34 years ago, pretty happy. Even though the stock hasn’t gone up a lot, on aggregate it’s paid out a ton of income.
Think about leaving your kid if they keep step up and basis on the tax code especially, think about leaving your kids or grandkids a stock that has become the next Google or Amazon or whatever, or Exxon because you bought it today You should have a sleeve in your portfolio that invests in stuff like that, whether it’s 5% of your money or 10% your money, or 30% of your money like me. You need to think about that, because sprinkling those in, in those big huge secular themes, clean energy, fourth industrial revolution, and eventually space. I mean, that’s, that’s generational wealth.
I think that anybody who’s investing, right, you start with, can I retire? How do I invest so I can retire? Then the next thought you have is, what am I going to do for my family, or the charity I love, or my university, or the grade school, I went to, whatever, whoever you want to leave money to. Once you secure your retirement, that’s a thought. And I’m at that point in my life now. So I talk more about it. Because I do think that it is a natural transition. And transitions usually scare people. But this is one that can be fun.
RS: Talking a lot about transitions today, and it’s a lot of food for thought. Curious, we saw Virgin Orbit (OTC:VORBQ) go bankrupt this past week. Was that one of the stocks that you had in your space portfolio?
KS: No, no, we own Spire Global (SPIR), which I first mentioned when it was $7, now it’s a buck. So I got that. We have an average cost basis of two. We own Planet Labs (PL), which is the safest one in that group. We own Black Sky, which is in bed with Palantir (PLTR). We own Santa Logic, which might have the best technology. We own Rocket Labs (RKLB), which also can launch rockets, and they have some neat stuff coming. And then there’s a few others that are on our radar.
We just talked about Tesla (TSLA) yesterday. I don’t own it yet. But I have owned it twice before. I probably should have just held it for the whole time. It’s another argument for trading less than just buying and holding because if you invest in Tesla, you’re going to get a shot at SpaceX (SPACE) someday. And if you can get it at a cheap enough valuation, which means you have to buy Tesla cheap, because I don’t think SpaceX is going to come out cheap.
It’s going to be an S&P 500 by the second year. It’ll come out S&P 500 size and then once it posts a profit, it’ll be in the S&P 500. Tesla is on that list. There’s a couple of others — what was the one that got bought out? Now there’s one that got bought out by private equity because they got it cheap, I think that these former SPACs some of the other space players will get bought out.
So that’s bad. I don’t want them to get bought out. I want them to go up 20 fold or merge. But yeah, there’s a good basket out there. So we just buy the basket, put a half percent of money in each one or maybe 1%. And we go from there. And we scale in slowly at very wide price points.
So we first nibbled on Spire Global and I’m addressing this because I wrote it in an article and I got six trolls out there and keep reminding me, oh, you first mentioned at seven? Yeah, but we sold cash secured puts. So we got more at five. And we bought some at two and we bought some at one. So we have an average cost basis around two. And I can live with that. Because of that stock, which is stacking up revenues, actually becomes the navigation company for a lot of the shipping industry. It’s recurring revenue, it’s forever money. And once they’re through the CapEx fees, which they’ll be done within the next couple of years, now they have super low expenses and recurring revenues. Do the math. You come up with a number and that number is really big.
RS: Yeah, another great conversation. Kirk. I appreciate all the insight and knowledge and context that you’ve shared with us. I think we’ve also picked up that trolls are going to troll and traders are going to trade and it’s also something we need to keep in mind as investors. Really appreciate another week with you, Kirk Thank you.
KS: Yeah, thank you very much. Talk to you soon.
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