Episode #11: Sam’s Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market
Guest: Sam Stovall. Sam is Managing Director, U.S. Equity Strategy of S&P Global Market Intelligence. He serves as analyst, publisher and communicator of S&P’s outlooks for the economy, market, and sectors. He is the Chairman of the S&P Investment Policy Committee, where he focuses on market history and valuations, as well as industry momentum strategies.
Topics: Episode 11 features the always-fun Sam Stovall. Sam starts by making an unlikely connection between Clint Eastwood and investing – “A man’s got to know his limits.” Being aware of his own limits, Sam put together a list of rules to help him win at the game of investing. He and Meb dive in, starting with “Let your winners ride, cut your losers short.” Easier said than done, as most of us tend to hold onto our losers, hoping they’ll come back, while selling the winners (prematurely) to lock in gains. “As January goes, so goes the year” is Rule #2. Sam compares investors to dieters looking for a fresh start every year. Rule #3 is a tweak on “Sell in May then go away.” It turns out that’s almost right, but not quite. The better strategy is “rotate rather than retreat.” Do you know the two sectors which historically will boost your returns if you’ll rotate into them during the summer months? Sam will tell you. Rule #4 challenges the idea that there’s no free lunch on Wall Street. According to Sam, there is. If you construct your portfolio in the right way, you can increase your returns without a commensurate increase in risk. “Don’t get mad, get even” is Sam’s fifth rule. Too many investors are losing money because their portfolios are overweight in a few bad picks. So don’t get mad, “get even.” In other words, look to shift your weightings to correct the imbalance. Rule #6? “Don’t fight the Fed, at least, for too long.” For all you bears over the last few years, this seems especially appropriate. Finally, #7 is Meb’s favorite: “There’s always a bull market someplace.” It turns out Sam and Meb share a fondness for rules-based investing. Sam has his own rules which help him identify these bull markets that are always happening someplace. What are they? Find out in Episode #11.
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Links from the Episode:
- Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market – Stovall
- Sam on Twitter: @StovallSPGlobal
- Stocks Can Predict the Winner – CNN
- What Works on Wall St – Jim O’Shaughnessy
Running Segment: “Things I find beautiful, useful or downright magical”:
Transcript of Episode 11:
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Meb: Hey, everybody. Welcome, friends, to the show. We have a very special guest today, Sam Stovall. Welcome to the show.
Sam: Good to be here, Meb.
Meb: For those who aren’t familiar, a quick introduction of Sam. I’ve known Sam for a long time now and actually reconnected recently in L.A. But Sam is Managing Director, U.S. Equity at S&P. He also is chairman of their investment committee policy committee. And Sam…and this isn’t a comment on his age, but is that a true market historian. He does a lot of research, a lot of quant research. He writes a weekly research piece called “The Outlook.” And he’s written one of my favorite investing books that we’ll talk a little bit about today called “The Seven Rules of Wall Street.”
Sam, before we get started, I saw you wrote an article recently. You know, it’s that time of year where the politics are starting to come out of the woodwork. We got a big election coming up. And I saw you have an indicator that’s stock market-related that has a pretty good job of predicting the winner. You wanna talk about that real quick?
Sam: Oh, absolutely. I call it my presidential predictor. I actually used it back in 2012. Basically, what it says is if the market rises between July 31 and October 31, then what we have found is that the incumbent person or party has been reelected 82% of the time. Whenever the market was down in that July through October period, the incumbent was replaced. And when President Obama was up for reelection, the market had gained more than two and a half percent. Also, those stocks that yielded the highest within the S&P 500 went down because, if you recall, he had said he was gonna raise taxes on dividends. Whereas, health care stocks went up even though Mitt Romney said he would undo the Affordable Care Act. So the combination of the presidential predictor plus the direction of those two components within the S&P 500 encouraged me to write an article called “Prepare for Reelection,” which came out the week before Obama was reelected.
Meb: You know, it’s funny, because you often hear about people trying to manipulate some of these smaller prediction markets in the UK and elsewhere and trying to bias some results. But this would be a pretty hard one to try to bias, because trying to move the S&P any which direction for the election would require probably a lot of firepower over the next three months.
So today, look, we had a couple of things we can talk about today. There’re some ideas behind your book as well as a recent presentation you gave to a little quant group called a QWAFAFEW, which is basically an excuse to get together and listen to a fun speaker like Sam and drink some beers. But it was a riff off his book, and he called it “The Seven Rules of Wall Street: Using History as a Virtual Valium.”
And before we talk about some of the seven rules, I thought it was really interesting to talk about as…you start out the book and the presentation talking a little bit about behavioral investing and realizing your own behavioral faults. And you mention three particular characteristics of investors but also that you experience. You wanna talk about those?
Sam: Oh, absolutely. I remember many, many years ago, the best bit of investment advice I ever got came from probably the least likely of people. That was Clint Eastwood when he was playing Dirty Harry in the movie “Magnum Force.” He kept mumbling through grit teeth, “A man’s got to know his limitations.” I was thinking, “Well what are my limitations?” And my ego will only allow me to admit three. I admit that I am so indecisive that my favorite color is plaid. I am so impatient. I get upset if I miss a slot in a revolving door. And I am so emotional in this day and age of instant information. I can experience both fear and greed at the exact same moment.
By acknowledging that, in a sense, I’m not diminishing my abilities to make stock market predictions, right? Actually, what I’m doing is I’m trying to remove myself, extract my emotions from my decision-processing metrics and doing an awful lot of focusing on history. And I have found that stock market history can actually be a wonderful way to calm investors’ nerves and sort of act like virtual valium. And so the book “The Seven Rules of Wall Street” goes through seven pretty familiar phrases that people have heard over the years. And then what I did was I came up with investment strategies based on these old sayings. How can you use either sectors or sub-industries within the S&P 500 to help beat the market as a whole based on these old adages? And they’ve worked out quite well.
Meb: And they got a lot of fun names, and we’ll talk about a few of them here. But they got fun names like “Let your winners ride,” “Cut your losers short,” “Sell in May, go away,” “Don’t get mad, get even.” Let’s pick out a few of these and talk about…as listeners hear some of these, you understand why I like Sam so much, because a lot of our investment philosophies coincide. And by the way, I have almost all the behavioral biases. Mine tend to be overconfidence. I tend to take on way too much risk if given the opportunity. And a lot of these, you know, for listeners, you don’t necessarily learn these on paper. And there was a fun one…and maybe in your book or maybe elsewhere. They queried students, and they said, you know, “How many of you consider yourself to be morally better than your peers or righteous?” And almost all said yes. And they said, “How many of you ever cheated on a test.” And it was like both of them were like 70%, which seems a bit contradictory. But a lot of these you don’t learn, for example, the overconfidence until you place way too much in a concentrated bet or leverage and then lose all your money. So a lot of these, unfortunately, hopefully, unfortunately and hopefully, you learn as a young person with not a lot of money.
All right, let’s talk about some of your rules. Which one do you wanna start with? You wanna start with the very first on the book “Let your winners ride” or “January goes.”
Sam: Well, the first one of the seven is “Let your winners ride, but cut your losers short.” We’ve heard that before where, basically, investors tend to hold on to their losers hoping that they will turn around. But then they end up selling their winners a little too quickly. A book called “What Works on Wall Street” by James O’Shaughnessy confirms that you are actually better off buying and holding last year’s winners than you are last year’s losers. And it makes sense, because how many people who own a stock that set a 52-week high are disappointed? And how many of these un-disappointed people are gonna tell their friends about these stocks who would then buy into them without doing much research?
On the flip side, if you have a loser, there’s an awful lot of overhead resistance. Everybody who bought that stock at a much higher price will be very happy to unload that dog the minute it gets back to break even. So it takes typically several years for a beaten up sector or industry to get back to break even. So that’s the premise of the first rule. And then friends always say, “Well, Sam,” you know, “can’t you tell me which are going to be the best winners for the full calendar year? I’m your friend. Can’t you tell me?” And I say, “Well, I can’t. But the market can.”
As goes January, so goes the year. I find that investors are like dieters. They look to January as a new beginning. And historically, those sectors that have done the best in January, the industries that have done the best in January tend to go on and outperform the market in the coming 12-month period, again, by a pretty high frequency as well as a high average percent.
Meb: And the look-back you typically use for these momentum type of strategies or what’s performed is about a one-year look-back, right?
Sam: Well, I started with sector data back in 1990 and sub-industry data back in 1970. Yes, these are traditionally one-year look-backs, meaning “Let your winners ride but cut your losers short” says, “Here it is, January 2, would you be better off buying last year’s three best-performing sectors or three worst performing sectors?” History says you’re better off with the three best-performing sectors. And also the ten best-performing sub-industries on average tend to go on and beat the market not only by an average rate of return but also a batting average, a frequency with which it beats the market, because I’m also like Pavlov’s dog. I wanna get fed frequently. And the best way to see if that is going to happen is by looking at the batting average or frequency about performance.
Meb: Yeah, and you mention in the book, you talk about when you’re looking for a system, there are some metrics that you’re targeting. And in general, I think you said you wanna see it…what are the metrics? Was it 3 percentage points outperformance.
Sam: Basically, I wanna outperform the market by least 300 basis points per year or 3 full percentage points per year. And to keep me interested, it’s got to beat the market maybe at least 6 out of every 10 years. You don’t wanna end up having a super year only once every other year, because I know I probably wouldn’t stick with that kind of system.
Meb: Yeah, we actually just recorded a podcast talking about the challenges of active management, and one of them being the traditional value investing style can often go many, many years not just rolling but in a row of underperforming. And that’s one of the biggest emotional challenges with investors is identifying an investment strategy or strategies, cobbling them together, but being able to sit through the lean times as well as the good times.
Sam: Let’s go to the third one then, because you’re bringing up an interesting point. I would tend to say that a lot of investors say, “Just don’t lose me any money. Or if you do lose me money, lose less than the market as a whole.” I think more people would be very willing to underperform the benchmark when stocks are rising just so long as I beat the benchmark when stocks are falling. And that plays perfectly into the third rule, which is called “Sell in May and go away.” I actually advise investors, “Don’t actually go away. Don’t retreat, because you are much better off rotating than you are retreating. You are much better off gravitating toward those defensive sectors of the market that tend to do best in the May through October period than the more cyclical sectors that tend to do best in the November through April period.”
Meb: For the listeners, what are some of those defensive sectors?
Sam: The reasons that the defensive sectors do well is because, since World War II, the S&P 500 gained an average of almost 7% in the six-month period from November through April but less than one and a half percent from May through October. I think a lot of it has to do with capital inflows that if you’re a pension fund, you tend to put money to work early in the year. If you get a bonus, you tend to invest whatever your spouse leaves over. If you have a 401(k), you tend to max that out in the first several months of the year. If you have an IRA, you have to invest by April 15. And then lastly, if you’re getting money back from Uncle Sam, then traditionally you’re gonna apply early and then reinvest that money.
However, the greatest number of months that saw price declines of 5% or more occurred between May and October. On average, each one of those six months saw an 11% decline. Whereas, the November through April months saw 5% declines, an average of only 6% of the times. A lot of market declines are concentrated in the May through October period. So it probably comes as no surprise that the two best-performing sectors, May through October since 1990, have been consumer staples, meaning food, beverage, tobacco, as well as health care. Maybe the old adage is true that when the going gets tough, the tough go eating, smoking, and drinking. And if they overdo it, they have to go to the doctor.
But while the S&P gained an average of one and a half percent in May through October over the last 26 years, consumer staples were up 4.6% and health care was up 4.9%. And each of these sectors beat the market almost two out of every three years. The premise is lose less on the way down because you’ll have less to make up when the market finally recovers but also stay in the market because a rising tide lifts all boats. And if the market were to advance in price in a particular May through October period, and they’ve done so 63% of the time, then you’re not gonna be left on the sidelines in cash. You’re gonna be riding that up wave with the more defensive staples and health care groups.
Meb: And it’s only a matter of time before you see an ETF with this strategy. Have you ever looked at this globally? Is this a U.S.-only phenomenon? Or is this something that would apply globally as well?
Sam: It applies globally, amazingly. It works for the S&P cap weighted 500, S&P equal weight 500, SmallCap 600, as well as the global 1200. And also, this rotation is quite pronounced in the MSCI EAFE and emerging market indices. This is definitely not just a large cap U.S.-based phenomena. You can’t say that it’s based on summertime vacations where investors focus more on their tans and their portfolios, because some of the developed and emerging markets are below the equator, at which time, they’d be in their winter months.
Meb: Interesting. And it’s fascinating to me. I’ve spent a lot of time… My least read paper was on calendar and cycles. I don’t know why. But it’s always been a fascination to me. All right, so we got a few more of these. What do you wanna jump to? Do you wanna go to your favorite, “bull market somewhere”? Or do you wanna go through a few more of these in the middle?
Sam: We can go through a couple more, “Who says there’s no free lunch on Wall Street?” The saying is “There’s no free lunch on Wall Street,” but I counter with “Oh yeah, who says?” because when I think of…what is a free lunch? A free lunch is when you get something for nothing. If Sir Isaac Newton were alive and wrote a fourth law, it would be for every level of return, you have an equal level of risk. Well, not when you’re dealing with portfolios by actually looking at developing a portfolio with asset classes that have either low to negative correlations. You can actually improve your return while not increasing your risk.
From the standpoint of no free lunch on Wall Street as it relates to sectors, think of it. Which is the poster child for growth? That’s technology. Which is the poster child for defensiveness? That’s consumer staples. Going back to 1990, what I have found is that even though technology has been the best performing sector over this about 26-year period, best performing sector but with volatility that was about twice that of the overall market. Yet, when you have a portfolio of 50% tech, a 50% consumer staples, you might think, “Oh, well, I’ll probably get a return that’s in between tech and staples but with a much higher risk-adjusted return.” Well, actually, no. You got even better than that. You got an absolute compound rate of growth that exceeded that for the best sector, technology, mainly because they had low correlations with one another. Plus, they ended up taking the stairs at different rates of pace, hence, the correlation. So both had upward trajectories over these 26 years. But because one zigged when the other one zagged, you were actually able to produce a superior absolute as well as relative performance by simply having a 50-50 holding of tech and staples.
Meb: I think that’s an interesting… You know, we spend a lot of time thinking about correlations. You know, Ray Dalio, largest hedge fund of the world, often says, “The holy grail of investing is cobbling together either asset classes or strategies that aren’t correlated. And the more you have, obviously, the better it gets.” And so we spend a lot of time thinking about kind of weird and esoteric strategies. But it’s a good reminder that even something as well-known as U.S. stocks, you can think about it from these optimal construction of not just market cap weighting but weighting on other metrics like correlation within that actual index as well, which I think is pretty fascinating.
Sam: So I found all this to be so enlightening, because I’ve heard these old sayings before. But when I started crunching the numbers, I found that they’re still true and they really just make an awful lot of common sense.
Meb: Good. Well, all right, move on to the next one.
Sam: Well, yes, “Don’t get mad, get even,” basically was an old saying that I think it was George Vanderbilt had said to a business rival, you know, “You, sir, have cheated me. I will not fight you in the courts for that will take too long. I will simply ruin you.” So I just thought, “Oh, what a great quote that was.” And the same can go for the stock market. When you look at the top 50 stocks, they only represent 10% of the count of the companies in the S&P 500. But they represent 50 % of the weighting of the S&P 500. Maybe you have some really large stocks that are not doing very well. Well, that’s gonna adversely affect your overall performance. Well, don’t get mad about it. Get even. Take a look at the equal weight S&P 500. You’ve got ETFs that are offered by Guggenheim for the S&P 500 but also for the sectors in the S&P 500 on equal weighting basis. So basically, Big Lots has the same weighting as Big Blue. You don’t have one to look like a behemoth compared with the other.
And interestingly enough, a lot of these strategies have worked very nicely. Let me just tell you that from April 30 of this year through July 31 of this year, all four S&P cap weighted 500, equal weight 500, SmallCaps 600, and global 1200, they’re selling May portfolios beat their overall benchmark. And the equal weight portfolio has done so, as I said, about two out of every three years, so you can invest in the indexes the benchmark as well as the sectors within the equal weight and, in a sense end, up with a performance that exceeds that for the cap weighted brethren.
Meb: Yeah, we talk a lot about cap weighting here and how it’s a suboptimal way to invest. And we often say it doesn’t even matter which investing methodology you move to as long as you break that market cap link. And there’s a lot of research by Research Affiliates and Rob Arnott that have shown that even just excluding the number one holding in each sector or even the overall market, the top holding underperforms by about three percentage points a year. And that’s the way it should be in the world. I mean capitalism and the creative destruction of markets by the time it gets to be the highest price, in which market cap really all it is price and shares outstanding, chances are that it’s gonna be a higher valuation as well. So moving away from market cap, getting even great advice.
All right, next, the Fed, everyone’s favorite topic. You wanna talk about this one?
Sam: Sure. Well, “Don’t fight the Fed or at least for too long.” Edson Gould, a name that has nothing to do with mustard, but he certainly could cut the mustard. He was the one who came up with the phrase of “three steps and a stumble,” meaning if the Fed raised rates three times, then the market would typically stumble. He also came up with “two tumbles and a jump,” meaning that if the Fed cuts interest rates twice that the stock market tends to jump. This was way back when people really did not know what the Fed was doing, and you had a lot less transparency than you do today. Today, investors are more like hyperactive first graders playing musical chairs, always trying to out-anticipate the other. I think that If you waited three times for the Fed to raise rates or waited two times for them to cut rates, you might be behind the curve, because a lot of other investors will already have anticipated this change in trend.
This article, or I should say, this chapter doesn’t really offer a strategy other than trying to, again, calm your nerves by saying, “Yes, there have been many times in the past in which the Fed has raised interest rates. But if it will not lead to recession, then you are better off just sticking with stocks,” because while the market has gained an average of about 8% per year, and you’ve seen almost twice that kind of performance whenever the Fed has been lowering interest rates but less than half that performance whenever the Fed has been raising rates. But still the average performance has been positive.
I think the moral of the story is, you know, sometimes it’s awfully hard to try to time the market. But the key is if you think that whatever the Fed is doing or whatever market shock has recently been introduced, if you think that will lead to recession, then, yes, I think you want to worry. If it will not lead to recession, then forget about it, because while stock markets don’t die of old age, they die of fright. And the thing that they are most afraid of is an economic recession either here in the U.S. or globally.
Meb: And you, actually…this is a tangent, so sorry, but you have a great chart talking about bull markets. And it’s talking about the volatility of bull markets since World War II broken into the average number of days the S&P closed up or down by 1% during each bull market year. Bull market year one, you said, on average, there were 62 days a year that the S&P closed up or down 1%. But there tends to be this really interesting smooth trend. And I don’t know if you have this chart in front of you. But if you recall, you can maybe talk about this, the general takeaway of bull markets as they become more unstable with age.
Sam: Oh, exactly. What’s interesting is that you really can apply volatility to a very broad time frame, meaning a bull market, that we tend to have the lowest level of volatility, meaning the fewest number of days in which the market rose or fell by 1% or more in the third and fourth years of bull markets. But then they start to increase because the average bull market lasts a little less than five years. So investors start to get worried as we hit year five, year six, and as we did this year, year seven. They get increasingly worried that a bear market is around the corner. So the tug of war increases in intensity. And so while, yes, the average number of days in which the market rose or fell in the 7th year was about 65 times, it ended up becoming 85 times in year 8 and 95 times in year 9. The further we go in this bull market, the greater the increase in volatility. And I like to say that bull markets are like humans. The older they get, the more unstable they become.
So you can look at volatility based on a bull market cycle, which can last up to 10 years. You can look at it based on the four-year presidential cycle. We are in the most challenging period right now, because we have two essentially unknown candidates running for president. Whenever that has happened since World War II, the markets fell by 3.3 % in that calendar year, and you had increased volatility. You can look to the volatility in the six months of the May through October period as I mentioned earlier or even simply looking at the third quarter, which is by far the worst quarter within the average 12 month period for the market. S&P has fallen almost 1% on average. And 7 out of the 10 sectors have posted market declines on average in the third quarter. Yes, by at least understanding when and where you’ll come across this volatility, I think, can help stop you from becoming your portfolio’s worst enemy by making an emotional response.
Meb: So I’ve never seen that chart before, so kudos to you, Sam. But just for a kind of reiteration, the volatility is in year seven, in particular, eight and nine are roughly double to triple, or the number of days, it’s not the actual volatility, but number of days that are volatile roughly double or triple the years two through five and six. So the simple takeaway would be to maybe potentially expect a little more volatility in the next two years. And if you look at the historical presidential cycle, which looks at the four-year cycle of a presidential term, the first and second year, particularly with first-term presidents, tends to be pretty below average sub-par returns, was the biggest returns coming in the third year. Is that right? Do I have that correct?
Sam: Absolutely, because investors are anticipators. They figure, well, the president usually wants to get reelected, and they have been reelected 80% of the time since World War II. Well, the way they can ensure that they get reelected is by trying to stimulate the economy in year three so it bears fruit in year four, and the voters go back to the polls feeling fat and happy and not willing to upset the apple cart. So that’s why while year one’s average increase has been 7.6 %, year two, 5.3%, year three was up 16.1, and it rose 75% of the time. So the interesting thing, therefore, is that because investors say, “Well, I’m not gonna wait ’til year four to see if this stimulus actually takes hold. I’m gonna buy in in year three in anticipation that it’s going to work.”
Interesting, it did not work these last two third years because President Obama was not able to push through any kind of stimulus. So because we saw the gridlock in Congress… Gridlock is not good. Gridlock is actually bad. And as a result, we ended up having a pretty anemic return in 2011. Actually, the market was essentially flat. You have to carry it out to the third decimal point or position in order to see a negative return. And then in 2015, we were down almost 1%, again, because there was no ability by the sitting president to push through any kind of stimulative legislation that would encourage the voters to vote for reelection.
Meb: I love it. All right, we’re down to the last rule, which happens to be, I think, my favorite as well as potentially your favorite. You wanna talk about “There’s always a bull market some place”?
Sam: That’s right, “There’s always a bull market someplace” really, just to be simple, is that it is the “Let your winners ride” that is reviewed every month gives you the chance to tweak that portfolio every month. More times than not, the market is in an uptrend, so it tends to work relatively well. If we’re in that time period in which the markets are sort of spinning their wheels, then you don’t really can identify momentum all that well. But I have an industry momentum portfolio that is found on S&P’s market scope adviser platform. I’ve had it out since 1999. And the average annual return for this portfolio was 7.3% versus 2.7% for the S&P 500. And through the end of July of this year, we had the portfolio up 8%, whereas, the S&P was up 6.3%. Doesn’t work every year, but basically, it is a rules-based approach. And it says you want to own on a trailing 12-month basis with those sub-industries that were in the top 10%. So you own the top 10%, or you buy them when they’re in the top 10%. And then you sell them when they fall out of their top 30%.
So what I do is I monitor which are these sub-industries that are in the top 10% to be added, watch them until they fall out of the top 30%. And then I also use one of our stocks with the highest investment recommendation ranking to serve as a proxy for each one of those sub-industries.
Meb: And you may not know this off the top your head. Do you know what’s firing right now for sectors? I mean I imagine utilities might even be up there. They’re having a banner year. Do you know what’s in the top rankings right now by any chance?
Sam: Yes, in terms of the top rankings, it’s interesting, but it’s telecom as well as the…telecom and utilities are the best performers. You would think, “Ooh, that means that the investors are anticipating a recession or a bear market around the corner, because those are defensive sectors by nature. And investors are, you know, hunkering down, going into hibernation.” Well, no, not this time around, because what’s happening is that you have to yield-hungry investors who are not able to get the kind of income that they require from bonds or from other asset classes. So they’re gravitating toward telecom, which yields 4.3% as a sector. They’re gravitating toward utilities, which yield three and a half percent as a sector. They’re also taking a look at consumer staples, which also yields more than the S&P 500 right now. From a sector perspective, it is the more defensive area, even though I do not think that we are headed for a new bear market.
Meb: Sam, I think we’re gonna start winding down here. I don’t wanna keep you all day. One of the fun things we always ask our guests is if there’s something beautiful, useful, or downright magical that other people may not know about, do you have an idea for us today?
Sam: Yes, I do. I remember somebody asking me a little while ago, “Sam, how do you relax? You work on Wall Street. It’s a high-paced industry. You spend a whole day staring at a computer screen crunching numbers, etc. How do you get away from it all?”
Well, I sort of look around to see whether I really wanna admit this. But I’m a bird nerd. I’m not a bird watcher, because I can’t see the darn thing. You know, they always hide behind the leaves. I guess they don’t wanna get eaten by birds of prey
So what I did many years ago was I purchased a CD series by the Peterson Field Guide company called “Birding by Ear.” You’ll be surprised as to the number of birds that you already know. You’ll be listening to this CD, and you’ll say, “Wait a minute. I know that bird. I’ve heard that. I just didn’t know what it’s called. I know this one. I don’t know what it’s called.” But I’m not one of the people who dresses up in the birding outfits or takes a notepad with me. But I do like to go for long walks in the woods. Some people have always told me to take a hike. But this way, it enhances that hike, because I can, in a sense, be in tune with nature and identify the calls that I’m hearing. I don’t need to have a smartphone looking for an imaginary Pokemon. I’m actually in the real world listening to real life around me.
Meb: I think that is the real world for a lot of people. That’s an interesting one. We’ve had very eclectic answers so far. And certainly, there hasn’t been a repeat. Mine, I’m gonna give…I was just back in the south. I grew up partially in North Carolina. And we grew up going to a lot of these redneck beaches. And I can say that, because I’m Southern. I’m part redneck. But we were just in Florida this year. And one of my favorite things about the South, I get really homesick when I go back. I don’t get homesick when I’m living in L.A. But when I go back to the south, I get homesick for the people and the food and everything. And there are some particular boxes I have to check off every time I go to the beach. You know, you gotta get a bunch of steamed shrimp and some oysters, sweet tea. Although, I can’t handle the sweet tea anymore because it’s too sweet, so I gotta go have [inaudible [00:35:35] on it.
But there is something that I feel like the vast majority of Americans have never heard of, and that’s call boiled peanuts. And if you’re in the South, it’s called…they say boiled peanuts. You’ll find these guys on the side o the road, usually shirtless, cooking out of a big tub. You get these peanuts that are heated and essentially boiled. And they’re a little softer and salter or Cajun. You can find them in gas stations. It’s the best thing on the planet.
And then I came back a few years ago, and I said, “All right, I got a new business idea. I’m gonna start becoming a boiled peanut distributor online, because you can’t find these anywhere. And it turns out there’s actually a couple of brands. And there was one brand where they would send it to you in a pouch, but it would come in liquid or a can, which is pretty gross. But I just found on Amazon last week that you could buy these. And the whole key is, by the way, I learned the hard way, you have to buy raw peanuts
And so the first time, I had a buddy having a cookout here in L.A. He’s a Southern guy. And I tried to make some boiled peanuts on the stove. And I put a bunch of peanuts in there. And after about an hour, they were still disgusting and hard. And a friend came up from Savannah, Georgia, actually Tybee Island, and he said,” Meb, what are you making?
And I said,”Boiled peanuts.”
He said,” Oh, I’m so excited”
And I said,” But the prob–…they’re now working. Do you have any suggestions?”
He’s like, “Well, you bought green peanuts”
“What?” Right? And I said,” I’ve never heard of what that is.”
And he said, “Well, they’re raw. You have to buy raw peanuts”
So now, you can buy them online on Amazon and get a boiled peanut kit, which is kind of embarrassing. But it’s basically $8, you know, idiot fee for buying green peanuts, $8 to give you a Cajun seasoning. And if we tried some. It actually ends up pretty great. So that’s it, Sam, you ever had boiled peanuts?
Sam: No, but I’ve seen them. I’ve heard about them. And being a fan of Deputy Dog at an early age, it’s a cold day in the south before I’ll say I don’t like boiled peanuts.
Meb: Good. Well, put it on your to-do list. You haven’t lived if you haven’t had boiled peanuts. Sam, where can our listeners find a more of your writings, your musings? Are there any good websites or locations?
Sam: My work is found on… Actually, most of your investors can actually get my work already through their discount or full-service broker. My research is found on Fidelity’s website, TD Ameritrade , Schwab, E-Trade, Scottrade, Merrill Lynch, RBC. So a lot of my work is already found and made available to investors. And if you have a local library, you’re already paying for our research through your taxes, take a look at the local library, probably the bigger, the better. Or if you have a business school nearby, see whether they have subscriptions to The Outlook and therefore could get my work. It’s all around you . You just have to know where to find it.
Meb: You know, that’s an interesting second really useful comment, because a lot of people don’t know this. They say, I get emails every week that are like “Meb, how do I get access to this and that database or Bloomberg or FactSet and all these databases.” I say, “Look, Bloomberg is like 25 grand,” or whatever it is now per year, “All these are super expensive. Almost every local business school has subscriptions to about 50 databases, Bloomberg’s, and everything.” And, you know, you either become friends with a professor, a student, or see if you can get a library card. But almost everyone lives within spitting distance of a business school. I did that for a long time early in my career, would get access through Stanford. So thank you, Stanford, even though I wasn’t a student.
All right, we’re gonna wind it down. You can also find Sam on Twitter, @StovallSPGlobal, where he will link to some of his topics and strategies. Thanks everybody for listening. You can always send more feedback at [email protected] You can always find show notes at mebfaber.com/podcast. And you can always subscribe on iTunes. And if you like this show, please leave us a review. Thanks for listening, friends, and good investing.