Episode #154: Frank Curzio, “You Have To Be Able To Adapt To Different Strategies In Different Markets Because They’re Ever Changing”

 

 

 

 

 

 

Episode #154: Frank Curzio, “You Have To Be Able To Adapt To Different Strategies In  Different Markets Because They’re Ever Changing”

Guest: Frank Curzio is the founder of Curzio Research.  Frank learned the tools of the trade from his dad—and developed a world-class track record in his own right. He’s worked for one of the richest hedge fund managers on Wall Street finding the best small- and mid-cap growth stocks. He’s also edited multiple financial newsletters, including Small Stock Specialist and Phase 1 for Stansberry Research.

Frank’s research has been featured on national media outlets, like CNBC’s Kudlow Report, The Call, ABC News, CNN Radio, and Fox Business News. He’s been quoted by numerous financial publications, including Bloomberg, Seeking Alpha, MarketWatch, and The Energy Report.

For 10 years, Frank’s been hosting Wall Street Unplugged—ranked the No. 1 “most listened-to” financial podcast on iTunes. The show features interviews with Frank’s renowned network of industry insiders—including hedge fund managers, stock analysts, and CEOs.

Frank’s currently the editor of Curzio Research Advisory, a large-cap investment advisory, Curzio Venture Opportunities, a small-cap and special situation advisory, Curzio’s Crypto Intelligence, a cryptocurrency asset advisory, and the Wall Street Unplugged All-Star Portfolio, which offers the best “off-air” ideas from Frank’s vast network of industry insiders.

Date Recorded: 4/25/19

Run-Time: 59:27

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Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Summary: In episode 154 we welcome Frank Curzio.

Frank begins with his origin story, learning to conduct financial research from his dad, working for Jim Cramer and the incredible industry and company access he had, and then gets into eventually launching Curzio Research.

Meb jumps right into markets by asking Frank what opportunities he’s seeing right now. Frank mentions he’s not seeing a lot of opportunity but likes seeing the separation in company reporting right now, some stocks reporting poorly, some reporting well. Overall, with a decent economy, not much crazy bullishness, and with valuations where they are, he thinks a downturn of 10-15% might create a lot of opportunities.

Frank then gets into tech. He discusses the idea that the leaders can continue to grind higher, and his thesis on why IBM’s Red Hat deal will be a gamechanger. He transitions into biotech and discusses his thoughts as well as some of the difficulties of investing successfully in the industry.

Next, the conversation transitions into energy. Frank talks about natural resources, and some of the “on the ground” research he’s done, and the difference it makes in his understanding of the investments he’s making, as well as some specifics on energy, mining, and resources.

The two then shift to talk about tokenization, and how Frank is tapping this innovative idea to raise capital for Curzio Research.

All this and more in episode 154.

Links from the Episode:

 

Transcript of Episode 154:

Welcome Message: Welcome to “The Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome, podcast listeners. We got a great show for you today. It is late April when we’re recording this. Today’s guest is one of the most often requested guests. So finally glad to wrangle him on here. He’s currently the editor of Curzio Research Advisory, Venture Opportunities, Crypto Intelligence, and the “Wall Street Unplugged All-Star Portfolio,” where he offers the best off-air investments. He’s worked for some of the top hedge funds on the street focusing on small and mid-cap growth stocks. And over the past 10 years, my god, you’re a grandfather on this. He’s been hosting “Wall Street Unplugged” ranked if not the top number one most listened to financial podcasts on iTunes. Welcome to the show Frank Curzio.

Frank: Thanks, man. I was gonna let you keep going, man. I like that intro. Thanks, man.

Meb: Well, you know, the fact that you and I are talking today is actually of no thanks to you listeners because one of the last times I hung out with Frankie tried to kill me on a golf cart. Can I just mention I hope your golf game has improved because there’s really only one way to go at that point the last time we played together?

Frank: Yeah, and that golf cart yeah, you did actually…you got lucky. You saved us I think. Otherwise, you might have got kicked off the golf course. But that’s a different story. That’s a different story.

Meb: Okay, for a different time.

Frank: Yeah, exactly.

Meb: Guest Frank, a lot of you have requested him so we got him here today. You’re an old school stocks guy. And we’re gonna talk about a lot of stuff today. We’re gonna talk about markets, sectors, biotech. I definitely want to save some time for the tokenization of Frank, which we’ll get to near the end so listeners definitely stick around for that. Let’s talk a little bit about you going out on the entrepreneurship plank is the way I’d probably describe it, being an entrepreneur myself. Talk to me a little about starting your own company, when this happened, what are you focused on, all that good stuff?

Frank: No, I appreciate that Meb, and thanks so much for interviewing me and having me come to show your show. I love it. It is one of the better podcasts that are out there. I love it. Yeah, I’ve been doing it for over 10 years and it’s just nice. It’s not a zero-sum game, right? It’s like you wanna see more people get involved and it just seems like it’s really building up in the financial world. So thanks so much for the invite.

For me, I’ve been this industry literally all my life. The past 25 years I’ve done this financial research. My late dad has his own financial research company for 25 years. So I’ve been part of the business, a family business, for a long time. And when he passed I just figured I need to learn a little bit more. I went to work for Jim Cramer for a few years, which was great. I mean, he has his critics and people like him or hate him. But on the research end for me, coming from my dad, he was a pure value guy, right? So we weren’t really into technology too much and, you know, that was my education and analyzing and balance sheets and income statements.

Cramer is 100% a growth guy and dealing with that for five years and the fact that we had to know every stock, every sector, everything and the access that he had where he’s like, “These guys are gonna ring the bell in the New York Stock Exchange. I can’t make it. Go make it with this company, you know, just go there, introduce yourself,” and having dinner with some of the top uranium analysts. I didn’t even know anything about uranium at the time, access to CEOs of Fortune 500s.

So having that access and being forced to really understand so many different industries was an incredible help to me. I didn’t realize that at the time, but now I do because there’s not one system that works, right? Meb, I mean, if there’s one system that works, everybody would use it. And I think what I’ve learned over the years is you have to be able to adapt to certain markets.

David Einhorn is a good example, who I’m a big fan, of but it’s not a value market and I just felt like he hasn’t really changed too much and you’ve seen the performance. And we’ve all had bad streaks and win streaks and stuff like that. But I really think you have to be able to adapt to different strategies and different markets because they’re ever-changing.

So, for me, I work for Stansberry Research, a great company. It’s part of the Agora Network. And I just felt like in the past few years that this industry, which I’m very attached to, it’s my life that I love, took a turn for the worse. I just felt like the promotions were getting very aggressive. There was a lot of people they were calling legends. And I have a lot of friends in the industry. I’m not talking bad about them. But I just felt like we had a way to change this. There’s a way for us to change things around and provide original content, original ideas, bring Wall Street to Main Street.

We do have a podcast. I’m one of the few in the financial newsletter industry that do that. So we launched our company, Curzio Research, a couple of years ago. In our first two years, we’ve done about $6 million in sales, which I’m proud of and humbled by. And you know this as well as I do, Meb, it’s kind of a drop in a bucket when you look at our industry because it’s the financial newsletter, it’s one of those scalable high-margin businesses. And so far we’re off to a good start. We have 17 employees now and things are good and it’s fun.

Meb: My God, what do you have all those people doing?

Frank: I know. I know it’s crazy. You know what it is? We are really a digital marketing firm, right? So it’s on the research end it’s great we probably have five, six people, you know, in terms of research, writing newsletters and things like that. But there’s a lot that goes on behind the scenes. And I tell you, Meb, I didn’t really appreciate that for other companies I worked at, right? You are just a research analyst and you’re like, “Get this out and I wanna do this,” and you don’t realize how much goes into headlines, into making sure that design and… You subscribe to your stuff, you have to make sure all those subscriptions are good, credit card processing and accounting. And like you say it’s cool being an entrepreneur, but man, you get thrown into the fire right away. You’re gonna make lots of mistakes, and it’s been fun along the way. And so far, so good, Meb. So thanks for asking.

Meb: Look, I think that’s a great example, not just for being an entrepreneur, but also being a portfolio manager. I mean, so many of the young people that we talk to, they all wanna be Bobby Axelrod, right? You know, they wanna be trading and the excitement of, “I’m gonna go short Tesla and I’m gonna buy gold on the like, and…” But really, they don’t realize that you spend half your day just signing forums dealing with the SEC, dealing with compliance. And the same thing as the CEO. You spend half your time, oh, God, managing people. You gotta fire people. You gotta hire. All the just day-to-day is a lot less sexy.

Anyway, all right, so let’s talk about markets and we’ll get probably more specific on areas but what’s the world look like to you today? April 2019. It’s hard to even pronounce. For someone who’s been around this, been a student of markets and been through various cycles, what do things look like to you today? Do you find a lot of opportunity?

Frank: You know, what I’m not finding as much opportunity but I like the fact that you’re seeing a lot of separation where we had 3M report terrible numbers, iLink report terrible numbers, but other companies with those sectors reported good numbers. You’ve seen separation where we saw the Fang stocks all go up, continue to go up no matter what, and then you saw Facebook branch off a little bit, report good earnings, and it’s better. But when I take a step back and look at the market’s history, at least from my perspective and from what I research, again, you can interpret however you want but the market usually does well when it’s a Goldilocks economy where if you talk to 10 people right now, you could have 5 people highlight the negatives in the market, terrorists, China, slowdown earnings, maybe an earnings recession. You know, there’s a lot to talk about. But also in the positive, we don’t have inflation, which means the Fed’s not really gonna raise rates, I wouldn’t compare that, Meb, to 2011, ’12, because they’re still leveraging the balance sheet, right? So it’s not necessarily easing even if they lower rates. It’s not like it was 2011, 2010, where they were giving checks away for people to buy houses and cars, but it’s a favorable economic landscape.

And when you look at that, it sets up the market, like we’ve seen since December, and even before December, that 20% decline really quick from September to December and going back few years, it’s like a slow grind higher. And I continue to see that. When I look at valuations, they’re not crazy stretched. We’re not growing as much on the earnings end. I think they’re gonna be flat this quarter compared to last year. The year before was double-digit growth because we saw, you know, obviously tax reforms and things like that. But when I look it just seems like a decent economy. We have very little inflation, so the Fed’s gonna be accommodative going forward, at least through 2019, probably in 2020. They’re not gonna do anything crazy going into an election year either.

But I see the markets grinding higher going forward and I know that’s not the most exciting thing, right? You want to hear, “The market’s gonna crash 40% or it’s gonna go up 30%.” But I tell it how it is and I believe that you’re gonna see a slow grind going higher. And then there’s gonna be a time when the marks are hitting new highs and they’re gonna go high, and you’re gonna get all those, especially those technical guys. You’re just got to go there and see, “Oh, the markets going higher and higher.” And they all… You know, that pendulum swings to one side, but I don’t see it. I see a lot of nervousness. I still hear people calling for a crash. And I don’t see people crazy bullish right now, which is a good sign if you’re a contrarian investor. So I think there’s opportunities. It’s not as easy. You’re gonna be buying expensive stocks, but on a whole, training is 16 times, 16 1/2 forward earnings. That’s the five-year average. So we’re not super expensive but if things do come down 10%, 15% you’re gonna find lots of ideas just like people saw in December, and if I had a guess for 2019 we’re probably gonna grind higher, maybe into the election as well in 2020.

Meb: So that’s a good overview of the landscape.

Frank: And feel free to tear it apart, buddy. I love it.

Meb: No, I largely agree with you. I mean, looking at the comment you made earlier about Einhorn, I think is actually very insightful where so many people have a certain style, whether you’re a high dividend guy or “Hey, I’m 60/40 US-only,” or invest in XYZ, whatever it may be. The challenge with being, adhering to one very specific style, like you mentioned, is these long periods in value has been just going through a just Grand Canyon long, deep chasm of underperformance relative to other sales. And so for people that aren’t thoughtful about say, growth, which I know you focus a lot, on in certain areas it can be not just challenging, but career ending.

Talk to me a little bit about let’s drill down into some sectors. I know you follow a tech a lot. In a recent podcast, you were talking about this new startup called IBM. But you said aside from the numbers they reported, which I thought was very positive, forget about them for a minute because the story is about Red Hat, which they are in the middle of acquiring for $34 billion. Red Hat, I mean, that’s a stock that I remember talking about in the late ’90s. Talk to me a little bit about tech in general. And then also, kind of what’s your thoughts and thesis on IBM?

Frank: Tech in general… Look, what I find amazing is a company like Facebook, right? And I’m sure you could say this too, Meb. Never in a million years would I think two and a half billion people would go on one platform, right? Facebook may be the only company I’ve ever researched in the past 25 years that completely changed their business model six months ago, and are benefiting it in less than six months right? Usually, you see, “Oh, a transition. We’re gonna do something differently.” And you see choppy quarters after that.

The last two quarters of Facebook, they reported amazing numbers. Why? Because and this is one of the things that one of the themes we should get to is putting your personal feelings aside, which is very difficult for all of us to do. I don’t care how much experience you have as analysts. It’s always tough. And if you put your personal feelings aside and say, “Okay, the privacy issues,” and I hated Cambridge Analytica, and all this stuff.” The bottom line is they have access to billions of people and these billions of people go on a platform and tell you exactly what they want. They tell you exactly where they are. They post old pictures. There’s not a better platform to advertise on.

I mean, think about if you’re a company, you go to Comcast or go to a cable company and you say, “Okay, I wanna advertise,” and they’re gonna give you all the demographics. You really don’t know. I mean, if you’re Starbucks, and you walk into Facebook, and you say, “Hey, I wanna advertise,” Facebook goes, “Hold on a second. There’s 2 million people in your Starbucks right now. What do you wanna send them?” And you can’t compete with that. And that gives Facebook incredible pricing power. It gives Google incredible pricing power. Those are the platforms that everyone…all the major businesses, all the big businesses that spend money are gonna go to.

And when I look at technology, I don’t see that changing. I see more regulation in the industry. You saw Facebook get hit on that. Amazon is just incredible, probably the most innovative company I’ve ever seen. Microsoft leveraged to Cloud. What a great idea. I think it’s the largest company in the world based on market cap right now, even bigger than Amazon.

But when I look at technology as a whole, I just see those leaders continue to grind higher. You could make a case for other Netflixs where the amount of money that they’re spending is pretty crazy. I don’t think Disney getting into that industry is really gonna disrupt anything. That’s not a zero-sum game either, so people could stream and have multiple services, which is normal.

And getting to IBM, look, I was able to look at IBM from a fresh perspective, which sometimes that’s difficult to do because if you own IBM, like three, four or five years ago, you hate the company, even Warren Buffett went into it and he wound up getting out of it. But what they’re doing right now in transitioning, people are focusing on the top line. Don’t focus on a top line. I don’t care how low that… It’s all about margin. It’s all about profits. And they’re getting into more services so their revenue is gonna come down, their margin is gonna go higher, and their profits are accelerating. And they’ve been working with Red Hat. That’s gonna give them… They’re basically gonna be the number one provider in hybrid Cloud, which is private, and also public Cloud, which they’re saying is a trillion dollar market. And even if it’s less than that, I mean, Cloud is still very much in its infancy. If you look at IBM and that acquisition with Red Hat, they’re saying 80% of their clients that they have are not even on the Cloud yet.

So you’re gonna see earnings really ramp up. It could take a while and you could be wrong, but you know what? You’re gonna get paid a four and a half percent dividend to wait. And that dividend’s perfectly safe when you’re looking at earnings and cash flow. So, to me, it’s a good company. You see the transition already, I thought the quarter was pretty good. But that Red Hat deal is gonna be a game changer for the company. And they’ve worked at Red Hat. They’ve worked with their developers before. They’ve been working with them for a while, which is important because you always have the integration risk. But I think it’s gonna be a blockbuster deal for this company. I would put them the end department of eBay and PayPal. That’s how positive I think it’s gonna be.

So I think it’s gonna do very well, IBM going forward. It’s a long-term play. I think it’s a great play. It’s not gonna make you rich tomorrow. It’s just a good large cap’s gonna pay you dividends. And you’re going to have that growth because there is so many new businesses and especially the high-growth industries like AI, data analytics. They are focusing on Blockchain as well and it’s starting to take market share.

Meb: And it’s funny as you listen to kind of the general media talk about tech because thinking back to my favorite bubble, which was the late ’90s one, there is a massive market cap bubble but many of the big tech companies didn’t have any earnings at all, and it’s a little different this time. Some of them, of course, are trading at really valuations now. But the big difference is they’re just printing money. A lot of these companies are just making money hand over fist. And so trying to compare historical market cycles is always tough because it’s not always exactly the same. And I’ll leave this open-ended for you. You’re welcome to talk a little more about any ideas or trends in tech. But also under that broad umbrella, I know you focus on biotech, too. And can you walk us through a little bit about how you think about that sector as well?

Frank: Yeah, I love biotech and it’s great to recommend stocks to people that you think they can make a lot of money on. But a lot of this stuff is feel-good stories as well like gene-editing. immunotherapy is… You know, these are trends I followed for over five years. And immunotherapy is just basically telling your immune system because when you get cancer, your immune system tries to fight it and they can’t beat it, and it gives up and then your cancer spreads. And that’s the most powerful thing in the world, right, your immune system, your body. And now they’re finding a way to tell your immune system “Hey, you know what? Keep fighting.” And you’re seeing, like, kids that were given six months, nine months, to live. They’re cancer-free for, like, five, six years.

And you’re seeing, you know, just so many different things come out. It’s amazing to see it. There’s a lot of small cap stocks where they’ll partner with guys like Merck, who has Keytruda, one of the biggest markets. Opdivo is also a huge immunotherapy drug. And those are the big ones that were approved. Opdivo’s from Bristol-Myers. And when you have these little companies, they’re basically using those drugs and combining them and trying to make it even better and basically increase the survival rates.

But there’s just so much going on in that industry. And we were able to do, you know, very well because of kind of the formula we use in today’s day and age, right? I mean, even in earnings if you miss like, look at 3M you know, you get crushed. You get destroyed. In biotech to a lot of times, it’s difficult to get a product to market and nothing ever goes, “Hey, you have a great phase one, phase two, phase three studies, right?” And then you go to market. It never ever happens in biotech. A lot of times, they’ll have phase two studies and the FDA is like, “Hey, you know what? It just didn’t meet our primary endpoint.” And the stock will lose 50%, 60% of its value. And it trades lower than cash it has on its balance sheet and then you’re getting the rest of the pipeline for free. And when you analyze the data of what the FDA said, they said, “Look, we just didn’t like this. We wanna see more safety on this.” And they’ll come back to the market six months or nine months and you’re getting a significant discount on a lot of these companies. Sometimes the study is so bad that they discontinue the drug and that might be their only drug and you know, then, of course, you’re going to avoid it.

But instead of buying into the hype, I like looking at these things when they get crushed because people run to the exits immediately without looking at the news. And these companies are still fundamentally sound. They’re good but you get them for a big discount. And it’s one of the few industries I know of where, I mean, these things get hit hard, so hard, you’ll see them trade below, you know, their net cash on their balance sheet, which almost gives you a no-risk. Obviously, you gotta look at cash burn and stuff like that. But we’ve done well on biotech. We’ve been fortunate only because we have a really good network of a lot of analysts that I reach out to and talk to and because I’ve learned from my mistakes, right? I mean, we all have and but that’s been a market that we cover that I really like.

Meb: Biotech is certainly near and dear to my heart. That’s how I got started out. And I remember going back to the old FDA approval meetings in Maryland. This would have been I think in Bethesda at the NIH and other places. And it’s funny because you would have some companies that knew damn well that they had zero chance of getting a drug approved that basically had no statistical evidence. But they would bring in a bunch of advocates and people that had either through just randomness or placebo effect done well, and trying to convince the FDA. But eventually, it’s a long process and they get it right. But it’s funny because every four years or so, biotech goes through a reckoning and the whole sector gets pounded by 50%. And then it usually stabilizes, and it’s off to the next races. But what a fun industry.

And I think what you mentioned is I think important for a lot of investors, which is are you getting more excited about helping a company sell more digital ads or actually have some impact? And biotech is certainly a sector that does that, but not without its own landmines. My worst trade of all time involves biotech.

Frank: It usually does, man. Don’t worry about it.

Meb: Yeah. That’s why I became a quant. That scarred me for life. I said, “Man, my God, I’m never doing that, again.” You go to a lot of conferences. You talk to a lot of CEOs and do old school value-added research and channel checks and all these things that hedge funds do that most investors don’t. And I know that in looking at a lot of your research over the years, you also have a, one foot in the natural resources sector, which is an area that those of us south of the Canadian U.S. border is not as popular. But if you go to Canada or certain other states, it’s a huge interest for a lot of investors and probably even more of a landmine field than biotech is. Talk to us a little bit about any global macro thoughts you have on the energy space, and then we can dive into any particular thoughts on some of the securities there as well.

Frank: Yes, and Meb, you do the same thing. I mean, for me, I love that part of the business, right? It’s like investigative journalism, right, where you’re traveling all over the world, you know. I’ve seen you at how many different conferences when we go out and you always reporting on Twitter and stuff like that. I love that.

Meb: But the difference, to interrupt you, is that you’re good at it and I’m horrible at it. That’s why I’m a quant is that I believe what everyone says. I’m like an optimist. Like, I was always terrible at the subjective side so that’s why I’m a quant but you’re not. You’re good at it. So let’s hear a little bit about it.

Frank: All right, I will say that you are definitely being modest because I’ve heard you speak at conferences and you really know your stuff. For me, it’s not just going to the CEOs, right, because CEOs… Even for your own company or for my company you always gonna talk positive about it, right? I mean, that’s your job. It’s going out and talking to the workers, talking to the locals. And for me, I remember fracking and I forgot the name of the movie that came out on HBO where, you know, fracking, the guy was lighting whatever, turn on the faucet and lit on fire, the water coming out.

When I started researching this industry in 2011, 2012, even as early as 2010, I went to every single major Shell area in the United States right? So, you know, there’s the Permian, the Eagle Ford. I even went to the Wilson Base in North Dakota, and I thought there was going to be animals dead every place, right? You know, so for me going there… And that’s the story everybody wants to hear. Fracking is bad because of earthquakes. It doesn’t cause water contamination ever. It can’t. It’s impossible because fracking takes place at 3,000 feet, 4,000, 5,000, 10,000, even 12,000 feet, and you’re looking at fresh water is usually around 500 feet. So unless these chemicals go upward through rock, which you know, I think last time I read that can’t happen, you’re not gonna cause water contamination.

And this whole thing that went out on this and just learning about that industry allowed us to get into a lot of different names. And I’m not saying that there’s water pools there and, again, I visited all these areas, talked to locals and see. I did a ton of research in this. And I’m not saying that you can’t take that water and throw it in the river. Of course, that’s different. But from what I read and from what you see in the field it is so amazing and it gives you a real edge by being in the room and going to these things.

I went to in the middle of nowhere Alaska. I took two planes and a helicopter to the…it’s the largest undeveloped copper site. It was a company called Northern Dynasty. And it was like 35 cents at the time and I went there with Mara Katusa, who you know as well, Doug Casey was there and we took the best geologists in the world, right? And that’s not me talking about it but Dave Lowell, who discovered binding minerals, copper on almost every single continent. He’s 80-something. And there was this big thing. It’s all political saying that, you know, 150-mile away is Bristol Bay. And they’re saying that if they develop this site, you know, the rivers that flow through their site is gonna contaminate the sockeye salmon and all this.

There’s no rivers on the site. And I went there and I’m like, “What is it where… What are they talk…” There’s no rivers. There’s nothing. So I was standing on their site. There’s nothing there. They’re, like, “It’s all political.” And this was a few years ago, and we had… We went from Democrat to the Republican, right? So I’m not gonna get political here, but much more favorable when it comes to the environment and that stock went to $300, $350, which I would have never discovered and never been able to understand if I didn’t visit that site. I just would have believed what I read.

So for the investors listening to this, go out there. Don’t believe… I mean, you know, people have an agenda on TV. People have an agenda every place. Do your own research. I mean, when you have Google, you could talk to people. People love talking about themselves. You can call almost anyone. Go out there and do the research. This is your money and you really need to find these ideas. And when a lot of times are not gonna be this popular and the less popular they are, probably the more money you going to make off of it, right, because it’s better to be on that side then with the crowd.

And for my career, just, you know, really digging into a lot of this stuff and talking to experts and interviewing them on podcasts as well it’s led us to a lot of original ideas. And, you know, like, you mentioned, I’ve been doing for 10 years. Interviewing people I get to pick the mind of somebody, of a great person, you know, and you’ve been on the podcast too, Meb, every single week. And it just makes your network that much bigger. And the process led to a lot of like just original ideas, which we’ve done well on over my career.

Meb: And you also end up on occasion with some negative signaling where you talk to someone and they say, “Oh, no. Like, we didn’t sell them any of this widget or product or we’re not buying that,” or you actually go to a site and find out the opposite is true, right? Like you’re interested and say, “Wait, this isn’t even operational.” And that’s the funny thing about, I mean, you even see… God, it’s just so crazy to watch…this happens at such large-scale too and brilliant people consistently get fooled for various reasons. I mean, the whole “Theranos” my God, that documentary and just reading “Bad Blood” is it’s funny how so much of this continues to happen even today. I was laughing with my brother. We have some river land in Colorado and we looked it up on Google Maps for doing something or other. And we’re like, “Wait a minute. Is that a trailer on our land?” And sure enough, there was someone just hanging out squatting on our property. So it always pays to do your research and Google Maps, a pretty good one, not too bad.

But as you look around the natural landscape, natural resources, what is that world similar to biotech? It seems like every few years it goes through a long winter, sometimes longer than others where natural resource… And feel free to divvy this up into coal miners or to oil energy explorers, all that good stuff and as well as the actual commodities. Any thoughts on oil, etc.? Any thoughts on that general landscape in 2019?

Frank: You’re looking at oil companies, obviously, doing well because, you know, oil prices have gone up. You’re seeing Saudis, you know, cut production. They want oil up as well as is that mean projects are depleting, right? I mean, as soon as you drill, it’s almost like depletion just and that’s what you’re seeing a lot in fracking where these guys have taken… If you look at the balance sheet of some of these companies, it’s really scary. And some of them went bankrupt when oil prices went from, you know, $80, $90, wherever it was in 2015 to under $30, briefly, but they basically stayed under $40. I would say on average fracking is about $55 breakeven.

You’re gonna find areas in the Permian. It’s basically four counties where you could drill probably for $25 to $29 that work but for the general part, the Williston is probably more like $60, $65, but on average it’s around $55. But these guys can quickly turn it on. And that’s what they’ve done as prices go high. But remember they’ve seen a lot of depletion and not funny as much. It’s not as easy, right? I mean, these guys actually find oil at nearly 100% rate, which I think is incredible, because they’re going to Permian where this is a 100-year-old oil field and it’s all been drilled already and they’re able to see exactly where these pockets are.

But with that said, I’d be a little nervous about oil companies. At this level, if you’re gonna stick with them I like a company like Devon that’s selling its assets and using that to buy back its stock and increase their dividend and also have his exposure to, like, Delaware basin, which is you know, one of the prime areas where Anadarko is getting taken over and that fight between Oxy and Chevron right now. But I would be careful. I would definitely be taking profits in this industry. I think oil prices are gonna come down a little bit ahead of themselves right now.

In terms of the mining of resources, guys, that’s a very dangerous industry. And it’s one of the most shadiest industries. And, you know, I’m fortunate to be an insider in that and just the stories that you hear and the things and the CEOs and what they say and what they do, it’s a very shady industry. It’s very dangerous. You mentioned, Meb, how it’s basically a cyclical industry and it’s in the worst cyclical decline in the past 30, 40 years. And that’s not me talking. That’s guys like Rick Rule, Jeff Philips, guys who have been the industry all their lives, Eric Sprott, and you’re waiting for it to turn.

But one of the negatives is how the majors are kind of merging with each other, and when they’re merging with each other, they’re looking to divest assets. And when it comes to junior miners, it’s usually young entrepreneurs trying to basically stake a claim that they have no intention of developing it, right? They just wanna, “Hey, here’s what we have and we drilled a little bit more to show how, you know, the grades are higher and we’re not drilling that deep in terms of meters.” And this way, they could sell it to these majors. But the majors aren’t really buying these projects right now. They’re actually looking at Gold Corp with Newmont and saying, “Look what Gold Corp is trading. It’s trading, you know, at the lowest valuation in the last 15 years. Let’s just buy them and then sell off some of these non-core assets to improve our balance sheet.”

So when I look at you junior miners, you have to be careful only because I know, I mean, there’s not a lot of names that I like that industry but even the ones I like with great management teams, great projects, just in mine-friendly jurisdictions that also have enough cash and don’t have to raise cash, even those stocks are going down 30%, 40% it seems almost every year. I’d wait for the cycle to turn. Wait till you see some more positive, gold goes up above $1,300. It’s just a dangerous area right now and even the solid companies, which there’s not that many on the junior miner’s side, even those names are getting crushed. So I would probably stay with the Newmonts. I don’t know about Barrick, but Newmont’s one of our favorite in that industry. And you know, they really shored up the balance sheet over the past few years in a much better position, especially at the Gold Corp.

Meb: Part of the challenge of being a quant is you lose a little bit of the signal here. And a good example is as a prior hedge fund manager, you know, very specifically, there are certain CEOs or entrepreneurs or people that are just to put it technically scumbags. And on top of that are maybe just horrible capital destroyers that you could follow them around from penny stock to penny stock to even some legitimate companies where you can say, “Never in 1,000 years would I invest in that person.” And that is part of the struggle and challenge of being not an industry insider because it’s so easy to get sucked into the story. The biggest challenge for so many investors and me too, which is listening to that entertainment value. And it almost always sounds great/ You know, the old Chinese proverb, “Fish see the bait, but not the hook,” makes it pretty realistic in the world of natural resources.

Frank: But Meb, real quick to that point, if you don’t mind me, is quad as awesome because your emotions aren’t involved, right? You’re looking at numbers where even I had to learn that because in 2010, what did we see? And I mentioned this early as a theme, we’re putting emotions aside. A lot of us you know, I mean, the banks and, you know, during the credit crisis and moral hazard and you know, using our money and just using taxpayer money to get bailed out, nobody got arrested or anything. And it provided like this hate like, “Wow, this is gonna happen again,” and all these emotions.

And I remember listening to David Tepper when he got on TV. This is 2010. And he said, “The Fed’s lowering the rates. They’re backstopping everything bad in the entire industry, all the balance sheets, everything, they’re taking all the bad assets, Fannie, Freddie everything.” He goes, “You know what’s gonna go higher?” He goes, “Everything’s gonna go higher.” And I’ll never forget that because my emotions were involved. I worked on Wall Street at the time for Cramer. And when I heard that I’m like, “Wow, this guy’s is exactly right.” And you could tweet about it. You can get mad. You can get pissed off and say everything you want, but our job is just to provide you areas that you can make money in. And for me, that was a game changer saying, “You’re right. I mean, every asset’s gonna go much higher. There’s basically no risk. They are backstopping everything.” And putting those emotions aside is not easy to do, but it’s a lot easier to do when you’re quant right?

Meb: The funny thing you mentioned Tepper, he’s kind of I think the best example of a really flexible investor. When we wrote our old book, “Invest with the House,” which listeners is, of course, free to download on our website, Cambria investments, he was the single-best performing manager to clone and I think it was something like 20% per year, which is long only, which is pretty astonishing back to 2000. I mean, just an obscene track record. And the best part is you don’t have to pay the 2 and 20. I need to update what is holding these days I’m not sure but we’ll take a look at it in future episodes. But he runs Appaloosa and he now owns… What does he now own, the Panthers?

Frank: Yes, I think so. Yeah, he just bought the team. Yeah, I think it’s the Panthers. Yeah.

Meb: He’s a good dude. I wanna reserve some time. We’re almost halfway through. So I definitely wanna spend some time. We could talk about stocks for hours and hours and maybe we’ll have to have you back on to do it. But an area that I’ve been a sidelines spectator and cheerleader but I’ve never had any involvement in is the crypto space. And this is an area that we’ve talked about a little bit about on the podcast, but not a lot. And from someone who’s been a probably self-professed, long-time stock guy, I don’t wanna put words in your mouth, but talk to me a little bit about your introduction to the crypto world. And then also let’s get deep on turning you into a token.

Frank: Listen, the cryptocurrency market I was fascinated by. And the more I looked at some of these things in 2000…and especially 2018, but even 2017, I realized that what’s coming out in the market with ICOs are utility tokens meaning you’re not getting an equity stake in the business. A utility token just means you’re getting access to their products and services. So these guys are gonna build a website, right? They didn’t even build it yet. They’re gonna hire management team they didn’t even have. They’ve taken all your money. And once they have it up and running, you could use this token for certain benefits let’s say, for example, tZERO. So, tZERO, you can use that token and binance is a very popular token where you could use that and lower your trading fees or they even have places you could use it now for binance to travel and stuff like that.

There’s uses for it. So there’s value there. Think about Chuck E. Cheese or Dave & Buster’s, right? So you have a token and when you go to Dave & Buster’s, you could use it. If you go anyplace else, it’s worthless. If Dave & Buster’s opens up 20 places you could use it in those 20 places. That’s fine but you could only use it at Dave & Buster’s. Now, say Microsoft takes over Dave and Buster’s for $50 billion. Again, not gonna happen, just say hypothetically. You get nothing. You don’t own any equity in the company. You own nothing. You’re just holding those cards and you can say, “Well, I could use those tokens or cards.” That’s what the market was and it never made sense to me.

And then I started researching security tokens, which are now called digitalized tokens. So it’s not necessarily a token. It’s just a digitalized contract and it’s more like stocks. So with my industry, we realize it’s a high-growth industry few people know about because every company’s private. We have a big gorilla who’s amazing, I mean, almost the publisher of all business they own called Agora you’re familiar with as well, Meb. So when I saw how those divisions go from 5, 7,10 million into 100 million dollar-plus businesses inside of four or five years, the reason was is because they have this big gorilla backing them and saying, “Hey, you know what? If you find things, you could scale it. You can go into the hole for $1, $2 million perfectly fine.” That’s a nice luxury to have. We didn’t have that right? So we have a P&L.

So in order for us to compete, I wanted to raise money. And I’ve been doing this for a long time and I am fortunate to have a loyal following. And I couldn’t get a traditional private placement. But when I really research this and tokenization what we’re doing is we selling off 25% of our company and we’re looking to raise $12 million. We already raised $4.5 million. And now that gives us the money to really scale our promotions because… And it’s not, “Hey, we’re gonna use all this money for a Super Bowl commercial,” right? Now, it’s very calculated. We’re looking at ROI. We’re looking at return on ad spend. And if things click and those numbers are high based, safe, you know, ROI is 70% after one day and I don’t wanna get too technical, that means we can scale it. And what that means is if we have a popular promotion out, we’ll send it to… You know, it’s not just Yahoo Finance. We’ll go to CNBC. We’ll go to Fox Business. We’ll go to Newsmax if its political, or Fox, you know, whatever.

So now that we have that, we could better compete. And for me, the advantages was the costs were very, very little. We already have an established business that was doing $6 million in revenues in our first two years combined. And you get an equity stake in this. And we also intend, not to say intend, even though we will but I’d say we intend on paying a 3% yield on this. And it’s for accredited investors only.

But the biggest advantage for investors, one for us, the costs are low. We don’t have to go to investment banks and pay all these crazy fees. But we’re able to solve a part of our company. And for investors, I think that’s important because if we did a traditional product placement what’s your liquidity event? It’s either we get taken over or we do in IPO, and that averages about seven years your money’s gonna be locked up for.

Meb: Or by the way, not to interrupt, or nothing or you’re just stuck forever.

Frank: You’re stuck forever, which happens most of the time, right? You know what I mean.

Meb: Most of the time.

Frank: Yeah, whatever. So I won’t even get into like the technicals with that because, you know, that’s why when you deal with hedge funds they want assurances. And you’re gonna have to pay interest on some of this stuff for dividends on the way but for us, our token goes trading one year from now. Now, it’s gonna go free trading/ We’re looking to trade on tZERO who we’re in negotiations with, which is gonna be large security token exchange.

We launched it through a company called Securitize, which basically checks every single one of our customers just like a regular brokerage would do. So if you’re a pedophile and you go open an account a brokerage firm, they’re gonna have a red flag you and you’re gonna get arrested. You don’t know that but you will. So with this, they checked, it’s called Know Your Customer, KYC AML’s anti-laundering, making sure every customer is good. And then everyone who comes in has to show proof that they’re an accredited investor. A little bit extra step but we made it easier for everyone through our site, curzioequityowners.com. But for us now, every one of our clients is legit and our investors are legit, which allows us to go onto these exchanges, and even Coinbase is going to start trading security tokens as well.

But when I look at the bigger picture a year from now say if we don’t execute say, say if I totally dropped the ball, right, so a year from now, we’re gonna be reporting numbers every six months. You know, that’s not required. Every year it is so, you know, it’s a little relaxed. But I don’t think business should be reporting every three months anyway, I think it’s a waste of time. But say if we don’t execute in a year, a year and a half, now you can sell your token if we’re not doing a good job, you know. So it’s good for investors [inaudible 00:35:30] if you want. Of course, we want you to hold it just like you’d hold something from Warren Buffett for 20, 30 years and watch us grow the business.

But it’s a big advantage to investors. It’s a big advantage to us in terms of costs, and it just made sense. And now, we were really early to the party. I want to say one of the first to do this. And we have a lot of excitement. I must have had more than over a dozen businesses come to me, $2 billion businesses, that wanna raise money doing this because they’re sick of paying fees to institutions, which look. Goldman Sachs and Morgan Stanley are great companies, brilliant, but at the end, a lot of their business is generated just by being a middleman, right? “Hey, we know a lot of people who are rich. You’ve got a coin offering. Okay, here. You guys could meet. Pay me 6% even. You’re gonna give me 6% of shares outstanding,” whatever the deal is. You avoid a lot of that.

So we’re seeing record amount of STOs launched last quarter. It is nerve-racking because it’s new to the market, which means what, man? That means I could look like an idiot or genius, I don’t know which one yet. But it’s something that we’re proud of because we really…we raised money. We’re excited. Now, you know, and our company’s really growing, our list is growing, and we’re in a good position. It’s cool in terms of doing something original. And now the biggest thing going forward is liquidity. We wanna make sure tZERO is gonna launch it. They’ve already launched that platform, another company called Open Finance. These are security-compliant companies, secured exchanges that we’re gonna be launching on and that’s gonna increase as more companies come out. We’re gonna see more and more volume and the liquidity increase and that’s one of the risks is the liquidity part. And right now what we see is we’re probably gonna have pretty good liquidity if we get on these exchanges, which we’re negotiating with them right now.

Meb: All right, a lot of questions. And you know, this is interesting personally, for me, as well, because we did a private placement a few years ago. I think the only asset management company that I’ve ever known that have done a crowd fundraise, again, also accredited only where we raised about 3 million bucks but did it through just kind of our audience. Also avoided the banks because I didn’t want to charge people an extra 5%, 8% fee,10%, and some banks or carry, which is what most of the online platforms will charge.

But hearing a lot of what you talked about today is interesting, particularly the liquidity part, because talk to me a little bit about what that probably means in reality. Is it kind of like these private brokerages like we’ve had equities in on and chairs posts that do kind of late-stage private for like Uber or Lyft before it went public where they try to match up? How would the trading actually work? So, let’s say I invest and two years from now I’m like, “All right, my investments doubled, tripled, gone down by half. Whatever it has, I wanna be able to sell some.” What does that actually mean for those listening? It’s not as easy as obviously going on E-Trade and just clicking sell. What does the market look like for this sort of structure?

Frank: That’s the goal. And for me, I wanted to make sure… Listen. Just like you when you go into your clients, you know, I had a good feeling we would raise money, but, you know, that’s just the beginning for us, right? My name is on the door. I wanna make sure like the liquidity part, what happens after this, how we go into the market. So it’s a great question. The goal of these exchanges is they wanna become the E-Trades and make it easier. So one of the things with the ICL market where you would have an address, so say if you go on Coinbase, and you wanna deposit money to Coinbase, you could do that through your bank account, right? Stock trades on an exchange like binance and not on Coinbase because Coinbase only trades a few different securities.

What you would do is you have to transfer your money into binance. And if anything happens, if they get lost or don’t get it, you lose your money, which is insane. But now with these new exchanges, since every client…we know every single client if you lose them we could burn those tokens and issue the new ones, which is a big deal. That’s the first thing.

The second thing is you have to go to tZERO, open up an account, and you’re gonna see a lot of names. Just picture the NASDAQ just opening, right? So you’re gonna see more and more companies more, more companies get added to this. And as they do, you’re gonna see more and more investors. There’s institutions coming in where NASDAQ just announced that they’re launching their own scary token exchange and it’s called Bot. You see a lot of institutions get involved in this. I know a lot of guys who are leaving Goldman Sachs, Morgan Stanley that are going all-in in this industry. You’re seeing a lot of tokenization. But, you know, getting back to that question is, what’s easier is gonna do is you’re gonna have to sign up an account, sign for an account. You don’t have to be an accredited investor, only if you’re going to trade STOs.

So our lockup period for everyone is one year, no matter what, and then we go free trading. Everyone’s one year. In order to invest in this stage, you have to be an accredited investor. Our minimum is $25,000. After that and it goes free trading now anybody could buy the token. And that’s where we wanna try to provide liquidity where you’re gonna see more people coming to these, as long as you have really good issues coming out. And ours I like to say is structured well because I’m not looking for, you know, a quick payout in one year. This is… Again, my name’s on the door. This is something I’ve been doing all my life. I wanna do it for 20, 30 years and build a company.

I think you’re gonna see a lot more… I’ve been seeing a lot more security tokens come out where they’re given an equity stake. You know, you’re getting an actual equity stake. Some of these things are paying a dividend. And that’s what you wanna see. But more and more people… As I started to say, once you have an account there and you have your tokens, so say…say this, Meb. If you invested say, “All right, Frank. I wanna come in $100,000,” a month before we’re free trading, that’s when we’re gonna send the tokens out to you. And those tokens, you could register at tZERO Open Finance and as soon as it comes public, you could basically sell them. So there’s gonna be market makers. There’s gonna be matching orders. But you’re not gonna see liquidity, obviously, that you’ve seen a NASDAQ that’s gonna come. We’re still early to it and that’s one of the biggest drawbacks from institutions.

But now that we’re seeing regulation, more regulation coming to the industry, which we really want, you’re gonna see more institutions because it’s different for you and I, right? We wanna do it personally, but they have a fiduciary responsibility. They’re managing other people’s money. They have to make sure that they dot every I, cross every T, and all the regulations are there. And that’s what’s coming with these exchanges now where you have to be KYC AML-compliant, show that you’re an accredited investor. And once you go onto these exchanges, that’s when you’ll be able to trade your tokens.

Meb: It’s interesting, and I think it’s a really important distinction that you mentioned between the initial coin offering versus the digitized tokens because the initial coin offering listeners, it’s very similar to the old-school specs, which were popular in the last cycle. And then you have to go back a few decades, which were special purpose acquisition companies where a company would raise a billion dollars and then go look for someone to acquire. And so a lot of these ICOs have no business, have no revenues. They may have a couple of people. I mean, that’s why probably most of them have vaporized most investors’ money. This is a little different than you’re actually investing in a functional company that already has product and revenue, which is, in my mind, totally different.

It seems like, by the way, an obvious and I know you hinted about it and I don’t know if you’re moving this way or not, but an obvious opportunity for you as well to assist other companies with guiding them to their own fundraisers as well. Is that something you’re thinking about?

Frank: Yeah, we’re thinking about that too, a lot of different things in this industry, because I really believe… You know, I’m gonna say this and it’s gonna sound crazy when I say it, but let me define it. And I’ve said this publicly that this will be a trillion dollar industry and people say, “No way.” But if you’re looking at real estate itself is a $200 trillion industry. I mean, you can go into so many different industries and get up to hundreds of trillions more but if you just have 1% of that tokenized… And what tokenization is, is just selling a piece of your business to the public, just like you would do [inaudible 00:42:33]. They tokenized 30% of that asset.

What does that mean? It means that they sold, whatever, one point, whatever million. So individual investors were able to own a piece of that painting [inaudible 00:42:45] but now that [inaudible 00:42:47] exchange and that’s how you determine the value. So now, it gives you a chance to own a Babe Ruth rookie card or a piece of it. It gives you a chance to earn a piece of commercial real estate. It gives you a chance, you know, which in liquid markets, collectibles, so you’re seeing that. St. Regis Aspen just tokenized their hotel, a certain percentage of their hotel, where you’re selling off a piece of their assets. It’s getting bigger and bigger.

It just… You know, Meb like you said with consulting and stuff and been through this whole thing, you know, you’re talking about 15, 16-hour days. it was crazy. It was definitely worth it but just learning and all the mistakes because you’re brand new to the industry. It’s incredible how far it’s come over the past six months as we launched ours where it just makes… I can’t find a reason why this won’t be a massive industry and why it wouldn’t compete. It’s not like you’re gonna go to tZERO instead of going to NASDAQ and going to the New York Stock Exchange to launch your companies. But it gives you an opportunity to really own small businesses and get it on the ground floor, right?

And, Meb, if you look at the market today you really wanna buy Lyft at these prices? You wanna buy Alibaba? You wanna buy Facebook when it came out. I mean, most of the growth… You look at Lyft. These guys are in the money on their options in restricted stock units at $10, $11. I mean, six months, that stuff’s gonna come out. So they got in a lot earlier. You’re buying a company at multi, what, twenty billion dollars-plus valuations. A lot of that growth has taken place already. With this, you get really in. It’s gonna be a little bit more risky but you’re really getting the ground floor and buying these things at very early levels. And I think that’s gonna… You know, people are gonna love this market. The fees are much less. But there is liquidity issues, and you gonna have to see more and more of these comes to the market. But from someone who’s studied the markets for over two decades, I just can’t find a reason why this isn’t working. Just, it’s like Uber, it just makes sense. If you took an Uber or Lyft, you wouldn’t really take a taxi anymore. It’s cheaper. It’s easy. You don’t have to take out money. It’s safer. This industry just make sense to me.

Meb: Frank, that was a little too close to home listening that I’m a Lyft shareholder who’s locked up. So it’s a good problem to have because I own some but I hear you. I’m…believe me if I could I would be liquidating. You know, it’s funny because we had Howard Lindzen on the podcast a while back and he was talking about a company he’d invested in called Rally Road, which is essentially securitizing collectible cars. And sometimes I don’t necessarily get it and I fully admit that and I said, “Why would people wanna invest in these cars if they can’t drive them, they can’t do anything with them?” And sure enough, that company has been incredibly successful.

And there’s a lot of other ideas that spawn from that that might not be… There was a good podcast listeners… We’ll put in the show note links, between the Rally Road founders and another podcast guest, Jason Calacanis, where they talked about other ideas like where they’re gonna take the cars and turn them into museums. So essentially, you’re generating income from these collectibles, which I had never even considered. So there’s a lot going on in that world.

And I think it’s certainly fascinating. And the advice I would give, which is what you’re doing, is to certainly try to invest in companies that are real. Investing in ideas is fun and exciting but often, there’s no there to there. And so looking at companies and offerings where there’s actually over a million in revenue is certainly a pretty good way of increasing your batting average of companies that potentially could succeed.

Frank: And management teams too, Meb, because you’re looking at these kids that come up with great ideas but they never managed a company before. And they’re spending 50 grand here, 100 grand here, like nothing. They don’t… It’s not their fault. We’re all optimistic. And it’s amazing because the technologies may look good using the Blockchain. But, you know, when you’re looking at some of these, you wanna make sure that the business is established, you have a good management team, they are generating revenues. There’s got to be some kind of growth profile that you see.

And you mentioned something really quick where the debt markets is where this thing is really, really gonna take off because the debt markets are more of an illiquid market and that’s where you’re looking at the investment banking industry. That’s where they generate the most fees. And I’ve talked to… Fortunate enough, he’s kind of a mentor now. He’s listened to podcasts for five years. He’s one of the largest independent bond fund managers and he manages $16 billion. And he wants to tokenize…you know, he wants to create a fund for $1 billion and tokenize it because…and this is the guy that never curses, never gets mad. And he was just like, he went on this whole rant, how the amount of fees that they charge for doing absolutely nothing, these investment banks, are a joke and they’re trying to avoid that.

And there’s a reason why you’re seeing Goldman, Fidelity, a lot of these guys are looking to get into tokenization because if this thing takes off, it really is a threat to their business and we haven’t really seen too many threats in too many disruptive technologies, right? In the investment banking industry for decades, if not 100 years, where it’s always been one way and it’s just something that I think they’re gonna have to get into and they are getting into.

Meb: And it’s an industry that has some of the highest profit margins of any industry on the planet. And on top of that, it’s crazy as you look around. Just anyplace there’s enormous fat, you know, the old Bezos quote, “Your margin is my opportunity,” is sort of astonishing that these banks still are able to command a lot of that and you think of the IPO market and you think of, obviously, the most obvious for most individuals on a day-to-day basis is, of course, real estate. The [inaudible 00:47:39] you have to pay and buying and selling houses is still bananas. So let’s say people wanna get up to speed on this space. A, where do they find out more about your offering? B, are there any other resources you recommend, websites, books, conferences, newsletters, anything on the general token space?

Frank: Yeah, and thanks. I appreciate that, Meb. So curzioequityonwers.com is where you can find our whitepaper, our PPM agreements. It’s gonna give you our cap table. It lists everything. If anyone’s interested in investing, they can reach out through e-mail. We also have an easy-to-use guide. It shows you exactly how to invest in this. And if you’re interested or have any other questions, I talk to almost every investor in the company. I’ve turned away investors because, you know, guys are just… You know, we’re very upfront with people in this industry. So, you know, I don’t want to…it’s not a sales call. It’s you asking any question you want and me sitting there answering them because, you know, when you have a legit deal and you’re excited about something and it’s really cool that’s the easiest way to do it.

But forget about it because this isn’t gonna be, you know, some of you aren’t accredited investors out there. And some of you might say, “You know what, Frank? I don’t know about this business. I don’t like it.” We created a site called Token Tracker. You can find it. We encourage career research. I would go on there because what we do is we are just taking stories from the top token sites, security token sites, not the utility tokens. And you’d be amazed at the news that’s coming out and we pull these from different sources and cite them. And you might find a site off of there that’s pretty cool, but it will lead you to start learning about this industry. It’s still very early. It’s kind of like investing in cloud 10 years ago when people didn’t know. We took days to look up in the sky and be like,” Cloud? What’s the cloud?” Now everybody knows the cloud is.

I’m pretty sure that’s what you’re gonna see with this industry so just get familiar with it. Just learn about it, not so much what you have to invest and everything, but start learning about it. And you’ll see why when you read a lot of these stories and why institutions are getting into it and, you know, record STOs are being launched the right way where you’re getting an equity stake in our business. So if we get taken over, you’re gonna get paid just like you would if you invested in a stock. You’ll find a lot of great information on the Token Tracker site. And, you know, it’s gotten good reviews. It’s very easy to read. And we just provide like really cool stories every week, what’s going on the industry, probably 5 to 10 different stories. So that’s a good place to start.

Meb: What’s the minimum for yours?

Frank: Our minimum is 25,000. And what you get is an equity stake in our business. We intend to pay a 3% yield on that. And also you’re gonna have free access to all of our products now, which we have five paid products and I think another five or six free. And every product we offer in the future with no maintenance fees or nothing. And when I look at our competitors, a lot of our competitors charged $20,000, $30,000 just for that service alone. You’re getting all that. Plus, it’s I wanna say the first time in our industry’s history where you’re getting an equity stake in a financial newsletter publisher, which you can’t do anyplace else.

And, you know, when you really see the margins, and I know you know them as well, of how big Agore is, which is an amazing company run by Bill Bonner, and even Porter Stansberry has a division of that and how these companies have grown into $200 million plus revenue businesses, you could see how big the margins are and how quick this industry could scale if you do the right thing. And the fact that we raised money, we’re in a position to really accelerate that. Again, we have to execute. There’s a lot of risk but we’re in a good position where, you know, it’s nice where it’s on us. I love that position because that’s not always the case when you open a business. It’s up to us if we execute, then this thing can get big. If we don’t then at least you can sell out of token pretty quickly.

Meb: As we wind down, I love it, this has been actually really educational and interesting. I’m fascinated by this world. I was kind of a crypto hater for years mainly because I love teasing my crypto friends. The very first comment you made about Chucky E. Cheese and Dave & Buster’s was funny because I used to always… When I would go on a long international flight, I would poke my crypto friends by saying, “I’m getting ready to mine the crap out of some cryptocurrency by taking a flight to London and getting a bunch of the Delta SkyMiles,” which has it was the original cryptocurrency was frequent flyer miles and I said at least I could buy something with it as opposed to some of the coins. But it’s a fascinating world to me and this is finally becoming interesting.

Frank: And Meb, real quick too, this isn’t about Bitcoin and ethereum, guys. I mean, you see Bitcoin going higher. This is about companies. This is totally different. I mean, that’s the ICO market. This market is about more like a stock exchange of people selling off pieces of their company to you and you’re able to buy them but this has to do more with the company. If our company accelerates our token should go higher. It is a ethereum-based token, but it’s not based on where ethereum is gonna go, where Bitcoin is gonna go. That’s more the ICO market. This is a big change. This is gonna be more like a stock market. And, you know, it’s hard for us to tell people and teach people to distinguish between those two markets because people got burned in the stock market that crashed but it’s totally different from Bitcoin and ethereum markets.

Meb: Yeah. Then I’ve said on Twitter I said I 100 times out of 100, I’d rather invest in a basket of kick-ass founders with real companies that have the potential to go 10, 100X than speculate on a currency where there’s no underlying business that is behind the concept. A couple more quick questions, and we’ll wind down. As a big boots-on-the-ground guy, I know you hit up a lot of conferences, New Orleans, Vancouver, CES. What’s your favorite? And do you have one that you think offers the most sort of bang for the buck value on attending?

Frank: I like the CES but if you’re gonna go to the Consumer Electronics Show, it’s held every year in January like the first, second week. I’ve been going for I think it’s eight years now. For me, I have a formula. I have contacts. It’s overwhelming because there’s over 4,000 companies there. If you’re not familiar, it’s where all the technologies go to tell you what products are gonna launch for that year. So it’s really exciting and you have all these companies now, all the networks covering it, but you really wanna dig deep in there. And, you know, even if you take like an executive tour, they tell you because out of 4,000 companies there should be probably about 800 there. There’s no business with that many companies. And it gets overwhelming. There’s drones. There’s robots but for me, it’s talking to the employees in there and they’re just regular employees that have been the company for maybe 10, 15 years and not on the executive level. And, I mean, the things I found out… I was there when Chambers said Internet of Everything and tens of billions of devices are going to get connected. I thought it was crazy, right? It turns out to be conservative.

You’re looking at just different markets develop. I’m able to see different things. Like iRobot just reported and they said that they’re raising prices on… You know, their biggest growth driver 2019 is gonna be their new Roomba. I want to say, yes, there’s at least 10 companies that produce the same product, which means they don’t have proprietary technology. They probably have patents on it, but obviously, people can make other machines. And the ones that I saw will climb in the walls and cleaning windows on the outside. So you’re telling me you’re going to raise prices on this product when I don’t know if you have pricing power and then, you know, your margins are lower, even though you said you raised prices and that’s why you saw stock went down 20% when they reported it.

Those things I’m able to see at the Consumer Electronics Show, what technologies are working and how 3D printing never really got adopted. They had a massive space for it. Now it’s much smaller. You’re looking at wearables. There’s no difference between these wearables. Tat’s why you look at Fitbit, even GoPro. There’s millions of cameras that do the same thing 360 degree. They have websites and everything. So you’re able to see a lot of trends before they happen and able to avoid a lot of the pitfalls you see with technology, especially if you don’t have your IP locked up, you know, in patents and stuff like that. So that’s a fun conference to go to.

Meb: What was the biggest wow moment from this year’s show?

Frank: This year is when a ping pong robot kicked my ass. That was the biggest thing. I played an actual robot. And it was serving. You could put on a different level where they’re slamming and stuff. I couldn’t believe it and it was really cool. I got a video of it. That was awesome. But AI is a big feature. It’s tough to invest in AI because, you know, the private companies get bought right away. And it’s not like a pure play anywhere for AI but data analytics is big.

But I can tell you one big thing that was amazing. The last two years when you had virtual systems like the Alexis and Google Homes and even Apple, all three of them were on display. This year, it was just Alexa. Alexa was everywhere. They didn’t have Google. They didn’t have a lot of these companies and everything, everything, was integrating with Alexa, every single business, everything. If you’re looking at Honeywell was there. Procter and Gamble. Everything was revolved around Alexa and working with Alexa. And you didn’t see any of the other devices there, which was surprising to me but it just shows you how amazing and how innovative Amazon is.

Meb: Interesting. Last question. Looking back on your career, so there’s a lot of things to choose from. what’s been your most memorable investment? It could be good, it could be bad, just the one that sticks burning in your brain.

Frank: The one good investment I’m gonna say is not mine, but my late dad was amazing at spotting value and two of the companies he recommended was Churchill Downs and this thing in very low areas. And now it’s booming. He saw racinos where you put casinos at these racetracks. But more important is in the single digits, he recommended a company called Texas Pacific Land Trust, and a friend of ours actually recommended it probably about seven, eight years ago, Steve Sjuggerud. And I showed him my dad’s research and he went to Texas and went to that. My mom still owns it today. And it’s just a land holding in Texas, the largest land holding maybe in the United States, and they receive royalty rights on their property and oil and stuff like that in West Texas.

And the stock went from low single digits and my mom still holds it and it sits around $900 today, so that’s amazing, but that’s the one positive I would say. But most of my investments I focus on is the ones that I make mistakes on because that’s when you learn the most. So, you know, you don’t wanna go all in and everything. You wanna limit your losses, but that’s when you have the biggest lessons and when you lose money. Unfortunately, you know, I’ve had them, of course, like everybody else and you just wanna be able to learn and figure out what you did wrong and those are my biggest memories actually on my losses much more than my wins.

Meb: All right. Well, what’s your most memorable loss then. You set that one up too easy. What…

Frank: You know, what it was it was GE recently. So GE, I was looking at the value of it. I analyzed all these divisions, probably about $14, $15. I actually recommend it to my subscribers. And our policy is we’re allowed to invest a day later into our situations, which, you know, this way we do our own cooking and stuff, which is really cool. I just was a big believer in what Immelt was saying and not really Immelt, but even after that, I was a big believer they are gonna generate at least $2 earnings. I discounted that by 25% and it turned out they generated less than $1 in earnings.

And there was so much wrong under the hood. I really thought the kitchen sink was in and then when they started reporting insurance losses and all these other losses as I went through every division, I realized that I put too much faith in, “Hey, I looked at the estimates. I discounted them I still thought you’re looking at Dow components. They always get crushed and they always come back.” And this is one that actually got kicked out of the Dow but that was one that hurt because I was pretty high on it. And that one blew up in my face so…

Meb: Yeah, that’s…you know, it’s funny because we talked so much about how personal experience informs every investor and in different cycles. You talked to Japanese investors or Russian or Brazilian or Greek but everyone, even U.S. investors over time, the people that were forever scarred by 2008 that never invested again. We talked to those investors, if not weekly, almost daily, but also the people… My mom was a big GE investor back in the day and said, “You buy stocks and you hold them.” Well, of course, you buy and hold them like the Texas example you get when they go up 100 bagger, whatever it is. But you see the flip side too. creative destruction and capitalism that’s pretty rare for securities to survive and GE is certainly a good example of both sides of that trade and investment. I think we mentioned, Frank, we’ll add it to the show notes, best places for people, if they wanna get in touch with you and they wanna learn more where do they go?

Frank: You go to curzioaresearch.com. My e-mail is also frank@curzio.com. I do “Wall Street Unplugged” podcast Wednesday where, you know, I hosted you a couple of times as well. And then on Friday, I would do something I call Frankly Speaking where I just take questions about stocks and, you know, I’ll take three questions and answer them have fun with it and but that’s the best place to reach me, the “Wall Street Unplugged.” My e-mail is just frankcurzio.com or just go to our website @curzioresearch.com and you can find everything you need. And thanks, I appreciate that, Meb.

Meb: Frank, it’s been a lot of fun to chat with you today. Thanks for taking the time out.

Frank: Thank you. Thanks for the invite, and I love what you guys are doing. Meb, I really appreciate it and thank you.

Meb: Listeners, we’ll add all the links to the show notes of all Frank’s goings ons. You can find them at mebfaber.com/podcast. You can always leave us a review. We’re right around 500. I wanna see who the 500th review is. We will read it on air, good, bad, in between. Subscribe to the show on iTunes podcast, Stitcher, RadioPublic, Breaker, anywhere good podcasts are sold. Thanks for listening, friends, and good investing.