With Enrique Abeyta, Empire Financial Research
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge a prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. guests were not compensated for the appearance, nor do they supply payment in order to appear. Individuals on this podcast may hold positions in the securities that are discussed. Listeners are urged to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E. Baker.
Nathaniel E. Baker 2:48
Enrique Abeyta, editor at Empire Fnancial Research, which is a publication house put together by Whitney Tilson last year, if I’m not I’m mistaken. But you have a lot of experience in investing, including managing your own hedge fund. And you have a lot of views that are quite outspoken and in many ways quite contrarian, which is why I wanted to have you on the podcast. And so thank you for having for taking the time. So I’m not sure where we should start because we did a previous call and I learned that you are very contrarian on a wide range of issues. So maybe let’s try this. What do you think is the market getting the most wrong at this time?
Enrique Abeyta 3:36
Thanks for that Nathaniel. yeah. And you know, I want to start with one thing. I’m not really into contrarians for contrarian sake.
Nathaniel E. Baker 3:45
Enrique Abeyta 3:45
I think that 95% of the time, the market gets it right. And in fact, I’ve made just as much if not more money agreeing with the crowd than I have going against the crowd. And I’ll tell you, it’s been a much more pleasurable experience making that money. So, you know, I’m not a person that you know, wants to be contrarian by nature. But you know, I think I’ve benefited, you know, I’m calling you here from Arizona, I grew up my you know, I’m a Mexican/Uruguayan Jew who grew up poor in Arizona. And so I think that because I sort of wasn’t surrounded by a lot of traditional structures, it’s given me an ability to kind of step up to stuff and look at it with an I don’t want to say an outsider’s view. But I’ve just never felt particularly constrained by the consensus. So you know, what you and I were discussing the other week is, I think that right now, I see one of the biggest, if not the biggest disconnect in popular political and economic analysis that maybe I’ve seen in my entire career. And that’s about what is the actual situation with COVID in the United States.
Now, I want to make another comment to set the set the plate, when I say my entire career — Look, things change, you know, when I say, ‘Oh my gosh, I know for companies that have a trillion dollar market cap, I’ve never seen that my entire career.’ That’s just a fact of evolution and what happens in the markets. So I think that the reason we’re seeing these disconnects now is because of the evolution of media, traditional media, and social media, which is something that we spoke about, and maybe we’ll talk about in a little bit, but it’s setting up this massive disconnect and the disconnect is simple. The United States has actually done a very good job fighting COVID whether that is a active or inactive effort, the results are coming out pretty darn good. And I also believe that we are on the precipice of COVID almost being over or functionally as a major impact on society mortality, etc. You know, if we were to put it in baseball terms, we’re in the seventh inning. And you know, right now when you look at the news, you know, it really went when we went through the cycle in February it was like what’s going on in March and April, it was full on panic in May, in June, it was like, Okay, it looks like we survived that. And then now in June, July, it’s, you know, full on panic, the markets aren’t panicking.
The disconnect comes down to a lot of math. To be honest, you know, I think that the, the, when you think about the setup here, let’s make it very simple Coronavirus is a novel disease that no one on earth had. So let’s say whatever your start date November, January, I’m not you know, it’s not interesting to me that debate. No one had it. So then it started in some places. It hits some places early that had high blood population density and you know, perhaps older populations, no one was prepared for it whatsoever. And it’s spread like wildfire on mostly Europe and the Northeast. I would also say, I don’t really believe the China numbers. I don’t think anyone should. But you know, let’s say that there was a, there was a dozen areas, those areas had some very negative outcomes for metallic mortality, because we knew nothing about it, rolling people over on their stomachs and like, you know, just all these these treatments that, you know, again, that we literally did, and we, at some point, I, although I don’t think he will, but someone has to take responsibility for this Cuomo, you know, we took sick people and put them in nursing homes, like, you know, again, I’m not actually that angry about it, because this was all happening so quick. And you know, we know nothing about this, but the world was no one had it. A bunch of geographies got it. All of a sudden it spread like wildfire. When that happened in April, March and April, the rest of the world shut down in a way that none of us could have ever imagined or anything like that. And you get on here in Arizona. So it’s a really good, good example. And then what happened was those areas didn’t get it. We had no spread whatsoever, or like for all intents and purposes, through May, Florida, Arizona, Texas had no Corona virus. In fact, you could see, there were articles talking about Florida saying, ‘Oh, my gosh, it’s amazing. All these spring breakers.’ People were saying back in March, it’s going to split from Florida to Florida like wildfire, when in fact it didn’t. But after that, once we got to this reopening, what happened is it then those geographies opened up and all of a sudden they spread just the same way that New York and Europe did. The only difference being is that mortality has been a fraction of what it has been in, in the northeast and Europe.
So when you really think about it, there’s there’s a disconnect here. When you look at the United States numbers and saying, ‘Oh, we don’t have it under control.’ You’re looking at the United States as a whole, remember, the United States is basically Europe. So the better way to say it is think of New York as the UK, Italy, France, and think of Arizona as Croatia. So when you look at the numbers in aggregate, everyone says, well, it’s out of control. Well, it’s not actually everywhere in the world that has been hit early, reached a certain amount of antibody prevalence or just exposure. We don’t actually know what that level of exposure is, right? We don’t have precise testing. But when you look at Italy, and France and the UK and Sweden and all these countries, some of them locked down a lot, some of them locked down a little, some of them did all these flavors. Every single one of them got two months in and cases and mortalities collapsed. It doesn’t matter, the culture, the ethnography, the demography, like you know, all of it. So what I’m arguing is going to happen here is that’s — Oh, by the way, this is also what’s happening in New York. You know, people aren’t trusting Trump, you know, are not mentioning that in New York and Sweden, there have been several deaths several days in the last few weeks where there have been zero deaths. You know, so if Sweden’s failed, and I guess I look forward to Arizona failing in a similar way where we have zero deaths, two months in, but what I think is going to happen and we’ve already begun to see the evidence and hospitalizations and in the ICU, because that’s one thing, you know, that all the case numbers are all bullsh*t right? The some some things that people don’t talk about, the US has the highest test per capita of anywhere in the world. I was literally just looking at a chart. I’m going to pull the chart up here. This is from Johns Hopkins. We’re at 175 tests per 100,000. Okay, Australia is at 100, Norway is at 40, Italy’s at 50. So cases don’t really tell you anything. deaths on a daily basis don’t even really tell you anything because what’s happening is there’s classifications of deaths and timing hospitalizations and I see tell you a lot. And this has been the best leading indicator.
But basically the giant disconnect here is that everywhere in the world that has gone through what Arizona, Florida, Texas, I mean, are they are they’re calling them I guess, fact, Florida, Arizona, California, Texas are going through, has gotten to the point right about where we are now. Then cases fall and deaths fall, and then they stay down. And and you know, this also gets to this concept of a second wave. You read about the Spanish Flu of 1918. What you got to be careful, man, it’s 1918. We don’t have data. We don’t know what the antibody prevalence is. We don’t we barely know anything. But you know, in in 1918, they talk about how in March, April, May, there was the first wave, but remember that society moved a lot slower. There were trains that were no planes there were barely automobiles. So the first wave basically was a an outbreak in relatively small geographies. The second wave Wasn’t that we had geographies that had a big outbreak in March, April of that year, and then had a bigger outbreak in September. It was that they had no outbreak in March, April, and then had a huge outbreak in September. So I think this whole first wave, second wave, third wave idea, really is missing the point. It’s all about rolling first waves. And this is my whole mathematical point. What’s happening in the United States was, we had a big first wave and a limited geography, everyone else shut down so that they wouldn’t be impacted. Then that played through that geography. Everyone else opened up, and now they’re having their first wave with with a much better outcome than New York numbers. New York, New Jersey, Connecticut numbers of mortalities are terrible, more times worse than anywhere else on the planet. And now what’s going to happen is we’re going to act like everywhere else in the world. So what does that mean? I’m gonna tell you something crazy, I think in six weeks, you know, we’re looking at right now. between four 500 and 1000 daily deaths. And again, the data is a little weird. I think that number will be 50 to 100 and maybe less than 50 within six weeks. And I don’t think it’s really going back up. I think you might see a tick up to 125. One day, but I think the war on COVID is almost over, to be honest. And the ramifications for that are manifold.
Nathaniel E. Baker 13:22
Yeah, we’ll talk about that in a minute. But I want to challenge you on this just just a tiny bit. You talked about the disconnect between in media between reality and what’s being blurred in the headlines. And by the way, as an editor, formerly at news organizations, myself, I know quite a bit about that. And, you know, this whole world of clickbait and things like that. So let’s say assuming everything that you say is true, and I’m not in a position challenger, what do I know about this? But, um, well, isn’t it possible that the media would continue to, for whatever reason — get clicks, basically — just keep pitching the narrative that ‘this is bad, it’s getting worse. And we need to shut down and stay inside.’ And more importantly, won’t what if like the government bodies? Probably not the Federal one with the current president, but if you look at states like you mentioned, Texas, Texas just closed down again recently as a result of the increase in cases. So what if the narrative that then takes hold is then believed by the government authorities that then go into impose more lockdowns?
Enrique Abeyta 14:40
So we’ll we’ll take that in two pieces. Um, do I think that the press will ever acknowledge, you know, the fact that they’ve been so wrong? Absolutely not. They’re not in the business of being right there in the business of driving engagement. So and we you and I spoke about the evolution of monitor media and how, you know, living in the center and being objective is not a good economic model. And you know, we maybe touch on that. But I don’t think the press is going to change. Although I will tell you I tweeted this morning, you know, an article from the New York Times my wife actually highlighted she’s on distribution and the Hold on, I’m pulling it up here. The article basically had a quote, that said, the virus has still been deadly or in several European countries than in the US after adjusting for population. And I was joking that if I have the physical newspaper in my hands, it probably would have spontaneously combusted right after I read it. So I do think they’re coming around. But in terms of the government, I’m not worried about at all. I’ll tell you why. Look at New York. Okay, New York is exactly where I think Arizona will be. And we have the most progressive kind of environment and all that, and the New York Times, which has very little to do with New York at this point, and they’re basically opening up so I think when you get to a point where deaths are de minimis, everyone’s going to open up so I’m not at all really worried about about about that as an outcome.
Nathaniel E. Baker 16:06
Okay, fair enough. All right. So then what is this say then for the, you know, as an investor, I mean, the obvious play here is to pile back into retail stocks, I would assume and anything yeah.
Enrique Abeyta 16:17
I think you know, I in the newsletter I, I came up with something about a 10 weeks ago that if it doesn’t go bankrupt, it goes to new highs. And, you know, my my view was, find areas of the economy where you can find companies that have solid balance sheets, but have been maximum impacted by Coronavirus. And if you can find a company that you’re confident that if they had no revenues, they would stay in business for two years, then that’s the kind of thing and many of those are still down 30%, 40% that’s the kind of thing you would want to want to own, you know, without getting into specific stocks, because we have an investment newsletter and so we’re careful To give those away, um, you know, I would look at the fitness area, um, you know, gyms, movie theaters, you know, areas like that, I would be more careful around areas like airlines and cruise ships, etc, not because I don’t think they come back, it’s just a question of that, could you go two years, you know, without going bankrupt?
But I gotta tell you, I don’t think it’s gonna matter at all. Because the bigger setup here is if — and I’m saying “if” here, man like I’m not saying that we know this for sure, but I think there’s pretty strong evidence — if I’m right. and deaths are sub 100 continuously through from September on, when you combine it with the trillions of dollars of liquidity that are washing through the economy, both fiscal and monetary. I think you’re going to see a 1999 type melt up in the market. So to be honest, as a fundamental investor, I think you want to look for these setups where you take these sort of things Maximum pain point companies like movie theaters, if you can find one that’s not going to go, you know, that has a great balance sheet. But to be honest, as a trader, you just buy options on airlines man, like, you know, and I think that’s actually that’s actually a really interesting way to play this is buy, you know, November December options on airlines where you can limit your capital at risk, but you’ve got, you know, obviously with an option 100% of your capital is at risk, but you’ve got the benefit of leverage. So, but yeah, I and I honestly believe that we are in front of something that looks a lot like the 9899 time period. And you know, to give you that analogy, I was a portfolio manager, became a portfolio manager first 96/97 you know, 97 we saw the Asia crisis out of the Thai baht and a whole bunch of stuff there. Eventually that drove long term capital that high leveraged hedge fund and again, I say that because I’m, I’m old enough to long term feels like yesterday, I was probably there might be saying 30 year olds like what the hell is long term capital. But, but then the Fed stepped in with a massive amount of liquidity to basically buttress the markets. But then and this will really blow your mind. Because of y2k, they kept the liquidity high, because that was a thing back then. So you took this liquidity on top of what was fundamentally a sound economy where there was an exogenous event, you did it around the time that you had a technology of, you know, evolution slash revolution.
I think today’s themes are going to be EV — electric vehicles, AV autonomous vehicles, online gambling, you know, these things, and you created this giant cocktail, that from the time of the bottom of the market from long term, which is, you know, October, August or September of 1998. to March of 2001. The Nasdaq was up almost 200%. You know, that’s, that’s 16-18 months. I gotta tell you, I think we’re sitting on something like that, and so far the NASDAQ is up 30 or 40. So You know, do I think that we could see in 2021 Tesla 3000? And, and, you know, the NASDAQ, you know, 15,000? 20,000? Absolutely. I’m not saying any of this is good. I’m not saying these are good outcomes in the long term. I’m also not even saying it’s probable, although I do think it is. But is it possible? Absolutely. And so I think as an investor or trader, and you know, I built much of my career on short selling, I’m one of the better known short sellers out there, Whitney and I both, um, I would be running a very small short book right now. Not because I don’t think it ends badly. But I’ve just been through this before, you know, I remember 99 like it was yesterday, and there was a ton of things that you could that you wanted to be short if you could walk put it in a lockbox for five years, but absolutely no one could actually put it in a lockbox. And that stuff. Not only did it not only go up 100% sometimes the way up to 1000 or 2004 And and there’s no strategy on earth that can sit through 1,000% short squeeze, you know, as far as I know, and I’m pretty confident on that.
Nathaniel E. Baker 21:08
Yeah, I’m old enough to remember that as well. I think we’re about the same age by the way, but I’m the you know, remember though that in that what ultimately burst that bubble was the Greenspan Fed finally coming around and raising rates and what was it September of 2000? August September of 2000. More than then was the market was pricing at the time and that’s finally what burst the bubble. But which of course raises the question if you have all this liquidity. You have stocks running rampant. You have Tesla at 3000 or whatever you have all this speculation you have Davey Daytrader or whomever you know, stocks always go up blah, blah, blah. At what point doesn’t the Fed become concerned about liquidity and take away some of this Punchbowl?
Enrique Abeyta 21:56
So here’s the answer. I have no effing clue. But wait for it and react to it don’t, predict it. So this is the thing. Like I’ve been I’ve been an active investor and trader for 25 years, I’ve stayed alive, etc. And one of the most important lessons I’ve learned is with questions like that, at my predictions have been very poor, but my reactions have gradually become Excellent. So you know, the answer is, do I think that will happen? Yes. Do I know sitting here on July 20 of 2020. What the catalyst for that is going to be? No. But what I do what I’m recommending, for instance, to my readers, and I’m actually putting this in in a note today that we’re republishing. I have a weekly called Empire elite trader, relatively inexpensive, it has a weekly recommendation. It’s got a very excellent track record. You know what I’m saying to them as I go look, you know, in this environment, this is the maximum fear and maximum greed environment maximum fear is COVID maximum greed is Davey Daytrader and the Robin Hood crowd. It can be a spectacular money making environment if you exhibit maximum discipline in your investing and trading. So, you know, what is maximum discipline mean? Well, that means, um, you know, when you buy things, if you make 30%, real quick, taking some money off the table, if you buy something that you think has 100% upside, take 50% off when it goes up 100% then you’ve got all your original capital sitting in the bank, and you can let the other hundred percent ride, you know, and it means that even in investing portfolios, sometimes trading strategies will become more valuable. And again, let’s take that because I think maybe more of your listeners are investors, if I buy a stock, and I think that and I really frankly in my investment strategies, I only look at things that I think have 350% to 1000% upside if I can’t get to and really 500% is my key. If I can’t get to a five bagger I literally don’t do I won’t look at it because my view is there’s 4000 liquid securities, I know the numbers of 10% of stocks actually are five baggers across any rolling five year period ever. Therefore, that means that there are 400 stocks that will do what I’m looking to do. If I can’t find 20 stocks out of 400 I shouldn’t be getting paid to do this. So that’s, that’s another subject. Maybe also another contrarian view. But you know, if you own something and you think it’s going to go up 500% across five years, and all of a sudden it goes up 150 to 100%, sell some of the damn stock, you know, and then you’ve got a trading strategy to take advantage of the situation.
So maybe that’s another contrarian, you know, view is, I mean, I guess maybe I’m giving you three, you know, number one, I think the war on COVID is almost over and we win. I mean, no one’s ever just said agree that we win the war on COVID. It’s just been about timing. And I think people forget that. Number two, I think it is. And what I’ll say is, I’ll say it this way, it is an absolute certainty we win the war on COVID I believe it is a high probability that we are almost done with it seven to eight, then I would then say it is possible that we see a melt up. And in that melt up, you see one of the best trading and investing environments that you will ever see, you will make three years of returns in three months, but then that environment demands that investors become traitors, at least in terms of being disciplined about taking profits and all that, but you really need to have some thoughtful trading strategies, which again, is like I said, is like if you’ve got a stock, you thought it had 300% upside it goes 100 up 100% take off 50% Now you’ve booked your original capital and you’ve got the other 50% then if it goes up another hundred or 200 in the crazy it’s all great. Right, or do this sell 65%. And so you’ve walked in basically a 30% return on your investment and you let the 70% ride. And you know, if it goes up to 500% great, and you know, again, but you have to, I think that a lot of fundamental investors and certainly value investors, I won’t say that trading is an anathema, but it’s just not something that they, you know, would put in their core DNA that’s going to be very dangerous in this environment. And it’s going to be a way to generate a lot of frustration and potentially make a lot of big mistakes.
Nathaniel E. Baker 26:35
Hmm, interesting. Okay. Enrique Abeyta, that’s a good place to take a break. So let’s do that right now and come back and I want to ask you some more questions, including about your background and how you got to be where you are today. So let’s pause right here.
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Nathaniel E. Baker 27:33
We are back welcome back. Enrique Abeyta, this is the section of the podcast where we ask our guests to explain themselves — no — to provide a little bit more background on on themselves, how they came to be in the present situation. So take it away. I hinted at this stuff at the outset your background managing hedge fund, but yeah, how did your has your career gone to date and Where you find yourself now?
Enrique Abeyta 28:01
Yeah, so you know, my background. I’m a Mexican/Uruguayan Jew from Phoenix. Not a lot of those.
Nathaniel E. Baker 28:08
Enrique Abeyta 28:08
I actually grew up, you know, in a pretty tough situation. My mother was exiled from our country Uruguay because my family was involved in a revolution. My dad was American, New Mexican, Mexican, but just you know, he had a lot of challenges growing up that transferred to challenges as an adult. So I grew up pretty poor. I mean, you know, there’s videos of me you can see, there was a period of time we were homeless for a couple days, it felt like camping to me, but the grew up here in Phoenix, and, look, we were poor. My mom fought very hard for us. And I didn’t like being poor. So I did my research. I was interested in a lot of things. I worked for senator john mccain for three or four years. I was interested in writing, you know, instantly enough, but decided I wanted to go into business because being poor sucked did the work. Research and the best business undergraduate program in the world by far is working on grad at University of Pennsylvania. I applied, got in and went there. And Wharton undergrad is an incredible environment. It is literally the elite of the elite in terms of desire to be on Wall Street. You have a group of people that when they were 16, or 17, decided they wanted to trade stocks. So you know what’s interesting about that group, and you know, there used to, I’ll tell you a story. There used to be a Bloomberg machine down at the bottom of Steinberg Dietrich Hall. This is back in the late in the early 90s. And that machine, there would be about a dozen of us almost none of us had any money or stocks that we would be at the Bloomberg machine. So these are freshmen and sophomores in college would hover around the Bloomberg machine talking stocks. Now that group has gone on to manage over 100 billion dollars, but I just want you to take that mentality. Here are 19 year olds, you know what, like like that are hanging around the Bloomberg machine. In between classes to talk about stocks, so so these are motivated people who also happen to be very smart with great work ethics. So when I came out of school, I started at Lehman originally in the fixed income side, but then private equity for a bit. But in 96, they fired my boss. And I had always been interested in picking stocks. I’d helped found the Wharton fellows Fund, which is a an investment club that basically invest part of the university endowment at university Pennsylvania. Um, and I was like, Well, I think I want to go to the buy side, and looks like fun and it looks renew motive. And you know, you can go both long and short so you can make money in down markets. And I was like, well, maybe I go to research first, or maybe I go into investment banking, but then I was like, You idiot, why don’t you just go to the buy side? If that’s what you want to do? Why are you going to go spend two years doing something that’s not your goal? And so I interviewed a couple places I interviewed at Viking before they started. I didn’t get the job, otherwise I’d be calling you from my my island that I own in Hawaii.
Nathaniel E. Baker 31:02
Although you did adopt the look! But sorry, but yeah. Go on.
Enrique Abeyta 31:06
Yeah, exactly. Um, I ended up getting a job with a mutual fund company that had about $3 billion, only have three people. But they had a couple hedge funds and, you know, began my career there. And so across the next 20 years 1996 to 2016. I worked at five different funds. I was the founder, managing partner of two of those funds. Those funds I raised over two and a half billion dollars from investors. I sort of became a specialist in starting farms, I’ve been part of a 6 billion fundraise, um, you know, have a 13 year audited track record as a portfolio manager, um, but look like a lot of portfolio managers in this business. You know, I was sitting down with a buddy of mine, one of my last hedge fund that I was the managing partner went out of business quite suddenly, during the volatility of August, September 2011. Our largest investor pulled the money in the middle of it. They were like 60% of our assets, drove us out of business and gave A terrible terrible month you know but but I say that because the funny thing about money management I had this conversation with a buddy at the time he said he went he was going through a Wharton classmates and he said, let me do a an exercise for you. Here’s this guy ABC. These three guys they manage 100 billion dollars. Here’s these three guys D if you’re one of those, you know your V Enrique he goes these guys manage $30 billion and manage zero. What’s the difference between these guys is one group smarter is one good more hard working is one group two, doing better work? He goes No, there’s luck involved man like you know, there there literally is luck. So that being said, I was quite happy to no longer be actively managed money. Go back to 2016 I was working at a fun you know, it was actually managing a billion dollars of the fun you know, in a private equity book. Um, I’ve been doing a lot of private equity investing, especially in the direct to consumer space. I was one of the original investors in in something called bombas sock company. That’s been very successful. You know, made a lot of money there. And I got a call well
Nathaniel E. Baker 33:02
Actually I actually own some of those. I just ordered them online because I’m a runner and so I got some but anyway go on.
Enrique Abeyta 33:07
They’re great. Awesome product.
Nathaniel E. Baker 33:09
Enrique Abeyta 33:09
Um, so I was getting very excited about that. One day I get a call a friend of mine says, ‘Hey, I got a buddy in town, who is got a really interesting idea.’ That guy was a movie producer and record label executive. But he basically had the idea where he said, ‘Look, you know, if you go into the rock, hard rock and heavy metal space, there’s a ton of audience and a lot of old media entities that have audience but they’re very unsophisticated.’ At the same time, I had been working with the Chernin group, which went on to buy barstool sports on this idea called content into commerce, where you could take digital audiences in pre existing media brands, but as opposed to lending those audiences to advertisers, Coca Cola, Jeep, etc. You could vertically integrate into commerce, the idea being you know, buy audiences that are reading stories about Metallica and instead of trying to sell them a Jeep or try to enable Jeep to sell them something, sell them a Metallica shirt. So I thought it was a great idea. I am a rock metal tattoo guy, you can obviously see, you know, I thought was a great idea. So much so that I went to my partners and said, instead of just investing it, I’d like to go run it. So I founded a digital e commerce company called Project M back in 2016. That company today. Um, you know, we’ve got 20 people, it’s about an $8 million business. Right now we’re up 80% year over year, we have 50 million on social. We own the number one brand and hard rock metal Revolver. We own the number one brand in tattooing. And we own the number one brand music satire, something called the hard times. And you know what, also then kind of the evolution of where we are today on that project kind of got to a point last year where I was like, Okay, I can take A step back. And I’ve put in a great management team and all that. So Whitney, my partner, who I’d known for about a decade, was getting involved in starting this newsletter business. And to be frank, I didn’t know a lot about it. I when I heard investment newsletter, you know, obviously, I know Jim grant and all that, but I was just thinking, Oh, you know, was there any money in that? You know, what is it? He’s got, you know, we’re partnered with a fantastic outfit, Stansberry. But as an incredibly well run company, and I looked at it I go, wow, this is an incredible business. I’m, you know, I can do all the things I love because I love the intellectual game of this. And, you know, look, I’ll tell you something, and I don’t want to be like highfalutin moral high ground or anything like that. But you know, I’m 47 years old. In the last two years, I actually lost my mother, my father, my grandmother, I’ve got a I’ve got a great beautiful family, but it makes you a little introspective. And, you know, when I was running a billion dollars, you know, great, I was making money for Abu Dhabi and a bunch of rich guys and that’s really They certainly financially, but intellectually or philosophically, not so much. I mean, and we don’t need that I didn’t get into it to be, you know, as a charity, um, but we take at Empire and what I do I take very seriously that we see feedback from our readers, our readers are, you know, honest, flee a divorced mom of three that’s got $150,000 to invest. And, you know, there’s a lot of those people and so I take my mandate, about giving advice to, you know, people who don’t have the experience exceptionally, exceptionally seriously. And I find it very rewarding. Not to mention that not having to be changed to investors and all this. I’m a better investor now than I have been, you know, my, my, you know, at any point in my career, because I’ve continued to learn and evolve. And you know, I joke if someone came to me, and I’m serious if someone came in tomorrow and said, here’s a billion dollars, go run it. Um, you know, I guess if they gave me a five year lockup, Contract guarantees I do it. But I might be what because it’s just not as fun or interesting or rewarding as what Whitney and I do today.
Nathaniel E. Baker 37:07
So, so tell me about this, this newsletter, so it’s a it’s a weekly or how often does it come out?
Enrique Abeyta 37:14
The parent company Empire financial research, we have a number of newsletters, my newsletters, I have one called an empire elite trader, which publishes weekly, I put together a macro piece that kind of talks about any number of subjects, you could just be trading, you know, it doesn’t have to be time, whatever, they’re always timely, it doesn’t have to be something that has to do with today. And then we do one recommendation in there, those recommendations which I sort of have under six months holding periods, and I’m looking for 10 to 30% type returns. It’s a high batting average strategy, you know, double singles triples. Occasionally, by the way, we get some homeruns. I mean, we’re sitting on one position right now that’s up 100% in you know, eight weeks or something like that, and Again, I would encourage you to go Google me and look us up online. So you can look at some of the data, I don’t want to do any of them the marketing, so I don’t get in problem, trouble with the legal people. But my other product is a monthly called Empire elite growth. That’s what I would call the investing strategy. That one focuses on again, on a handful of stocks, you know, 10 to 20 that I think can go up 500%. And, you know, these are the kind of strategies that I think work because I’ll say this one thing I said to people, when you’re investing or trading, you either trade a lot or don’t trade at all, it’s when you get caught in the middle that you make mistakes. So Empire elite is the trade a lot. Empire growth is don’t trade at all, um, you know, kind of kind of idea, and we’re going to have a third product, you know, that we’ll announce that’s going to be an opportunist stick product, that’ll look at a lot of like quasi public private equity kind of stuff. You know, when in terms of that should be launching In the fall, but yeah, check us out Empire financial research. Um, you know, I take this very seriously, this is not, you know, everything I’ve ever done in my career investor money readers, etc. The way you build credibility is by you know, treating it seriously every single moment. So it’s it’s not a game, you know, within people’s money and I take that responsibility especially having grown up so poor, um, you know, I take that risk, I’m probably more careful with their money than I am mine.
Nathaniel E. Baker 39:27
Nice. How do you get your ideas as far as investing?
Enrique Abeyta 39:33
I mean, it depends on the product for Empire elite trader we have a number of strategies that we look at, but sort of all my strategies are somewhat related. I don’t believe here, here we go into contrarian, more contrarian stuff. I don’t believe that stocks really have much to do with the companies that underlie them. Um, I think that is stock is always worth whatever anyone’s willing to pay for it. The relationship between stock and company only meets twice. If it goes bankrupt, and D lists, it goes to zero. And I say D list now because apparently you can go bankrupt and the stock can go up a lot. But eventually they’ll do less. Or if a company gets bought out, then the stock you get whatever you get bought out for. Companies can influence that via dividends and buybacks. But I’ll give you an example. You know, if stocks are the discounted cash flows of a business, you know, go through Amazon and do you know how many $8 and cents Amazon has returned to shareholders in the 20 year history of the company? Zero. Okay. So you know, I think that there’s a huge disconnect again, and I one of my favorite analogies is the is the matrix when Morpheus is sitting there with Neo and he said, Here’s the blue pill. And here’s the red pill. If you want to continue to live in your world, take the blue pill on, if you want to see what’s really going on, take the red pill. And you know, so my view is the vast majority of things that people talk about valuation being one of them, I don’t use the V word I think it made matters almost not at all. Um, they don’t work. They don’t make any sense. And, you know, let me give you someone about one piece of data to think about 90% If not, 95% of active managers underperform, the indices, passive strategy, attitudes, all of those investors agree on the same things, fundamentals matter, valuation matters, etc. At what point after 30 years of overwhelming data, do you re examine your decision making paradigm? That’s my question to people listen to this, because I will tell you, the data is overwhelming. I’m a data guy. So coming back to it. Um, stocks are stocks that piece is a paper that we trade, they are not companies, they can be related to the companies occasionally. And the metrics and the demand and supply characteristics can be driven by these by these fundamentals as the market just saw it, but it changes, right. I’ve had companies that have traded at 10 times earnings, the trade at 30 times earnings, and not a damn thing changed, you know, in terms of growth rates, etc.
So, you know, big picture and Empire elite growth, I start with the following. I say, ‘Do I have a company where fundamentally the earnings can go up 500%?’ If the earnings can go up, 500% the stock can go up. 500%. So then you need to figure out do you have companies where the earnings can go up? 500%? You know, I’ll give you an example. I think it’s public out there, but I mean, I’ll give one on match.com Okay, um, they have 10 million page users. There are 1 billion single people on this planet that have internet And they want to either a, they want to be in a relationship, whether that’s a relationship or a relationship. Um, so they have 10 million, they are the market leader on every level. The the TAM is 1 billion. They have a huge lead over everyone else. Where do I think 10 million goes? Do I think it goes to 1 billion? Obviously No, but contend billion go to 20 million, can it go to 30 million? Can it go to 50 million? Absolutely. So therefore, match can go up, you know, their earnings can grow that amount. And remember, if they’re if they’re, if the base goes to 20 million, their earnings base goes up. 500%, not 100%, you know, so that’s an example. When you think about like, you know, my methodologies for stocks that go up 500% and look for situations where earnings can go up 500% you know, I I love utilities. I do a lot of utility investing, believe it or not in trading, utilities are never going to go up 500% I would not put them put them in there, you know. And then in my trading book I look for companies that are that have gone up that are winner, meaning the stocks have performed positive earnings revisions, but that are deeply oversold in the short term. That’s one of our core strategies on but you know, when we talked about movie theaters before, we put out several buy recommendations on movie theaters in the during the course of COVID. And we’ve made money we’ve made excellent money by saying, look, you know, here’s a here’s a company that’s not going to go bankrupt. And if people just believe the world’s going to get better, the stocks been cut by 60%. I’ve already made, you know, two trades where we’ve made 30% plus returns in weeks on trading movie theaters. So again, you know, gives you some idea about the methodologies, but the overall picture is um, you know, I don’t want to say fundamentals don’t matter because that’s not true. They just don’t matter in the way that people think they matter and valuation doesn’t matter at all, in my opinion.
Nathaniel E. Baker 45:00
So then what about on the short side? How do you find ideas there? Or do you still short actively?
Enrique Abeyta 45:04
Well, so, you know, we don’t spend as much time on the short side on the newsletter side, frankly, because most, most breeders just aren’t interested in it. And I don’t blame them. I mean, I wouldn’t call myself I would call myself a reformed short seller because I still spend a lot of time on it. But shorting sucks, like, I mean, no. One has to ask yourself, why short sell ever? Other than intellectual pleasure and to brag to your friends? Because I’ll tell you this. I have spent 60% of my career on the short side. In 1997. I worked for a guy named Martin softness and I would come into Martin I was you know, 24 years old. I come in and be like, Martin, I figured this out. And this short he goes and Martin used to literally die would sit in his office and 9:30 am right the market opens smoke a full Churchill cigar and this is you know, 1997 so you could do that. And and he’d sit there and he’d listen, and he’d go ‘this is very good work. This is very good work. But you know, most of the time stocks go up, maybe you should just find a really good growth company and we’ll probably do better. Mind you will do the short on it.’ I wish he would have said, ‘you dumb little piece of S, I’m gonna slap you three times don’t ever work on a short again, just find companies where the earnings can go up 1,000% do nothing but that’ again, if he would have said that, to me, I’d be calling you from my moon base that I would have built with my trillion dollar fortune.
So you know, talking about short selling? Yes. I’m a very good short seller. You know, I, I my recommendations, even in this environment have certainly produced alpha and many of them produce absolute return. Why bother? What’s the point like, you know, and by the way, I ran short only funds. I know people brand short only funds. I don’t know. There’s more contributing for you. Maybe This isn’t maybe this is what everyone agrees except for the smart people, which I was one of for many years. What’s the point of short selling? Like, you know, other than to, like, have good stories for your little group of people? Um, you know, what would I do on the short side here? I mean, I’ll tell you as a general rule, if you find a company, here’s one good rule of the universe that always works. If you find a company that’s earning $1, and they go on to earn $10, the stock goes up a lot, okay, but sorry, the stock goes up, whether it goes up a lot, a little sooner or later, I don’t know. But if I give you something that’s earning $1, and it earns 10, it will go up. Conversely, 90% of the time, that’s 100% of the time 100%. Now, if I give you a stock that’s earning 10, and earnings go to one, the stocks going to go down 90% of the time, so if you literally just took that rule and nothing else in life, don’t even if you can’t convince yourself, that earnings are going to go up a lot or he’s going to go down a lot. Just throw it away. There’s 4009 4000 liquid securities is just in North America. How many? Do you know how many stocks you need to have a diversified portfolio? According to to all the research?
Nathaniel E. Baker 48:10
What do they say? I don’t know. 15?
Enrique Abeyta 48:12
Ten. Ten to 15. Okay. So the reality is if you want to remove systematic market risk to the extent that you can remove it, you need 15 stops. So, can you find 15 stocks out of 4000 liquid US securities where earnings are going to go from 1 to 5? If you can’t, you really need to reassess your career choice in this business. And so yeah, through the years, I’ve just boil things down a lot. Um, you know, from learning from mistakes, and it gets back to the one I love this analogy, where investors agree on so much stuff and 95% of them or 90% underperform. Yeah. Well, at what point do you take a step back and look at yourself in the mirror and say, not only is what I’ve got outperformed, but all my colleagues I have an outperform. And what do we all agree on? Well, let me go on to value investors club. And I’ll tell you what you all agree on. Maybe it doesn’t work. Maybe if yes. What’s your goal? If your goal is intellectual satisfaction and making a little bit of money, it’ll be fine. If your goal is actually to make big money and outperform the markets, yeah, you got, you know, you’re not really you’re not really focused on that goal. you’re focused on, you know, what makes you happy and what fits your worldview.
Nathaniel E. Baker 49:22
Yeah, or maybe it does work because they’re getting paid to manage money, right?
Enrique Abeyta 49:26
Absolutely. So that no, no, no, no, no. So so i i think that’s a great point and a fantastic one. Because, you know, I think that building a fund around the myth, you know, but at that point, it looks let’s just call a spade a spade. You’re a priest in a church, you know, it’s a religion and what you’re getting ties, you know, so I and the best some of the best people have embraced this, you know, I don’t know that anyone has this outward conversation about it, but that’s what you are. You’re, you’re preaching to your religion of whatever Investing school you are. And as long as your stuff is interesting enough, then you know, you’re you’re you’re, you’re in good shape. There are outliers. Jim Simon’s guessing Jim Simons is the single best investor of our lifetime. By far, you know, some of the trading oriented guys. Um, you know, Steve Cohen or whatchamecallit, Lewis Bacon when he was more active, you know, these are all guys and even Soros, you know, they weren’t they were fundamental-ish but they were really traders at heart but what I’m saying is that you’re not private equity guys like you know if you think a private equity strategy and public works it’s only because it’s falling into this this this trading you know, again you’re taking individual situations and creating a methodology around it, but your methodology is faulty. You just had an individual situation that happened to work in the correct methodology, which is stocks are people pieces of paper and they trade up with demand. You know, they might as well be pop bands or Turkish rocks in some ways. And I know I’m being picky, like again. Yeah, I, you know, there, there’s elements where they do converge but but you need to break that, that that connect shed between stocks or companies in order to really outperform this thing.
Nathaniel E. Baker 51:13
Um, lastly, but let’s just talk a little bit about Is there anything that does keep keeps you up at night that, you know, we talked about some pretty rosy scenarios with COVID and with, you know, stocks and stuff and but what about —
Enrique Abeyta 51:28
Well my wife is four months pregnant. That’s what keeps me up most nights. Right.
Nathaniel E. Baker 51:32
Enrique Abeyta 51:32
Ah, yeah. Ah, look, you know, I think as long as the Fed is going to be, I’ll say this differently. We’re about to, I think, enter into one hell of a party. Um, you know, we talked about this a little bit on our call, we’ll talk about it on another call in the future. But I think that the amount of fiscal and monetary liquidity that we Seen ejected, he here has a chance to double slash go up five fold. And I’m going to I’m going to leave it as a teaser why I think that, again for a call that we’ll do in a couple months, all right. And if that happens, you know, if stocks or widgets, and those widgets are bought with paper and paper is money, then if we double the liquidity in the market, there’s more paper to buy widgets, and they go up. At some point, though, it’s a little bit again, I’ll use my party scenario, you’re drinking vodka and it feels better and better. Or the more vodka you drink, but at some point, you exhaust yourself and you pass out. And then if you drink two bottles of vodka, you got major problems, maybe even you’re going to the hospital, and that will happen. And I think when that happens, short selling will be incredibly important. short selling is a seasonal event come about that. I’ll actually say this. This is what I want to roll Something back to be a short seller 80% of the time is a terrible strategy to maintain your short selling skills for that 20% of the time is a good strategy, and perhaps a thought or a game changing one. So I do think this ends badly. My point is I don’t, my ability to predict, as opposed to react are very poor. What I would advise you do is you trade as if it could happen any day, but you’re in the meantime, you’re still making this you’re still taking advantage of this opportunity. So what keeps me up at night? Oh, I don’t know. I’m pretty bullish right now. It’s hard for me to again, but I’m not bullish in a everything works out. Okay. Hey, I mean, everything does work out. Okay. Eventually, um, I’m not so worried about exogamous shocks per se at the moment. But I’ll say one last thing. Eventually By the way, everything does work out. Okay. Every single moment of human history that we go through is the single best moment of human history at by any objective measurement of mortality, poverty, etc. The human mind is programmed to value negative stimulus at eight times positive stimulus. We’re programmed to be negative, but but the world is awesome. The world gets better every day. And this gets back to if I wish, and I’ll leave you with this again, in 1997, Martin soft would have said, You idiot, just be optimistic and invest in growth. Again, I’d be worth you know, whatever a big multiplier of what I am. And so, you know, you don’t have to embrace that as much as I say. But if you’re a contrarian investor, just remember that right? Because that’s what’s gonna keep you alive, right? You know that that’s, that’s how you make you want to avoid the mistakes of being a contrary investor, which generally means being a value investor. Remember that growth wins, growth always wins. Value names only work when they start growing. You give me a value You name and earnings get cut in half, guess what happens stocking, you give me a value and again, earnings get cut in half again, stock gets cut off again, if those then earnings bottom and they go up 10% stock doubles growth, growth, growth, growth in value growth in growth growth in special sits. It went it Trump’s off. So I’ll leave you with that.
Nathaniel E. Baker 55:19
That’s a good way to close. Enrique Abeyta thank you so much for joining the Contrarian Investor Podcast. Maybe just one last thing in closing, he tell our listeners where they can find more about you. I’ll put this in the show notes as well.
Enrique Abeyta 55:32
Yeah, just Google. My name works and Empire Financial Research is our website,
Nathaniel E. Baker 55:40
Enrique Abeyta 55:42
Nathaniel E. Baker 55:43
And your Twitter is @EnriqueAbeyta?
Enrique Abeyta 55:46
Nathaniel E. Baker 55:46
Okay, I’ll put that all in the show notes.
Enrique Abeyta 55:48
Nathaniel E. Baker 55:49
Well, thank you, Enrique. Thank you all for listening. And we look forward to speaking to you again next time.
Thank you for listening to the Contrarian Investor Podcast. We hope you enjoyed this episode. To subscribe to this podcast simply open your favorite podcast software and search for contrarian investor. Follow us on social media by searching for contrarian investor on Twitter and Instagram. Send us your thoughts on feedback@ContrarianPod.com. We look forward to speaking to you again next time.