Title: Success Secrets of Warren Buffett, Peter Lynch & The Other Great Investors Show: Thoughtful Money (host Adam Taggart) Guest: Pieter Slegers (Compounding Quality Substack) Date: 2025-04-20 URL: https://youtu.be/7gUGfqrAcyA Length: ~1h25m Note: Auto-caption transcript, remove-only filler cleanup (um/uh/you know/stutters removed; [Music] tags stripped; wording otherwise verbatim). Auto-caption name garbles corrected in the analysis, NOT in this raw text (e.g. "Peter Slegus"=Pieter Slegers; "Kingell/Kingsale/Kinsel Capital"=Kinsale Capital; "Mike Mikeu"=Michael Kehoe; "met base/Metpace/Mattpace/Matt Pace"=Medpace; "August Trudla/Trundler"=August Troendle; "Dino Pulska"=Dino Polska; "text as a"=Text S.A.; "Thomas Bunka"=Tomasz Biernacki; "Markeelum"=Markel; "Jeremy Cycle"=Jeremy Siegel; "Magalan"=Magellan; "Mer Tolson Nolson"=a Munger-estate representative). The Slegers interview runs ~00:00–52:40; from ~52:40 to the end (~1h25m) the host talks markets with Mike Preston of New Harbor Financial (S&P hedging, gold/silver/GDX/GDXJ/SLV) — a SEPARATE advisory segment, NOT Pieter Slegers.
00:00 To me, investing is saying no as soon as possible. Meaning, today you have roughly 60,000 listed stocks. I think we can all agree that nobody is able to analyze them all. And today, I try to make it a sport to find a reason to say no within 60 seconds. And the funny thing is in 98% of the company examples, you can do that.
00:26 Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. We spend a lot of time on this channel hearing how experts think the financial markets will react to recent developments. But history's most successful investors, the Warren Buffetts, the Benjamin Grahams, the Peter Lynches, and the John Templetons, they didn't concern themselves much with what was happening in the short term.
00:53 Instead, they focused on doing the following: buying wonderful companies led by outstanding managers trading at fair valuation multiples. And then they held on to them, sometimes for decades. Today's guest, Pieter Slegers, has made it his career's mission to understand and apply the core success principles and best practices of the world's greatest investors and then help regular investors like you and me ride their coattails.
01:21 His Substack, Compounding Quality, is currently the number five highest earning financial Substack in the world. And today we've got the good fortune of hearing his synthesis of what makes a successful investor. Pieter, thanks so much for joining us today all the way from Belgium. Thanks for having me, Adam. It's a true honor to be here.
01:39 Well, thank you. You and I have been in touch several times over the past year. I'm so glad we finally got a chance to make this happen. And I think people are going to find this discussion really interesting, Pieter, because as I said in the intro, you've kind of made it your life's work to study the greats, and then to emulate them and put their best practices into practice in the compounding quality portfolio.
02:03 So I know a lot of people are probably very eager to say, okay, great. What should I be doing? What do the greats do? So why don't we start there? It's a short question. I'm sure it's a tough answer, but what makes a successful investor in your mind from all of your research? It's a great question and it's an easy one to ask and maybe a harder one to answer.
02:29 Well, I think there are a few important things when you talk about investing and what makes a successful or really successful investor. And probably the most important thing, the one thing that is really important is just discipline. Stay very disciplined about what you do because regarding investing, there are multiple routes that lead to Rome.
02:53 Well, in your intro you talked about Warren Buffett obviously and also Peter Lynch for example. Well, Peter Lynch was someone with Magellan who was really successful and owned over 100 stocks. And then you had on the other hand Warren Buffett who was very concentrated and made all his money via 14 companies basically.
03:16 So it's important to pick a strategy that suits you as an investor and stick to that strategy rigorously. Well, for me that's quality investing. So trying to invest in the best companies in the world and do that at a fair price. And what I also do at Compounding Quality is I try to invest like some of those best investors in the world. And there's one question that I always ask.
03:40 Well, what is the biggest investment mistake you ever made? And it's always one out of those two answers that come out of it. One is selling your winners too soon. So for example, just imagine when you sold Starbucks in 1994 or sold Apple in 2005. Well, you only need one Starbucks or one Apple and have owned it for 20 years to basically do tremendously well and that will probably offset all your bad investments.
04:13 So that's one big investment mistake, selling your winners too soon. And the other one is indeed knowing that a certain company is a great business, understanding that business but not buying it basically. So for example, to talk about Warren Buffett again, well he was friends with Bill Gates.
04:36 He saw him regularly and he knew it was a great business but he never invested in Microsoft. So if he would have done that 15 years ago, 20 years ago, obviously the results would be tremendous. And in general, last point I want to add on this one is you have three kinds of advantages you can have as an investor.
04:57 You can have an informational advantage, an analytical advantage or a behavioral advantage. Now when we look at the markets today and when we look at investing today, informational advantage is very hard because there is a lot of information available on the internet. Why? We compare the situation today to the situation in the Benjamin Graham time for example. Well, 100 years ago there was very little information. You needed to buy books or go to the library to find the annual report of companies. Nowadays everything is available so it's very
05:32 hard to get an informational advantage. Second kind of advantage you can have is an analytical advantage. So for example, do your homework better than other people. Make better investment cases. Well, my two cents there would be the larger the company, the more efficient the market. So I also worked in the industry and when we look at the big tech companies for example, everyone is looking at them.
05:59 So it's very hard to get an analytical advantage there. But one advantage we can have and one advantage that definitely retail or individual investors can have is a behavioral advantage. The advantage you have as a retail investor versus a professional investor is you don't need to give guidance to clients when you underperform a quarter.
06:22 It doesn't matter too much. What matters is that one, you reach your own goals in the long term and two, that you stay disciplined and stay the course. So identifying your own investment strategy and stick to that in a very disciplined way and obviously pick a strategy that works in the long term.
06:42 I think that's the most important thing and that's how you can actually beat the market which is obviously the goal of every person who invests in individual stocks. All right, that's a great intro answer. Thank you. And I can tell you, I started my career on Wall Street and then I've worked kind of in digital financial media for most of my time since.
07:04 So I've seen that evolution of where, when I started my career in Wall Street, we had to call this company across town and they would courier over the annual reports or the 10K. There was a lot of friction. It was very hard to get that information, especially in a swift period of time.
07:20 And then you had to go through all these huge thick documents and then add that information into your spreadsheet and it just took a long time to analyze all that stuff. Now you go to Yahoo Finance, it's just all there free to the world instantaneously, right? So it's a totally different world on information. And analytically, I mean I can tell you again from my days on Wall Street which were decades ago and practically in the stone ages now.
07:44 They had armies of analysts. So if you're just a regular armchair investor, I know what the asymmetry was like back then, but I know since then with companies recruiting quants and tons of PhDs out of the top colleges and then now with AI, there's such an analytical asymmetry between the small investor and the big firms. You're right.
08:10 That's just a playing field that's so uneven. It's not really realistic to expect that you're going to uncover something that Wall Street hasn't at least about a publicly traded company that's traded at any real volume. So yes, we should lean into this behavioral one and you started with discipline and a quote I heard from Buffett that I thought was really interesting was he talked about how he was referencing Ted Williams.
08:38 He was talking about successful batters of all stripes. He said look, to be a good batter you maybe hit 400, right? You're really only getting a hit four out of 10 times at bat, right? And Ted Williams had really analyzed the strike zone and his strategy was I'm just going to wait until the pitch is right in my sweet spot.
09:04 Right? The problem was that he couldn't control what the pitcher was doing. And so the pitcher might not always pitch it in his sweet spot. And at some point, given the strikes and balls count, you got to swing, right? So there were a lot of times where he would swing at a pitch that wasn't quite in his sweet spot, but he knew he had to take the pitch because he had two strikes.
09:28 So there's some pressure there to take that swing where Buffett says, "I don't have that pressure, right? I can always just wait and I'll wait days, months, weeks, years if I have to until that pitch is exactly in my sweet spot and then I can swing. And so as investors, we sometimes feel like I've got this money sitting there.
09:47 I really should do something with it. To your point, just stay disciplined, right? You've got the ability to wait. You don't have that pressure. You don't have the pressure that the quarterly Wall Street guys do where they've got to go back at the end of the quarter and defend their results.
10:00 You can have a flat quarter. You can sit and say, "Look, I didn't see anything good enough and there's nobody but yourself putting that pressure on you." So that is a real advantage. It's hard for people to sit on their hands and wait for that. But it really hit home for me with Buffett, which is just like, yeah, there are lots of temptations out there, but your odds for success are much better if you just wait until it is an obvious win. And so use
10:25 that to your advantage. Exactly. And it's also something I say often. Well, to me, investing is saying no as soon as possible. Meaning, today you have roughly 60,000 listed stocks. I think we can all agree that nobody is able to analyze them all. And for example, I have a community in compounding quality as well.
10:47 And then people ask, what do you think about company X and company Y and so on. And today, I try to make it a sport to find a reason to say no within 60 seconds. And the funny thing is in 98% of the company examples you can do that and it's the same as what Charlie Munger says: well in investing you have a yes pile, a no pile and a too hard or too complex to understand pile. And that's one of the beautiful things: we can say no and we have the option to wait. And one other extra point maybe to make on that. Well, we can say no. And the other one from Peter
11:27 Lynch: well, if six out of your 10 investments will be great ones, do what you tell that they will do, you will be an excellent investor. So investing, it's not a science. You will be wrong from time to time. When you are wrong, it's probably very important to adjust along the way. But what is usually the case when you have a portfolio of 10 companies for example, six will do mediocre, maybe in line with the market, two will do very bad, maybe even go bankrupt.
11:59 But as long as the two out of your 10 portfolio companies do really well, and for example, you have a 10-bagger company that goes 10x or even more, well, that's all you need. As mentioned, you only need one Apple in your portfolio or you only need one company in your portfolio that goes 100x during your entire lifetime.
12:21 And that single investment, if you don't trim it along the way, which obviously is also an important side note, if you can get one bagger, it will offset all your bad investments and it will cause you to outperform the market probably in the long term. Okay. So I like that discipline of not just getting to know but getting to know as fast as you can so that you can not get distracted by the volume of opportunities and hopefully narrow it down to the ones that you should look at. So what are the
12:57 attributes of a great investment, of a great company? What do you look for as you're saying no to all these things? What are the things that you are looking to say yes to? So obviously depends on which investment strategy you use. Compounding quality, well, quality. So we are talking about quality investing here.
13:20 Well for me I always try to look for six essential characteristics. First and foremost the moat which is really important. So you only want to invest in companies with a competitive advantage. Second part the skin in the game. I think that also makes complete sense when the founder of the business is still involved in the company and he has invested the majority of his wealth in the business.
13:46 Well, in that case, incentives are aligned. Show me the incentive and I'll show you the outcome. A study from Harvard Business Review, for example, has proven that founder businesses outperform by 3.9% per year on average. And to me that's quite funny because when we look at the data, when we look at the statistics, 90% of all professional investors underperform the market, but by just investing in all the founder companies you outperform by almost 4% per year on average.
14:17 So this basically means when you would be able to outperform 4% per year for a decade for example you will probably be among the top 2%, top 1% of all investors. And second point: an extra return of 4% per year thanks to compounding makes a hell of a difference over time. So I guess we can all agree that it makes a lot of sense that companies where the CEO has the majority of his wealth invested in the business tend to do better.
14:49 So skin in the game is an important point. The moat is important, already talked about. Third point is a low capital intensity, also very straightforward. I guess the less capital a company needs the better because then it can use that money for organic growth, for M&A, for distributing to shareholders via dividends and share buybacks and so on.
15:13 So that's an important point. Fourth point is capital allocation, probably together with the moat the most important thing. So capital allocation is all about the decision the company makes about what to do with that money. That's very important. So we determine that by the return on invested capital, a very important metric for quality investors.
15:42 And then we have two remaining points, very straightforward points as well. Fifth point is high profitability. So the more profitable a company the better. So you want a high profit margin. You want most revenue to be translated into net income. You want a profit margin of at least 10%. But what's even more important, you also want a high earnings quality.
16:07 What do I mean by that? Well, you want that most earnings are translated into free cash flow. And I want this number to be at least 90%. Why? Well, earnings are an opinion. Cash or cash flow is a fact. So what you always see, and this is a very interesting thing and it's from the book Stocks for the Long Run from Jeremy Siegel:
16:31 companies that translate the most earnings into free cash flow, the 10% companies, the decile companies that do this versus companies that translate the least earnings into free cash flow. Well, the ones that translate the most outperform those that don't by 18%, which is a tremendous difference. What's the reason for that? When a company doesn't generate any free cash flow, it's an indication that there might be some financial engineering, that management isn't too ethical.
17:00 Also just that it's a bad business because in the end it's all about the cash that pours out of the business and so on. So free cash flow is really important. And then we have the sixth point, also very straightforward I guess, the attractive growth. Why? Well in the long term stock prices always follow the evolution of the intrinsic value.
17:28 When you know that intrinsic value of a company is basically determined by the EPS or the earnings per share growth and the free cash flow per share growth. In that case I think it makes complete sense that when you invest in a company that is active in a market that is growing structurally, sustainably, think about digital payments, obesity, everything regarding pet care and so on.
17:54 Well, this end market is growing structurally. So it's way easier for companies active in that end market to grow at attractive rates as well. And when those companies can grow at attractive rates, well, eventually that will also show in the stock price which should increase too. So you are looking for companies that in the past managed to grow organically but also are able to do so or where you think they are able to do so in the future.
18:18 So I think those are the six most important points. The moat, skin in the game, low capital intensity, great capital allocation, fifth point high profitability and then last but not least the attractive growth. And what is very important to highlight here or to understand is you are using those six characteristics.
18:39 And each of those six on its own rationally seen on the long term should be able to outperform the market. Data and studies have proven this and based on that you're basically trying to build an investable universe. So companies that fit all those six criteria, and in my universe 156 companies fit those six criteria, and that's basically your pond to fish in. And within this investable universe you are looking for companies that actually also fit your boat or where you think they are the most attractive.
19:13 All right, Pieter. Well, look, that was super useful. I know you do this for a living, so this stuff comes to you quickly, but just to have those six key tenets. Super useful. Two clarifying questions for you. When you talk about attractive growth, I think that was your quality number six. Are you talking about growth in revenues, growth in earnings, growth in something else? What key metrics do you look at to determine growth? Yeah, basically look at both.
19:39 So look at revenue growth and also free cash flow per share growth. So what I basically want for every company is where the revenue growth over the past five and 10 years has been larger than 7% per year and the free cash flow growth has been larger than 9% per year. So this for the past but you also want this for the future.
20:01 So I also want to invest in companies where I think the revenue growth will be at least 7% per year and the free cash flow per share growth at least 9% per year. Well, one question that many people ask in that case, additional question: how can you determine the future growth, which is a tricky one, right? Obviously, you can look at the analyst expectations to get a first grasp, but we should be really wary or cautious with this because in general, analysts are way too optimistic.
20:33 So what I usually do is I use the classical margin of safety from Benjamin Graham. So let's say that analysts expect the company to grow by 15% per year over the next three years, five years. Well, usually I use a margin of safety of 30 to 40%, saying okay then I think maybe the company should definitely be able to grow by 11%.
20:56 So you can look at the analyst expectations, best one to look at if the company has it is just management guidance. If management states look over the next three years we want to grow by 10%. Chances are quite likely that the company will meet those expectations. Why? Because a company always wants to underpromise and overdeliver and when they say we are going to grow by 10%.
21:18 And in practice they actually grow by 11%. Well, that's positive and the stock price will go up when they announce results and the other way around. So management guidance is obviously an important one and you can also already look at when a company is active for example in an attractive growing market think about cyber security and the business has been growing by 15%.
21:44 Well, it already gives an indication. Look, the company is doing something good. Hopefully, they can continue to do this. And this is maybe a bold statement and not everyone will agree with me on this one. But I think that when you look at a certain business and the same CEO has been leading that company for 5 years, 10 years, 20 years, and over the time period the company has done tremendously well.
22:12 It already tells you quite a lot because there is a famous saying on the stock market. Well, sell your losers and let your winners run. You can also invert that and say, well, I'm just going to look already at which companies did tremendously well in the past. And when the same CEO is still leading the business, well, it already tells you something.
22:32 It doesn't mean that by definition the company will continue to outperform, but to me it shows that the CEO is a great capital allocator and that the business is doing well so far. Okay. And I'm glad you just ended there on capital allocator. That was my second question. How do you measure that? How do you determine if a company is a good allocator of its capital? That's a very good question.
22:59 And the first thing I want to highlight here is most CEOs are terrible capital allocators. Why? When you become the CEO of a large company, usually it's because you are the best salesperson in the business. You are the best marketing guy. You have the best technological skills and so on and so on.
23:18 And then all of a sudden you become the CEO. And what is the most important task of a CEO? Capital allocation. But those people have been climbing the ranks or climbing the corporate ladder of the business but they have never had any capital allocation training or experience and that's very bad because it's the most important thing. And I think you also have a lot of personal agendas for example where the CEO is acquiring another business for prestige or because their bonus is linked to the revenue of the business and so on.
23:49 So if you want to spend a lot of time on one thing when analyzing a company I would say it's capital allocation. And then to directly answer your question, it's important but how can you look at the capital allocation skills of management? Well, you can do this by the return on invested capital. So you can calculate this by taking the net operating profit after tax and divide it by the invested capital and I always want to have this number larger than 15%. And what does this number tell you?
24:24 When a company has, for example, return on invested capital of 20%. It means that with every 100 USD you invest in the business, it generates $20 in value or in profit for you as a shareholder. So it makes sense. The higher this number, the better. And to add one quote from Charlie Munger here maybe to highlight the importance of return on invested capital.
24:50 When you buy a company with a return on invested capital of 8% and you buy it very cheap and you keep it for 30 years you probably do very well as an investor. On the other hand if you buy a company with return on invested capital of 20 or 30% and you keep it for 30 years well you will end up with one hell of a result even if you pay an expensive price.
25:13 So return on invested capital is very important. But there's one big side note to make on this quote from Charlie Munger, or I paraphrased him here. A high return on invested capital only is valuable when the company has plenty of reinvestment opportunities because you want a company, and that's the golden goose on the stock market.
25:36 You want a company with a high return on invested capital that basically can reinvest everything in the business at this high return on invested capital and that's how you basically create a compounding effect on the profits of the business. And those companies are very rare to find but when you find one, well, it will do exceptionally well and that's basically how compounding machines are created.
25:59 Can you give an example of a company that most folks would recognize that you think is a good standard of that? Yeah, as mentioned those companies are very rare. Take Apple for example. Apple is a phenomenal business, very profitable, high return on invested capital and so on. But the problem with those kind of companies is all of a sudden they are so profitable, they pour out so much cash that they just don't know what to do with it anymore.
26:30 And that's, if you ask me, one of the reasons why they for example started buying back shares. They have too much cash and they don't know what to do. Well, one example I can give, and I guess you have a more US native speaking audience, Adam, but one of the few companies that I found that is quality, that is a great business and that can reinvest almost everything in the business is Dino Polska.
26:57 And for a lot of people that probably won't ring a bell, but it's basically a grocery store in Poland. And you have the same story there. Well, Tomasz Biernacki still owns over 50% of the business. It has a phenomenal track record. It's growing at phenomenal rates. And this year will be the first year that they won't reinvest everything, all free cash flow, in organic growth just because they're obviously also becoming a bit bigger.
27:26 But what they reinvest is still a substantial portion of the business. And that's exactly what you want in general. Okay. So, as I mentioned in the intro, you run the number fifth highest earning financial Substack in the world. And I want to let folks know, I mean, Pieter, you're a young guy.
27:56 You're sitting there in a room with a modest background. I have a really good sense of what these financial Substacks make at the top of the pyramid there. Yours is doing very well just from the Substack business alone. But obviously what your skill set is, is taking capital and then investing it like the great, building a Buffett-like portfolio.
28:17 And maybe it's worth talking just for a quick moment about compounding quality itself and what the goal of the site is. But essentially you manage a portfolio and then you're very transparent with your audience about what companies you're looking at, what you're deciding to buy, what you're deciding to remove.
28:38 I guess talk briefly about that and then if possible, what I'd love for you to do is take a company or two that are in your portfolio and tell us exactly like you just did with this grocery company. What attracted you about it, why it's in your portfolio. Sure. Obviously, it's very interesting. I think it's the same for you, Adam.
28:58 Most important thing with compounding quality, with the Substack, I'm just having fun. And that's what probably people notice. Well, how things started for me very briefly is I used to work in the industry, the asset management industry. I love to write columns in newspapers, give presentations, webinars and so on.
29:22 And basically that was hard to do given my regular job in the asset management industry. And one day my boss approached me and he wasn't too happy which caused me to start anonymously an account. So compounding quality, compounding magic of compound interest, quality by investing in quality stocks.
29:43 I needed to have a profile pic but wanted to stay anonymous. While you also see him in the background. Warren Buffett is your personal hero. I am going to Omaha for the Berkshire AGM for the third time this year. So I used the red cartoon of Warren Buffett and I just started posting and writing articles about the markets, about stocks, investment cases, what I thought was going on.
30:09 So that was a lot of fun and things kept growing and growing and growing and right now people will look it up. Well, I don't have the Warren Buffett icon anymore. The reason for that is, I don't think too many people can tell that, but I got a seize and desist from Munger Tolles Olson.
30:28 So the corporate law firm of Charlie Munger who basically emailed me in a very friendly way. Well, you are using this Warren Buffett icon. We got some emails from people asking whether Warren Buffett was involved in compounding quality. Obviously he wasn't and that email caused me to freak out and change the logo as soon as possible which is a pity.
30:52 So apologies to people who can't look at Warren Buffett's face anymore and need to look at mine nowadays. But that's how basically things started for me. And today I think there are a bit over 1 million followers across all channels, almost 500,000 on the Substack. So things are going great and I think that's really important and exactly the same for you Adam.
31:18 If you want to do this, you need to do it with passion, honesty and integrity and be your unique self. That's the most important thing especially in today's times where AI can actually do a lot but authenticity is something that's really important. So what we do or what the Substacks do, it's a combination indeed investing, so making investment cases, make the best investment decisions obviously, but the writing part is also a very important one for us.
31:52 So as a kid I always wanted to become a teacher and now I always say I'm combining the best of both worlds. I'm following my passion for investing and stocks and in some way you're also a teacher because you try to educate people to do it yourself. So the main thing at compounding quality right now is indeed, look, I'm sharing my portfolio, my stock portfolio, all my investable assets are in there.
32:17 So skin in the game, show me the incentive and I'll show the outcome. And the fact that all of my money is invested in those stocks doesn't mean per definition that those investments will be great. But what it does mean is that when those investments don't turn out well, well, I will be the first one to be in a bad mood as well because all my money is there.
32:42 And I think having that skin in the game, having that honesty and transparency is very important. So people can follow that portfolio. When I buy or sell a stock, I always let people know on Sunday that I will buy or sell the specific stock the week thereafter. So people who are reading can do the execution of the transaction before I do.
33:03 So that's basically the idea of compounding quality. Now to answer your question, can you give two specific stock examples? Well, yes, I can. And maybe let me give examples that suit or fit the six criteria that we talked about. One company I'm really enthusiastic about right now for example is Kinsale Capital.
33:31 Not sure if that rings a bell for you Adam or not. Nothing at all. So basically Kinsale Capital is a US company. It's an insurance company and to be more specific it's an E&S insurance company. So that means excess and surplus lines. And to explain it in a very easy way, basically when traditional insurance companies don't want to insure a certain risk, well Kinsale most of the time does that.
34:09 So think about some guy who has a car insurance and he had 10 accidents while driving drunk and he can't get a car insurance anymore. Well, in that case, he can get to Kinsale Capital. And maybe people will think, well, that's a huge risk for Kinsale Capital to insure those kinds of risks. But obviously, the premium what people have to pay to take that kind of insurance is also way higher than usual insurance.
34:36 And on top of that, a lot of traditional insurance companies, they are very old schooled. So meaning if you take Markel or other companies, often they use 10, 15 different platforms and different technological tools for different risks in their business. Well, Kinsale Capital in some way can also be seen as a technology company, meaning they have everything in one platform.
35:03 And because they have everything in one platform, they can do everything way faster, but they also have way more data insights. And when you have more data insights as an insurance company, you can determine the risks way better. And that's one of the reasons why Kinsale Capital is way more profitable than its peers.
35:22 And it's a bold statement, but when I read or found out the first time about Kinsale Capital, it reminded me a lot about what Warren Buffett said about Geico 30, 40 years ago. So you have a company that is led by an excellent owner operator. So Mike is the CEO and founder of Kinsale Capital.
35:44 They are active in the insurance business but more specific in the E&S insurance business that is growing at significantly higher rates than a traditional insurance business. And on top of that you have a third pillar. Well, Kinsale wants to double its market share within the next 10 years. So basically you have three different things that will continue to accelerate the flywheel and which should cause the company to grow at very attractive rates.
36:14 And when I talked with Mike Kehoe from Kinsale the last time, well I asked him, it's an insurance company so they receive premiums from clients and afterwards invest them, but for the equity investments nowadays they basically outsource everything to BlackRock. And I asked Mike, well when are you going to do your equity investments in house, and he said well when our assets under management, what we can invest, will triple. And I think that will be sooner than later.
36:46 And then I noticed in his body language that he said more than he would have or should have wanted. So that's a great example to me and a company I'm very happy about. Another one, maybe it's Medpace, and that might sound a bit like a weird move given what's going on with Trump and the drug administration in the US right now because Medpace is a company that basically helps small and midsize biotech companies to execute their clinical research. So it's important,
37:24 it's not a biotech company itself but they help biotech companies to execute their research. That's really interesting because biotechnology often is a zero to one story. You succeed or you don't. But for Medpace they get paid no matter what. And you have the same story there.
37:46 August Troendle founded the company in 1992. He is still the CEO today. He has a net worth of two billion and 1.9 out of that two billion is still invested in Medpace. So he has skin in the game. Once again doesn't mean that Medpace will by definition do well but it means that August Troendle will do everything he possibly can to generate as much shareholder value and in general it's just a phenomenal business.
38:14 The company keeps very profitable, has a healthy balance sheet, keeps growing at very attractive rates. So those are exactly the companies I'm looking for right now and in that case, well, I also think having a bit of turmoil, having a bit of uncertainty in the market like with the tariffs right now in the US, I think that's actually good because it allows you to buy some of those companies at cheaper valuation levels. Okay.
38:42 And so first off, thank you again for being willing to open the kimono a bit and be so specific with these individual companies. Folks, just a reminder, none of this is personal financial advice. These are just companies for you to go and explore or better yet even perhaps subscribe to Pieter's service and learn more about them through that, plus all the other companies that are on his portfolio.
39:04 So in the intro I talked about the three kind of meta practices that these great investors had which was buy wonderful companies and you've given us a good example of what defines a wonderful company led by outstanding managers. You've talked about that as well, trading at fair valuation multiples.
39:26 So obviously I'm guessing you talked about your six requirements for compounding quality. And if I heard you right, I think you said there's about 156 companies that fall into that filter. Your job is to determine, okay, which of those 156 do I want to add to my portfolio? And I guess a really big factor there is, well, what's the current value? Is it a good value or is it overpriced, right? So how do you determine which value you become interested in buying in? Sure.
39:57 How much time do you still have? I can go for two hours about valuation if you want. I know. I wish I had two hours. We're kind of getting to the end. So let's give the accelerated version. We can obviously have you back on, Pieter. Perfect. Basically, as you mentioned, there are 156 companies in the investable universe.
40:17 There is a huge part, probably the majority, which is trading at way too rich valuation levels and even the best company in the world can be a horrible investment if you overpay for it. So now it's the art or the third step to try and pick them up at fair valuation levels. And compounding quality, I always use three methods to value a company but I keep it briefly.
40:40 First one is just very naive. Compare the current forward PE of the company with a 10-year average. It tells you a bit and it tells you how the company is valued compared to its own historical average but it doesn't take into account the current outlook, what's going on in the business and so on. But it's very naive, but when I for example see that it's significantly cheaper or trades at the cheapest valuation over the past 10 years, that tells you something interesting, that for example today is the case for LVMH, the French
41:14 luxury company. But it's also important to look at the two other models. Second model you use is an earnings growth model. In theory, it's very easy to calculate what return you will generate as an investor. It's always your EPS growth, earnings per share growth, plus your dividend yield plus or minus your change in the valuation.
41:44 So to do this valuation off the top of my head for Kinsale Capital for example, well I think Kinsale can grow its EPS by around 12 to 13% per year. They pay a very small dividend but for the easy math let's say it's zero right now and they are trading around 25 times earnings. So maybe it can be a bit lower.
42:07 So let's say that over the next 10 years the PE goes from 25 to 20 times earnings. Well in that case you take the EPS growth 13%. Plus the dividend yield 0%. Minus the change in the valuation which will be roughly minus 1%. And then you have an expected return of 12% for Kinsale Capital. Well then the question for you as an investor is am I happy with a 12% return per year? If so, Kinsale Capital might be interesting for you.
42:38 If not, well, you should look for other opportunities. So that's a second valuation method. Third one is a reverse DCF. Some or many of you will know a classic DCF, discounted cash flow model. With a reverse DCF, well, as Charlie Munger said, if you want to find a solution to a complex problem, invert.
42:59 Always invert. Turn it upside down. So with the reverse DCF you are not going to make any assumptions yourself. You are just going to look at what is implied in the current stock price. So basically you take the stock price of today, you take the free cash flow of today and then you are going to look, well, how much growth of the free cash flow does the market think that we will achieve.
43:30 To take Medpace for this example, well, it's a bit complex to talk about because it's an Excel but you can definitely find it on my website when you go compounding quality reverse DCF. But when you would do that exercise for Medpace right now for example you will find that in order to generate a return of 10% per year for you as a shareholder, Medpace should grow free cash flow by roughly 11%. And when you know that the expectations as well as the historical free cash flow per share growth has been around 15%, I think
44:07 that's too conservative and why I think Medpace is a great investment today. So basically always to recap, always using three methods, just looking at the forward PE versus the historical average, an earnings growth model and last but not least also a reverse DCF. And that's one last thing to add here maybe if I may Adam. Sure.
44:27 I think regarding valuation, to conclude, well it's way better to be roughly right than exactly wrong. So don't try to estimate the intrinsic value to two decimal spaces. You should be able to make your valuation calculations on the back of a napkin. And if you need Excel to figure out whether a stock is interesting or not, it's probably not.
44:48 All right, that's a great reality check there at the end. All right. Well, look, I should have probably asked this question right up front, but you're very public with your subscribers about trades you make and all that. How has your portfolio performed? Sure. So the official portfolio is here since October 2023.
45:12 So off the top of my head, obviously it changes every day but right now the portfolio has a positive return of 40% versus, and to give some guidance about it, the S&P did 24% over that time period. So I'm very happy with this return so far, especially given the fact that I don't own any big tech.
45:37 So for the S&P the majority of returns have been driven by big tech over the past few years. I'm quite skeptical about big tech. And if you look at the super investors we talked about, well, over the past few years, it was basically almost impossible to outperform the S&P 500 if you didn't own any big tech. Well, I didn't either, but the returns are still great.
45:59 So I'm very happy with that so far. All right. Okay. So folks, take from that what you will, but hard not to argue that the approach isn't working well. All right. So with valuations, you've shared how you determine whether it's a good value to buy in. How do you think about when it's time to remove it from the portfolio? Just because a stock has had a good run.
46:25 If you're planning on holding it for the long haul, are you trading it like, oh, now it's overvalued versus those metrics. I got to sell it and then buy it back later. Or do you just hold it for the long haul unless something really critical happens? Yeah. Regarding quality investing, well, it's somewhat a buy and hold approach, meaning if your homework is right, if your investment case is right, this company will keep or will be able to keep increasing its intrinsic value year
46:53 after year. And when that's the case, there's no reason to sell. So most of the portfolio, most of the companies in the portfolio just like Warren Buffett, they will be there for multiple years and hopefully decades. I also think it's very dangerous to sell just because of valuation levels.
47:12 For example, I talked about performance, well our performance of over 10% versus the S&P so far. What you also see there is that one company, one huge winner drove the majority of returns. It's quite expensive, but I never trimmed it. So it's by far the largest position and trimming or selling your winners can be very dangerous.
47:33 What is a reason to sell a company in that case? Well, very easy, very simple. When your investment case is no longer intact. And so far with compounding quality, I can also be fully transparent about that. Since 2023 I sold two stocks and selling a stock basically means that I made the mistake in the first place.
47:56 First stock I sold is Text S.A. early 2024. So basically it's a company that pops up when you're using a website and it's basically a live chat solution thing. So it's a chatbot that helps you when you have a problem on the website. Well, initially I thought AI would help Text S.A. become a stronger business, but after a few months it became clear that it's more a threat than something that helps them.
48:27 So it's very uncommon. I sold Text S.A. after only owning it for four or five months. And I sold it with a loss of 20%. Which is painful, but in hindsight, when you look at the company right now, I think it's down an extra 50% compared to when I sold it roughly a year ago. Second company I sold is Ulta Beauty. Might ring a bell because Berkshire Hathaway and Warren Buffett owned it for a while too.
48:56 Well, Ulta Beauty, we can't tell whether it was a good decision selling them or not because I sold it very recently. But the reason I sold it is, well, I thought it was a great business. They were the clear market leader in beauty retail in the US. But what I misunderstood or what I made a mistake probably is the retail beauty space is way more competitive than I actually initially thought.
49:21 And I also think it will become more and more fragmented, also what you have with TikTok and influencers and those people starting to sell their own fragrance or their own beauty retail products and so on. So that's also why I sold. And I think one rule, and it's also no secret or no surprise based on Warren Buffett.
49:41 One rule I always use when I'm in doubt about the company. Well, would you still be willing to own this company if the stock market would close for 10 years from now? If the answer is yes, happy to keep it. If the answer is no, happy to sell it. To take Text again as an example, well, I have no clue.
50:00 Chatbots, especially given AI, it could become a commoditized product and in that case it's a very dangerous thing when you invest in those kinds of companies. So you want to invest in great businesses that are very predictable. All right. Look, Pieter, super useful. People will oftentimes ask me to come on their programs and I always like to tell them, hey look, I appreciate that, if I feel it's a good fit, I will.
50:31 And I say, look, I'm not necessarily an expert. But because of my day job, if anything, maybe I'm an expert of experts, right? I can tell you what the smart minds think about where the macro situation is headed from here. You I think you definitely have your own investing expertise that you've cultivated, but you've done that by studying the experts.
50:53 So you yourself are an expert of investing experts. So you've done a great job of giving us, I think, kind of the base fundamentals here. There are a lot more questions I have. We don't have time to do it justice, so we'll just have to have you back on the program again in the future if you're game for it.
51:10 In the interim though, for folks that have really enjoyed this and are thinking, hey, I'd like to really follow Pieter's process. And there's, somebody could put in the tens of thousands of hours to try to become the next Warren Buffett acolyte. But what might be a better use of their time is to focus on earning the money and then leveraging somebody who has put in those hours, perhaps even you, right? So where can they go to learn more about your work and maybe get access to the compounding quality portfolio? Yeah,
51:44 truly appreciate it, Adam. And had a lovely time. So hopefully it was interesting for people who are still listening. Probably most easy way is via compoundingquality.net. So I'm doing everything under compounding quality. So compounding magic interest quality by investing in quality stocks. So compoundingquality.
52:05 net and for the rest I'm also active on X or Twitter compounding quality and happy to educate investors along the journey. I think it's the same for you. As long as we are having fun, I think that's the most important thing and then readers and listeners will also see and feel that and that makes a lot of difference in the long term.
52:27 All right. Well, look, very much appreciated. I had a great time as well. Look forward to having you back on soon, Pieter, and best of luck. Thank you. Have a lovely day.
--- END OF PIETER SLEGERS INTERVIEW (~52:40). The remainder below is the host's separate New Harbor Financial advisory segment with Mike Preston (S&P hedging, gold/silver/GDX/GDXJ/SLV) — NOT Pieter Slegers, retained for completeness only. ---
52:40 All right. Well, now is the time in the channel where we bring in the lead partners from New Harbor Financial, one of the endorsed financial advisory firms by Thoughtful Money. We'll talk for a quick moment about their reaction to the interview we just did here with Peter. But obviously there's a lot of stuff going on in the markets. Some important elements around precious metals that we need to get to as well. So let's just dive right in.
52:56 I'm joined today by New Harbor lead partner Mike Preston. John Lodra is out of the office today. Mike, great to see you, buddy. First time interviewing Peter. Very knowledgeable young man, very impressive what he's been up to so far and been able to accomplish in his career. I bet you probably have a bunch of notes. I've got a lot of notes.
53:15 I couldn't fit them all on one page, but that was an enjoyable interview with Peter. That was a little bit different than what we've seen lately on the program, but a really interesting angle and a person that's really really well-versed in this business. It's obvious. Very Warren Buffettesque, I'd say, in his approach.
53:36 And he had a nice picture, I think, of Warren Buffett behind him. And in this business, in this life of investing, there's a lot of different things that can work. The hardest thing is figuring out what worked for you. Your personality makeup, your emotional makeup, your objectives. You can be a macro/fundamental value investor, which is what I think Peter is at heart, and so is Warren Buffett.
54:00 You can be a technical analyst, and you can follow trends and just be a trend follower. Some of the very wealthiest people have done that in investing as well. And so there's just a lot of different ways. It's an infinite universe, the investing universe. And so what was really cool about this talk is a couple different points that I'd like to talk about here.
54:21 The successful investor has discipline. He's absolutely right. You have to have discipline in an infinite universe where you can make limitless choices. You have to have discipline and only take the ones that fit your criteria. And of course, the hard thing to do is to list your criteria.
54:37 If you're going to be an individual investor, you have to find a system or at least a minimum a list of criteria that works for you. Then you have to have the patience that he also talked about, the discipline, the emotional fortitude to pull the trigger when you see those signals being met. And you also have to have a system that gets you out.
54:59 This is really tough for most people because emotions take over, particularly at extreme points. We saw a little bit of that over the last week or two. And I wonder how many people kind of buckled even if they had a system in place. And then maybe they took trades that they wish that they didn't. So he talked a little bit about different types of advantages.
55:20 I've got in my notes here. Talked about an analytical advantage and an information advantage. Nobody really has an information advantage anymore. Pretty much agree with him unless you have inside information which is illegal to act on anyway. Everyone has the same information. Analytical advantage though, I think he's right that the small investor, in some institutions too, can analyze differently, they can have a different perspective, maybe they've got access to different
55:51 information. I think that there can be some small advantage there. But he's absolutely right in the largest advantage is the behavioral advantage. You don't have to be in every market. You don't have to take every signal. You can sit on your hands for years in cash and wait for the market to crash if that's what you want to do.
56:09 And honestly that's not a bad method right now to be honest. But the institutions definitely can't do that. So that's the biggest advantage and I agree with them that the individual investor has. And so use it, be very very careful and selective about what you do. I don't think I'll dig into his six criteria of what's a good investment.
56:32 I think they all made sense, about the moat and capital intensity, high profitability, etc. Yeah, I think that your viewers should maybe just go back and watch that section a couple times. I think that makes a lot of sense if you really look into those criteria for the types of companies that you're looking at.
56:55 And the last thing I guess I'd mention that I have written down here in capital letters that I thought was really important was honesty, integrity, be yourself. That is what this world needs and I think it shined right through in this presentation. Honesty, integrity, be yourself.
57:20 Don't try to spin something into something that it's not. Just be yourself. And he talked about how he did that in his writing. We try to do that in our videos with you, Adam, and on our own YouTube channel. And I know that you try to do that in every video that you do. So I thought that was really cool. Well, thanks.
57:40 And what I think is really important about that to tie it to investing is Peter clearly has a real passion for this, has dedicated his life to it. We didn't get too much into his personal backstory though we did mention he started off working in the investment industry but I mean this is a passion of his from his teenage years.
58:04 He's put in his 10,000 hours right? He's probably got 20, 30,000 hours at this point in time, I imagine. So he lives and breathes this, right, where I think many people aspire to. I'd love to be as successful as a Warren Buffett type investor, right? And there's pressure they put on themselves to, well, okay, then I've got to research all this stuff and I got to put in my 10,000 hours.
58:33 And for most people, they just don't have the bandwidth to do that, right? And even authentically, that's probably for most people, it's not their passion. It's not their skill. They've got some other thing that they're exceptionally good at and leaning into with their careers, with their lives, etc. And of course, they have other demands like family and stuff like that.
58:51 So I think what a big lesson to take from that is, hey, what's my zone of expertise and authenticity? How can I lean most into that and then leverage other people who are authentic experts on the things that I'm not, but I want to benefit from that expertise. So for a lot of people that's probably what they're doing for their career, right? Like be great at that.
59:16 Make as much money from that as you can and then find a really good partner. Maybe it's Peter and his portfolio. Maybe it's a financial adviser like you and the team at New Harbor, Mike, and let them run with the ball for you on the investing side of things because that's their authentic zone of expertise, right? So you put the two complements together.
59:36 And I think too many people put the pressure on themselves. No, I got to do it myself. But they do it imperfectly because it's either not an authentic skill of theirs or they just don't have the time and the bandwidth to do it the way that you professionals do because it's what you do from waking up in the morning to going home at night.
59:55 Yeah, absolutely. I've been doing this for close to 30 years now. So it's many tens of thousands of hours and I'm still not perfect. I'll never get perfect or I'll probably never even get near perfect. But being moderately near perfect is good enough or at least very seasoned and experienced. And just be genuine. Be yourself.
1:00:14 Be authentic. I'll say that over and over again. If you're going to delegate to somebody else to manage money for you, and I think a vast majority of people should do that, make sure you pick somebody authentic. I can tell just by watching that Peter is authentic. And so I think he'd be a good choice.
1:00:31 I think we're authentic, and I hope that others agree. And for many, we're a good choice. For others that don't really even want to worry about it, they want to just index for their whole life, that's okay, too. And then you don't even have to worry about the authentic part of it because you just put your money in an index fund for 100 years and you'd be fine.
1:00:51 I don't think it's the best time right now to do that. But still, I have to admit over 50 years, it's probably a decent move, and this industry is filled with spin. Everyone's kind of spinning a certain angle and for the most part there's not a ton of authenticity in the marketing of Wall Street and so most people if they're delegating to somebody else are getting pure vanilla kind of like index type funds and I don't think there's a lot of value in that.
1:01:19 So if you're going to delegate and pay a fee, find somebody or a group that's authentic like us, like Peter here that you had today. I think that's the key point. Yeah. And also too a good authentic match for you. Meaning Peter is all about quality, right? I'm going to look at the really safe bets that should pay out over the long run, right? Somebody else might be much more of a I want to swing for the fences.
1:01:47 I want to be much more speculative or I want to be trading on technical indicators, not fundamental ones. There's not necessarily a wrong answer there. I mean, I got a personal point of view, but you should find the advisor that best matches what type of investor you are, right? Just like my wife's a therapist.
1:02:05 I think she's a really good one, but the therapist that works well for me might not work well for you, Mike, because we're different people and we have different views of the world or different things that we're looking for, right? So just make sure that you're not just picking an adviser because somebody said, "Oh, that's good.
1:02:21 Or he had the best performance last year." Make sure that their expertise and their approach is a really good fit for what type of investor you truly believe yourself to be. Okay, moving on because we got a lot to chop through here, Mike, before we finish up here and not a lot of time. Markets have continued to be pretty volatile.
1:02:38 The volatility has dialed down from the craziness of last week. So that's good. But there's still a fair amount of uncertainty there. How are you guys navigating this? And I believe you mentioned before we hopped on here that you guys have made some recent changes to your portfolio.
1:02:53 We have made some recent changes. We are active managers and we do attempt to be tactical. Particularly when we see some major changes happen in the short term and we've seen some of these. So I'm going to attempt to encapsulate and summarize the best I can the way we see things right now and some of the moves that we recently made.
1:03:14 So I'm going to bring up to start a daily chart of the S&P 500. So here's a daily chart of the S&P 500. We saw a pretty big pullback in the S&P 500. In fact, the S&P was down 21% from this high to this low. That's technically what you call a bear market. Certainly was a pretty compressed drop.
1:03:39 It was as fast as some of the other really swift drops we've seen throughout history like the COVID drop. So it really caught a lot of people flatfooted. In fact, we were quite surprised at how deep this happened and how fast it happened. So we came into this whole thing with a relatively low equity exposure.
1:03:58 We have elected to have about a 40% equity exposure for some time now, many months coming into this because of the macro concerns we have and the valuations in particular are absolutely obscene. We still think we're building a move to what is potentially a blowoff top. Although, maybe this was the top back here if I had to guess.
1:04:20 And we do have to guess. I don't think that was it. I just don't think we saw enough fireworks at that ultimate high. So I believe that this pullback here, as sharp and surprising as it was, might very well be just building energy for what I think would be the final move up of this bull market that really started decades ago.
1:04:39 That's our best guess right now. I would tell you that we're not betting heavy. Sorry, Mike. Meaning, you think it could go back to potentially new highs? I think so. Yes. Yep. I absolutely think so. And I think that could happen in a relatively compressed period of time, like over the next six months.
1:04:56 I wouldn't tell anyone to bet on that because the macro says and the valuations say that we could collapse right from here. But what I'm looking, I'll show you on this chart what I'm looking for here. And I've got my little pencil as a pointer. So we came into this with 40% equity, but we had 15% of it hedged down here at 5400.
1:05:19 So we came down here, we bounced off this 50-day moving average, which is the red line, and then we just collapsed here. This was, I guess April 2nd here was when Trump announced the additional tariffs and the bottom just completely fell out. And the volatility index here was above 42 or 43 for like 3 days.
1:05:42 Volatility actually went much higher than that, but it was in the mid 40s and closed there 3 days. That hasn't happened except for three times. Once during COVID, once back in the housing crisis and now. So we knew things were really really extreme. And so when we came down here, we bounced and then we retraced back here somewhere in the low fives, we closed this hedge that we had, effectively bringing us back to 40% equity.
1:06:11 The mechanics of that is we took a profit on that hedge and then it snapped us back to 40% equity. We will look to reestablish that hedge and sell calls on some existing positions as we move higher. Take a look at two things on this chart. The red line is the 50-day moving average. It just crossed the 200 day moving average.
1:06:31 By the way, the so-called death cross right here. That's a death cross. Nothing as obvious as the death cross ever works very easily in this market. Now, I'm not saying that you shouldn't be concerned because of the death cross, but I'm just saying don't. It's just not that easy, right? There are lots of false signals with these types of things.
1:06:52 So we tend to mostly ignore that in terms of our decision-making, but watch for this 50-day moving average and then watch for this downtrend line, which is this orange line. I believe that sometime soon we probably will snap up here and close above this downtrend line. And then if we do, then watch for the 50-day.
1:07:12 That would be another key point of consolidation. That's a good point to perhaps reestablish this hedge that I talked about and perhaps sell calls on other existing positions. We're probably not going to go up much from our 40 to maybe 45% equity allocation. That's a key point that makes us different. And maybe we're going to be regretting this a few months down the road because even if we go up to new highs, we're probably not going to embrace it fully with the set of macro conditions that we have.
1:07:41 So we're going to be really careful about that. Let me go ahead real quick. Let me just catch you guys doing something right. So we talk a lot in this program about the importance of risk management. You guys at New Harbor have been exemplaries of that. You've done free tutorials for this audience on the basics of hedging.
1:08:06 And it's something that we talk an awful lot about, right? It's downside insurance. And I know for a lot of people, I think it kind of goes in one ear and out the other. Yeah. Yeah. We should be doing this. We should be doing this. But a lot of people don't put hedges in place on their own portfolios. And of course the moment that things go to heck everybody desperately wishes that they had hedges in place even just a minute or two beforehand.
1:08:34 And so you guys are showing exactly here the wisdom and benefits of the discipline of always having good risk management in place. So as the S&P dipped below 5,000 there, people were completely freaking out, whereas I'm sure you guys had some concern, but you were like, "No, we're not sweating it too much because we had bought our insurance in advance.
1:08:55 And as you said, you were able to close out those hedges and have gains that offset whatever losses the portfolio took. And your clients as a result didn't get nearly as injured as the average investor and everybody got to sleep better at night. So I do just want to make sure that when these things actually pay off during tough times like we've just seen that I really underscore for the audience here the value that your approach to risk management brings to the table.
1:09:24 Yeah, I don't want to overstate it though. I mean a hedge is not perfect. It simply defrays downside. The biggest thing that we did right coming into this is a relatively low allocation to stocks. When you have a big up move, that's also the thing that some people complain about or you worry about because you're going straight up and you don't have 100% stocks.
1:09:46 But the first thing we came in was 40% stocks. The second thing we did right was to have the hedges in place that dropped us to 25%. The third thing I think we did right was to take a profit on that hedge. And so it's a little bit step by step by step. Right now we're about flat on the year and the market was down 21% off of its high.
1:10:05 It's still down, just by eyeballing it, it's down about 800 points. Let's see, it's about down 15%, 14% still, maybe 13 to 15%. And we're flat for the year, sounds pretty awesome when the market's down that much. It's pretty darn good. We're pretty proud of it.
1:10:25 And so that's what we're looking to do is defray the downside. It's not perfect. So we still lost a few percent, 2, 3% maybe 4% max from the ultimate swing high. So it's not going to defray 100% but it's going to defray a good amount. Let's take a quick look at the monthly chart. I want to point something out on the monthly.
1:10:45 Look at that COVID drop back there. That was a two-month drop. We just had one that's at least as steep as that. But if you take a look at this most recent month, I don't know where we're going to close the month because we're only halfway through it, but we have a bit of a kangaroo tail is what a lot of people call this or a pogo stick, so to speak.
1:11:03 We went down here and these lower levels rejected soundly and now we've been driving upwards. It's possible if we close stronger that this might go up here and it'll be a super bullish candle, but just keep an eye on it and step out sometimes if you get too emotional.
1:11:20 I think just so much has happened this month and this is a strong rejection of these lower levels. So, going back to the daily, I kind of expect us to base out here and then pop up to these levels that I just mentioned. So that's the big picture. NASDAQ had an even bigger pullback, but if I just type in NDX, you can take a look at that.
1:11:39 And it's pretty much the same shape. The S&P equal weight roughly the same shape, etc., etc. But we expect some short-term strength back to the S&P which is why we took off our hedges. It's all possible. Okay. And besides the hedges, have you made any other changes to the portfolio in the near term? We did.
1:12:02 If I could share a couple charts again, I'd like to just maybe finish up with what's happening in gold. I know we talk about it every week, but it's just so important right now. And I think a lot of people are piling into the trade. That's a little concerning. There's a lot of articles out about gold.
1:12:19 Gold is outperforming incredibly versus silver. I think last week you pulled up a gold to silver ratio chart. It was at 100 to one. It's at 101 to 1 right now. It hasn't been above 100 since COVID. It was at 80 just a little while ago. 60 is more of a norm in the last few years. Some would argue the long-term norm is more like 15 to 20.
1:12:44 I don't know that that's going to happen anytime soon, but even if we move back to 80 or 60, it would be a huge win for silver versus gold, assuming gold doesn't collapse from here. Yeah. And I should note, folks, we're recording this midweek. The day we're recording it, gold is up somewhere like 3345. It's up over $100 an ounce on the day, which is amazing.
1:13:07 So yes, gold has been having an amazing run here. And so my guess, Mike, is you guys are getting a little bit, I don't want to say the word nervous, but maybe just a sense that a pullback or at least a cooling off period is probably coming at some point here. I think so.
1:13:26 Let me show you a daily chart. We talked about this a few weeks ago, though, and I remember saying, be careful. We just don't want to have to call a top because I've been shown wrong time and time again calling tops. And so we didn't try to call a top, but look what's happened to gold. We just had a recent pullback here on the, I guess this was post tariff news, but it's just been vertical. Look at this gap.
1:13:48 Gap here, gap here, gap here. One, two, three, four gaps in the last two weeks. That's pretty crazy, and of course with gold that probably points to a lot of strong overnight action. So maybe analyzing gaps isn't really valid with a commodity, but still it's a hugely bullish chart way above the 21-day moving average.
1:14:12 We'd expect the pullback at some point. So be careful piling in here. If you just don't get too overly aggressive, we expect the pullback at some point. And I think the miners are a much better play right now. And the relative strength of the miners has been there for quite a while now, for a couple months. And so that's why we're 100% in miners in our sleeve.
1:14:35 We've got a 10% sleeve of monetary metals or monetary assets. Sometimes we kind of have bullion in there. Right now we're all in miners. Let me just show you a chart of silver and then I'll show you miners and then maybe we'll stop there. But silver has been kind of frustrating for anyone that's been in silver. I can't really figure this out to be honest quite yet.
1:14:54 We had on tariff news a drop on this is SLV which is not spot but you get the picture with just the shape. We had this big drop and we haven't quite got back to the swing highs recently. Compare that to what you saw in gold. But if you really step out a bit and go back to the monthly chart, look at silver.
1:15:14 It's got the same what we call upper hammer or kangaroo tail pattern. If we break out of there and that ratio starts to normalize. I really think that silver is a better play right here than gold, but it can be frustrating. Yeah, it would not surprise me at all to see silver have an absolutely massive move if gold hangs out anywhere near its current levels here.
1:15:38 As long as gold doesn't collapse, right? I mean, gold could just go sideways for a while and this could just take off. Look what happened back here in 2010. Again, this is SLV, not spot, but it's close to spot. It basically went from 16 to 48. It basically tripled.
1:15:59 And gold did not triple over that same period of time. It just, there can be really vertical moves in silver and a lot of people are anticipating that. That's what's frustrating for the silver people, and I've talked to quite a few of them, and I'm one of them, too. I prefer silver and I can sense the frustration that I feel watching this type of action.
1:16:18 But I do think this is a great, you don't get presented with too many of these opportunities in investing where the outcome here is going to be I think more binary than normal, right, where either silver is going to catch up to gold and history has shown that silver does follow gold, right, gold moves first then silver moves and silver tends to move much further much faster. Right.
1:16:48 It's like a slingshot catchup, right? And just to your chart here that shows the high of silver at 48 or whatever back in 2011 or early 2012, can't remember which it was. 2011 gold was 1900 an ounce then, right? Gold's almost twice that now, right? And yet silver is still trading at a substantial discount to the height it hit back then.
1:17:13 Right? So either something has changed and silver is not going to move, right? Or gold gets just completely destroyed in the very near future to bring the gold silver ratio down. Or silver's going to play catch-up and if you have whatever probability you assess to that, this could be one of those moments where it's like, hey, you know what? If you believe that things aren't fundamentally different and that silver has a high likelihood of catching up, then this is the time to get on a train before it's
1:17:44 really even started to leave the station. I really do believe that, Adam. And in investing, you often get paid to do what's uncomfortable to do. It's uncomfortable to stay in silver now versus gold. I've talked to a number of people that are disgusted with it really, both current clients and just people we talk to.
1:18:05 And that's just kind of the sentiment out there. But you get paid to do things that don't feel good. Now, that's not always a guarantee, right? I'm not saying go out and buy the worst investment you can find. But if you're a precious metals investor and you're in silver and gold and you're tempted to sell your silver because it's lagging, just remember that you're often paid to sit tight and wait.
1:18:27 It's not going to make it easy and say, "Okay, here we're going to hand you free money." But again, as long as gold doesn't drop hard like you pointed out, silver should play catch-up in the months ahead. So, right, and sorry to interrupt, but what we've also seen here, again, I'm not trying to give anybody false confidence here, but we had a similar frustration with the miners until relatively recently, right? Gold had been moving big and the miners hadn't
1:18:54 and patience has started to pay off with the miners. So at least we're seeing that progression is starting to work the way that it's supposed to, right? It's on its own timeline, not your timeline. Right. Let me take a look at GDX now. So just in the last couple months we've gone up 20 some% on GDX and gold has gone up, but it certainly has not gone up 20 some%.
1:19:19 So we're starting to see the multiplicative effect. A long time ago, I put target level lines on these charts. If you look back at old videos, I think you probably seen these there. Absolutely. And this is where I think that I thought it was going to go. GDX 50 to 50 plus, GDXJ I thought was going to come up here to 65.
1:19:38 And here we are, GDXJ on the juniors. It's got this big basing pattern. I wouldn't be surprised now to see it start basing out. Go back to GDX. I don't want to call a top on these things because I think gold and silver are going higher and I think these will go higher, too. But we're starting to get to levels where you should be thinking about normalizing or taking partial profits if you feel like you're very heavy in the space.
1:20:04 Our model is still 10% in this space. So I don't think that's really heavy and we're starting to hedge it. We've got a hedge on half. We're probably going to put a hedge on or at least sell calls on the other half. Because at any moment now, we could have a consolidation, particularly because everyone's asking about it, a lot of articles are out there about gold, etc.
1:20:24 So the miners are starting to show their relative strength. I think that they're going to have the wind at their back for a long time, but just remember it's not going to be straight up. Take a look at either the daily or the, let me just actually that's the hourly. Take a look at the daily chart. Gap gap.
1:20:40 We've gone through these levels of targets that I've talked about. I would not be surprised to see some consolidation. So if you're not in the space, yes, you could still get into the space, but you might want to do it slowly and/or with a hedge. You could buy the stock and sell a call against it.
1:20:59 Take advantage of increased volatility and just ease your way into it. Ask us if you want to learn how to do that or talk about how to do it. But yeah, finally gold investors are starting to get paid. Just realize that it's probably not over. We don't have to call a top, but just realize that it's going to take some time to consolidate some of these gains at some point. All right.
1:21:24 Well, look, Mike, I hate to do this, but we got to start wrapping it up here. Given our time constraints today, I'm going to leave my remaining questions for next week. You're the first person I've mentioned this to, but it's safe to because this video is coming out after Friday. On Friday, we're going to have, I'm going to be releasing a surprise interview with Felix Zulauf.
1:21:44 Felix really only comes and does interviews once a year, but given all of the market action so far this year, he's breaking that rule. He's gone on just a very few programs to share what he thinks is going to happen next. So don't have time to talk about that with you this time, Mike, but we'll get into the depth of it with you next week.
1:22:03 Folks, if you haven't yet watched that interview with Felix, you're definitely going to want to watch it. So it should be the video two videos before this one, I think, on the Thoughtful Money YouTube channel. All right, Mike. So folks, real quick, just to put a bow on gold. If you haven't yet read my free guide to buying and storing gold and silver, feel free to get it.
1:22:27 It's again totally free. You can get it at thoughtfulmoney.com/gold. It basically walks you through all the different ways that you can own gold and silver from owning the physical bullion itself upwards of owning both the ETFs but also the mining stocks that Mike was just talking about there. And it's just really helpful if you're relatively new to the space to help you think about where you might want to be placing which parts of your capital if you want to get initial exposure or more exposure to that space. Obviously if
1:22:55 you want to talk about owning ETFs, stocks, both for the miners or just for anything in general or putting some of Pieter Slegers' best practicing investments into practice in your own portfolio, highly recommend, as Mike and I talked about earlier, that most people watching this video should do that with the guidance of a good professional financial adviser who understands all those issues and can help you put together, craft basically a personalized bespoke
1:23:26 investing strategy and then for most of you execute it for you. If you've got a good investor who's already doing that for you, great. If you're a very DIY guy and trust your skills and your chops, consider signing up for a service like Peter's. Or for the majority of people watching, go talk to a good professional financial adviser.
1:23:50 Perhaps even one of the ones that we have on this channel week after week, maybe even Mike and his team there at New Harbor as well. To set up one of those consultations, just fill out the very short form at thoughtfulmoney.com. Only takes you a couple seconds to fill out the form. These consultations are totally free.
1:24:05 You'll just sit down with the advisor. They will hear your personal story. They will tell you what they think you should do, and then you can take that information and do whatever you want with it. But there's no commitment to work with these guys. It's just a free public service they offer. All right, Mike.
1:24:20 Look, it's been wonderful. Folks, if you enjoyed having Peter on, by the way, would like to have Peter come back on for some more detailed dives into the investing practices of the greats, please let us know that by hitting the like button, then clicking on the subscribe button below as well as that little bell icon right next to it.
1:24:37 Mike, can't thank you enough. I know you're cut for time, so we're going to have to let you go. But very much appreciate you going solo this week and look forward to making sense of all this as well as the Felix Zulauf interview with you next week. I was really happy to be here today with you and with Peter and thank you and we'll see you soon.
1:24:53 All right everybody else, thanks so much for watching. </content> </invoke>