Exciting Value Opportunities with Peter Hodson 5i Research

December 22, 2023No Comments

Today, we’re not going to be talking technical and we’re going to use the F word. [00:00:30] And, the ‘F’ word is fundamentals. I have a wonderful guest with me whose name is Peter Hodson. Peter’s been in the business forever. One of the cool things that Peter does — and one of the main reasons I wanted him to be on the show — is because Peter runs a retail investor service, and that’s who is reading this right now. [00:01:00] He runs a research program that is accessible to ordinary individual retail investors just like you. I think what he’s going to say is going to be quite insightful in today’s markets, but also, I think it’s going to be fun to talk about what Peter does, and how he got involved with forming a research firm that is normally geared towards guys like me on the institutional side.

 

Peter Hodson, 5i Research

Peter is the Founder and Head of Research at 5i. I know Peter a bit through the Money Saver, which as most of you know, I’ve been writing for, for about 25 years. Originally the magazine was owned by Dale and Betty Ennis. They passed the baton, and Peter has, as one of [00:02:00] his business ventures, taken over the magazine. I continued writing for Money Saver and kept in touch with Peter that way.

 

Peter’s background is very interesting. He was Lead Portfolio Manager and Director with Sprott and he was running their very well-known, well-regarded Sprott Growth Fund. He [00:02:30] was managing director with Dominion Bond Rating Service and was involved with the credit rating agency, one of the big ones in Canada. He’s managed a billion dollars at a mutual asset in the Small Cap area. So, we’re going to talk a little bit about Small Caps today. It’s one of the things that we want to address because it’s something I don’t talk a lot about. Finally, he got involved with a company called Synergy Mutual Funds, which was later [00:03:00] acquired by CI. And I’m sure a lot of you are very familiar with CI. So, I want to welcome Peter to the show.

Peter Hodson [00:03:15]: Thank you very much. As long as I’m not on the dumb money side.

 

Keith Richards [00:03:30]: Well, let’s find out who’s the dumbest between the two of us. As you said, Peter, what’s great about [00:03:30] having you on is you are a deep fundamental analyst, a value guy, and it’s so different than what my audience normally hears from me, which is all these squiggly lines and charts. I always ask my guests to give me some ideas on what they think is important to talk about.

One of the things I chose from Peter’s [00:04:00] comments was the way the market acts after peak rates are hit. Peter, could you guide us through where we are in the cycle, and what you see happening next?

Peter Hodson: [00:04:13] We’ve gone through about 18 to 20 months of pain as the Federal Reserve put in place, the sharpest increase in interest rates ever established. Both the Fed and the Bank of Canada were extremely worried about inflation. Inflation peaked at about [00:04:30] 9% and it scared the policymakers because they were looking at what happened in the ‘70s where inflation just pretty much destroyed the world economy. And OPEC — there was an oil crisis, inflation, and stagflation, so there were high prices but no growth, and the Fed needed to change that. So, they hiked rates very, very aggressively and very, very fast, and it was the fastest rate hike ever experienced. That calmed things down a bit.

I like to [00:05:00] use this analogy: The economy is a car going down a hill. There’s a sharp curve at the bottom of the hill, and at that curve, there’s a giant cliff that plunges down to the rocks below.  The Fed is the driver of that car. What they have to do is make that turn. So, they need to slow things down for the economy to make the turn, and not plunge into an economic recession that’s led by inflation. So they pump the brakes, pump the brakes, pump the [00:05:30] brakes.

And then yesterday, the Fed said they’ve successfully made the turn, and they’ve promised three interest rate cuts next year. So, we’ve had multiple increases — every meeting they just raised it — and now they’ve promised us three cuts next year. I don’t know if that’s going to come to fruition, but the Fed is giving you the ‘all clear’. Things have slowed [00:06:00] down enough, and we’re not going to go over the cliff. Now let’s see what’s on the road ahead.

 

They still have to watch for signs of what’s going to happen in the economy, but it looks like the giant problem of a runaway Venezuela- or Zimbabwe-type inflation has been prevented, and now we can get back to business. As a fundamental analysis person who likes to focus on companies, this is music to my ears. Over the past two years, nobody cared [00:06:30] how your company was doing. If you had a great company that was growing and doing extremely well and generating cash, no one cared because it was all about, “When are these interest rate hikes going to stop?” And, “When is inflation going to stop?” So, you would have these stocks that go down even though they reported great results.

 

Now I think we can get back to more of a fundamental situation where if your company does well, then somebody’s going to buy your stock because it’s doing well, [00:07:00] and they’re not going to be as worried about the macro factors. That’s been overwhelming during the past couple of years. So, if we look at past rate hike cycles, the average return after the last hike — that last interest rate hike is about 15.5% over a 12 to 16-month period. So, after this year, some people have made lots of money. That may not sound so exciting, but after the past three years, in some sectors of the market, 15.5% just looks fantastic. [00:07:30] And investors who lost money last year lost 15 or 20%, suddenly that looks pretty good again. And so it’s important to note that that’s the average.

 

So. the one thing that can throw things off a little bit is, will there be a recession? And the situation in Canada is a little bit more dire than in the US. The US right now is running close to 5% GDP growth, and Canada is basically at zero. The Canadian market may be a little bit more [00:08:00] muted than the US until they can pick up that economic growth scenario and companies can grow again when people aren’t worried about a recession. So, you have to have that sort of sentiment shift. While the Fed has said everything’s okay, the consumer, investors, and corporations have to respond and they can’t be scared to invest money again. Sometimes the market will go down when there’s a recession. But this time around I think we’re okay because people have been [00:08:30] talking about a recession for two years, companies have adapted to that worry, and they’ve cut costs.

 

When inflation was high, they really had to hunker down and cut costs. And now we’re back to normal. I think some companies will be willing to spend money and grow again. The other thing that makes things interesting this time around, is even with an economic slowdown that’s already been executed in Canada, the employment situation is still very, very strong. Basically, if you want a job, you can get a job, [00:09:00] you could probably get two jobs right now the way the economic situation’s going. o, So, I don’t think we’re going to get into a situation where there’s a housing crisis because people will keep paying their mortgages if they have a job. The financial situation is much better than other cycles because the rules were changed after the financial crisis. Corporate earnings are growing again – the third quarter showed the first growth in three years.

 

So, the corporate earnings recession seems over and now it’s just a question of, “What happens next?” [00:09:30] But I think the big giant fear has gone. Well if the big fear is gone, then now let’s look at the good side. Let’s put on our rose-colored glasses and see how things go. Generally, it’s pretty good after the rates stop going up, but as you very well know, markets have a way of throwing a curve ball at you. So, maybe something else happens to worry people, but right now we’re looking okay.

 

Keith Richards: Well, that’s good to hear. I mean, nothing moves in a straight [00:10:00] line either, right? So there’s going to be ebbs and flows. I wanted to ask you, you just alluded that many of the companies that are on the exchanges are in a better financial position than they were because of these cutbacks and whatnot they’ve done. A lot of fat was cut as you’ve noted, and in your notes, and I’m going to pin you on this because personally [00:10:30] we’re just starting to buy into this sector at ValueTrend, so I’m dying to hear your take on it.

 

You noted that there are some real cost controls, particularly in the energy sector. Peter Hodson, what’s your take on that sector? We have just started buying in at ValueTrend, so I have a vested interest in your answer here.

Peter Hodson [00:10:49]: Okay, well let’s put on our hats. Let’s just pretend that you and I are running an energy company and let’s go back 3-3½ years. [00:11:00] The price of Oil for a day or so was negative $37. So as the managers of this oil company, we are going to go bankrupt at negative $37 prices because it costs us $30 to bring this stuff out of the ground. We’re going to lose $67 a barrel. So, when you get into a situation like that, the corporations en masse react. Don’t spend money, pay down debt, close [00:11:30] any unprofitable operations, fire as many people as we can because we don’t know when things are going to get better. They’ve done that over the past year and a half.

And of course, Oil didn’t stay negative – that was an aberration, but people were very, very concerned about $10 oil in the giant OPEC recession, and COVID recession and everything like that. So now, when oil spikes back up to $96, all the corporations have adjusted their financial situation, and they’ve adjusted [00:12:00] their cost programs as well. Lo and behold, we’re at a point in the cycle for that sector where on average — of course, there are always aberrations on each side — but on average corporations are in exceptional financial shape. They’re raising dividends, have no debt, are pouring in the cash now at $75, $80 a barrel, and they’ve bought back a ton of stock because they didn’t want to spend money on drilling. They were too worried about that. And the way the market developed was investors were rewarding [00:12:30] those companies that were buying back stock and increasing dividends. Yet that sort of underlying cyclical mentality is still there.

 

It’s still a cyclical sector. People are worried about China’s growth, OPEC, and too much US production, and these companies are very, very, very cheap on a fundamental basis. Some of these companies are trading at 3.5-4x times cash flow. And if you think about it, you could buy the whole company and then it pays for itself from [00:13:00] your cash flow in three or four years. That’s a pretty good private equity type of scenario. It’s always going to be cyclical, and there’s nothing we can do about that. Oil could go to $40 if OPEC starts pumping again. But this time around, instead of paying 10 or 11x earnings and buying a company with lots of debt, you’re paying 3 or 4x earnings in a company that’s got a lot of cash.

 

Your downside risk if you’re wrong in a cyclical market like this is [00:13:30] probably dramatically lower than it was in other cycles. There are only one or two companies out there that are spending money making acquisitions and adding debt.  90% of the companies, have paid down debt and are paying out dividends, yet nobody cares about their stock. So, it’s a pretty interesting situation.  We’ve been saying to our customers, “Feel free to buy some of these companies at 3x earnings and get a 5-6% dividend.” There will be another upcycle. [00:14:00] It might be tomorrow, or it might be next year, but you’re buying them cheap enough anyway.  The one thing we are saying though is, that right now the TSX is 18% energy. That’s probably too much for the average investor because it is a very cyclical sector, but certainly, we would have no trouble with investors at 10% or 12% or 9% energy exposure because, in terms of valuation, we can’t see any other sector that’s as cheap as that.

 

Keith Richards [00:14:30]: Excellent. We are recording this on the 14th of December, but I guess by the time people see this interview, it’ll be closer to the end of December. I just finished writing and posting a blog this morning on the energy sector. I called it Opportunity in Energy, and what I noted is that from a technical perspective, there’s pretty strong support [00:15:00] on oil at $65 a barrel. Very, very strong technical support. Even in the producers, if we just look at the XEG, (the iShares Canadian-orientated one), it’s the same idea. It has a little bit more potential downside from a technical perspective, but generally speaking, they’re both in this zone where there’s very little downside even from a technical perspective. So, you are saying, “3-4x times earnings growth” and I’m saying, [00:15:30] “technical support is within 5% of the current pricing”. You don’t have an awful lot of downside and a little bit of patience can give you a probable upside. So, we’re in the same camp here. You mentioned that there’s about 6 trillion [00:16:00] in cash on the sidelines. So, talk about that and talk about where you see that cash might be going.

 

The Energy Sector: You mentioned that there’s about 6 trillion [00:16:00] in cash on the sidelines. Peter Hodson, talk about that and talk about where you see that cash might be going.

 

Peter Hodson [00:16:09]: Over the past couple of years, every month that interest rates went up, people worried about a recession, they worried about the stock market. They finally started making money if they put money in the bank, a GIC, or a money market. Every month there was a consistent flow of money leaving equities and going into [00:16:30] fixed income. When rates were 3%, people feel, ‘that’s not that great’, but then they go to 3.5%, suddenly ‘that’s pretty good’. Then they go to 4, 5, 5.5% — and I think they peaked just over 6%. So again, if we compare 2022, you might have lost 15% in the stock market, and now someone’s offering you a guaranteed 6%, GIC. That’s a very easy switch for a scared investor to make, when all they read about is high interest [00:17:00] rates, high inflation, and a giant recession coming.

 

They make that switch, and the money just sort of starts piling up on the sidelines. So now, we’ve got the reverse – interest rates have not come down yet officially, but they’ve certainly come down in the bond market. Things are going to tick down, and that 6% GIC is now probably 5.5%. Next year, it might be 4.5%, so the whole reason for putting money away is kind of disappearing. Meanwhile, [00:17:30] in November alone, you could have made 10% in the stock market. So now 3.5 is not so good, but you can make 10% a month. Now obviously that’s not going to happen every month, but as the market calms down a little bit, and as we avoid that cliff at the end of the curve, some of that money is going to trickle back.

 

That should support equity valuations and the stock market. It won’t all come back at once, which is really why we like it more. Because what happens is the [00:18:00] market calms down, it goes up a little bit, and then that money becomes more confident in the move over. So, more money will come over because – Whew! We escaped that giant recession. Let’s go back into the market. That could happen over three years, but that might mean three years of good returns if that does indeed occur. Again, there’ll be something that happens along the way that messes that up, but some experts are talking about 3%, or 2.5% interest rates two years from [00:18:30] now. As a stock market investor, I would rather lose money in the market than make 2% because at least I’m going to have more fun on the stock side.  I have fun. I might lose a little bit, but I’m not going to just sit around bored at 2% in the bank.

Keith Richards [00:18:54]:  I’m a big believer in risk/reward analysis, and, you know, [00:19:00] I do it technically, but you do it fundamentally. It doesn’t matter how you look at it. Understanding that there’s always risk present, and there’s always reward potential present. The only thing you can do is measure these relative trade-offs and then place your bets accordingly. [00:19:30] If it’s fairly obvious that there’s a better chance to make some reward versus that potential downside risk, I’ll take that bet every time. And that’s I guess what we’re in the business of doing, isn’t it?

 

You mentioned profit margins with AI, and that’s been a hot topic early this year. It’s really not been a hot topic over the summer. Where do you see that sector going?

Peter Hodson [00:19:30]: I think it’s still going to be a hot topic for a while because frankly, most companies are looking at it and they’re worried about repetitive position if they don’t go [00:20:30] down that path. There’s a lot of money being spent, and I think that’ll probably last for maybe two more years before companies either decide whether the money was well spent or thrown away. If you look at the two of the biggest problems we have in the North American economy today, it’s higher prices and lack of labour. If you can get any technology that can drive down costs and help alleviate [00:21:00] that labour situation, then that’s going to be very, very good for profit margins, which is going to be good for corporate profits, and the stock market.

 

It’s a situation where I think a lot of companies have to spend money because the missed cost savings and the productivity improvements are going to be too great if they don’t. Now, some are going to fail and some are going to go down the wrong path, and there’s going to be a lot of bubbles created because sometimes there’ll be a company that thinks they’ve solved the problem when they haven’t. [00:21:30] A lot of people will waste money on that. But absolutely, I think, in terms of spending patterns, I think that the spending on AI is going to last for longer than what people expect just because of the incremental gains you can get if you do it right. This can’t be ignored by the corporations when they might have the ability to drive down costs 25%, which of course, goes [00:22:00] straight to the bottom line, and probably right into some of the executive’s pockets as bonuses as well.

 

The incentives are just too great. The money that’s being thrown at the sector — I don’t want to say an unlimited amount of money is going to solve all the problems — but when Alphabet is spending $40 billion a year on research, they have to come up with something useful out of that. I mean, again, some companies will screw up, but when you add up the collective amount of money that’s being spent, there’s going to [00:22:30] be some very, very good initiatives and good cost-saving plans that are developed out of all that money. It’s not a trillion yet, but it is hundreds and hundreds of billions of dollars being spent to improve day-to-day life at companies. I don’t see how that’s a bad thing. Well, obviously it’s a bad thing because you’ve got to spend the money first, but the rewards from that will be incremental in the last decades.

I think we’re going to be talking about this for quite a long [00:23:00] time. In some of our research, we’ve seen reports saying that every company in the world is going to have to spend millions and millions of dollars on AI. So, if you do the math, and multiply millions and millions of dollars by every company in the world, you get some big numbers. So, I can see the excitement there, but like any sort of trend, you want to stick with quality. A lot of our customers are looking for the next greatest little company that’s [00:23:30] going to be the big AI winner. Unfortunately, we don’t have a lot of suggestions for them because the little companies can’t spend $40 billion a year on research. Therefore, they’re more likely to be left behind by the big players that have that ability to spend. But the money’s going to be spent for sure, and I think the next stage for investors — perhaps after a year — is instead of buying the companies that are providing the AI solutions, they’re going to be looking for companies that [00:24:00] are benefiting from those AI solutions. And I think that might be the 2025 AI focus.

Keith Richards [00:24:07]: You and I have been around a few years. We lived through the tech bubble. If you go back to ’98, ’99, all that hype with Global Crossings and Nortel and Juniper Networks, the concept [00:24:30] back then was, with the expanding need for internet bandwidth and all that, this is ‘the Bees knees’ and you got to buy Nortel (or whatever). And it ended up being — and this is to your point about AI — it ended up being that it wasn’t those guys that made the money (I mean beyond Nortel cooking the books). But I’m talking about legitimate companies involved with creating the switching devices, bandwidth, etc., they were doing. [00:25:00] It was the end user who could get an internet connection at home for $50/month that came out the winner.

Peter Hodson, how could AI be similar to the Tech Bubble of the ‘90s?

Peter Hodson [00:25:10]: I 100% agree with you because the rest of it is kind of a commodity. I think even AI is going to become a commodity, and it’ll be companies like Amazon who figured out online shopping, or Shopify that figured out how to help merchants compete with Amazon. It’s the companies that can use the [00:25:30] technology to improve their own business. That’s where the high margins are, because those companies didn’t have to spend all that money on the infrastructure. They just get the benefits from it.

Keith Richards [00:25:40]:  So, my final question will be the Small Caps, and I’m going to set it up a little bit first. I’m a technical guy, so I have to look at the charts. If we look at the benchmark Russell 2000 Small Cap Index since the beginning of 2022, it has been up and down in a very tight, beautiful trading range. Guys like me, we love this stuff. We go in, go out [00:26:30] over and over again. While the S&P and the Dow, and even the TSX kind of broke out of at least some sort of a bottom formation. Some aren’t quite at their old highs yet, but they’re certainly showing signs of getting there. The Russell 2000 is at the top of its bandwidth now at the top of its range, but it’s just not breaking out.

You noted that maybe the Small Caps [00:27:00] are undervalued and they have been for the better part of two years. What do you think some of the catalysts are? And, why do you think they might find some light in the next…?

Peter Hodson [00:27:00]: I guess just as background, Small Caps are typically always more expensive than Large Caps, and most people don’t understand why that is right away. It’s because the bigger company is safer, [00:27:30] and they’ve got lots of cash, etc. The Small Caps, specifically because they’re smaller, can grow at a faster rate. For example: if you and I have a little oil company and we find oil, then the leverage to that being a small company is much bigger. So, they’ve typically had a much higher valuation than Large Caps, and historically they’ve had the best return of any market capitalization sector. However, over the past couple of years, post-COVID, going into high interest rates, high inflation, and [00:28:00] investor concern, the big companies were safer and that safety gave them a premium over Small Caps that they hadn’t seen in almost ever.

 

And the last time we got that wide in terms of difference in valuations was in the financial crisis of 2008-2009. That made much more sense because the world was kind of ending back then. And, if the world’s going to end, it’ll be the small companies that go under first because they don’t have the cash flow or resources. That makes [00:28:30] sense. But the past couple of years hasn’t made a lot of sense.  It’s been all about fear, even though most companies in Small Cap land don’t have debt because nobody likes a company that’s small AND has debt. They’re very nimble, and they’re growing fast. For the most part, they didn’t suffer an earnings recession like some of the other companies did over the past three quarters. They have privatization opportunities. There were a lot of Small Caps that went public and when their stock got cut in half, they said, [00:29:00] “Screw this, I don’t like being public. We’ll just go private again.”

 

There are eight or nine examples of that over the past six or seven months in Canada. I think what we need is the predictions of lower interest rates to come to fruition. That’s going to help in terms of overall confidence. The sector itself does pretty well when there’s confidence. When you’re confident that the world isn’t going to end. and there isn’t going to be a recession, you are more willing to take a chance on a smaller company. We’ve had a really nice [00:29:30] five- or six-week rally once the Fed said, “That’s the end of interest rates”, and we might get a big January bounce. Small Caps really tend to do well in January because they are sold at year-end for tax losses and things like that, and then bounce in January.

 

I really do think that if investors are looking for growth again, and the Magnificent Seven tech stocks are too expensive, then they should naturally look into Small Caps and Mid Caps. They might go to Mid Caps first because again, you don’t [00:30:00] go all in on the risky sector. You take your time and take baby steps. But if it’s growth and valuation that you want, investors should start looking at the Small Caps. I’ll leave you to talk about the technical side, but from a fundamental side, we’re starting to see accelerated earnings. We’re starting to see valuations shift a little bit. Companies have done buybacks because no one cared about their stock last year, and so they bought back a bunch of stock. We’re seeing some [00:30:30] signs of nice momentum, earnings revisions, positive earnings surprises, and we’re also seeing broker upgrades. Even the analysts in the brokerage community are starting to display a little bit more confidence and say, okay, we’re going to raise that target from 50 to 80. Just little signs like that we’re seeing, so I think if we meet back in six months, they will have [00:31:00] broken up by then for sure.

Keith Richards [00:31:02]: We have a CFA, Craig Aucoin, and much like yourself, he’s a value guy and he’s been pointing out some of this stuff like Oil. That’s how we got started on that. We combine the value and the technical signals that suggest it’s an actual breakout [00:31:30] rather than just yet another head fake within a value space. So yeah, we’re definitely keeping a close eye on that and that’s why I wanted to bring the attention back to that.

Peter Hodson, the 5i Research service you offer is a fabulous service for retail investors. So, I want you to bring us through it. How does it work? What does it cost?  And, if you have [00:32:00] some ideas on why some of my viewers, which are largely do-it-yourself investors, might want to take a look at it.

Peter Hodson [00:32:09]: Thank you. 5i started in late-2011, so 12 or 13 years now, and we offer a few services for the do-it-yourself investor. Our tagline is ‘Do it yourself doesn’t mean do it alone.’ Our services include research reports on the Canadian-based [00:32:30] companies we follow on a formal basis. Although we talk a lot about US companies, in terms of research, it covers about 65 Canadian companies that typically don’t get a lot of attention from Bay Street. Companies we like with strong management and strong fundamentals. Those reports are available to all our members. We also offer a question and answer service, where we’ve answered almost 180,000 questions since we started [00:33:00] up, and we’re able to do this because we don’t trade in Canadian stocks, so we don’t have a compliance department to worry about.

 

So, if you ask us about ‘XYZ Company’, we don’t have to check with our underwriters or compliance to ask, “Are we allowed to say anything about XYZ Company?”, because we don’t involve ourselves with Canadian stocks on a trading level. We can tell you whatever we want. If it’s a crappy company, we’ll tell you. If it’s a great company, we’ll tell you. Our [00:33:30] customers will ask us anything and everything about taxes, RSPs, the new home savings plan, anything at all. And of course, we don’t know all the answers, but we have a pretty good set of resources that we can direct investors to. The questions are asked privately, and we don’t ever use full names in responses. All 180,000 questions are available in our archives as well.

 

Our subscribers like this because we can refer them back to an answer we made 10 years ago. As a storyline, [00:34:00] Constellation Software is $3,300 right now. People are saying, “Oh, I think it’s too expensive.” We reference them back to questions from 2014 such as: “Hey, Constellation is, $135, do you think it’s too expensive?” That kind of answers their question for them. Everybody thought it was expensive at $135, and now look where it is. We like [00:34:30] having a track record, but also when we make a mistake, we leave that question in the archives as well. It’s there for everybody to see.

 

Another service we offer is three model portfolios. We were always being asked, “What should I do?”  We don’t know our client’s personal situations, their objectives, or anything like that, so we can’t tell them what to do. But we can tell them what WE would do. We have a growth model, a balance model, and an income model that people [00:35:00] can follow. And some of our customers follow them, doing whatever we do in the portfolio on their own. But again, that’s up to them. It is still do-it-yourself, and we don’t direct them in any way. Finally, we have an add-on service called Portfolio Analytics. And that’s where you put in your portfolio, we ask you a million questions, and then we let you know whether that portfolio is meeting your objectives and perhaps how you could adapt it to better suit your needs. [00:35:30] And so those are really the four services our team of seven offers. I used to be a swimmer, so I wake up at five o’clock in the morning and answer most of the questions before everyone’s awake. It just works out better that way. And we put out blogs and things like that just like you do, just to talk about interesting things in the market.

Keith Richards [00:35:50]: And Peter, so if a retail investor wants to get involved with your program. How much does it cost, and what do they do?

Peter Hodson [00:36:00]: It’s $249 a year. And that gets you a login that provides access to all of our services and you can begin asking questions as well. For the Q&A service, we can usually answer a question within 24 hours – some take longer, and some we don’t know the answer — but it’s a pretty fast turnaround. It includes a couple of special reports a year, and when we do a portfolio change, [00:36:30] you receive an email alert to let you know what’s happening. The other interesting thing is you don’t have to read all our questions. You can give us a list of eight stocks that you like, and we will send you a daily email whenever somebody asks a question about those eight stocks.

Keith Richards [00:36:47]: People know I’m a professional [00:37:00] Portfolio Manager, and so we buy research. But the one thing that we do, and this ties into what Peter’s offering retail investors, is we only buy independent research. And people that read my blog regularly, know that I am almost evangelistic about the need to stay away from sell-side research. [00:37:30] And I’ll explain what that means. One side of this means ‘away from the media’ because the media is often delivering a message from the Fed. Sell-side research is brokers research. I came from the brokers world, I worked with Wood Gundy and Merrill Lynch and a few others before that, and they’re all doing the same thing. They only have one word: “Buy”.

 

[00:38:00] Their position would be, “Sell this AND buy that”. They never say, “Let’s just outright sell this”. You don’t get a lot of sells. And, they have an investment banking side, so all these biases sell-side research, and then the media itself carries with them. I’ve often pointed that out in my blog. I’ll reference a story, [00:38:30] and then I’ll show you what actually happened three months later, and they’re always dead wrong. The beauty of independent research like 5i does, along with any way you can use your own analytics, you’re not being influenced by someone with a hidden agenda, Peter’s agenda is ultimately to provide good research. He lives and dies by that. I do the same thing. I mean, I can [00:39:00] be a wonderful talker, but if I don’t invest money properly, then people will leave my services and I’ll go broke.

 

You want to always think in terms of who’s got your back. I believe that the only way is independent research. Get just one idea a year from it, [00:39:30] and you have more than covered the $250 you paid for an independent research firm to have your back. I have no association with Peter beyond I write for the Money Saver, but I think this is a source that has your back. So, thank you Peter for coming on, and I will look forward to talking to you again in a year or so and we’ll catch up on all your [00:40:00] ideas.

 

Peter Hodson [00:39:30]: Alright! Thank you so much. It’s been a pleasure. I appreciate it.

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