SCHW - Gannett Bullishness Options Strategies And Fed Policy With James Foord And Lawrence Fuller

2023-05-17 07:00:00 ET

Summary

• The Pragmatic Investor's James Foord and The Portfolio Architect's Lawrence Fuller discuss current Fed policy, inflation outlook and recession potential.
• Regional banks' liquidity crisis.
• Lawrence's high-conviction stock, Gannett.
• Options and dividend portfolio strategies.

Listen to the podcast embedded above or on the go via Apple Podcasts or Spotify .

• 2:30 - Was that the last rate hike - has the Fed paused?
• 10:40 - Have we avoided a recession?
• 14:30 - Regional banks' liquidity crisis.
• 22:40 - Why Gannett ( GCI ) is Lawrence's largest holding
• 45:30 - Options and dividend portfolio strategies

This episode was originally published on The Pragmatic Investor on May 11, 2023.

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Transcript

James Foord: Today I had the pleasure of talking to Lawrence Fuller . He is a contributor on Seeking Alpha and Owner of The Portfolio Architect Investing Group. He has over 25 years of experience managing individual client’s portfolios. And he's very knowledgeable when it comes to macroeconomics, and fundamental value investing.

Now, we talked about a lot of things, including the recent Fed policy, the recent Fed hikes talked about everything in macro. Lawrence has a bit of a, what you might call, contrarian view, though, I strongly agree with some of his points, whereby we might actually achieve that soft landing. So he's actually quite bullish. And we even talked about a specific stock that he is very bullish showed on, which is Gannett, which has the stock ticker ( GCI ).

Please go ahead and check out Lawrence's profile on Seeking Alpha. You won't be disappointed. And if you like the content, you can also check me out on Seeking Alpha, The Pragmatic Investor , where I also write regularly on macro, crypto , commodities, and many different stocks. And of course, you guys can subscribe and like, it would be a great help. As always, I hope you enjoy this conversation as much as I did.

All right, welcome back. And I'm joined today by Lawrence Fuller. Welcome to the show.

Lawrence Fuller: Thank you. Thanks, James.

JF: All right. So we've had quite an interesting week in markets. Obviously, we had that Fed meeting with that 25-rate hike. We've also had a lot of movement in regional bank stocks, with some more bank failures coming in. So definitely very interesting time. Let's begin by dialing in with a simple question. Do you think that was the last rate hike? Has the Fed paused?

LF: Absolutely. I think absolutely. I don't think they needed another rate hike. But what the Fed typically does is what the market expects, in particular, this Chairman, Jerome Powell is very market friendly as we know, or has been over the past five years. So I just use the Fed Funds Futures as a guide for where our short-term rates are going to be. And if the market is, let's say, given all this regional bank turmoil, we saw Fed Fund futures predict a 75% chance there'd be no rate hike. I don't think the Fed will * raise * rates.

So, they really kind of operate, let the market guide them. And in the very short term, but in the long term, they still play this rhetoric game, which is where they want to try to manage expectations. They don't want the market, or consumers for that matter to be concerned that prices are not going to come down.

So these Fed Governors are deployed like soldiers to go out and give speeches and talk about how they're going to remain vigilant. And they're going to keep raising rates. They're going to hold them higher for longer. But if you look at where, for example, the two-year treasury yield has plunged from, over five to now, in the high3s, that's telling you, the Fed is going to cut rates. They may not know it yet, or want to admit it, but they'll probably be cutting rates.

I hope they don't cut rates too soon, because that would mean they're really having some serious economic stress. But I think they'll be able to gradually lower rates as we get into the, let's say, the fourth quarter of next year, because inflation is coming down closer to target more. We're skirting with very low, below trend growth in the economy. So…

JF: Yeah, definitely you talk about that, as Fed Funds Futures, and a lot of -- it does seem -- the market does seem to be already pricing in substantial amount of Fed rate cuts already this year. Is that then -- would you agree with that assessment? Like you say that, even if they don't know it, they are going to be forced to cut?

LF: Yeah, and people will -- a lot of the bear consensus out there will argue that they're going to have to keep rates higher. But if you go back to when they first started raising rates, when short term when Fed Funds was zero, the very short-term treasury yields were soaring. And well, in anticipation of a significant spike in Fed funds rate.

And they at that time were denying that they were going to have to raise rates much at all. So they're really -- that's almost the reverse situation, but it's the same thing playing out where they're going to follow the market, pause and listen to the market, but they're not going to admit to it, because they don't want to cause a panic, but they also -- they always want to manage expectations and as far as inflation is concerned expectations is half the game.

And they seem to be fairly contained at this point. If you look at five-year, 10-year inflation expectations, even three year they're coming down, maybe not so much in the next 12 months, but they will. I'm not too concerned.

JF: Okay. So in terms of inflation, you don't see that being a problem moving forward.

LF: I've said since last summer that I thought the rate would fall as fast as it rose. So in about 18 months, we went from two -- it depends and you can talk about CPI or the PCE, which is what the Fed focuses on, but if you just use the CPI, we went from 2 to 9.1, in June of last year. And if you look at the deceleration in the rate, the decline in the rate, we're about halfway through nine months now and we've cut the rate in half.

And so, I think we'll get in this argument, well, do we need to be at 2%? What's funny is that if you go back a decade, when we came out of the housing crisis, the great financial crisis, the Fed was battling to get inflation up to 2%. They never could, they never could. So they were talking about, well, we want to be in a range.

We want to get through within an average of 2%. And I think that as we come down to Bernanke -- Powell will change his tone and talk about, we want to see an average of 2%, which means that if we're a little over, it's okay, because if we go into another economic downturn, we're going to fall below 2%. And so we smooth out over the long term, I think that's why we can get down to below 3. And that will be enough for the Fed to be comfortable again, so…

JF: And now, as we were talking before, you would call yourself a little bit of a contrarian obviously, I think bear sentiment is quite high right now. I was actually showing my subscribers some charts where bet like short positions, actually at all-time highs, which not that, surprisingly, it often acts as a kind of a signal that it's time to buy.

LF: Yeah, I mean, unfortunate, I think, that sentiment, whether it's consumer or investor, indicators have lost a little bit of their validity, in my view in the last several years. And I mean, I started in the business in 1993. So it's about 30 years and watched three big cycles come through, and I hate to say, hate to inject little politics into the sentiment indicators.

But because we've become such a divisive country on the political front, instead of, when people are asked questions about economics and pocketbook issues, even if they're doing well, depending on what side of the aisle they're on, instead being sort of 55-45 split, it's become this 90-10, 95-5 split. And both sides do it.

And so, it's, I think it's thwarted a little bit of the effectiveness of sentiment indicators and how in the world you explain all-time low unemployment rate? So normally, we have * very good, very strong range growth. And in consumer sentiment, that's not much higher than it was, post great financial crisis.

You have tremendous amount of wealth out there. So it doesn't make a whole lot of sense to me, that, at least on the consumer side, you will be so negative. I understand the inflation. But the thing that people don't recognize is that, while inflation was rising, so were incomes.

So we didn't spend a whole lot of time where people were necessarily -- I mean, I know there's always going to be certain cases, certain demographics suffer a lot more than others, but in a broad sense, people have had phenomenal wage growth, especially actually the lowest quartile, the lowest wage income earners have realized the highest wage gains. They have also received the largest amount of fiscal stimulus funds. And so that really offset the spike and now that inflation is coming down, those wage gains are holding up. The cash surplus, excess cash out there is still -- it's declining, but it's still helping support spending, which is why we've averted a recession. So…

JF: Yeah, it's definitely a little bit different this time in that sense that people are talking about that kind of the more of a white-collar crisis. Nowhere you get the people in the tech space losing their jobs rather than more general layoffs. So in terms of this recession which they're calling now the most anticipated recession of all time, you would then believe that there is -- we've avoided the recession, that it's not coming anytime soon, or that it's going to come eventually. But well, I guess a recession will always come eventually. But

LF: It always comes eventually. I mean, I just don't see -- the recessions that -- I don't I think that the first recession I experienced was in ‘91, coming out of school, and not being able to find a job, not understanding why. And then the other ones were obviously bubbles. We had a tech bubble, lot of over investment in that industry. But that was a relatively mild consumer recession. And then obviously, the housing bubble.

But if you look at this particular cycle, what's so different about it is that you go back to -- the pandemic really threw a monkey wrench in everything. But we had all these bubbles, if you went back to pre-pandemic days, and they kind of burst one by one, but not simultaneously.

Now we had a bubble in cryptocurrencies. That was a $2 trillion industry. It burst. A bubble in SPACs, we had a bubble in different parts of the market at different times. Deflated, without -- instead of it creating a panic and a trigger – a trickle * effect across markets, it sort of was like whack a mole.

And so we took out these excesses one by one over time. And even we're doing the same thing now with the housing market. But the thing about the housing market, prices and rents soared, housing prices got a little bit insane again, but there's no supply.

JF: Right.

LF: So it's sort of -- it's holding prices up. And they're deflating in terms of their increases on a year-over*-year basis, but they're not declining in any way that people are going to get concerned or feel that they've lost a whole bunch of wealth. So I think the recession comes, but we need to see -- I don't really even see a recession next year.

I think this is a mid-cycle slowdown, is what it is. And I know that you talk about soft landings and the last one we have was arguably in the mid-1990s. I just started in financial business at that point, I really didn't even know what a soft landing was. But it seems like we're -- that's what we're due for this time around. But recessions are a lot about psychology. The only thing I get worried about is that this bearish consensus become so dominant, that they start to sway the way consumers respond.

And so, at that point, it hasn't happened yet. And then also the businesses that I talked to, some are struggling. I talked to a good friend of mine who is working with a trucking company, and they're having a horrible time. And that's a very difficult industry right now. You look at other businesses, and look at like the restaurant business and they're doing extremely well. I go to hotel, I've been traveling a lot last month in hotels and airports and restaurants, bars, packed. It's just not -- it's not what you typically see when you're on the cusp of an economic downturn. So…

JF: Yeah, that makes a lot of sense. It does kind of clash a lot with basically what you -- what we've been seeing lately in the financial media, especially when it comes to banks, right, because that's also kind of a psychological element to it. So we were concerned about bank footfall, and rightfully so, because we have had some of the regional banks obviously struggle following all those rate hikes. How do you feel that fits in? I mean, are you concerned about this at all? How do you think it fits into the upcoming months?

LF: Well, if it was a credit crisis, I'd be really concerned but it's not. It's a liquidity crisis and it's a liquidity crisis for a handful of banks that didn't do a great job managing their assets and their liabilities, their balance sheets. And you can even take a heavyweight like Schwab ( SCHW ), for example is really struggling because of the withdrawal of deposits. People had money in their investment accounts running zero, all of a sudden somebody told wow, you can earn 4% so buy on a money market fund. And I'm sure you have the $2 million, pull the money out, put it there.

So it's -- and credit conditions are going to tighten as a result that they're already tightening as a result of this, which is another reason like I said it's done raising interest rates. But I don't yet see it as something that's going to be the trigger for a downturn.

I don't like the way that the Fed didn't acknowledge, Jerome Powell who did a great job of acknowledging the issue. He kind of swept under the rug that everything's fine. I had this scary deja vu about when Bernanke said, subprime is contained. Kept me a little nervous. Like, it's a different issue. It's like it's not a credit issue.

So First Republic's ( FRCB ) gone, while JPMorgan ( JPM ) swoops in, basically takes over and nothing's really changed. Deposits are all recovered. Lending continues, but again, there's going to be a tightening in lending standards obviously, but I think that yeah, so then we start to watch. It's a leading indicator, but it has to result in some other factors in order to see a contraction in economic activity.

JF: Yeah. So let's say then -- and I kind of agree to a certain extent, of course, that we are entering, perhaps a more bullish market in equities. Where do you think is the place to be where those gains is going to be found in the next cycle?

LF: I think that you can't really -- I think it’s -- first of all, it depends on your timeframe. I mean, I can say, tech's -- the bears will criticize the breadth of this rally and say that it's only being led by half a dozen techs, the big mega cap tech stocks. And that would be accurate. That'd be accurate over the last three months.

But if you went back six months, you'd see that the rest of the market is what was driving the gains off the October low, we had phenomenal breadth in the market. And that breadth started to wane a bit. And the big mega cap tech stocks have been lagging behind, and all of a sudden, they've really -- if you look at, they caught up in the last three months. It's not as though they lead, they were catching up with the rest of the market.

So now I think that in order for us to sort of break out of this range, we've been in on the S&P 4,000, 4,200 or so, the mega cap tech need to pass the baton to the remainder of the market when we see breadth start to improve. That's something I'm anticipating because earnings, which, at the end of the first quarter, the consensus view is S&P earnings declined about 6.7%, 6.8%. And we're a little more than halfway through now, more than halfway through now, and that decline has narrowed by 50%. Now it's closer to 3 and change.

And so, earnings are coming in a lot better than expected. And the other issue that bears are pointing to is that when we get these earnings reports, analysts are going to start to lower their forward projections a year out dramatically. That's not happening. Next quarter is coming down, but next year is actually turning up.

So margin are holding up a lot better than I think they were expecting. And that's a positive for the market. So that's why I'm staying invested and staying -- I'm not looking for a new all-time high but I think you have to view it as an uptrend even if it's a milestone.

JF: Yeah, absolutely. I agree with a lot of what you said there. Especially I've recently talked about the idea that, like you said that perhaps we will get some of the other assets catching up in this phase. So perhaps maybe saying something like the Russell 2000, maybe outperforming a little bit. Would you agree with that?

LF: Yeah, it was outperforming. The Russell bottomed in June of last year, well before the S&P. And it turned out, which was a leading indicator coming out of the October low that the market was getting a lot healthier. And it's since lagged largely because of there's a big financial weighing in the Russell 2000. So that obviously hurt the index with a lot of the smaller banks struggling and but also -- you've got highly leveraged companies in there.

And there's been a real sell off in, especially consumer cyclical type names that are anything that's leveraged because the cost of money has gone up dramatically. So that weighs on the Russell. Like, I think if you -- like if you're a long-term investor and you're looking out over the next couple of years to put money to work, it sounds crazy, but the financial sector is a great place to do it.

And you don't go and speculate on PacWest ( PACW ), hope it goes from 5 to 7, okay. But you buy the money center banks, you buy the Bank of Americas ( BAC ), JPMorgans, you buy the leaders that are really -- at I mean, in fact, I saw something last week that showed the regional bank index now on a price to book basis is right where it was during the great financial crisis.

I mean, that's when General Electric had a credit rating equivalent to Vietnam. That's how bad it was. Bank of America's stock had gone from 50 into the single digits. So that's where we are on a valuation basis for the regional. So if you don't want to pick a regional, there's obviously -- there's the ( KRE ), the Regional Bank Index, where you don't have to worry about picking the wrong name. And now I think that is the lowest risk, long-term investment you can make in the market right now.

So otherwise, I'm a value investor. I try to buy -- I try to find out names that are out of favor with extreme discounts to intrinsic value and very patient and pick my spots and try to build positions. So that's -- I'm not someone who invests in just in the S&P and the Russell 2000. I don't do any Index Investing. But I just keep sort of a view. I mean, I'm optimistic on the index, or I think it's overvalued, I’m bearish on the index. But that doesn't mean I'm investing in that particular index, no.

JF: No, definitely. It makes a lot of sense. I mean, if there was ever a time to buy when there's blood on the streets now, that would be the time, I think when it comes to…

LF: You could be early, but it's always worked in the past.

JF: Absolutely. And before we started this conversation, we were actually -- you were telling me about a specific name you’re quite attached to which recently reported earnings. I just looked at it a moment ago, it gave us a nice post earnings pop of about 20%.

LF: Well, it was actually a -- that was recovering a 20% decline on the day of earnings. I got to correct that. But it's Gannett ( GCI ) and yeah I've written on the stock quite a bit over the last couple of years and it's my largest holding. It's a $2 stock. You might call it speculative. But it's a very – it’s a small cap stock, but it's the largest print newspaper company in the country, but it's in the midst of a -- what's now going on a three-year transition into the digital world.

And so my investment thesis is sort of following the line that this company is following the lines of the New York Times ( NYT ) in its transition from 2010 to 2020, where the Times was a single digit stock $6.79 stock, it went to $50 in its transformation. And it basically did that by cutting costs, eliminating its debt, and growing net income, growing cash flow and becoming the digital powerhouse than it is today.

And so, Gannett is in the third year of that process. And they've had -- they had to endure the pandemic, the first year. They had to endure the recession. And they had to endure a huge spike in input costs of paper and ink, which hit them tremendously hard last year. And now they're finally on the cusp of turning things around, hopefully, for good. And every quarter, they pay down more debt. And they're reducing costs and becoming a more efficient operation and they're growing digital revenues.

I think when I started investing in the company, it was less than -- about 24% of their business was digital revenue. Now it's a 37%. So it's one of these names that I'm very comfortable holding for the long term because I think I'm in a hurry -- multiples of the price today in the coming years. So…

JF: Now, I’m looking at the stock I mean, the valuation looks good. I like the narrative. That’s Gannett, stock ticker is GCI for anyone listening to this.

Now in terms of the comp -- it does seem like it's quite a competitive market now the digital media, I mean, do you have a sense about the way it's going? I mean, nowadays, people just want stuff for free. How are they monetizing exactly?

LF: Well, they have got -- there's two pieces to their -- well actually there was two pieces now there's a third piece of their puzzle. But they have an enormous footprint across the country. They have local papers in 48 states. And that all have digital platforms. Now the biggest is USA Today and USA Today Sports Network. And so they've acquired about 2 million digital subscribers. And that growth rate – has slowed down a bit. I'll explain why in a second. And they also have a business that's actually unrelated, which is people are really not aware of, and it's called their digital marketing services business or services unit, DMS for short.

But this is a business that basically services about 15,000 small, medium sized companies, and helps them build an internet presence, and provides them all sorts of tools, sort of operates as a Software-as-a-Service company where you can choose from menu as far as which services you're going to buy. It's a recurring revenue stream for Gannett.

But it's not really -- it operates as a separate business, but it's under the umbrella of Gannett. And it's one of the largest companies in the country of its size. It's doing nearly $500 million a year in revenue, about $60 million in EBITDA, double digit margins, and growing.

And if you were to have that company on its own, it would probably be trading in the neighborhood of three to four times sales, which will still be a low valuation. That would value the company somewhere in between $1.5 billion to $2 billion. The enterprise value of Gannett today is less than $1.5 billion.

JF: Okay.

LF: So this business, I think they are looking for different ways to monetize either by spinning it off, perhaps selling it, retaining a percentage of the business, but it has tremendous growth potential, and it's just not -- it's not being reflected in the company. So that's the real gem inside of Gannett that no one fully understands.

The other thing that's really exciting about what they're doing, is while they only have 2 million digital subscribers, that produces something in the neighborhood of $140 million in revenue for them every year. They have about 190 million eyeballs on their digital platform every month.

So if you think about what everyone's trying to do with social media we're trying to -- everyone wants to monetize their followers, right. If you had a million followers on Instagram, or I had a million followers on TikTok, we can make a tremendous amount of money, selling products, okay. And what Gannett is doing is they're taking 190 million eyeballs on their digital platform, and they're setting up affiliate deals with different companies that want to access those -- I'm going to call them followers, but people that are on their sites, and they're not paying Gannett anything. But that's a huge, tremendous value, it's not being realized.

So to date, just since the beginning of the year, they've signed deals with Gambling.com, which is also a publicly traded company. They basically provide information, odds, all sorts of data for gamblers that might then want to go to a DraftKings or one of the other gambling companies, open a gambling account, start gambling. So what gambling.com wants to do or what is doing now is advertising on Gannett’s platform.

And so if one of the 190 million eyeballs comes to a Gannett platform, clicks on Gambling.com for information or a game they want to bet on, opens an account at DraftKings, Gambling.com now splits the revenue that received from DraftKings with Gannett, okay. That's an affiliate deal and they've done the same thing, which is probably going to be much larger scale with Forbes Marketplace, which is selling financial services to consumers and then provide -- Forbes Marketplace, you want to -- for example, you want to expert reviews of insurance policies or some other kind of financial product, it's the same situation.

If a consumer that is on a Gannett platform, clicks the link for Forbes Marketplace, buys a products, they then share the revenue with Gannett. And so during the earnings conference call , CEO, Mike Reed talked about two other affiliate deals he's working on. He was very, very general, one in the education sector, one in the homebuilding industry of some sort, homebuilding housewares, I'm not sure exactly what it will be. So he's -- as they wrap these up, this is no cost, no overhead revenue for Gannett, and its pure profit right to the bottom line.

So we're going to find out in the coming quarters, how much of a revenue stream this is. And I think that's one of the reasons that the guidance is extremely conservative. They beat -- they were looking -- the consensus whether it was for them to lose money, they ended up earning, had net income of $10 million for the quarter. And then they raised their guidance very modestly for the coming quarter or actually for the coming year. I think they're going to continue to be able to do that as the year goes on. So hopefully we build some upward momentum stock again.

JF: Yeah, I mean, everything you say makes a lot of sense. I guess this idea that Gannett just has this very valuable asset, which is that kind of captive audience though. And now it's just a matter of them monetizing it.

LF: Yeah, you want to use them as a -- I mean you look at the other platforms out there, and the amount of revenue they bring in from advertising. And this is another way for them to monetize their business. And it's never been viewed that way. So I think it's -- and the valuation is -- to be honest, absurd. I mean, this company is being valued as though it's going bankrupt. They have $100 million in cash, they pay down their debt every single quarter, they reduce debt. And they're going to return to free cash flow, which should be in the neighborhood, conservatively of $100 million this year.

So you have a market cap of $270 million. You're an enterprise value of around $1.4 billion for a company that's doing nearly $3 billion in revenue. And conservatively $300 million in EBITDA. It's just -- it's trading in less than one time. That's not -- it's not I mean, I just, I don't see a lot of down side on a stock like that, with that kind of evaluation. For me, it's more a matter of time, then it is, will it happen. We have another pandemic, another recession. Okay, I'm going to have to wait another year. We can dodge another major market event, I think things will really kick in. So…

JF: Yeah, so you've thrown a few numbers out there. The stock is currently trading around $2, I believe? Is there a particular price target that you would have in mind? Or is that not how you think about it so much?

LF: Well, I can do -- I've done in the writings I've done on Seeking Alpha, I've done -- come up with several different methodologies for valuing the company. If I price it on cash flow and I check cash flow, go back a year, before the inflation, wiped out free cash flow, they incurred about $100 million in extra costs from -- mostly due to print and paper, I mean, ink and paper, as well as wage costs and things like that.

But if you go back a year ago, they were forecasting 40% annualized growth in free cash flow going out five years, which would have -- to 2025, 2026, you would have been up in the neighborhood of $300 million, $350 million in free cash flow. They would have completely paid off their debt. And I can see the stock trading at $20.

That's essentially, what the New York Times did. If you go back and look at the Times from 2010 to 2020, they were carrying nearly a $1 billion in debt. They had no cash. And they went through this transformation. The debt was reduced every year. Their digital percentage of their overall business rose rapidly once it got up close to 50%. And the debt got down to a level where net income really took off exploded. The stock never looked back. And so when is -- when investors see that, and then everyone jumps on board. You don't really know when that's going to happen. All you can do is have confidence that it's going to happen. I've got tremendous confidence, it's going to happen.

I just -- it would be happening right now, like I said, if we had -- if they hadn't been hit with $100 million in additional costs that they weren't anticipating but what they did in the fourth quarter last year is they cut their operating costs by over $200 million. So having both reduced costs and now seeing benefits is the Producer Price Index comes down, and those input costs are falling. They're benefiting in both ways. So I think that conservatively, I can make an argument to see the stock at $8 to $10 in the next two years.

JF: That's significant return, who knows. Maybe this, this interview will go viral. And that will definitely help get the ball rolling in…

LF: From your lips.

JF: Before I publish this stuff, if that happens.

LF: Yeah, you get plenty of time. But no, it's a very interesting story. And if you want to go back and look at the things I've written about it, you sort of get the timeline on the things that have happened in the book, but they were very much on track. So I think what would have been an $8 to $10 stock before the inflation hit, which really struck them in a second in the middle, late first quarter of last year, the stock was floating with $7.

And then they in Q2, they incurred this huge spike in prices. And they went from projecting $180 million in free cash flow to zero in one quarter. That was it. And that sent the stock reeling and then we had the October lows and the stock got down to $1, again and then we'll work our way back up.

JF: Is that something that could happen again though, like, just that kind of surprise?

LF: Well, anything could happen. But I think you'd have to have another pandemic or you'd have to have another -- an output -- something they would they will lead prices for their particular situation to go back up again. I mean, one of the things that they management did, in response to that increase in input costs is good, much more of a variable cost model where they started to outsource a lot of the things that they were doing in house to reduce costs and reduce that -- the risk of input prices rising on like that again.

But it's becoming a different company every quarter. The new businesses that they're looking to get into and new revenue streams, it's just -- I think, they're no analysts on Wall Street, that really cover the stock. There's a couple that have been assigned to it. And it's an afterthought for them. I mean, they keep sell ratings on the stock, so they don't have to do any work on it. And it's not widely held. I mean, the largest shareholders are Bill Miller, was a famed value investor, owns about 10% of the shares. Fidelity is now a 10% shareholder. And I think they're an outstanding research shop. They really know what they're doing, and they've gone -- they've increased their position to 10%. And so it's -- timing is the issue on this one. I don't think it's whether, I think it's when.

JF: Definitely, you make a compelling case, I've actually been given this some thought. I've now had a few guests on. First one I had on was another SA contributor Brett Ashcroft . And he actually gave me a pretty good call on Uber ( UBER ), which recently released earnings, had a nice pop there. I'm actually thinking about perhaps studying kind of the Pragmatic Investor Podcast portfolio. And maybe I get each guest to contribute a stock, would be safe to say that this is yours.

LF: Absolutely. Absolutely. It's my largest position. So it has to be. Uber is a little expensive for me that so I can't do -- you got a growth stock and a value stock? It's good.

JF: All right, so well, we've talked a lot about this very specific stock, I would like to know a little bit more about just your general investment style. And kind of also, obviously, you're on Seeking Alpha, you've got your Investing Group there. Kind of what you do, well, just a bit of everything, just say how you got started?

LF: Yeah, I've been managing portfolios for individual clients for 30 years, and started at Merrill Lynch in 1983. And worked at several firms before starting my own investment advisory firm in 2005. And I started writing on Seeking Alpha 10 years ago, which is shocking. And I had a couple, maybe a year or two in there, where I would fade away and come back to them and stuff. I really -- what I like about writing on Seeking Alpha is that -- it's -- and I used to do it once a week or a couple times a month to now I do -- I publish my morning brief every day, because it forces me to keep a pulse on the markets and what's going on in the economy every single day.

I mean, I'm reviewing the companies and what's going on in the market, but I'm also looking at the economic data every single day, and also follow the technicals. So I've got a hand handle on as far as my strategic outlook. It's not a static thing. I mean, it's like a big pile of clay and I'm constantly tweaking it based on the incoming data. And so that's what I write -- when I write about it, it keeps me honest, keeps me focused. And if I'm moving off the tracks or moving in the wrong direction, it's nice to get feedback when even when it's criticism, because it makes me think about what I'm saying, what am I doing, are these people, right? Is someone telling me oh, you don't know what you're talking about? It makes me recheck and double take what am I thinking? How am I doing these -- doing things?

So I love that even though it takes a couple hours a day, I love that exercise. So my marketplace is basically putting my investment strategy to work in portfolios. And I sort of take it -- well I do take an all-weather approach. So I've got exposure to every asset class, sort of a poor weighting. Because as much as I try to figure out what's happening, I don't -- no one is right all the time, certainly, but if I'm right 55% of the time, I'm going to be happy.

So when I've got exposure to commodities, for example, like I've got weightings in gold and silver, that's been a huge help this year. Who would have thought -- what I -- because I maintain a poor [ph] weighing there, I'm benefiting from gold and silver weighting in some of my gold miner positions.

I've got my fixed income, which has been -- fixed income has been really tough to manage. But I've been able to avoid losses each year over the last four years and keep positive returns every year, just by hedging the portfolio with inverse interest rate ETFs, for example. And also keeping a large cash position, so I can take advantage of these days of volatility in the bond markets being greater than in the stock market, last couple of years.

And then on the stock side, I'm probably be categorized as a GARP investor, growth at a reasonable price. I've got some growth, I mean, I own some tech stocks and do some growth stocks, but I typically focus on the lower multiple names. I never pay 10 times sales for anything. That's just sort of my number that I can't go over.

And then I like dividend, just like everyone else. So I might have some high dividend stocks, low multiple stocks, but I'll have a handful -- and I'm also multi cap. So I don't really discriminate against one size or company. And I just manage those allocations in each asset class, sort of like a goal post. So maximum weighting and minimum weighting and I'm just constantly moving the goal post, overweight equities, underweight bonds back and forth.

So that's what I do. And I do the same thing for my clients, and then my marketplace subscribers, just watch the insanity from day to day and see what I'm doing. Hopefully they come up, they cull some ideas for their own portfolios, and they also navigate their asset allocations in a way that helps them following what I'm doing so…

JF: We started off talking about the macro as well, I guess that guides you. So you would also -- I'm guessing you would always stay somewhat invested, but maybe play around with the kind of balance of cash depending on your macro-outlook.

LF: Yeah, it's interesting when you think about tactical asset allocation, and people think about just, oh, I'm just going to reduce my stock weighing now from 50% to 40%, right overnight. That's generally what I like to think I'm doing but what's crazy about it is that it happens on its own, because as markets get overbought, they get overextended. And if you look at a portfolio, let's say you own 40 stocks, you look at your portfolio, you're thinking, wow, this is really a nosebleed territory. This stock is getting really expensive.

You start trending positions, you cull some profits and take money off the table and the next thing, you know, you've generated -- you've reduced your allocation from 50 to 40, just by pulling some money off the table. When the markets get cheap again, and you follow a lot of individual securities, I've got a watch list of 150 stocks that I track. If I go through my watch list, and I see, oh my gosh, there's three names in the tech sector I want to buy. There's four names in the consumer discretionary sector I want to buy.

The markets are usually bottoming out because I've got too many things I want to buy and I put my cash to work and that sort of brings my allocation, my weighing back up again. So it -- yeah, it's happens almost without trying, if you're really following valuations and what's going on in the macro.

JF: Yeah, that makes perfect sense. And would you ever use something like option strategies or something like that?

LF: Yeah, I've got a portfolio, I started three years ago now. It's the dividend option income portfolio. So what I -- basically, I allocated about 10% to a position. So I maintain about -- the portfolio has gone up in value nicely. So I may probably have about 13 or 14 positions. Ideally, I'm looking for dividend paying stocks, and then I will try to monetize the position by selling puts or selling calls without exceeding 10% weighting in that name.

So I've got three different ways to generate income and a lot of the names I just keep -- if the stocks call the way I look, when it pulls back, I buy it back, collect the dividends and continue to write puts and calls on it. So that's a relatively low risk option strategy. Because I'm simply search positioning myself as the house and collecting premiums, more or less than the speculators, which I like.

JF: Yeah, that's the strategy that's worked. Well I know Victor Dergunov , who I had on, uses some similar strategies. Now I'm going to try and catch you out. He did say that in your portfolio, you have exposure to every asset.

LF: Yeah.

JF: Would that include crypto?

LF: The only article I ever wrote on Bitcoin, if you go back it's funny I shared this with my son who's 19, was asking me about crypto, was when the Bitcoin ETF came out a little more than a year ago. Bitcoin was around $65,000. And I said, I think that's the top it's over. And I wrote my first bearish article on something. And in retrospect, it looks really smart right now. So that's the only statement I've had publicly about cryptocurrencies. I don't -- I've never seen the value. I don't think they have any intrinsic value. And I hate to -- it's not a form of criticism. I think it's a solution that never had a problem.

And so it's not -- and it's also -- for me it's just not a store of value. I mean, if I want to -- and especially now cash, you can earn 45% on cash. It really makes it difficult, because if it's a store of value, I don't earn interest on it. And in order for it to go up, did that go up in value, they define other people to think it's worth more and get them to buy it. There’s no earnings, there's no interest. It's worth what everybody collectively thinks it's worth on any given day, which is what troubles me. Because I don't have any way to fundamentally value it, other than it being -- I know that it's a -- there's a limited amount of it, right. So we can say, okay, what's going on with it.

But I've seen rationales for it's going to go up because of this, because of that. Sometimes it does, sometimes it doesn't. I don't see any clear, consistent pattern. But I do see lots of people on social media that I don't think know anything about anything, marketing it, promoting it, trying to make profits from it, which is a little discouraging.

So sorry, first a bubble wrap. I hope I'm proven wrong, because I mean, I want everybody to make money. And I really think that this is just -- the market is something that younger people need to learn about as soon as they can. Because it's really, really the best way for people that don't have money to build wealth. And there's really no other better way. You just have to be disciplined, and you have to be consistent. And that's it. We are our own worst enemies in the world of finance, you know.

JF: Yeah, I think to that extent, the crypto space does kind of embody the opposite values in a lot of ways where it's not about discipline. It's about kind of those trying to get rich quick, kind of scheme just catch a crypto pump and become an overnight millionaire, which some people…

LF: Lot of people did.

JF: Recently, did you -- have you read about Pepe Coin, that's the new meme coin? That went up…

LF: No, I didn't. I'm sure there'll be another one in a month, right?

JF: Probably, something ridiculous like people putting in thousands, making millions well…

LF: The only thing that concerns me about it is that when Bitcoin, the majority of people that were buying Bitcoin bought it way after it was in the tens of thousands. They weren't buying it at $500 or $1,000. I remember when it first came out and we -- I could have paid $1,000 for it. And I thought, oh, this is crazy. This is not. And so; you feel stupid when is it $10,000, $20,000 $30,000? Like so a lot of people made money, but most people lost a tremendous amount of money. And yet, I would say 90% of the people that invest in crypto lose money. They don't understand what they're what…

JF: Traders, I guess.

LF: It's true of option traders, it's true. Option speculators 90% of options expire worthless. That's why it's always better to be a seller. And if you learn how to sell options, you can make a lot of money. It's just that you get that -- we all have that urge to really take a big risk, because we can make 10, 50, 100 times our money. But if I talked to crypto investors, and I asked them, well, why is this going to go up? They don't really know.

Which is what's -- if you asked me why Gannett going to go up, I can tell you, give you 100 reasons why. I can tell you 100 reasons why I don't think it's going to go down either. What the intrinsic value is. When you don't have any intrinsic value in an asset it's like me telling you this pen is worth $1 today, but it could be worth $20 a month from now. Why? I mean, it's -- there's lots of pens, and I don't -- so I don't like to invest in things. I don't understand. I don't understand crypto. I don't get it.

JF: I mean, that's the right way to go about it. I mean, obviously, I generally have slightly different views. But obviously, it's great to have someone on the show with opposing views. I won't go into details and bore everyone with my own opinions.

LF: Oh, no, I want to learn, so if you do a crypto, I'm going to watch it. Because I'm still trying to understand if it's going to replace the dollar, for example. We're going to go to a digital world, I sort of understand that, but I still don't see how that happens so rapidly, that it's going to be -- it's going to create value. What is it ultimately going to be worth? I mean, there would have to be more coins and I don't know. But the other discussion, I'd love to hear what you have to say on it. So I hope you do another podcast with somebody else. And I'll watch it and will learn.

JF: Well I talked about it with Mike Fay on my episode 2. So if anyone's interested I would direct you to that one.

LF: I will watch it.

JF: Great. Well, it's been great having you, obviously, on Seeking Alpha. Got your investment group there. Is there anywhere else people can find you, any other way they can reach your content?

LF: Most of my -- just about all my content is on Seeking Alpha . So I don't have any other content out there just yet. But I'd say if you want to follow me or you want to contact me email me direct on Seeking Alpha or send me a message now. I respond to everything that comes my way.

JF: All right, well, it's been great having you on the show. So thanks a lot for coming on.

LF: Thank you.

JF: And I hope we do it again.

LF: Sounds good.

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