On this Flach Back Friday episode from October 2, 2011, Jason Hartman brings on Chris Mayer, managing editor of the Capital and Crisis and Mayer’s Special Situations newsletters. They discuss macro issues and micro-investment opportunities. They also talk about his book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro-investment opportunities to produce an exceptional long-term track record of winning ideas.

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Welcome to

Jason Hartman 0:00
this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is hand picked to help you today in the present, and propel you into the future. Enjoy.

Announcer 0:16
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:07
Welcome to the creating wealth show. This is your host, Jason Hartman and we are at episode number 223. Thank you so much for joining us today. We’ve got a great guest today. And this is his second time on the show. It’s Chris Mayer, and he is pretty much a stock market guy, which might make you wonder who I would have him on in the first place and why I have him back. But I had no idea he felt this way until he told me just before we started recording for this interview you’re about to hear and he talked about how incredibly bullish he is on housing right now because of the excellent returns and so forth. So I think you’re gonna hear some really interesting stuff in this interview, and I think you’ll like that. So we will have Chris Mayer here in just a moment from a Gora financial the famous bill Bonner and Addison Wigan. We had on the show before from a Gora, their big newsletter company. Anyway, one of the things I wanted to tell you though, before we get to that interview is about our exclusive deals, you know, I’ve been talking to a few potential clients lately. And you know, I kind of hear sometimes that people are shopping around, they’re talking to different outfits out there that claim to have investment properties and so forth. And what I wanted to tell you is to be really, really careful of this because we have exclusive properties in our network that are not available anywhere else. How do I know they’re exclusive? Well, because of the agreements that we’ve set up with some of our partners or local market specialists in the various cities, but also and more importantly, I’ve been funding some of the deals and my clients, or our clients, I should say, have been funding some of the deals now. I mean, funding them at the source, the source where the local market specialist, doing the rehab and the acquisition of that property buying it usually at the foreclosure auction, they’re funding the deals. And so what we do is we make an agreement that any deals we fund plus some additional deals but the deals we fund for sure are earmarked for our network so you will not see these deals anywhere else. They are exclusive to us so you can hear more about them by talking to our investment counselors or going to visit Jason Hartman calm and taking advantage of those because we really do have some great properties. You know, I went to happy hour last night with one of our clients here in Scottsdale, Arizona, and he’s probably listening to the show. So hi, Kyle, how are you? I asked him about the transaction. He just closed with us in the greater Atlanta area. And we were talking about it and he pulled out his smartphone and showed me the Performa. And it’s the same format that we use. I thought at first he was just going to our website or looking at the performance that our investment counselor provided him when he bought the property. But that’s not what happened. The performance he pulled out. Let me just share this performance with you a little bit. Now. This is a Performa that is in the same format you’ll find on all the properties at Jason hartman.com but I won’t allow our investment counselors to publish This way, and I won’t allow our local market specialists to publish it this way either. But oddly enough, I told Kyle that when we were talking, and he said, You know, that’s true. And that’s a good idea from a business sense, because it limits your liability and so forth. And you know, I always have had the philosophy that I want to promise less and deliver more and be conservative with all of our projections and so forth. But what’s interesting about this is Kyle said, Kyle, our clients had that all said this performance probably very accurate. And you know what, I think he might be right about that. Let me just tell you about this deal. So he purchased a property that was just under 1400 square feet greater Atlanta area, three bedroom, two bath single family home $64,900, the initial cash invested very low downpayment, and that was because he was able to do one of these special two step closes. These are pretty hard to do pretty rare, but occasionally they are available and the projected rent on this property is $64,000 property. 795 a month positive cash flow to 12 per month or 2540 per year and the capitalization rate or cap rate commonly used commercial real estate metric doesn’t tell the whole story. That’s why we don’t harp on it too much 11% and get this I hope you’re bracing yourself for you’re sitting down because with the number I’m about to tell you is going to blow your mind. Total projected return on investment 1,071% that’s one comma 07 1% total projected return on investment. Wow, you’re probably saying are you kidding me? Well, I wouldn’t blame you for saying that. There’s more so keep listening cash on cash return the performer there 513% 513%. Well, why is that so high? Why are those numbers so incredibly, in fact ridiculously high? Well, because of leverage. This is the power of leverage the total cash investment This property at the end of the day after the property was fully finance $495 500 bucks, you can still do that occasionally. And you can buy a house that way from time to time. It’s rare, I have to admit that but look at the power of leverage. Now, think about this. If you buy a property today, and you pay all cash, you might do that. And you might refinance it in a year or two, or in six months, or in 45 days, who knows and turn around and turn in all cash investment that doesn’t have those exorbitant returns and turn it in to a phenomenal investment. So that’s the The other great thing about income property, you can always change the game along the way, which reminds me of our members only conference call last night. We have a lot of people on that call. So thank you for joining us, and we do those every month, and they’re free to members $20 for non members and we had a couple of experts on Talking about lease purchases and lease options. And you know, the way you can always change the game with income properties, just fantastic. I mean, there’s always, there’s so much flexibility when you’re a direct investor when you’re in control of your own investments. And when you’ve got a vehicle that is so good, like income properties, single family and multi family income property, faraway, in my opinion, the best investment around certainly in the most financing favored in the most tax favored investment around and it has universally, but you can change the game anywhere along the way. One of the questions we had on the call last night was if I lease my property on a traditional one year lease, for example, am I able to turn that into a lease purchase deal or lease option deal? And the answer of course, sure you are you can refinance it, you can 1031 exchange it, there are always options, always options there. So just one of the other great great things about income property, be sure to check Join us for the meet the Masters event it is all most fall. So we I don’t know the exact numbers on it. But we are we are getting to capacity on that event and it’s coming right up October 14 through the 16th. And the room block at the Hyatt Regency Irvine may by the time you listen to this, begone, I’m not sure but give them a call the Hyatt Regency Irvine mentioned us and hopefully there’ll be some of those rooms left at $119. Friday night, we’re going to do a dinner and we’re going to kind of have some exercises and get to know everybody. And I think that’ll be just a lot of fun. It’ll create a lot of sort of intimacy so we can work together and accomplish a lot over the weekend. And then we’re going to go we’re going to go a little bit later on Saturday evening than usual. We’re going to start at nine on Saturday and go probably into 788 30 on Saturday night and then all day Sunday as well. So the meet the Masters event we have a lot of you that have attended and in fact, you’ve attended many of them now we’ve been doing these for Oh gosh, what five years, six years. Now. You We do them every spring and every fall and a lot of you regulars are coming back. So we’re glad to see that and we’re glad you’re getting value out of it. And we will always try our best to keep delivering value to you and to the new people that are coming. So be sure to be there. We were going over the schedule today, Brittany and I and we’ve just got a great lineup of speakers. We’re always playing with the times that amount of time each speaker gets to speak and we get better at it every single event and refining that and allowing enough time for that most important most highly demanded talks and saving time but also having an appearance from the less highly demanded and pastor subjects. So I think you’ll really enjoy that. Speaking of membership, we offer a private membership at Jason Hartman calm our silver membership is only 199 a year and this members website if you have not been to it lately, if you are a member, go back and check it out because we’re really working on this thing. It’s got a great user interface. Now the members only podcast episodes are there which includes all of the archives We don’t have all of the archives up on the feed, but we do have a lot of them but all of them are in the members only section and also the special shows, like the one I just recorded with famous billionaire hedge fund manager, Jim Rogers, who is written many, many books. And he’s in the members section as well as Brian Tracy and they fantastic asset protection plans of Garrett Sutton and just know that in the member section, we’re going to be giving away some freebies here real soon to members only and we’re constantly just working to improve that the value of that you’ve got the conference call archive, so every monthly call is archived on the site members only videos, members only articles, suggested reading lists, things like that and other links and resources. So take advantage of that Jason hartman.com. And also the other big one besides masters meet the Masters event I want you to join us for is the financial freedom report our newsletter, so you can check all that out of the website. So without further ado, let’s go to Chris Mayer. Now. He was on the Show Oh about 100 and maybe 130 episodes ago we had him on and he’s a stock market guy. But the reason I like his work I don’t much like stocks. I like being a direct investor. I like being in control of things, obviously. But the reason I like Chris’s work so much is because he believes in the concept of investing like a dealmaker, which is a really a different approach. And you’re going to hear about that in this interview. That is also the title of his book for a Gora. He writes the special situations newsletter and also capital in crisis. He’s a former banking Insider. So he’s, he’s seen how the system works from the inside, and I think you’ll really enjoy this interview. My name is Andrew and I live in the Pacific Northwest. And I had always thought that investing in real estate would be a good idea. And I’d always kind of thought about investing somewhere near my home and luckily had enough wisdom at a time when I learned about Jason Hartman and his podcast, that I was able to apply that wisdom and change my mindset from local investing to national investing and also to just find markets that made a lot more sense than where I live. If I’m not an expert in the field in any way, shape, or form, I’m not an expert in, in investing at all, but his group of counselors has great expertise and good advice and has helped me along the way as a beginner with not a whole lot of money to work with from the start. And so far, I’ve got those six properties in about three and a half years. And I’m pretty happy about it. And it’s all because his team of experts and just his knowledge and his time that he spent doing it, he can really guide you through it and his podcast is excellent. And I highly recommend it for anybody, whether you’re a beginner or an expert. There’s a ton to learn there and it’ll help you get to the next level.

Jason Hartman 12:38
It’s my pleasure to welcome Chris Mayer back to the show he has been on before and he is the author of two newsletters for financial capital and crisis and mayor’s special situations. And the thing I like about Chris is that he although he is a I’m gonna call him a stock person, and Chris, you may object to that I know so just give me a moment. gonna call him a stock person. And you know, I usually don’t like to invest in stocks and things like that where you don’t have control of of things. I like being a direct investor. But the great thing about Chris is, is that he wrote a book called invest like a deal maker. And it’s really taking the approach of what is the underlying value of the asset, the commodities. So we talk a lot on the show about buying investment property income property far below the cost of replacement or far below the cost of construction. And that’s what Chris recommends doing with companies that he also has some new opinions and thoughts on the housing market, which we’ll hear about today, and just some really interesting insights. So Chris, welcome back. How are you?

Chris Mayer 13:37
I’m great. Thanks for having me back. It’s good to be on

Jason Hartman 13:39
and you’re coming to us from Baltimore, Maryland. today.

Chris Mayer 13:41
I am in Baltimore. Yep. Okay, great. Well,

Jason Hartman 13:43
tell us a little bit about if you want to expand on on my thoughts about investing like a deal maker.

Chris Mayer 13:48
Yeah. I thought you had a pretty good characterization of it. I don’t mind being called stock picker. I think that’s all right. That’s uh, I think of all Peter Lynch and some of those guys but to talk more about the deal making aspect what makes that different is Like you actually, I’m not really interested in owning stocks, just any stocks. And so I’m more interested in thinking like a dealmaker, and that is they’re thinking about things like the assets and control. And they’re thinking about the business as a whole, sort of what can be done with it. As opposed to when you hear a lot of more amateur stock pickers, they’ll mostly focus on things like Well, what’s the price earnings ratio, or what’s the dividend yield? And, you know, what’s the growth rate? But when you talk about dealmakers and a deal maker might be as an example somebody like a Carl Icahn or somebody who’s buying or selling whole companies or someone who’s more of a direct investor and has control over that investment. And they tend to look at them in a much different way. So I’ve tried to focus my investing activities around sort of the way those folks look in businesses. And one of those ways is you talked about replacement value. And that’s really a big part of it. Because you the housing analogy is perfect. And I’ve used that analogy before to describe it to people how it works. You can buy a house for less than significantly less than what it costs you to construct it You may have a pretty good deal there. And you can apply that same kind of analysis in the stock market where you can sometimes find companies where the assets that you can buy in the stock market cost you far less than what it would cost someone else to build them from scratch.

Jason Hartman 15:13
Absolutely. Now, I want to talk to you a lot about housing debate because that is you know, a primary focus of the shower, or I should say real estate investing. But before we do that, let’s talk for a moment if we could about the financial services industry, Wall Street stock pickers, you’ve talked about investing like a dealmaker, which I think is a fantastic way to look at it, the investment bankers, the the corporate takeover guys back in the 80s, but people that would green mail the board and, you know, spoon cut up the company and sell off the assets. And you know, a lot of people characterize them as evil and so forth. But they really a lot of whites had the right idea because they looked at the underlying value of the assets of the company. And sometimes what we really realized from all that stuff going on in the 80s is that the company is worth more when you You buy the stock to gain control and sell off all the assets, like the pieces of real estate, the equipment, the goodwill, the trademarks, etc, that actually running the company itself. Right?

Chris Mayer 16:10
That’s right. And I think I think the big problem that we found in American Finance and why the corporate takeovers became part of the reason why they came onto the scene so strong is that we found that a lot of American corporations really what they lacked was owners. They lacked somebody who was there watching the shop, they lacked someone there who was thinking creatively about the assets that they had and what they might do with them. They lacked an entrepreneur. So if you look at some of the best investments over the last 50 years, you’ll find that they were almost always had a dominant entrepreneur as part of it. So you look at Walmart, you know, you had Sam Walton. You look at Apple and Steve Jobs. You look at Amazon, you Jeff Bezos you look at. There’s just a long, long list of companies where you had this sort of controlling insider and owner and someone who thought long term about the business and had a vested interest in doing the right thing. Over the long term, and that’s really what I’m focusing on. So when I think about dealmakers, I’m also thinking what I’m really looking for is an owner, someone who is there. And what I don’t like is the trend in American Finance. And really, it’s a problem all over the world where you have corporate management teams that have really no stake in the businesses that they manage, or the stake that they have is given to them with low cost options. So their incentive really isn’t for them to think long term about the business, the incentive is for them to keep their their cushy positions,

Jason Hartman 17:29
right, and they’re in their big salaries and their bonuses. And what they end up doing is is kind of raping and pillaging the company usually and taking too much out of it so that it can’t operate correctly. But you know, when you talk about like Sam Walton and Steve Jobs, and there are many other examples, too, rather than just the quote unquote, like financial people, the business people, what you’re talking about there is that is the guy that is watching the store. Those companies had a had a soul. They had a person who was at stake who really saw a vision and really came No one cares as much as the shopkeeper about the shop. And, of course, this is why big government doesn’t work. This is why socialism doesn’t work this why communism doesn’t work because it’s clickable to a wide range of things. Sure it is. And it’s, it’s it’s why relationships and marriages don’t work sometimes.

Chris Mayer 18:14
It’s all based on incentives and who has ownership?

Jason Hartman 18:16
Yeah, yeah. And who believes in it? And who’s at stake? For sure.

Chris Mayer 18:19
So those, what I would say about the companies that you mentioned is that they had a soul. They didn’t just have a financial person who was looking to just tear it up and just make make their tenure for four or five years. And you know, the thing about it is that we’ve talked about a lot of the famous examples, and we could talk a lot about those. But there’s also and this is why I spent a lot of time trying to figure it out. If there are other companies, too, that people probably have never heard of that also have, you look at a CEO, and he’s the co founder, and he owns 17% of the shares or he owns 25% of shares. So there’s a family involved that that owns a big stake in the business. And it’s remarkable because it’s not only that these businesses, you mentioned before that they do Take out, try to take out as much as they can, or we both talk about how they just try to protect their salaries. But when you have a person behind it like that, they’re also willing to change and make and push the business forward. Because, you know, if you have a caretaker management, they’re not necessary. Sometimes they can take really big risks, because they have no nothing to lose, really. But sometimes they can also be caretakers and that they take no risks. And really what you need to thrive is you need an entrepreneur, you need someone who’s going to push the company in new directions. I mean, Steve Jobs is a classic example. Is that a tremendous impact on Apple, and you can look at Apple while he was CEO, Apple while he wasn’t CEO and Apple when he was CEO, again, and the performance is there’s marked differences between those different periods. And you can do this across the board. You can look at IBM and look at it when the Watson’s are running it and then IBM post Watson, you can look at almost any company and you can see a marked marketable differences when there’s not this person at the helm that you’re mentioning. So yeah, I think it’s very important.

Jason Hartman 19:54
Yeah, that’s a great point. And one of the things I’d say to listeners who are investing in, in in property is that that person is you. You are that person who has a passion about it and you are the shopkeeper, you’re the person who cares. Instead of relinquishing your hard earned money to some guy at Merrill Lynch, who sticks it in a couple of mutual funds, and you don’t have any soul in that there’s, there’s just no, no one has thrown themselves into it. And you know what’s interesting, Chris, you, you talk about Steve Jobs. And I’d encourage any of our listeners to do this, because it’s such a great story. Of course, it’s a big story. So it’s not really applicable to a lot of investors, but it illustrates the point that you’re making. And there’s a website I one night, I just got kind of interested in, I did it you know, when Steve Jobs was there was some news about his illness on the news, and I just looked it up, and it was all of Steve Jobs, major speeches from the very beginning of apple and and you know, all through the years, and I watched them in chronological order, and it took a couple hours, as I recall, to do this, and it was just really interesting. And I remember when I bought my first company back, like 13 years ago, when I give a speech, I there was that same time Twinkle in my eye. I have that passion for the business that Steve Jobs had. And that’s really important.

Chris Mayer 21:06
Oh, yeah, it’s funny. You mentioned that cuz I did something similar. I looked at, I looked at speeches and there was one commencement address he gave, I think it was at Stanford, Stanford. Yeah, that was three years ago was awesome. Yeah, it’s a classic. certainly encourage anyone to read that the passion for what he does clearly comes through there. But other things about job that I’ve come across also that are interesting is when you look at the number of times he’s failed, you know, there’s a lot again, his whole entrepreneurial thing about being creative and trying things and you know, he’s had his share of that, but he’s also had tremendous successes. So all this I think plays in plays in what we’re talking about.

Jason Hartman 21:37
It sure does. And I always say to people, if you want to succeed more often, it’s really pretty easy. Just increase your failure rate.

Chris Mayer 21:43
Yeah.

Chris Mayer 21:45
You know, the founder of a Gore, he always says fail, but fail quickly. So there’s no stigma to failing. We just, you know, get it done and move on. If it doesn’t work. We do the next thing,

Jason Hartman 21:53
right. The problem is most people wallow in it and for me, and it’s a pity party, and they don’t move on from their failures, but the failures can be great. education’s Nixon said failure that does not destroy you strengthens you. And I firmly believe that’s true. But on the financial services industry before we talk about some specific companies and housing and real estate and that stuff, I just wanted to give the comparison because I think there’s sort of maybe three major tiers. There’s the tier of the mainstream financial services industry, which I think is it’s been in a bubble for a few decades, the bubble has burst I think people have discovered that the emperor has no clothes walking into Ameriprise or Merrill Lynch or any of the other companies that sell you a bill of goods, a bunch of stupid mutual funds. It just doesn’t work. I think that industry is over and it blows my mind. The people I know personally as friends in that industry, nice people, etc. But when I ask them questions, their knowledge is just so Elementary. I mean, they just don’t have any details. It sounds like they listened to the morning call at Merrill Lynch and they heard this is what we’re going to say today and they just go And they repeat that feel to all the clients and and you look at the commercials for these companies on TV I don’t mean to pick on Merrill or Ameriprise. I just happen to mention those two names there’s a whole industry of them I’m speaking of them generically because they advertise in their bank okay. But the commercials the advertising for these companies is so generic It is amazing these big image ads of people retiring and living the good life and frankly I don’t know anyone who’s followed their plan that has achieved that situation.

Chris Mayer 23:31
I guess there’s not a lot of people in the Forbes 400 or whatever that have done it by investing in mutual funds but I know certainly agree with your point also, I think a lot of it falls on on people because they invest in these things and you know, I have good friends too They have money in these mutual funds and and these are people who will go out of their way to save money on you know, gasoline who go the extra mile and you know, when they want to buy a washing machine or anything like that checking Consumer Reports talking to people and yet when it comes to thousands and thousands of dollars, their life savings are hundreds and thousands of commit on nothing more than Oh, the flimsiest of, you know, rationale. So,

Jason Hartman 24:08
yeah, it’s the guy reading all the reviews on amazon.com. Before he buys a $200 printer, yeah.

Chris Mayer 24:14
He’s gonna become some mutual fund, you know, five stars from Morningstar, whatever. And he goes exactly, exactly.

Jason Hartman 24:19
So so the next year, okay, that was one tier that I’m just going to call that like the mainstream financial services industry. The next tier is the tier that you mentioned of, I’m going to call them like stock pickers. So these would include and I’m a big fan of this name that I’m about to mention. By the way, I really want to get him on my show, like people like Charles Payne, and I like Charles Payne. I think he’s great Jim Cramer who made me I like glass. And and all of the people out there giving like specific stock recommendations that would be like the next tier, which I think is is better than the mainstream financial services industry. But I think the top tier is the tier of investing like a deal maker, and that includes being a direct investor sometimes or it leaves Investing in something where you know that the founder or the operator has absolute vision and passion for the company and you’re buying the assets far below their replacement cost. Would you agree that those are like three different tiers of maybe investors interface without their?

Chris Mayer 25:18
Yeah, I think that’s that those are, those are interesting tears. And I think that two of those things you nailed there are very important. I mean, I have a system I use when I pick stocks, and I have an acronym so people can easily remember it. And the acronym is code. And C is cheap. What you mentioned is buying below replacement value. O is for ownership and we want people to have a stake in the business that we invest in. So that’s two of the four right there. The D being disclosures, meaning it has to be something that’s transparent transparency is very important. Meaning that we can understand the business we know how they make money, we can follow it and he is for excellent financial condition which covers for a lot of sins. We don’t want to invest in things that have an excessive amounts of leverage or, or that kind of thing. So those are kind of my four pillars of how Look, let’s see. So

Jason Hartman 26:00
save the code again, just so people get it.

Chris Mayer 26:03
Yep, code sees cheap, specifically mind below replacement value. Oh is for ownership, we want people have a stake in the business. And D is for disclosure, which has to do about with the transparency of the business, we can understand what’s going on. And he is for excellent financial condition. So we’re not gonna want to invest in things that are excessively leveraged those those are the core principles.

Jason Hartman 26:22
Right, right. So we’ve got these three tiers. Now let’s talk about the corporate world in the in the stock world for a moment, and then I want to talk about real estate stuff. What do you like out there? And why do you like it?

Chris Mayer 26:33
Yeah, well, that’s a good question. I think right now is a very, very sort of uncertain time. And so one of the things that I’ve fallen back on is to look at what the insiders themselves are buying. And that’s been a big part of the last couple months that I’ve been writing these letters because one of the most remarkable things we had that we saw on this card the August crash, is that we saw insiders come out of pocket and start buying stock at a numbers that we haven’t seen since since two thousand nine are the early part of 2009. So that certainly got my attention and, and that’s really a kind of interesting response to a crisis because a lot of people have sold if you look at individual investors, they’re pulling money out of mutual funds and record levels. So they have a tendency to take money out at the bottom and put it back in when things are going well. And the insiders tend to be different, give you different indicator. So this is kind of interesting time because normally thematically I might tell you, you know, certain stock I like whether I like energy or like this or like that, but right now it’s more patchy and so I’m picking and choosing among things that are the insiders are buying with a fundamental business seems to be very profitable, and have a bright future. So I can make specific names if you want to know if that’s Yeah,

Jason Hartman 27:42
oh, no, no, I absolutely. I’d love you to mention some specific names. But before you do that, the insider thing I mean, certainly that seems like great advice. I mean, I want to buy into something where the insider has faith in their own deal. I want my partners in that in that venture to be at stake. Right, you never want a partner who’s not at stake and doesn’t have quote unquote, skin in the game.

Chris Mayer 28:04
Right? Right. And some of them have proven to be pretty, pretty good buyers and their own stock. So you know, there’s some of these CEOs you look at, you say, well, the last time I bought the stock was here, and look what happened, that sort of thing.

Jason Hartman 28:14
Yeah, absolutely. So the one thing though, that could sort of tilt this equation and make it maybe a little less valid, I’m just trying to be a skeptic here for a moment. So forgive me, but just sort of the general economic environment where there’s just loads of money that’s been sitting on the sidelines for the last few years. And and maybe the reason the insiders are buying more is because they just sort of have this money available that they got to do something with it. And one of the things they’re doing is buying their own stock, but they’re also doing other stuff, too. Your thoughts on that?

Chris Mayer 28:44
Well, my experience is that the the insiders won’t buy their own stock unless they’re unless they’re pretty confident. Now there’s there are some insiders that you’ll look and they’ll they’ll be token purchases, and so those you’ll discount, there are some insiders did buy, then maybe they’re on the board or something and that’s probably less of a signal than if you had this CEO and CFO and the chairman the board all by

Jason Hartman 29:02
the act of operation deactivate

Chris Mayer 29:03
Yes. And and so there there’s something to that. And I also would lean back on a lot of the more academic research that’s been done on this, which which shows that insider purchases as a whole outperform the market, depending on what study you cite something between six and 10% percentage points a year that can be outperformance there. So, I think there can be a lot of skepticism because I’ve when I’ve talked to people about this, I thought you were gonna say because I’ve heard this objection before as people say, Well, you know, there’s a lot going on with the economy now there’s a lot of bad stuff in Europe and bad stuff and

Jason Hartman 29:34
they’re moving the money back to the things

Chris Mayer 29:35
and they don’t really know say they don’t really understand the macro situation sort of discounting their company might look good, but it might be overwhelmed by you know, events.

Jason Hartman 29:45
So that’s the theory of there’s no other place to put the money so they think their company is the best safe haven. Another

Chris Mayer 29:51
thing you gotta remember to with the insiders, they’ve already in a way they’re most of them are betting pretty heavily on the company. I mean, they they get and they may have a big stake already. They might have You know, they get their salaries and livelihood out of it. So for them to then reach into their own pocket and put more money in is usually a pretty strong statement. Of course, there are exceptions and nothing’s perfect. But in general, if you can buy you know, we’ve got a chairman CEO, and they’re buying million dollar shots of the stock at a time and you can buy right alongside them. That’s usually something interesting.

Jason Hartman 30:20
I agree with you. I agree with you. The only thing I’d love to see and I doubt this is even possible is a study of the amount the insider holds of that company’s stock in relation to their own personal net worth, for example, so if an insider buys a million dollars worth of stock in their own company, but they’re not really there yet, but their net worth is 100 million or a billion dollars that’s chicken feed to them, right? It’s nothing so it looks good on paper that hey, that insiders buying, but they might just be doing that to sort of make it look good. And they might just only have a moderate faith in the company, but they’re throwing a few bones at it whereas they’ve got so much net worth outside of the company. That would be a great study.

Chris Mayer 30:57
Yeah, I don’t know that scene study that dressing. Quite But there are studies that show that CEOs that have at least some percentage at stake in the business outperform. So I’ve seen CEOs where they’ve done the threshold at 10%. And they look at their stocks and compare it to control group where the CEOs on much less percentage, and the CEOs, which have bigger percentage of the business do well, so there’s something too, holding a sizable stake in the business, but I haven’t seen a relative to their own net worth, which would be more difficult to do as you suggest, because you’d have to know their personal financial statements and self worth. Yeah, and a lot of these guys also are, I mean, I’ve been in this business writing newsletters for seven years. Before that I was in corporate banking for 10 years, I mean, a lot of them. In addition, even though they may have 10% of net worth in a company, there’s quite a bit ego and drama involved in a lot of this and there’s a certain pride and being part of a successful company and a company that does well. So some of that I mean, you know, I don’t know that company that they’re gonna throw money at something and deliberately in an effort to deceive people but me I’m sort of that’s happened at some point, but as a general rule, you know, I I think it’s probably not Well,

Jason Hartman 32:00
and

Chris Mayer 32:00
the ego is definitely a powerful thing. So that’s that’s good that they have ego in the game. I want them to have their ego invested in it. Yeah, you want that? Yeah, absolutely. Well tell the listeners some of the things you like and why maybe three examples would be good. Okay. Well, one recent example that I’ve recommended is a company called federal mogul, which Carl Icahn actually owns 76% of the stock. So you definitely have a an owner there. And this is a company that makes auto parts and it’s fallen quite a bit in August sell offs down about $15 or so. And he’s been buying it for about two weeks straight in August there during the collapse. He was buying it at a million dollars shot. Now we know that Carl Icahn is a billionaire, so you can make that what you will but he owns 76% of it. And the other thing I like about it is the CEO has particular incentive he when I kind of took out federal mobile bankruptcy brought in his own hand pick CEO, again a guy named al Ponte, and he has the option to buy 4 million shares at 1950. So when the stock hit $27 a share earlier in the year he didn’t sell or exercise any of his options that he could have the options expire in 2014. So I think that’s a good incentive there. I think the alignment of all the incentives that I look for are set up really well here at federal mogul. And I think that the business has gone through a tremendous transformation. So they’ve taken a lot of cost. They have tremendous opportunity overseas, and they’re more and more cars. I mean, I’ve done a lot of overseas travel all over the place, Columbia, South Africa, just this year, heading to Southeast Asia soon. And everywhere you go, there’s cars, cars, cars, cars. And so there’s tremendous opportunity, I think, for autoparts over the long term, and the federal mogul is a play on that. That would be an example of something that I’ve recommended recently that I like,

Jason Hartman 33:35
talked about transparency. I mean, why aren’t they transparent? You know, these are publicly traded companies, they do all the they do all the filings as they’re required to by law. How do you evaluate transparency? You’re not just going with the basic requirements that the SEC puts out, right?

Chris Mayer 33:49
That’s correct. Yeah. I mean, this is more of a qualitative issue. But I would say that transparency business model has a has a role in that. So off the bat, I say that almost any bank would fail transparency except perhaps some of the smallest banks that are maybe thrifts and have very high loan portfolios that you can get a pretty good handle on as far as what’s in them. But for a large, multi billion dollar institution, there’s just no way you can get inside that portfolio and get comfortable at all, what kind of risks they’re taking. And in fact, I would argue that the presidents and CEOs of these companies don’t really know what kind of risks they’re taking.

Jason Hartman 34:21
Well, I think if the last few years has taught us,

Chris Mayer 34:24
that’s right, it is. Also beyond that. I mean, you could take a business model that seems very simple, like, say, a natural gas pipeline, but it can be made very complicated and not transparent with financial engineering. So I’ve seen pipeline companies that have layered on top of that a number of derivatives buying and selling different, you know, natural gas, a forward and so forth, and that makes it not transparent. So I think what it comes down to is, you have to be able to understand how the business makes money and it has to be pretty simple. So most of the time, because I have this limitation, I wind up investing in things that Most of the companies, I invest in their companies that make something because you can generally follow a manufacturing operation, you’ve got cost of input, they make something and it goes at a certain price, you can get a better feel for those kind of ideas or even like a retailer, although I haven’t recommend any retailers in a very long time, or energy companies, a company that produces natural gas is something you can generally get a handle on or produces oil, real estate companies. So these would be example. So disclosure is a qualitative test. And you have to really be honest with yourself whether or not you understand what’s going on in the business. There are certain red flags I think that you would look for, do you have a lot of we saw this in the last few years in the banks, you have these special purpose off balance sheet, joint ventures and things that are contributing income, and basically their little black boxes and that’s something you have to heavily discount. But in general, it’s a qualitative gut feel based on what you have discovered.

Jason Hartman 35:48
You don’t want to get approached with fairly regularly oil and gas exploration deals and oil and gas production deals. And when I say gas I mean natural gas in these are Just small deals where you know, a guy has a ul or something. Yeah. And he’s raising a million dollars for a fund. And he’s going to all his friends and family and getting 50 grand from each person type thing. Do you have any thoughts about those?

Chris Mayer 36:11
No, I think that those, that is an area that has been rife with problems in the past. So I would be particularly careful. I mean, you have to really know and trust the people. And I would, I would think you would have to have some basic knowledge of oil and gas, so you know what you’re getting into. But I haven’t recommended any of those. I’ve seen a number of things like that I’ve seen I get, I’ll see a lot of these kind of private deals to private farmland deals, real estate, oil and gas, those are all very popular.

Jason Hartman 36:36
It’s interesting. And definitely exploration would be incredibly risky versus production, which is less risky, but still there is always a chance for fraud and so forth. So Chris, you went to Saskatchewan recently. And it seems like your your trip there. You had some thoughts of commodities on your mind, didn’t you?

Chris Mayer 36:53
Yes. And I went to Saskatchewan and I had a couple companies. I was visiting one company that I liked very much that I visited there with you fits a lot. What we’re talking about is a company called Alliance grain traders. And that’s a company where the people running and have a big stake in the employees. And then in the insiders own I think together 35% of the stock so, and the founder still with it only 10 years old. But Saskatchewan is an agricultural powerhouse, really. And Alliance grain traders processes pulses should be things like chickpeas and lentils, and different kinds of beans. And so I was also going there because I’ve been writing about Saskatchewan. I’ve probably been writing about it for three or four years, maybe even longer. Because some of the farmland deal that they’re very interesting because the government there for a long time had a very tough view on foreign investors. And it’s kind of funny because even if you were a Canadian, let’s say you were born in Alberta, you couldn’t buy Saskatchewan farmland. I mean, you had to be born in Saskatchewan to own Saskatchewan format, and they eat those rules. And so the investment started to flow in and, and so there’s a lot of interesting opportunities in Saskatchewan.

Jason Hartman 37:56
It seems like really the safe play for the future is commodity oriented things you mentioned manufacturing companies, companies that make something tangible stuff. It’s always great to hear about high flyers like Groupon that may not be such high flyer when it finally has its billion dollars for Facebook or something. Yeah, and Facebook and, and all these kind of like virtual companies. But if you ask me, the population is increasing dramatically. We’re going to, we’re going to hit another billion mark this year. Or maybe we just did hit that. I mean, nobody exactly knows the world population, but they have lots of stats on that. And you know, people consume the three things people need Chris for sure. Which, which we absolutely know. They don’t need a new pair of Nikes. They don’t need a new iPhone. They’d love to have all these things, but we know for sure they need food, clothing and shelter.

Chris Mayer 38:41
Yeah, food, food, water. Those are big, big investment themes.

Jason Hartman 38:44
Yeah. Yeah, no question about it, but people don’t have the chance to do those directly in most cases. And we’ve talked about the deal maker philosophy, which I couldn’t agree with more, but talk to us a little bit about housing, if you would,

Chris Mayer 38:56
well, a little background first because I have been in housing For a long time,

Jason Hartman 39:01
I know that and that’s why I want to hear from you. All. Right.

Chris Mayer 39:04
Yeah. And I mean, I go back as far as I think was late 2002, I wrote a piece saying that Fannie Mae and Freddie Mac would go bankrupt, and taxpayers would eventually have to bail them out and been a long time talking and writing about the housing bubble. So only recently this year, I reverse that position. So I think now that we went through this whole big housing bubble, and I think the the thing is dead, and we are closer to the bottom, and then we are the next peak, I think that’s for sure. I mean, he never call the exact bottom. But I think housing looks interesting. And I’ll tell you, I talked to a lot of different investors and other people who are doing different things. And one of the things that has struck me recently is the amount of institutional money that has started to look at housing as an investment, where they’re renting out the house and you know, there’s all kinds of boots on the ground viewpoints from different people, but in general, what I’m hearing is that it’s not so difficult to buy an A home today and rent it and get an eight to 12% cash yield on your own. investment. And I love that idea. Because I think, you know, you look at housing prices, they’ve come down tremendously. I mean, they plummeted. And in some markets, I mean, depends, there’s a lot of ways to measure this. You can look at price to income and all that sort of thing. But we’re definitely on the bottom rung of all these different valuation methods. So I think, though, it may take years before housing prices surged forward, and we have another housing boom. Now I think is a pretty good position to have a pretty good time to establish some positions and say that rental home market and just sort of wait out the storm I mean, where can you get eight to 12% on a physical tangible asset again, that has value and this is another point in the valuation isn’t most of these houses now you can you can easily find houses trading for well below replacement value, what it would cost you to rebuild them. So I think it’s a very interesting place to be right now. And I would say things look up from here for housing, as crazy as it says sounds to say,

Jason Hartman 40:52
Yeah, but I don’t think it’s crazy at all. I agree with you completely. But it’s interesting to hear that from a guy who’s been bearish on housing for so many years. I mean, you You thought housing was a bad deal in 2002. And then of course, the speculative frenzy and the money pumped from the Greenspan pump I’ll call it post 911 Greenspan pump was just kicking out ridiculous amounts of money into housing for years. And the price is just, I mean, it was absurdity. What was Oh, yes. And

Chris Mayer 41:16
I mean, we’ve seen this happen with all kinds of specular gloss. I mean, I remember writing bearishly about the stock market 97. Of course, you know, they were three years ago before it peaked, and they were tremendous. You know, there’s still a lot of tremendous room room on that. So these things always, always go longer. But I think now to when you look at the the reason why I say it sounds, it doesn’t sound right to you. I’m not surprised because you’re actually, you know, more of a practitioner is in the market and sees the deals you can do. And most of the people I talk to like that completely agree with the position, I’m saying, but I do get a lot of resistance from readers who don’t see that, and they just read through the headlines, which is, you know, still a lot of scary stuff about housing. So, I mean, there’s no question if you look at the US mortgage market, something like 45% of us mortgages are still in some state of trouble. They’re either underwater or they’re in foreclosure or something. But if you look at The individual deal as an investor, I think it’s pretty attractive.

Jason Hartman 42:02
Well, so when you invest in stocks and when you invest in companies, do you invest? Are you an income oriented investor? Are you capital appreciation? I have a feeling I know the answer to this, but I just want to ask, you

Chris Mayer 42:14
know, I mean, I would say that I mean, different than to when I’m looking at a stock, I’m looking kind of sort of at total return. So sometimes income will play into it, but sometimes it won’t at all. I mean, if I can, you know, it just depends on the situation, I would say I’m indifferent to either or what I want is the greatest total return overall that I think I can get.

Jason Hartman 42:30
See, I would say that what people just fail to understand about real estate is that it’s a multi dimensional asset class and companies if they’re dividend paying have two dimensions, they have capital appreciation, and they have income, they have dividends, but but with with real estate puts the right kind of real estate, you have several dimensions, you have income, okay? And that’s what you’re saying when you say, look at just just get eight to 12% rental yield, return, and wait it out with no capital appreciation, who knows which way that’s gonna go right. And so you’re Basically like investing in a bond or a dividend paying stock, the principal value of the bond or the stock can go up or down, but it still spins off the income for you. Right? And then you’ve got the potential for capital appreciation. And I just want to propose an idea to you, Chris, I don’t think we’re going to see much if any real appreciation measured in real or constant dollars for a long time, because for that to happen, we have to have incomes increase, and I don’t think that’s looking good for the foreseeable future here for the next five years or so. But I do think we will have inflation and so I think in nominal dollars will have increase in prices. Yes,

Chris Mayer 43:37
I think if you look at different times, of rapid inflation that houses in general have been a pretty good hedge on that real estate general.

Jason Hartman 43:44
Certainly they have it but it gets better because if you leverage the property so you put 20% down, you don’t just hedge against inflation. I had a guy on

Chris Mayer 43:52
his short against the dollar basically, bet against you know, the purchasing power of the dollar. That’s the brilliant thing about it. And you can fix it at such low interest rates now. Yeah, I think it’s a it’s incredible deal.

Jason Hartman 44:03
It is incredible because think about it, if you put 20% down, you’re leveraging or shorting the dollar by a five to one ratio, right? So if the inflation rate is 5%, but you’ve leveraged and you’re not paying the debt service cost on the leverage the tenant is you you’ve really out maneuvered inflation is assuming the real estate keeps even pace with inflation by a five to one ratio. Sure. Okay. So that was one big part of it. Yeah, huge, huge, but it gets even better. Because, see, I don’t think we’re going to have any real appreciation for a long time. But I think we could have what I call regression to replacement costs. So if you buy a property now for say, $50 a square foot and say that it cost $100 a square foot to rebuild that property today, plus you’re basically getting the land for free. So and you know, some of the markets we like like Dallas, Phoenix, Indianapolis, Atlanta and some others, the lot values are cheap in those markets. I mean, you know, it only cost us For a single family home lot 15 to $25,000.

Chris Mayer 45:03
Yeah, I mean, I’ve heard some prices in Phoenix have been rolled back to where they were in 94. Oh,

Jason Hartman 45:07
yeah, no, it’s amazing. I mean, listen, I I just recently moved Arizona from California, I left Newport Beach to move to Scottsdale and some people think I’m crazy. I think I’m brilliant. I like it a lot better out here. And yeah, it’s amazing. I mean, things are half half price. I mean, this was obviously a huge bubble here and it blew up. So even if there’s no real appreciation, all you have to have happen to really double the price of these properties, or even triple them because sometimes we buy it one third value of replacement is just have what I call regression to replacement costs. What do you think of that?

Chris Mayer 45:40
No, I think that’s I think that’s exactly right. I think long term, you do have a regression to replacement. And I see that in stock market. Also a lot of different assets, things will fall dramatically out of favor for a while, but over time markets kind of correct themselves. And I think that will happen housing one way or the other, you know, there’ll be some supply that will disappear. There’ll be houses that are torn Whatever there’ll be, there’s still demographically, the US is still in a pretty decent place, especially compared to Western Europe, we’ve got a country of 300 million still growing, that’s going to just naturally soak up some supply. I mean, household formation in the US is still growing a pace and the market will adjust we’re not you know, housing starts are at very, very low levels, and it will be patchy so I mean, you mentioned your specific market and I think that’s important to note is that you know, there are some markets that will come back and there will be attracted there some that may never come back. I mean, I know reading different stories about you know, whole towns in Florida that basically grew up only because of the housing bubble and there’s really no reason otherwise for the town to exist. reclined to make an investment there then say like a Tampa Well, you know, Tampa eventually that’s a city. It’s got a reason for being it’s been there for a long time that we’ll come back and Phoenix will come back and some of these other places coming but I think you’d have to be kind of choosy.

Jason Hartman 46:50
And just I think what you’re referring to in Florida is the central Florida areas. That’s literally those were literally nothing more than a symptom of what screed and bank money flowing it developers all towns created from just Adam credit and they’re all they are thousands in the middle of nowhere no upper nothing else. Yeah, right, right. Absolutely. The point I want to make there is I think regression to replacement causes not appreciation. I don’t think that’s appreciation. It’s just regression,

Chris Mayer 47:18
right? Although it depends where you bought, right? If you bought half, if you bought it for half replacement value, it’ll be appreciating for you specifically, but it’s just, it’s just getting back to a more normal market.

Jason Hartman 47:27
So Chris, that’s interesting what you say about housing, especially because you’ve been a bear for so many years. So I really like to hear that it gives me a lot of confidence that I’m doing the right thing. But I’d be interested to hear your take on Warren Buffett. Because, you know, I’m beginning to think Warren Buffett is like a shill for the Obama administration. I mean, you know, he’s, he’s throwing fundraisers for for Obama, and he’s doing things that just don’t make any sense. I mean, but but he’s, he’s got a huge insider advantage, like, you know, he just bought a bunch of BFA stock Did that

Chris Mayer 47:58
make sense? And he was also he’s also Come up hypocritical because he’ll talk about taxes. And then and then he’ll be sure that when he does these deals, he’s in preferred stock 70% of dividends, which are tax deductible and so on and so forth. I mean, his actions betray what he’s what he’s saying, if he wants to pay more taxes, that’s just one issue. I mean, he nobody stopping him from writing a much bigger check to the Treasury, you know, I’m sure they’ll take whatever money they get. But

Jason Hartman 48:20
he for some reason, he says that his taxes should go up yet he doesn’t do that.

Chris Mayer 48:24
He doesn’t do that. That’s what I that’s exactly

Jason Hartman 48:26
what I heard about it is his famous line his secretary pays more taxes than he does is that he only pays himself a $100,000 your actual salary and he takes the rest of his money in a more preferred means that’s taxed at a much lower rate. And it’s interesting to me that Warren Buffett’s secretary, doesn’t make 100 grand a year. I mean, you’re you’re the secretary for the second richest man in the United States of America and one of the richest people on the planet. And, I mean, that’s the I don’t think he’s paying her enough. Yeah.

Chris Mayer 48:55
I mean, when it comes to Warren Buffett, I think that you know, as investors it’s definitely When you’re looking to learn about investing to study his career, because it’s been a remarkable run, but the Warren Buffett of the last, I don’t know, three to five years or so has been much more of a political animal. I mean, not just the taxes, but on all kinds of issues, like you say, so, you know, he’s fallen down some pegs and a lot of people’s mind, but

Jason Hartman 49:19
but you know, one of the things like when I read Buffett biographies and so forth, I kind of like his philosophy. It’s sort of the value investing by good sensible companies, not the high flyers, they just have underlying value and operate and hold. And that sort of strikes me as a good philosophy.

Chris Mayer 49:36
Yeah. And I think you could, I think you can divide Warren Buffett kind of in three careers. There’s sort of the early Warren Buffett when he ran the first Buffett partnership and he was involved in special situations and doing things like Ben Graham cigar butt investing, and then there was sort of the middle years where he became more than Warren Buffett that most people know the guy who’s espouses all that folksy investing wisdom and common sense advice that you talked about. And then there’s core to the ladder Here’s where he’s become so large where he can really only buy whole companies and where he’s become much more, I think less interesting to study as an investor, and where he’s become much more political.

Jason Hartman 50:10
Yeah, it’s, it’s interesting. That’s a good way to divide him up. Definitely. Well, hey, Chris, what else would you like people to know before you go? And of course, please give out your website and you publish two different newsletters people should know about and tell us where they can get those?

Chris Mayer 50:23
Yes, I would say the best place to go is the daily reckoning. com. I write columns, their daily recommends a free letter comes out every day. And you can find out more about my newsletters there. And like I say, it’s free, so it can’t beat that.

Jason Hartman 50:36
Absolutely. And it’s great newsletter. Bill Bonner is a terrific writer. And I just really enjoy that philosophy. I will say it’s a little long winded, but it’s it’s entertaining. I love the way they just sort of bashed the left leaning, political world and so forth. It’s funny. It’s really good. But in closing, you know, what thoughts would you have for people looking forward and any thoughts you have about the future of the economy, inflationary deflationary insolvency for the United States or whatever, you got

Chris Mayer 51:04
the inflation thing, I tend to think that we’ll see it sooner or later. I mean, this is one of those things where a lot of people have been looking forward, including me and have been wrong for few years. But I think it’s inevitable and this most recent episode with Operation Twist, where they’re driving down interest rates even further, I mean, there just can’t be much more room to go there. So I think that will we’ll see more inflation. And overall, I would say, though, that there’s still a lot of investment opportunity out there. So I try not to get so down too much on the macro economy, because there’s lots of incidents in the past, we can look at the two and they don’t necessarily dance together. In other words, you can make pretty good investments in bad times. And there’s lots and lots of examples of that. So I would say stick with those basic principles that that we’ve been talking about, in this interview, look for that to invest with people, you know, that have track records that are having their incentives aligned up with yours. Stay picky, you know, you know, the great thing about investing is you don’t have to Invest, you can sort of wait until that perfect pitch comes along. So that’s my really my parting parting wisdom, I guess.

Jason Hartman 52:07
Fantastic. Well, Christopher, thank you so much for joining us today. appreciate having you on the show.

Chris Mayer 52:11
That’s been fun. Thank you.

Chris Mayer 52:14
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