All Cap Investing With Kirk Spano

Kirk Spano runs Margin of Safety Investing and shares what it means to be an all cap investor (0:25). Using options, covered calls (14:30). AST SpaceMobile as an example (19:00). AI and large cap names (25:00). QE has changed everything (36:00). Bitcoin, gold, crypto (46:00).

Transcript

Rena Sherbill: Very happy to welcome back Kirk Spano to Investing Experts. Always great to talk to you. For those who have forgotten or never knew that your investing group on Seeking Alpha is called Margin of Safety Investing.

I wanted to start – we had another analyst on a couple episodes ago, Courage and Conviction Investing. I’m not sure if you’re familiar with his work. He focuses mostly on small and mid cap companies. We’ve had him on a few times like we’ve had you on a few times. You’re both thoughtful analysts.

And his take, not to get too far out of the weeds already to start, but his take was, he’s focused on small and mid cap companies, so he’s a bit depressed in terms of his returns so far this year.

And he updated us on where those stocks are and how he thinks about those stocks and we had a few commenters talking about it’s kind of a bummer to listen to somebody be bummed out about where their stocks are going, where their portfolio is.

Whereas I feel like it’s super refreshing to hear somebody give kind of a somewhat downhearted take amid a somewhat downhearted moment for their stocks. And looking at the markets, it’s a bit hard to suss things out. I’m appreciative of people taking a real take, especially when it’s hard to know exactly what to do.

So all of this is to say, you’re a thoughtful analyst. You’re a thoughtful investor. You’re a smart guy. How are you looking at this present moment with the depressing news, with the depressing things coming out, coupled with the somewhat bullish announcements which there are to be had? Where is your mind at as we approach October 2025?

KS: I am an all cap investor, so I will just go where the money is. And that has helped me for a very, very long time.

I have been known as a small and mid cap investor, but my biggest wins were buying Facebook (META) when they crashed after their IPO back in 2013, I think it was, maybe in ’12, right around there.

About the same time, I wrote some articles about buying Apple (AAPL), when everybody hated Apple, and I bought Google (GOOG) (GOOGL) early. I was in Tesla (TSLA) way back in 2014 to ’16, so I got in that early.

A lot of my big winners actually were big caps, large caps that became mega caps. So I’m not completely depressed by the small cap performance, but there is a systematic element to that that I think people probably overlook when they take a look at the cycles.

And that is that about 70% of the companies in the Russell 2000 are not profitable, and they probably will never be profitable for the most part. So that index is a crummy place to invest. However, it is a great place to pick out stocks.

If you can find catalyst driven companies in the Russell 2000 and scale into them, and we have a way that we do it that makes us money, then you can, on the basis of your stock picking, do very well.

So we have notably invested in companies like AST SpaceMobile (ASTS) and Rocket Lab (RKLB) in the last couple of years.

We bought Palantir (PLTR) under $10. I stupidly sold it in the forties, and I’m living to regret that decision to sell. So ride your winners is a real thing.

We’re still in AST SpaceMobile and Rocket Lab that we bought under 5. But we have several others that have just been chopping along for a couple of years. Well, the stocks that chop along, the ones that the catalyst get delayed or missed, we sell a lot of covered calls as well as cash secured puts.

And what we have is a option wheel strategy that several other people practice on Seeking Alpha. We use a lot of technical analysis. So we have an option wheel strategy that uses technical analysis that allows us to sell cash secured puts a little closer to dips or in dips and sell covered calls on some of the rallies.

And it’s an imperfect strategy. It’s never gonna be, you know, perfect.

But as Vince Lombardi said, if you just keep trying to make good decisions and you work hard and you strive for perfection, you can reach excellence. So I recently, published my my performance for the year.

We’re up 36, 37%, and it’s mainly on the back of some good stock picking. AST SpaceMobile and Rocket Lab have been a big part of that. Very Peter Lynch have a few big winners, and it carries the day.

But systematically, we have sold a lot of options, a lot of covered calls, a lot of cash secured puts, and just grinding out all that income, especially in tax deferred accounts that works well, we we’ve been able to do well.

So as a guy very empathetic to be in a small and mid cap stock picker, I get it that a lot of people have had a rough time, but I think that it’s largely because they didn’t have a way to deal with an index that didn’t do well, so I would never buy (IWM). And they didn’t have a way to grind things out.

If you’re a baseball player, you can be a home run hitter or you can be a singles hitter or you can be very well rounded and do all the things. We try to do all the things.

We’re not great at everything or things don’t always work out perfect. We’ve had clearly some of our dogs. You know, one of my one of my favorite stocks out there is a little refinery company called (AMTX).

And it reminds me of a company called Tesoro, which is now a little company called Marathon Petroleum that I invested in fifteen years ago. And the catalyst to drive that stock up have gotten delayed by the California government and by the US Government, under Gavin Newsom and Joe Biden. They promised a bunch of things that did not happen, and I’m a pretty sympathetic to that side of the aisle guy.

But here under President Trump, things started to happen. Those catalysts have started to manifest, and maybe this is the year or next year is the year that an AMTX goes up.

When you small cap invest, you’re going to get a lot of delayed things, and that can depress the stock price, especially stocks that don’t have a ton of institutional investment.

When institutional investment is below half or around half, retail investors can whip it around. You’re subject to the trading rooms and the discord rooms and the hedge funds putting pressure on small cap stocks because they can overwhelm the share price, which is something I’m writing an article about so people understand how small cap stocks get ganged up on by groups of traders that are loosely affiliated through social media and trading rooms.

And I think that if people understand that, they can devise a strategy to get through these two and three year downturns or or choppy periods without getting depressed.

So I think there’s always a strategy or a tactic to deal with what’s going on out there. And and the question becomes, do you have the tools in your toolbox to use those tactics and strategies?

And always remember that with the SMID cap investing, you are really looking for stock picking. The indexes won’t necessarily do it for you, in a day and age when over half of the money gets just put into the S&P 500 index.

So in a world where you have efficient markets and inefficient markets, it’s the inefficient markets, the ones where there’s not a systematic push up on prices like there is with the S&P 500 (SP500), the inefficient markets, small caps, mid caps, emerging markets are probably the places where you have to be more selective, either pick industries or individual stocks.

So that’s kind of the world view on small and mid caps. I think that if people pick well and they’re patient, things generally work out. And I think that the thing that people really have to avoid is running out of patience. People sell this time of year and say, I’m taking the tax loss.

Then the stock goes straight up. That is not something that works out well for people. I have a stock out there right now that dropped maybe 30 or 40% from its peak. And somebody who bought it at the peak sold it a month later, and now it’s back up. And they’re like, well, now what do I do? Well, you got your got your little tax write off.

However, you missed out on a 30 or 40% rebound rally. If you’re not a great trader, don’t trade and I know that everybody wants to take a tax write off because, oh, I can write it off against something else. But the reality is that if you’re truly making good stock picks, you just wanna hold them for the most part.

There are occasions to harvest some tax losses, but, generally, it’s not the end of the year. It’s usually the middle of the year. And that has to do with seasonality and the way the institutions invest and the way they push prices around.

So I just caution anybody who is depressed about their small and mid cap performance from just selling at this point. Because at this point in the year, you don’t know when the next rally starts.

Seasonally, it’ll be November. So is it really the right time to sell? I doubt it if you’ve selected well. I wouldn’t trade out on the volatility at this time usually. I mean, company specific, you might want to.

But in general, people losing patience and taking tax losses at the inopportune time, is usually a bad idea. Most corporations and institutions, they take their tax losses months earlier than retail public.

So they’re buying at the end of the year when other people when retail people are selling, you don’t wanna be selling to the big guys when you’re close to a bottom price. That is the classic trap, retail sells closer to the bottom, and institutional or corporate investors or family offices invest when retail is selling.

So don’t be their sucker, I guess, would be the way that I would put it at this point because I know a lot of people are tempted to sell right now. And if you haven’t already sold your losers, you may you may not want to.

What you might wanna sell right now are a few of your winners if you don’t think that they have a lot of upside left, especially going into the shutdown, which as of this recording, we’re just a few hours away from.

So if we get volatility on an extended shutdown, then the shutdown of a few days won’t matter. But if this becomes an extended shutdown of the government, we could take a look back at 2018 and see that the threat of the shutdown ended up correlating largely with a sell off in the stock market.

Will history repeat or rhyme? I don’t know. But it might. So I’ve been encouraging people to manage the risk on the large caps that have run so far up and they’re at historically high valuations, not so much the small and the mid caps.

I think that those are some of the again, if you’re a good stock picker, great place to to to accumulate and to sell cash secured puts and generate some income.

And some of the large caps, not all of them, but a lot of them, they’re at the highest price to earnings ratio and peg ratios not only in the last five years, but really in the last twenty five years. And that is, to me, a bit of a warning.

RS: Definitely some concerning times when you’re looking at some of these valuations and other metrics that you’ve pointed to and some of these large cap stock questions that remain.

I’m curious if you would give us maybe another one to two minutes on when and why you use options and covered calls and when you utilize those tools?

KS: I’m a believer in a relatively concentrated stock portfolio that sits alongside of a more diversified ETF asset allocation, and it’s worked for me.

Now that doesn’t mean that it will work for everybody, but it’s worked for me, so I keep doing it. I’m of the Mark Cuban school, figure out something that works and just keep doing it until it breaks.

So a handful of ETFs as my asset allocation backbone or core with about 20 stocks is where I gravitate to. In the stock portfolio and even some of the ETFs, there are pretty robust option markets.

And because the number of traders has roughly doubled since pre COVID and because the use of margin and the use of options has gone through the roof, you can sell options at very high premiums.

Now I’ve been doing this thirty years as of this year. This is my thirtieth year. And my mentor was an option seller, mainly covered calls. And after the financial crisis and the start of the first rounds of quantitative easing, it started to become apparent that the cash secured put selling would become a pretty good strategy.

Prior to that, almost everybody just sold covered calls. Famously, some guy in Omaha named Buffett, I think his name is, has sold cash secured puts against the S&P 500 a number of times in his career.

Because he has a huge pile of cash from the operating businesses at Berkshire Hathaway (BRK.A) (BRK.B), he wanted to increase the return on that cash. So he would sell a cash secured put on the S&P 500 with the reasoning that regardless of what it does in the short term, in the long term, it goes up.

So he could generate a bigger return on that cash by selling a cash secured put. Over the years, especially since 2016, when QE three or four or twist or infinity or whatever it was called happened, cash secured put selling on the dips has been an incredibly good strategy.

So if you take a look at a chart of the S&P 500, what you’ll see is that buying the dips has been a great strategy. And, really, any stock that over five or ten years is is chopping its way higher, selling cash secured puts on the dips just like buying the dips has been a very good strategy.

The reason we sell cash secured puts over and over again when the market is choppy or when it’s down is because the volatility in the market and the inherent gambling nature of all these retail traders that are new to the markets drives the premiums up.

And you get a very big internal rate of return, a very big annualized rate of return on selling cash secured puts on stocks that you would love to have assigned to you and own at these slightly lower prices.

And the thing is is that probably three quarters of those puts expire if you’re even a decent stock picker because stocks gravitate higher about three quarters of the time.

So when you take a look at the amplification of those premiums due to the gambling nature of the markets today, your time value deterioration ends up giving you internal rates of return of annual rates of thirty, forty, fifty, sixty, 80% on your cash that is securing those puts over and over and over again.

So, mechanically, when you sell a cash secured put, if you think of it like setting a limit order to buy, but you’re getting paid for it, that’s the way that we think of it.

So AST SpaceMobile (ASTS), a stock that I told everybody on Seeking Alpha to buy when it was $5 a share. The article is out there. It went up into the fifties, just barely, and we sold covered calls at $60, 70, $80. And we’re getting $2, 3, 4, 5 a share. Well, that was basically our cost basis.

Those covered calls expired because the stock chopped along and went sideways and went and even corrected into the thirties. Well, when the stock was heading down to 45 and 40 and for a minute was in the thirties a month or so ago, we sold 40 and 45 and even $35 cash secured puts because we would have loved to buy more of the stock at those prices.

But we were getting premiums, and you can go ahead and check this through Fidelity or Schwab or whoever you use. We were getting premiums of $4, 5, even $6 a share.

It’s a fantastic strategy. And now the stock is back up to $46, 47, whatever it is today. Probably all those cash secured puts are going to expire in the next month or two. We can buy some of them back if we want to at a profit. So that’s where some management comes in.

You have to decide, do you really want it assigned to you or not if the stock prices fall? But that is a strategy that with a little bit of technical analysis and we don’t use a lot of technical analysis.

We kinda cheat. We use some very vanilla indicators. We use the relative strength index, RSI, but we don’t measure it daily. We’re not short term traders. We measure it weekly.

So when you measure something in the stock market, you pick a time frame by the minute, by fifteen minutes, by an hour, by four hours, by a day, by a week, by a month. The weekly time frame within a within a cycle, within a full market cycle, tends to give the best signal for people who would consider themselves more position traders than swing traders.

So we’re more position traders. That means that we actually like to hold our investments for quarters and years. We don’t do a lot of things that are based on days or, a month or a quarter. We would like to own our holdings a a pretty long time, especially longer than a year so that we can get the capital gains tax break.

So that weekly time frame on RSI, when it approaches oversold, right, forty, thirty, right down in there, you can generally sell cash secured puts on a stock.

Again, caveat that you picked a good stock, and generate a big premium. Probably, it’s not assigned to you because it’s already oversold and time will drive it back up.

But if it is assigned to you, you’re getting a pretty good price. So you’re buying low. So you win win. Either you buy low or you just keep all that premium with an annualized return of some big double digit number in most cases.

Every now and then, you hit a home run and it’s higher. Every now and then, something you have to close and you don’t make any money.

But on average, you’re making for us, it’s been around 30%. So you take a look at that and you’re like, it’s a pretty good strategy if your foundation of stock picking is pretty good to begin with.

So you just use, like the Karate Kid. The new Karate Kid movie just came out. Use your your opponent’s leverage against them just like the Karate Kid did. That’s how he won his fights.

There’s so much gambling in the stock market today. Selling a cash secured put is like being the casino. You’re the one getting the VIG. I love getting the VIG. Pay me. Pay me over and over and over again.

And if you do that systematically and again on a foundation of good stock selection to begin with, you can beat the market has been our experience, and you can do it with roughly the risk of a balanced portfolio because we typically have forty, fifty, 60% of our portfolio in cash with the other forty, fifty, 60% in stocks.

But that cash portion, you know, only gets assigned into the stock market, into the stocks that we have sold cash secured puts on if prices drop 20%. Well, that’s a pretty good margin of safety, 20%, plus we have the income that we’ve collected. So, you know, we’re roughly taking 60 to 80% of the risk of the S&P 500, but we’re beating its return.

To me, that’s a pretty good risk adjusted return, and I’ve been doing it pretty successfully now since about 2016, since I’ve been on Seeking Alpha and more QE.

I think there is a question to be begged, which is, are we gonna get QE again? Are they gonna keep the markets highly liquid? I think that’s a big conversation.

I think the answer is probably, but with long and variable lags.

RS: I’m tempted to get into the QE conversation, but let’s stick for a second on on the stock side of things.

There’s so much talk about AI and speaking of the S&P 500 and what’s actually in that and speaking of diversified, how diversified it isn’t. What would you say about large cap names and the tech sector?

You were also one of the first people to come on Investing Experts and talk about how you see the AI play more in health care. You were talking about Pfizer (PFE) than you do necessarily in the quote, unquote, tech sector. Talk to us about how you see large cap names and how you see that developing over, let’s say, the next year.

KS: So when you manage a hedge fund, which I do not, but when you manage a hedge fund, you have what what are called channel checks.

And I have developed since I’ve been in the press back in 2011, I’ve been able to develop some pretty good channel checks.

And I have a number of clients in Silicon Valley who have helped me recognize some things a little earlier than other people. So not only was I pretty early in Facebook, Apple, and Google, and I actually my first stock one of the first stocks I ever bought was Microsoft (MSFT), way back in the late nineteen eighties for a high school project.

They have helped me understand it. I just got off the phone actually with somebody who works at SuperMicro because I helped them with their money. And I think the AI is the most important thing since the Internet. And I think the Internet provides us some good analogies for what’s going on.

First off, when the Internet was built out and we had the dotcom boom, there are all kinds of companies that weren’t profitable and were never going to make a profit, but they built up all this Internet infrastructure.

And, ultimately, the Internet became very cheap, and the and the companies that made money on the Internet either had software as a service or something to sell.

So while you had (QQQ), you know, at the time, I think there was an extra Q, drop whatever it was, 80% off of its peak, that was kind of the first iteration of this super long term technology super cycle that we’ve been in.

Big, big secular trend. And the culmination to this point who knows what we’ll invent in twenty or thirty years? But the culmination of all of this at this point is AI. I think AI is bigger than the Internet because the applications for business and for changing standard of living are bigger.

It is understated how much our quality of life can be improved with AI if, and there’s a lot of ifs, if it doesn’t eat us, right, if it doesn’t kill us somehow, and if it doesn’t make our brains turn to mush.

One of the things that I’ve seen with AI is people will go and use whatever their favorite AI is. I use Perplexity. And they just type in half a question, and they get an answer, and they just think it’s gospel. Well, first of all, AI doesn’t reason. Not at this point. And it really is just an aggregation of what it finds on the Internet.

So the looser your question, the looser the answer and the less valuable it is. So when you use AI, you have to ask good questions. You have to build the conversation to get the information you want, and then you have to source check.

And almost nobody clicks on those source links, but you should because you’ll find a lot of garbage and a lot of old stuff. So when you work with AI, there is a better and worse way to use it.

I don’t know which way we’re going to go on aggregate. I’m afraid that on aggregate, we use it worse, but we’ll see. For me, it beats the hell out of scanning PDFs and doing spreadsheets myself.

I have become at least at least 500% more efficient since I started using AI five years ago. The first AI I bought for the financial industry with a really hard to use dashboard was $20,000 a year. Sentio. AlphaSense and them have merged since.

Today, I pay $200 a year, and I might end up paying $2 for an even better version. But I pay $200 a year for the Perplexity Pro, which is, well, 99.9% cheaper. 99% cheaper. And it’s at least 10 times better. I don’t have to learn a dashboard. I just have to build my queries in a way that I actually get the data and the information that I need to make decisions and analysis.

So I think that the day is coming where we are much more efficient, not to the point where we lose jobs because I think that most jobs in a service based economy, which we are, 70% of jobs are service based, instead of working sixty hour weeks or fifty hour weeks to get ahead, the forty hour work week for the workaholic will become a thing.

And for everybody else, it’ll be a thirty hour work week. Lot of four day work weeks maybe, three and a half, whatever.

I don’t think we’re gonna lose jobs. I think we’re just gonna work few hours to get it done. And I think for corporations, that leads to a pretty big improvement in margins if they can maintain their prices.

The thing is that in free markets, which we don’t really have, but we have, you know, kind of a hybrid type of market. We have a lot of oligopolies. There is often a race to the bottom in pricing.

And when Warren Buffett would talk about companies with durable comparative advantage or competitive advantage. What he’s really getting at is pricing power, and he talked about that in lots of his letters.

As investors, we need to find the companies that can maintain their pricing power while their cost of doing business becomes cheaper because AI helps them become more efficient.

Some companies, this will work very well for. Other companies, it won’t matter so much.

So you have to, as an investor, find companies that can maintain their margins because they can maintain their pricing. And at the same time, the company internally becomes more efficient largely on the back of AI.

That is what I’m looking for. And I think that there’s a lot of winners out there. I think a lot of industrial companies will do well. I think a lot of pharma companies will do well.

I think it’s the big pharma that will do better than the small biotechs. I think a lot of people out there are in love with the idea of investing in small biotechs because they might have the next big thing.

But in a world of data where large quantitative models are coming, right, right now, you don’t get that with Perplexity or Gemini or OpenAI.

But the quantitative models, not LLMs, which are large language models, but LQMs, which are large quantitative models. And you can go to a website called sandbox a q or sandbox a I or something to to find out about that.

The companies with gigantic datasets like Pfizer or pick a big company with the money to pay for computing power probably will be able to do what the upstarts have always done all by themselves.

They won’t have to pay a premium to a small cap biotech because they want whatever thing it is that they’re they’re working on.

They’ll just say that’s a good idea. We’re gonna do it too. And because they’re gigantic and have money and they have compute, they don’t have to pay a premium to a small cap biotech.

So there are giant companies of big advantages that are undervalued. I think Pfizer and Ford (F) are two of them, and there’s a bunch more.

The users of AI ultimately are the ones that I think win. And I think that that is good for a small guy like me. I think it’s good for a giant company with a big checkbook and a lot of data, and there’s probably lots of winners in between.

But at the same time, in other spots, it’ll just lead to an erosion of pricing power and more competition. And it’s hard to make money when there’s a lot of competition.

So where are the oligopolies to invest in? Where are the companies that will go from being undervalued to being overvalued as they become the narrative darling of retail investors?

They’re out there. They’re hard to find. Large caps are are mostly an efficient market. Most of the information is priced in.

But every now and then, you’ll find some large caps where the information is not priced in. To me, the sweet spot is mid caps because they’re undercovered by Wall Street. They’re underinvested because indexers don’t get in there.

And the mid caps that get sucked into the S&P 500 over time, to me, those are the ones that have the really rare combination of big upside without a lot of risk.

And there’s not many of those out there, few dozen a year. But that’s probably where I hunt the most. And I think that those mid cap stocks that benefit from AI, probably are what most retail investors should be looking at.

Because a company that goes from not on the S&P 500 to on the S&P 500, now it gets a chronic bid.

Because half the money goes into the S&P 500. So if you get into the S&P 500right now that you kinda have a new floor on your price, You’ve become much more correlated to the S&P 500 at that point.

So, you know, mind your S curves, but those mid caps that you’re getting pulled into the S&P 500 over the next few years, to me, that’s the biggest potential return you can have without taking a lot of outside risk.

RS: Do you want to get into QE now?

KS: This is this is your circus. I’m just the clown.

RS: This is my show? Alright. Dance. Dance that QE dance, Kirk.

KS: I’m an economist, and QE has really changed everything for a very long time, going back to before the Roman Empire. And the Romans are the ones that always get cited, but other empires did it too.

They all printed money. So when a government overspends or just doesn’t tax appropriately, which is what I think the case is in the United States, they end up printing money when they get upside down.

And the United States is 37 plus trillion dollars upside down right now. And I know that there’s a lot of fringe theories out there about repricing gold, and we’d be out of debt.

Well, that’s not true. Because if even if we repriced gold to 80% of the spot price, you know, you’re you’re you’re only looking at another trillion dollars. So, you know, we got 37,000,000,000,000 of debt.

And if you take a look at the way the tax code is structured and as I’ve gotten wealthier, I’ve gotten more tax breaks. I don’t understand it, but I take them. About half of all the tax breaks since 1981 went to 1% of people.

The other half of the tax breaks are spread out across the other 99%. And, ultimately, I forget whose study it was. I think actually it was the Heritage Foundation, which is pretty conservative.

About 80% of the tax breaks since Reagan have basically correlated directly to the federal debt. So 80% of that 37,000,000,000,000 is tax breaks, and about 20% is is new inflation adjusted spending.

So when you take a look at how this all works, we got into a situation going into the financial crisis where leverage was high, quality was bad, right, just as a shortcut to understanding it.

And there’s it was a perfect storm of, like, 10 things. But, basically, leverage was high and quality was bad. Easy way to understand it. Everything collapsed. There was a domino effect. Everything fell for about a year, and then they started printing money.

And then things stalled out a couple years later, so they printed more. And then there was an election coming, and things stalled out, so they printed more. So quantitative easing technically is not printing money, but really it is.

Because you are borrowing the finance today, and, theoretically, that money is going to get paid back, but it’s probably not, at least not in today’s dollar terms.

If the last five years are an indication or the last ten years are an indication, we are going to inflate away somewhere between 5080% of the debt.

That is very, very good for asset owners and very, very bad for everybody else. So your defense against more quantitative easing, the, quote, unquote, not money printing, but it is, is to own assets.

And you need to pick carefully. And I think that buying mediocre assets because all the dividend is high is usually a bad idea. You don’t wanna buy mediocre assets. You wanna buy what is undervalued and has a good growth rate.

Something that you can project out two, three, four, five years and use the next one or two years to build a position in. I know that that’s not the sexiest way to invest, but it tends to work.

And if you follow the big money, if you really are into how money works, if you’re really into who are the smartest people and money, you will keep coming back to most of the the private equity guys.

The private equity guys and ladies are ridiculously smart.

When I was at the Hart Energy Conference, it was fun to listen to some engineers and executives, but it was useful to listen to the private equity guys who a year and a half ago told me that US oil production was peaking.

Had it maybe a little bit higher to go, but in the next few years, it was gonna peak. That’s useful information. What was even more useful is that they were all on cash out programs.

They were all selling their oil and gas assets. More oil than gas are still holding their gas, but that’s next. And pivoting to other things, largely AI data centers.

This is a year and a half ago.

What have you seen in the last year and a half? Oil stocks and gas stocks chopped along. AI stocks and AI data centers and things related to those semiconductors have done very well.

Private equity guys are saying that a year and a half ago, wouldn’t you like to have done what they did a year and a half ago? So you ask, what are they doing today?

Weirdly, they’re buying natural gas again because it’s come down in price again. They’re buying a lot of alternative investments excuse me, alternative energy investments because those are beat the heck.

They’re figuring out what parts of the AI stack that they should be invested in. Who’s getting squeezed? Who’s not getting squeezed?

The guy I was talking to today was, from SuperMicro. And, you know, he can’t tell me secret things, but he can kinda tell me the trends in the industry. And he made a point that NVIDIA (NVDA) squeezes everybody, kind of the way that Apple did.

So if you study Apple and how they squeezed all their suppliers and all the people involved with them over the years, you can kinda see where NVIDIA is going.

So understanding those dynamics within the context of money printing and where the big money is going, and I say follow the money over and over and over again.

That’s what my community knows me. Over at Margin of Safety Investing, I make them say it before I say it. And what should we do in this situation?

Follow the money. And that’s what I’m doing. So now that I have some money and a lot of the people that I work with have some money, kind of to an extent we are the money, a lot of two percenters. And we’re trying to figure out, what are the people with even more money than us doing? Because they will lead things, but they’ll be a year or two early because they want the cheap price.

And they can look out two or three years. And even though they don’t get everything right, they’re more right than wrong, and they’re getting a cheap price.

Would you have liked to have bought, pick a stock, Tesla? Let’s say Tesla. I know it’s a nice battleground stock, and I’ve been on both sides. I’ve been long and short that one.

If I had told you in 2016 to buy Tesla, what would you have told me? You’re out of your mind. And then it went up a 100 fold. You know what happens over and over again? I get the question after something’s gone up 10 or 20 times.

Should I buy that now? No. Why didn’t you buy it two years ago when it was 90% cheaper? Because people have a hard time looking forward. Most people look at today if they’re pretty good, but almost everybody actually looks backwards.

People are driving forward, looking in their rear view mirror. Look out through the windshield. That’d be my advice. Trust yourself to make those good decisions by doing the reading.

Jimmy Rogers back in 1998, 1997 said in a Fortune magazine interview what was the best advice I ever got. Some guy on an airplane told me just read everything because 90% of the people don’t read anything.

So if you’re in the 10% of the people that read as much as you can, you’re gonna be better than 90% of the people out there even if you’re not particularly great at it.

Just by having the information, your brain will work on it, heck, when you’re sleeping. So that’s the approach that we bring. AI has made it way more efficient because we can ask AI the questions that we would normally ask without AI and get all the information really a thousand times faster.

When I when I do research using an AI now, I spend an hour or two. And every time it tells me I’ll have your answer in eleven minutes, I go and get a coffee. I come back. The answer is there. I’m like, okay. That’s part of what I needed. Let me ask a follow-up. And within two hours, I’ve got everything that it would have taken me weeks and weeks to get, and now I just gotta read it.

These are the four things that are important. These are the eight things that are important, whatever it is. So all these things are culminating together.

We have the AI revolution. We have certain companies with expanding margins, other companies with contracting margins, some with revenue that’s growing, others that’s just chopping sideways. Some companies are providing the financing.

Other companies are getting financed. The debt equations. So if you can pick in that environment without getting despondent about it just seems like there’s nothing but negative news, which is which is BS, by the way.

The world has been getting better every generation since the dark ages, and it will continue to get better unless we blow it all up.

If you feel like there’s a lot of negativity, it’s just because that’s what sells on the Internet, and the Internet makes everything a 100 times more potent.

RS: It’s hard to be patient. It’s hard to be prescient. And and to your point, I remember being on an airplane not that long after 9/11, and this European man was sitting beside me. And I was traveling with my close to newborn daughter. And I was saying it’s so weird to be flying and the world’s going crazy. And in a very European, very sober perspective, he was like, the world’s always been crazy. We just know more about it now.

And, yeah, I think that’s probably true even though it really is hard to to keep that in mind some days, some minutes. Can I ask you one more thing before we leave listeners for today?

I feel like with everything that we’ve been talking about and given the fact that you have some perspective on it, maybe we end the conversation with a minute or two on gold (XAUUSD:CUR), Bitcoin (BTC-USD), crypto, and what that means as investors, observers, life participants, perhaps.

KS: So just a little background. I started investing in gold back in 1999 because a client of mine put me on to it. Clients have been a very good source of information for me because smart people have somehow thought that I was one of them.

And so he got me on gold in 1999, and we we bought a ton of it, $3,400 an ounce. And when it ran to 1,900 in 2012, I think it was, we sold most of it.

And we so we actually just we we started coming down, and we sold around 1,600. So in twelve years, we doubled our money twice, basically, which is what private equity guys look for, by the way.

So I’ve always been enamored with gold. I buy it physically. I don’t really trade it too much, but for funsies, we will go to estate sales and little shops when we travel, and we’ll buy gold, physical gold.

Buy coins. We’ll buy jewelry because I like the added value of that component. Interestingly, it has outperformed or or basically kept up with the S&P 500, over the last five years, I believe it is.

And I think it’s real close over ten and twenty years as well. So it’s it’s been a good investment if you just bought (GLD) or something like that.

I think that gold ultimately has a top, and we know that it’s incredibly correlated to money supply. So if money supply keeps going up, gold will basically just keep up with it.

I don’t think there’s a big gap anymore between kinda think of it like a valuation. I don’t think there’s a big gap between what gold is worth and what gold could be worth anymore.

I think that gap has been closed. If you take a look at the website Trading Economics, they have a good chart for showing gold to the US money supply.

And when that those lines separate, you can expect them to come back. So, basically, when alligator jaws open up, what do alligator jaws do? They close. So right now, there are no alligator jaws between M2 money supply and the price of gold. So that means there’s not a lot of excess return.

That doesn’t mean that gold won’t go up. It just won’t be the outperforming asset that it’s been since about 2013 or 2012, right in there.

Bitcoin. I first bought Bitcoin in 2016 right before it shot up. Completely lucky. I actually did it from a cell phone, and then I transferred it to a hard drive just because some guy talked me into it. Didn’t really understand what I was doing.

Ten months later, eleven months later, I’m at a Christmas party, and some kid who was a pitcher on a baseball team I coached, 20 years old or something. He was 21. Must have been 21. He was in a bar. Then again, we’re in Milwaukee. You don’t really get carded most of the time. So, anyway, he’s 21, and she’s asking me about Bitcoin.

He had just bought it, and it had just gone up just a ton of 400%, whatever it did. And I was like, so I traded out, and I took my profit. And then it crashed, and I bought it again.

Well, I’ve done that a few times. The last time that I traded into Bitcoin was an article on Seeking Alpha, November 2022. I told people start buying Bitcoin. And then it went up to 50 something thousand, and it kept going up.

And now it I told people to keep buying the dips, and I said it’s gonna get to 100. When it got to 100 and then dropped below 100, I sold it near the start of the year. So I’ve missed a couple percent this year.

I think that Bitcoin is super interesting. I think that the theory behind it makes sense, but there’s a problem. And the problem is that if governments ever suffer because of Bitcoin, they will attack it.

So governments have to make money on this somehow. Otherwise, it will get attacked, and they’ll get rid of it. People have to understand the evolution of Bitcoin.

Whoever invented it probably had a certain idea. And whether the idea was to launder money out of China or not may or may not been part of that idea. But that is the first thing that Bitcoin got used for was to launder money out of China.

That was what it did for years. The Chinese owned most of the Bitcoin for a long time. So what do we know about Bitcoin? It’s easy to use for laundering money. That’s why Silk Road and other criminals have used it.

The conversion of it back into dollars at this point or into a local currency at this point is actually fairly easy for the criminal, enforcement, right, for the for the for the FBI or whoever to to detect.

So it’s not as good for laundering money as it used to be, but a lot of these other cryptos are. And I think that we have to understand the ecosystem of crypto.

Ethereum (ETH-USD) Solana (SOL-USD), some of the cryptos that are used essentially to title things or affect transactions or be used in place of software as a service or or with software as a service are one category.

Bitcoin, which is largely in my mind digital gold if it’s never, legislated out of existence is another category. And then, frankly, you have to just call them what they are, sh*t coins, all the other crypto.

So you have functional crypto, you have digital gold, and you have shit coins. Stay away from the shit coins would be my best advice. I think that Ethereum and Solana are important. I think that they will get adopted.

I think that there are several others that the World Bank and that the IMF and that all sorts of other big financial institutions are using, Ripple, Chainlink, Avalanche. You know what they do with the Avalanche?

California used the Avalanche to put every car in the state’s title on a blockchain. So there are uses for some of these, and, ultimately, the surviving blockchains and cryptos will become an oligopoly, and they’ll have value.

The value won’t be in the speculative price that you’re seeing now, but it’ll be in what they actually generate in fee revenue.

And there’s a lot of disappointment coming on that because the fee revenue necessarily needs to be less than software as a service generating revenue. Otherwise, what’s the point?

So there is some race to the bottom there. That race to the bottom hasn’t started yet. There is still a speculative mania coming on a lot of cryptos.

And if I’m right on the macro side and we get a correction and some sort of money printing to follow in the next year or two, then a lot of those cryptos that have a function or Bitcoin, which is digital gold, at least that’s the theory, probably have much higher prices to go.

So I am looking for a handful of crypto investments for companies that are tied to it.

There’s a couple out there that are interesting to me that for now I’m keeping to myself because I may accumulate them. And, honestly, I don’t wanna generate even any more interested in them there than there is.

But there are arguments for certain cryptos and Bitcoin. All the speculative stuff, I mean, I think you’re more likely to make money going to the casino and playing craps, but that’s just me.

At least at the craps table, you get free drinks.

RS: Some upside.

KS: Hey. That’s why I switched from blackjack to craps. I don’t have to think as much. I just place my bet on the odds line, and I order my mudslide.

RS: There you go. Kirk, always a pleasure and also extremely edifying to talk to you. I appreciate where you take us and how deep we get to go with you. So thank you for this conversation.

Again, your investing group is called Margin of Safety Investing, and you also have some free articles on Seeking Alpha for investors to take advantage of.