Speaker 1Today's guest is my old friend, Joel Littman. He is very well connected in the defense industry. And today on the show, he's going to tell us about some opportunities he's unearthed to make two, three, four, five times or more of your money in defense stocks over the next couple of years. And in fact, on September the 24th, he's doing a great presentation. He'll have ticker symbols. He'll have deep dives. He'll have experts from inside the industry. Go to defensegoldrush.com to sign up for his free webinar on September the 24th. And I will see you there because I want to know what those tickers are, man. Defensegoldrush.com. So let's do it. Let's talk with my old friend, Joel Littman. Let's do it right now. Okay. Before we talk to our guests today, I really want you to know the Stansberry Conference is right around the corner, September 28th, 29th, and 30th. I will be there, of course. And unfortunately, it's sold out, but you can watch it on the internet in the comfort of your own home. You can go to 2026vegaslivestream.com and check it out. You can see speakers like Porter Stansberry himself, Dan Ives, the famous Wall Street tech analyst, and even Henry Winkler will be there to give a great presentation. And of course, yeah, I'll be there again this year as I am every year. So that's 2026vegaslivestream.com for this year's Stansberry Conference. Check it out. Joel, it's been a while. Welcome back to the show.
Speaker 2Thank you, Dan. Great to be here, of course.
Speaker 1Yeah. Yeah. I think, I guess we really only see each other once a year in Las Vegas. I think that's when we actually see each other in the same room, I think.
Speaker 2In a few weeks. Well, I did see you early this year when we had that panel on is the market about to drop? Is that a bad idea? And I say, is a bad idea is a different way. Is it going to work out well for the United States or not? I think we're learning that it is. But at the time, that was a big question mark. So that was a fun time too, that panel.
Speaker 1Yeah. I have to say, I mean, I still have my skepticism about it. It costs a lot of money to redevelop that. And these are 25-year investments, as ExxonMobil pointed out to us in January. And they don't want to get their assets seized. But- But apparently there's some new law or something in Venezuela. And we'll see. I mean, obviously, I don't want to pay, like, I know refining is a separate proposition, but other things equal, more oil is helpful. And I would like to pay less at the pump. I'm sure we all would. So look, I don't want to be, you know, I want to be wrong about my skepticism, put it that way.
Speaker 2Yeah. And yet it's good to be a skeptic. It's good to have that skepticism. So that you look for those bogeys, those bandits.
Speaker 1Right. And it's even, I would say, Joel, that it's even not necessarily skepticism. I just know that, you know, we know the condition that Venezuelan infrastructure is in, which is horrible. And most people don't know it's different type of infrastructure because it's heavy, sour, crude. So for example, like they have four, what they call upgraders on the coast. By the time you actually get this thick gas oil out of the ground and get it to the coast, you have to put it through an upgrader that generates a petroleum coke rock, a hard rock and sin crude, which you can actually put in a tanker and send to the Gulf Coast. But the upgraders are like all running under capacity, like they need to be fixed. So, you know, it's just like one thing and the pipelines are different and they're leaking and et cetera, et cetera, et cetera, you know, and it costs, you know, to develop those reserves costs about a hundred thousand dollars per flowing barrel these days. So, you know, there's, there's just facts about it that require some explanation and stuff, but you know, you're right. If it turns out good, Hey, I'm all for it anyway. Yes. Enough of that. One of the, one of the great things about, about you ever since you've, you know, been affiliated with us has been your connections. You're a DC guy, aren't you? I mean, you got connections in, in our nation's capital.
Speaker 2Yeah, I'm, I'm DC adjacent. I wouldn't say it was in the center of the beltway, but certainly for aerospace and defense and keeping track of military budgets, government budgets in general, but also military budgets, we seem to have developed a good network and also a good amount of analysis on being under being able to understand just what the government has for money, how the money gets budgeted, whether or not the money gets spent. I mean, one of the big things, you know, we realize is that just because the government says we've got a budget for spending in a particular area, it can be years before it actually gets spent. It's years before the companies actually benefit from it. Meaning, do we see the revenue? Do we see profit? And then do those stocks move well? So it's, it's again, it's like the Venezuelan oil. It's not as simple as simply saying, Oh, government's going to spend more on aerospace and defense. You know, it, it, one of the interesting things is, is even with the last budget, yes, aerospace defense budget went up from something over the last few years, 800 billion to over a trillion, but the army budget actually has come down. And so just assuming that because it's military, it's going to make money. If the army budget's coming down, who's losing from that? And then if the air force budget's going up and the Navy who's winning from that, and when do they get those contracts? When do they start building? When do they get paid? Is a, is a, it's much more simply than simply saying, Oh, there's more money. Therefore these stocks will do well. Right? Jim Collison: Right.
Speaker 1And then the next step, for me is like, what determines the sort of who's got their foot on that gas pedal, right? Who do, what determines how fast people get paid and how fast, you know, some certain allocation gets actually spent is what the next thing I might want to know.
Speaker 2Mark Miller: Right. Yes. One of the, I was at the Fed supernova conference very recently and Fed supernova, the big conference for the military, the biggest one in the world, is the AAC. Jim Collison: Right. Mark Miller: Which is coming up again in October. And I've been able to attend that in the past, the association of the US Army's big defense contract thing. But there's a smaller one that's called Fed supernova and that's the early stage companies, companies that are three to five years from going public or from being bought. And just seeing the, the incredible innovation going in, particularly dual use. There's a big dual use theme to Fed supernova over this year. So you have hundreds of exhibitors that go there and talk about what they're doing. And, and it's pretty interesting. This is, so this is a place that Palantir first exhibited at many years ago, you know, before it was the big giant, amazing stock to own. And so we're, we go to those things looking to see, all right, what are some of the new innovations and who's getting a budget and who isn't and, and what might that mean for which stocks are going to do very well? Jim Collison: Okay.
Speaker 1Well, I've got a pen and a piece of paper here. If you want to tell me what those, what those are. Mark Miller: Jim Collison: Yeah. Mark Miller: Jim Collison:
Speaker 2You know, it, it, what's, what's interesting is I would say how amazing every company I talked to, and I was there for two and a half days, every exhibitor, every company I talked to, I interviewed a few of them. We had a separate room so we could pull people up and, and do some one-on-ones with CEOs there. But the, the amount of people that said, we can do everything we're doing without China supply chain dependent. Jim Collison: And that was fascinating because there's been a lot of talk about how the U.S. is running down a munitions and the U.S. needs rare earth metals from China and how many new companies. Now, some of them I questioned, I said, so really, I mean, a hundred percent, none of it is dependent on China. I mean, you had to question it, but certainly that was the theme from every exhibit I talked to was they're either moving towards or can build without China supply chain dependence. Jim Collison: Yeah. Mark Miller: And I think there's some things they can't get away from. There's certain magnets that you just need for guidance systems and that kind of thing. But there's other things, so many of the things that we saw that were amazing and were dependent on America or America friendly countries, as opposed to what everyone talks about, which is munitions being down and not easily replenishable because of supply chain dependence. That was a giant theme we saw. It was very impressive.
Speaker 1Jim Collison: That, that is impressive. Mark Miller: So is, well, wait a second, frame this, are you saying that the narrative that has been all over the press for some time now that we are running munitions down and that's a real problem, or we are saying it's less of a problem or no?
Speaker 2Jim Collison: I'm saying that it will be less of a problem. I don't think it's a decade away, but I think it's, and it may not be a couple of months away, but I think in a shorter amount of time, when you look at these and talk to these companies, you hear what Andrew is doing, the very famous Palmer Lucky, and what he's been doing, that company is going to be an exciting IPO. I haven't seen any financials, so I have no idea if it's going to be too expensive or what have you. But when you look at the innovations they're getting into and how they say, look, these things can be built with as little dependence on China rare earths as possible. In some cases, they found redesign around it. It's similar to World War II, where they said, it's going to take us a year to build a ship, and then companies turned around and built them in just under a month or just over a month like i think in one case it was at best case scenario we we can't build a ship for 280 days or something and then through a lot of redesign they were able to build in in 40 42 i think was one of them for one of the warships that was necessary so we're seeing that in droves in ways that that kind of innovation u.s entrepreneurial innovation um was very impressive now again i'm not saying there's no munitions shortage problem i think they're going to be certain areas where you're going to be stuck but the workarounds that they're financing do we really have to use this missile or in palmer you know in palmer lucky's case talking about earlier stage i mean this is a 100 billion dollar valuation at this point this company you know pre-ipo but when they talk about the missiles they're building and how the motors uh once they've built them they can use in any of their various missiles and that the cost of getting them out there is a 10th a 30th a 50th of the cost of what it would normally take another big defense contractor the primes if you will to make a uh a cruise missile or whatever else um extremely impressive so i would say from what i saw um i am less worried i'm not saying it isn't still a worry but i'm a lot less worried than i think what the media would purport okay
Speaker 1i like hearing that i like hearing somebody who's been on the ground and can tell me for certain that the media has it wrong because we all feel like they i feel like they always have it wrong but i just don't always know exactly how
Speaker 2well in all things like the media makes money on sensationalism right they make money because of clicks they make money because of views they make money because people tune in and so cnbc and everything tends to be always sensationalist and sometimes in both directions right at the peak of a bull market they're screaming now's the time to buy and at times like this where they say oh the market's in a bubble and they're screaming it's a bear market and you're like well that bear market hasn't come has it the market seems keeps plugging along in fact i'd argue the market is nowhere near a bubble not in ai not for the market as a whole
Speaker 1yeah it sure doesn't uh it doesn't feel like it i mean it feels like um it does feel like there is at some point in the future a reckoning just due to all the capex that doesn't get a return you know we know we know that's dynamic is real it's out there um but as far as the you know just the frenzied feeling that you got in you know 1999 and early 2000 and and the sheer insanity of it it can get i i i expect more insane i don't i'm not seeing enough it's sheer insanity
Speaker 2you know not yet yeah i i i mean if you recall 96.97 dan you know i i i started in public accounting in 91 and i moved into you know more financial consulting by the mid 90s 96 97 you know people were screaming the market was in a bubble right and sure and the markets marched from 90 call it 92 93 to 2000 it had 10 it had 10 10 drawbacks and every one of those was a screaming buying opportunity um i think i think the market in general right now is more of an opportunity meaning unlike in 99 where so much of the capex that was going into companies you could measure was going into low or even negative return on asset businesses or investments that's not the case right now i mean every time these hyperscalers put another billion dollars into their business we see a higher earnings off of it six months nine months a year later so the demand is still there for all those things and as long as that's the case we're going to keep seeing earnings go up and you know you can't you're not going to short market or go to cash when earnings keeps plugging up higher and higher nvidia just had their best quarter with guidance going up and you know high double digit percentages it's not like these are small three four five percent earnings growth you know picks like they're barely beating they're crushing crushing on earnings so we are seeing this capex is still getting uh used in ways that are way above the cost of capital at far higher levels than the the cost of the capital that they're putting in
Speaker 1work so the and the um you know another sort of bubbly narrative around this is the the the circular financing that we hear about you know companies get a billion dollars and they buy the products of the company that gave them a billion dollars et cetera et cetera with open ai at the center of all of it um that doesn't concern you well it would
Speaker 2if open ai was one of the big ten of the s p 500 but open ai is not public right anthropic's not public so when you use some of the stuff i'm like yes some of that's concerning but these are not stocks i mean if open ai were public i don't know that i'd be buying it you know i i that'd be a a big question mark but when you're talking about nvidia and some of the really interesting things that they're doing you know if you go back this industry has been doing this for decades when asml launched i think you know asml is one of our favorite picks right now um because the boat that they've built and what they do no one else can do even as much as chinese firms have tried to re-engineer asml's fabricators for chips they've been completely unable to completely unable to at that level of precision or technology and and uh um when you start looking at these uh what asml did how did asml raise money early in the early days they went to intel and they went to amd they went to nvidia and say hey we're going to build something that you guys need we can do really well invest in us and they did so some of the biggest investors in asml were also their clients that's not a terrible thing that's not a terrible thing what's terrible is if the returns are going down if this circular financing if you will if companies that are also customers are are taking investments in their vendors and vice versa you'd say well that's a big issue if all these companies are just you know generating lower and lower returns but but they're generating earnings on this that are noticeable and the earnings aren't phantom earnings meaning what they're using and the ai demand that's out there from the biggest companies in the world and and you and i and every other person is more and more use of ai every time we turn around and sometimes it looks circular and i'm not saying an open ai case that that isn't concerning because you know i haven't seen the full financials for open ai they're not public um i'd be concerned about open ai at some level probably less concerned about anthropic but neither of these companies are public so if we're talking about the sap 500 and whether that's in a bubble or not and you look at nvidia and amd and you know all the big hyperscalers we can go one by one and say who's actually making money and who is it i'm not saying there's no concern i'd be very concerned about oracle i wouldn't want that in my portfolio um there's a reason why the big credit agencies have oracle's triple b minus and all the other hyperscalers are single a and double a triple b minus is just you know shy of junk debt right and there's a reason for that oracle has been putting more money to work and you do see returns falling they are making a lot less money on their each dollar each billion dollars of incremental investment that's the reason why they're doing this they're doing this because they're making a lot less money on their each dollar each billion dollars of incremental investment that's not what you see with the other firms and so at the end of the day we still want to look at their earnings and just because there's some investment cross-investment within the companies and industry doesn't mean they aren't generating genuine earnings that's something we look at in uniform accounting to dig through and so i'm not saying it's all beautiful in oracle's case i'd be deeply worried i would not want that my portfolio it's amazing what they did in software to this day but what they're doing going into data centers and the way they're doing it um that does not look like they're getting a better return on investment investment for each dollar of additional capital unlike what we're seeing with the others of course
Speaker 1you mentioned uniform accounting let's why don't we remind you've been on the show more than once um but i i i would like you if you could remind our listeners what you mean when you say we use
Speaker 2uniform accounting well i think the jury is in from all of academia all of the buy side all season investors whether you're looking at big firms like blackrock we're getting smaller one billion dollar funds i say smaller because blackrock's what 10 plus trillion but even the smaller funds every single no investor worth their salt would ever rely on gap accounting would ever look at a price to earnings multiple published in bloomberg or cnbc or yahoo or google and say that's the number i can rely on um the earth the it's not the price that i'm arguing with it's the earnings number the earnings number has not followed a similar calculation over the years it changes every time there's new accounting and when it changes it doesn't make things more uniform it makes it more less apples to apples it makes it more confusing more uncomparable incomparable from company to company and across time that the jury's in on there's so much academic research on that it's it's crazy to think that still to this day the media still hooks on oh this company beat earnings and you're like that earnings number is is 300 higher than reality it doesn't reflect the real cash on cash returns of the business and for many companies particularly in tech accountants punish innovation right i've been a cpa i've been in public accounting since 1991 right a cpa three years less than that because i got my cpa after the the nature of the earnings calculation is to punish innovation particularly on the front end years and when companies put in capex and r d and big investments early on it dramatically makes earnings look lower than the real cash flow to this day r d is treated in the united states as 100 expense it's not an investment it's not treated as an investment so if a company puts a billion dollar machine in place they're like oh this machine should last six years and i'm going to depreciate it over six years When they invest in R&D, knowing full well that's not going to result in a product next year or two years from now, maybe three or four years from now, it still gets 100% expense in the year invested. So when companies ramp up their R&D, it makes the earnings look depressed in a way that doesn't reflect reality. That, stock options, lease capitalization or non-capitalization, and all kinds of 130 other adjustments that we can track remove accounting from reality. So when you get a good earnings number that you can compare across 50 years, that you can compare against one company from time to time or against its peers or globally, because we do a global uniform accounting, but everybody in the world in the same accounting program. We don't let one company use one accounting treatment where R&D is capitalized in Germany, but not capitalized in the U.S. How can you compare these companies? So once we do that, we see a clear picture. It's clean. It's what the buy side uses. And I mentioned that of the 300 biggest buyers. Global money managers, 200 are using some form of uniform accounting, whether they're getting it from us or getting it from someone else or building it in-house. You can see very clearly that what makes for a good company, a good earnings and earnings growth number can vary if you're looking at gap accounting, which is wrong, or something uniform, which gives you something clean. And in uniform accounting, we're looking at a 20% growth in earnings, real earnings, over the next year. Well, if the price-to-earnings ratio. Right now is really around 19 to 20 times, which it is, and the earnings growth is 20%, that is a peg ratio of one. And any time the peg ratio has been one, meaning earnings growth equals the multiple, 20 times multiple and 20% earnings growth, that has been a screaming buy to the stock market. It's only happened five or six times in the last 30, 40 years, and it's occurring right now. It's been that way for the last month or two. As high as the stock market has gotten, earnings is growing faster. That is a buy signal. That's a buy signal. It's not a sell signal.
Speaker 1Sounds like Scott Besant, we're going to grow into it, man.
Speaker 2Well, you know, that's a bit different. He's talking about growing into the national debt.
Speaker 1Yeah, that's right.
Speaker 2Yeah, government accounting is a bit different. That's a bit different. That's, you know, of course, far more concerning. But when you're looking at companies, and we're buying the S&P 500, we're not buying the U.S. economy. We're buying the S&P 500, and the S&P 500 is not growing at the U.S. economy's growth of 1% or 2%. It's growing at 20%, earnings are. And wouldn't you want those companies to invest more when they're growing earnings that fast and see on a forward basis that they can continue to grow earnings at that level? That's bullish. That is not bearish in the slightest.
Speaker 1Yeah. Technically speaking, I want them to reinvest when the return, you know, the earnings growth is sort of secondary to the return. But yes, the point is well taken.
Speaker 2Yeah, and that's one of the things we measure, the return on capital of companies. So, the global average of the 32,000 companies that we do uniform accounting, the global average is a 6% return on investment. That's what companies generate. If you give a company a billion dollars, they'll generate $60 million a year. That's the global average. U.S. has been at 11% or 12%, meaning there's a reason why the U.S. stock market is bigger than the rest of the world combined, and it's because U.S. companies are far more profitable than the rest of the world combined. And we're looking at 2027, again, best guess based on pro forma, and guidance, and whatever, is we're looking at a 16% return on capital for U.S. corporates, not just the hyperscalers. For the entire Russell 3000, we're looking at that level of return. And that is bullish. It is not bearish.
Speaker 1Yeah, you know, you're talking to somebody who has been bearish here and there, and was right a couple of times, to be fair. Of course. To be fair. But, you know, overall, I've had to step back and say, wait a minute. Wait a minute. Wait a minute. Do I want to be bearish? What am I doing really here? So I've had to kind of readjust and realize that one of the things I've realized is that, well, it's the same point you're making. You know, multiples have changed for a bunch of reasons, and accounting is one of them. And the other one is the other one you're addressing right now, which is that we get, you know, we get better returns than the rest of the world. So some of it's not bearish. Some of it's justified. There are reasons. There are reasons why things are the way they are. It's not just, you know, some people say markets are broken because of, you know, passive investing or whatever, or they're breaking, or they're not the way they used. They're not doing price discovery as well as they used to. But there are reasons why they are the way they are. I'm just going to leave it at that.
Speaker 2I mean, Dan, if you're using, and this is part of the problem, if the media is using gap accounting, if Wall Street is looking at the as-reported gap or globally the IFRS-based numbers, then it does look like things are wacky because you're like, why are these things going in different directions? But that's been the case for 30, 40 years already. Gap accounting does not track with real valuations. The buy side, the biggest investors in the world see through that. And we hope that individual investors would also start paying less attention to the gap numbers and gap earnings and start paying attention to cleaned-up numbers. Because it makes all the difference.
Speaker 1Right. It's always been true, though, that an analyst always just begins with the published data, even if it's high quality. That's just where you start. You don't just blindly accept it. That's always been the truth. But you're saying something else. You're saying that for at least, I think you just said 34 years or so, 34, 35 years, it's been what? Worse? It's been increasingly unreliable? Gap has been increasingly unreliable or increasingly, what did you say before, disconnected from reality? Yes. Worse than it was 35 years ago?
Speaker 2Yes. And that's why one of the big issues like this CAPE measure, the Robert Shiller cyclic adjusted price to earnings multiple, one of the reasons when he compares it over time is it's so high is because the earnings number is systematically lower relative. The cash flows a company generates over the last 34 years. Even ChatGPT would tell you that. So if you said to ChatGPT, given all the accounting pronouncements, right? Take a look at all the FASB adjustments. Are accountants in general, Dan, would you say, you know, crazy, you know, live by the seat of your pants? Or do you think they're more conservative accountants every year, that conservative personality that they have and that conservativism always has them saying, we're going to take an impairment. We're going to do a write off. We're going to do a reserve against that. And every time they do these things or we're going to fully expense R&D in a period where R&D has been rising over 30 years. Well, that makes the earnings number look a lot lower than if you simply capitalize it even for even just capitalize R&D for three years, a really short period of time, you would still get a dramatically different earnings number for every company that has ramping up R&D, which is the situation we're in. So merger and acquisition accounting, it used to be back in the seventies and eighties, you had zero amortization of goodwill, zero, nobody was writing off goodwill ever, right? So the earnings number was so much higher. They use pooling of interest. And so now that everyone has to use plug in goodwill and has to put an amortization, you get a much lower earnings number for the exact same company with exact same kind of transactions where the same company today in the 1970s, 1980s would show a much higher earnings number. So when Cape says, oh, I've looked at a hundred years and the PE keeps growing and getting higher. To levels that seem extreme, we're like, yeah, but if you take out and level the accounting, suddenly a 40 times PE becomes 20, a real true PE is 20 and 20 is not something that gives me agita 40 would, if Cape was correct, if Shiller was correct at 40, I would be worried too, but that number is just calculated totally wrong because that earnings number really has become less and less as a percent of real operating cash with the company systematically over 40 years and it's adjustment. After adjustment, the accountings do, the accountants do makes the earnings number lower than the cash the company's generating.
Speaker 1Right. And you can see, you know, if you go to that, you can just type Shiller PE or go right to that website. You can see starting around 1990s or so, of course, it went up to 44 or something during the dot com bubble and it's 41 or 42 today. But you can see that since the 90s. Since Joel got his CPA, basically, it's the whole thing is at a generally higher level than the preceding back, you know, 100 years back to like the 1870s. That whole level, you know, there's a bubble in in 29 or whatever, but that whole level is lower than than the last, you know, 35 years or so. And so something happened.
Speaker 2Yes. And most of that, because I'm not arguing that stocks weren't. Overly expensive in 2000 or in 1929. But the accounting pronouncements that have done from literally from like 1988, 89, when I started studying accounting until today, every single one of them, when you look at that merger and acquisition accounting, pension accounting, the way R&D is treated, lease capitalization, every single one of them has resulted in earnings being a smaller reported number relative to the real operating cash of the firm to the to the point that this point, it's about half of. of what the earnings would have been for this. So if you had the exact same companies today Half. Half. And so if a PE under Cape Shiller looks like 40 and the earnings number is 50% lower than an apples to apples comparison, suddenly you're at 20. And that's about the math. That's about the math. And that's why we're at, in real terms, we're at 20 times multiple right now. That is not a problematic number that screams bear market coming. And then on top of that, you have earnings growth at 20%. That says the market's cheap. That is an inexpensive stock market. We would be buying all day long. Our dollar cost averaging recommendation right now is five months. If you've got money that you have on the sidelines because you've been worried and you won't use that money for five to 10 years, you throw in the S&P 500 and do it over the next five months, starting today, and for five months and let it ride. Two years from now or four years from now or five years from now, we might get a real bad signal, a bear market signal. But none of those bear markets- What kind of market signals do we see now?
Speaker 1This is interesting. Nobody's ever said this on the show before, Joel. So, Joel, you're telling me that your recommendation is if I have 10,000 bucks, don't invest 10,000 bucks today. Invest 2,000 this month and two, two, two over a period of five months?
Speaker 2Yeah. That's interesting to me. We might get a dip in the next five months. You never know. The market's been so volatile. To plug it all in one day versus spread it out over five months. And by dollar cost averaging, you actually get a lower average cost over that five-month period. The math gives you an extra one or two, three percent in a volatile market. So, I'd say, no, you dollar cost average over five months.
Speaker 1Sounds like the bull is hedging a little bit. I just want-
Speaker 2No, I mean, actually, a couple of years ago, we were at 24 months. We were at 24 months.
Speaker 1Oh, okay. Okay.
Speaker 2In 2022. So, five months is very short. Five months is very short amount of time.
Speaker 1Understood. That's as bullish as Joel gets, in other words. Yeah. Okay. Yeah. Gotcha. That's interesting. So, how long have you been doing this, like recommending this varying period of dollar cost averaging? I just don't know anybody who does that. So, most people say, you've heard them all. They'll all say, yeah, you should dollar cost average, but they don't tell you this. They don't tell you a timeframe.
Speaker 2Yeah. If we feel the market is more expensive, if the market is more expensive, the market really was at 25 times, but with 20% earnings or 30 times, if we felt the market was overbought, we might say, you know what, we could feel something, maybe 12 months. Right. That said, in 2008, we were screaming to anyone that would listen that credit was breaking down at such a level that cash was the only place to go at the time. You couldn't go to bonds. You couldn't go to equities. I mean, gold might have been the only place to go. But you couldn't go to bonds. It would have been a better idea back then. But we were definitely getting out of the stock market at that point. Yeah. But in April, May, June, July of 2020, we were screaming, buy the market. And we had a very short period of time. I think we were at six months back then.
Speaker 1Yeah. I remember April 2020, Mike Barrett, the guy who writes Extreme Value with me, and I were just like, this is it. This is it. Ding, ding, ding, ding, ding. Bye. We're doing great businesses now. That was our headline. And we could have done that headline for three or four months, right? Yeah. Right. And of course, the only mistake was not being aggressive enough, making one pick a month instead of five. Yeah. That was the mistake.
Speaker 2I mean, this is what people forget is that 2020, the stock market finished up 11%. Up 11% despite all the COVID lockdowns and everything else, which is another indicator. And that's an important point. The S&P 500 is not the US economy, right? And the S&P 500, 40% of the revenue is non-US. They've picked off the really good, juicy places to be, and they've stayed away from the bad places to be from a revenue standpoint. And so when you buy the S&P 500, you are getting the best globally managed companies in the world by far, bar none, with returns on capital that are almost three times what the average company gets. Four times what they get in China, Japan, or Germany.
Speaker 1You know, I had a thought the other day. It was a fleeting thought. I'm not saying it's a big concern. But I thought, you know, if we go through with all this reshoring of mining and rare earths refining and all this sort of capital intensive stuff, what's the S&P 500 going to look like in 10 years? Are the returns going to be lower?
Speaker 2Well, it's interesting. It all depends on if all that capital goes into bad return investments. Yes, but we can pick off those companies, right? And that's why I'm so concerned about Oracle. That's one where you see every incremental dollar of cash. As Oracle went from becoming a software business with phenomenal returns to becoming an asset intensive data center, you need land, you need buildings, you need equipment, you need cooling, you need. You need water, you need all this stuff that has to get plugged in. Suddenly, like, that doesn't, that sounds like a utility project. That doesn't sound like a very CapEx intensive utility project, not a software amazing, you know, 40% SaaS kind of firm. And we can see that happening. So there will be firms that will lose that I think will chase the whole CapEx thing and will be bad for it. But to say that all of the S&P 500 is going to be bad versus saying, no, let's pick off which ones don't have that opportunity to get a good return. Let's pick off the ones that are like, no, this capital expenditure is going to give me a return that's very, very healthy and keep that stock.
Speaker 1I'm calling to mind another company that I wonder if you guys have ever done lots of work on. A mutual friend of ours, Porter Stansbury, has done a lot of work on Berkshire Hathaway. And his point is that they've done exactly what you just described. That's part of the point anyway. You know, they've gotten into all of these sort of, you know, debt heavy capital. Intensive utilities and pipelines and all kinds of stuff. And it's, you know, it abandoned the pure faith. Buffett was like, he was the guy telling people the best investment is a royalty on something else because it's one time allocation. No, you're on the hook for zero maintenance CapEx. And that's it for, you know, for life. And you just sit there and earn and earn and collect checks. And, you know. Other capital efficient type businesses. And to, you know, he went from that to, you know, whatever you would pick, pick your favorite one. I mean, you know, Berkshire Hathaway Energy, basically, you know, the utility company. It's a very, very different thing.
Speaker 2Well, the issue is, so if you look decade by decade at Buffett's returns, his best returns are when he's running the least amount of capital. And his worst returns are the last 20 years when he's running the most amount of capital. That's the issue. So if you have $300 billion, what choice do you have but to put it into big, giant, asset-intensive businesses? Because software companies that are pure software companies don't need $300 billion. All of them probably don't need $300 billion. So he's forced to go into things where, you know, that he's getting closer to market returns or at market returns for the last couple of decades. But he's, you know, that fund is the victim of their own success. Meaning, you know, we should all be so lucky to have $300 billion. But at the same time, you know, proving that you can beat the market with $300 billion, you are the market. You are the market. And so I don't want to chastise Buffett for being bad at his job today. I'm just saying, if he was running $50 million, I have no question he'd be getting a 30%, 40%, 50% return for his shareholders every year. Because he could follow those old rules. $300 billion, you can't buy SLA business because they don't exist.
Speaker 1Yep. I wonder what 30-year-old Warren Buffett would do if he came across Berkshire Hathaway today. He'd be telling him to break it up.
Speaker 2Yeah, I mean, do you give the money back? You say, sorry, we don't need your $300 billion. Take back $200 billion and let me run a $100 billion company and try to get some good returns on it. You know, but even at that level, how do you beat the market when you're running $300 billion? Because he can't just buy those little cool companies, right?
Speaker 1No. You know.
Speaker 2I mean, where? Some of our best returns, we've had some great returns with large cap, but some of the best returns we'll see are micro cap. Buffett can't buy a micro cap company. He'd have to buy the entire company. How does Buffett buy 5% or let's say 4.99% so he stays under the insider owner thresholds, the beneficial owner threshold? How does he buy 5% of a billion-dollar company? That's $50 million. Even if the $50 million goes up 300%, no one will notice it inside a $300 billion asset manager. So he's stuck. Going after big companies and those big companies are going to tend to be a little bit more or a lot more asset intensive because those are the companies that need the capital. If they didn't need the capital, they don't need his $300 billion. So, you know, I can't say he's doing a bad job simply that at this point he's running so much money. How can he beat the market at this point?
Speaker 1Right. And yeah, and what should and more to the point, if you're a shareholder, you're really interested in what they're going to do next. Right. which, you know, like I said, it seems like breaking the thing up is the only answer but who knows i just wanted to run that by you because i know guys when you guys look at things you you take a good deep dive um so you but i want to get back to defense because that's interesting to me um you know for me defense was like uh it's been a um it's been a just a macro thing i think i've recommended like two or three defense stocks or defense and some of them are like aerospace defense adjacent you know like trans dime or something like that but but like straight into defense i bought i recommended like an etf and one other stock and then i'm kind of done so it's not the deep dive for me that that it sounds like it's been for you um i know you have paying subscribers we don't want to give any picks away but i wonder if you could just um unless unless you already did it earlier can you just characterize the nature of the opportunity right now is this a you're going to see technologies you know ipoing in the next six or 12 months that you were going to blow your head off or is this um you know what what how would you characterize the nature of the the opportunity it was a you know 12 month or or whatever long runway you
Speaker 2want well the return on buying outright ipos you know that is a different game if we had uh you know a private equity group or venture capital group where we would actually see the financials you know long before the ipo if all we have to go on is the s1 the red herring as they used to call it i guess they still call it that if that's all we have to go on is the s1 you know prior to you know a company's uh ipo um it's hard to get our arms around it we want to see like six months to a year um we loved facebook that was one of our best stock picks uh but we didn't buy we didn't recommend it we didn't buy it we didn't buy it until a good year after ipo because there's just so much volatility that sometimes happens post ipo for a company that has nothing to do with the fundamentals right spacex is another one where i i'm really interested in the company i think it's amazing i think the company is far more profitable than people think um but when you have because the trading dynamics of spacex where you have all these all these uh um inside shareholders that all are vesting and you have this massive you know this you know supply of people selling their stock until january or whatever else i don't know what that number is i don't know how much is going to happen so i'm not going to make a call on spacex as much as i'm interested in it how can i possibly say i know exactly who's going to invest and how much they're vesting and whether or not they're going to sell until maybe come january february march and then we can take a good hard look at it so we'll try to stay away from ipos just because the trading dynamics of the vesting and everything else and the lockups can make for funny stock price moves just like happened with facebook um that have nothing to do with the company's fundamentals we want to see a year of trading now that said i think northrop grumman is really interesting when you see where northrop grumman is positioned which was formed by northrop and grumman you know many many years ago when there was a massive consolidation in the aerospace and defense industry the defense contractors and you see the things they're building um and the assets it lines up with where military budgets are headed so when we mentioned that you know earlier we were talking about military budgets that the increases there's an increase but in the last year's increase the army kind of got less and the navy got more and the air force got a little bit and so we have to base on that when you look at where the budgets seem to be headed where they're being allocated so they can say hegseth can say that 1.1 trillion is going to go to 1.5 billion i don't know if it's going to go to 1.5 billion but it's going to be 1.1 or more but it also shifts what is the mix of where that's going all right and it's going more towards obviously ai driven more autonomous more um drone anti-drone technology so you can stop those massive swarms um it was amazing the the lasers that i've seen were big installation expensive but they are now working so they've got ship boarded uh lasers that for the cost of electricity will shoot these things out of the sky and you know unlike missiles drones don't they don't have the ability even when they put reflective coating on it you know a couple seconds of a laser and that thing is done um and you can fire multiple lasers at once and the car the incremental cost is very very very cheap even if the upfront cost is high so if you're only shooting down 10 drones it's too expensive but if you're shooting down thousands of drones it's very very cheap and much cheaper than building a little missile or projectile to take down the drone that might be more expensive than the drone itself so what we're seeing is they move towards those areas and when you think about the strategic system systems and the other areas north of grumman is in um i think that's a really interesting uh buy and it's one of our favorite recommendations in that space even though it's one of the biggies and one of the primes that said i also like looking towards the smaller ones the smaller companies where you know a north of grumman gets a billion dollar contract i don't know that moves the needle as much but you get a little billion dollar company it gets a 200 million dollar contract man does that move the needle 500 million dollar contract and so those are the ones you know that we i'd say we like the most um and those ones we're going to be talking about we have a program coming up a special webinar it's free on september 24th and it's about a deep dive into aerospace defense and we show you know some of the people we've talked to at the fed supernova conference and we show some of the people that have been exhibiting the companies that are exhibiting at the big ausa conferences and what that points us to in terms of stocks that should be able to double or triple because again i'm not going to say north of grumman is going to triple microcaps it goes to the whole buffett thing if buffett could be buying these microcap companies that are suddenly getting these giant budgets relative to the size of the company buff will be down here buying these companies too but thankfully we don't have to compete with buffett because he can't buy companies as small and i'd argue our our investors don't compete you know i mentioned of the biggest money managers in the world many of which are my client if i show them our favorite microcap defense companies they're going to be like get out of my office i can't i'm running two billion dollars i can't buy this 100 million 500 million dollar company um so they're really juicy ideas and they move a lot with a little bit of money and that's what we'll be talking about i think it's september 24th
Speaker 1um yeah and we you you can go sign up for that at defensegoldrush.com if you want to see joel's presentation and i highly recommend that you do because it's free and he's going to show you all his research and connections and everything so um you know defensegoldrush.com yeah
Speaker 2i'll be joined i'll be joined by a former uh army chief of staff office pentagon um full bird colonel uh he'll actually be joining me on the program um he'll be dialing in and we're gonna have him comment on uh a number of things also so i think it'll be i think it'd be very educational i think people see an area that is going to be i mean look around the world i don't think we're going to start seeing a you know a world where there's less problems coming from russia china uh iran maybe is running out but you know we're still seeing a lot of saber rattling from a lot of other countries that you know want to stick their necks out and say this i think i think we're going to have a lot more problems and a lot more defense spending every country is saying they need to spend more defense all these countries in europe nato need more defense spending who are the companies that are going to benefit yes i like north of grumman that's one of the big ones i think some of the other big ones it may not be enough to move the needle but these micro caps you know sub 5 billion sub 3 billion dollar companies a small 500 million dollar contract out of a 1.2 1.3 trillion dollar budget and those stocks fly and that's what we're looking at we think we found some really
Speaker 1interesting ones i like hearing about this because i uh i missed the uh absolute ripper on german defense stocks you know that started some years ago and i mean they ripped and they were huge multi-baggers and i looked at that when i started looking at defense stocks i looked at that oh god great okay um but we've still done well in the ferris report with defense stocks um but but now it sounds like i'm getting a a good good second chance to um you know get one of those early looks at at a trend uh in defense i could maybe redeem myself i should i'm gonna i should tune in on the 24th and write down the tickers but i don't think it's a good idea i don't think it's a good idea because uh that's that's one of the ones that i missed that i'm like oh god um so yeah defensegoldrush.com check all that out well this is a good time to ask our final question maybe you've already said the answer if so feel free to repeat it yes sir but uh the the final question is the same for every guest and is simply this if you could um leave our listeners today with a single thought a single idea what would you like that to be yeah
Speaker 2i'm just going to say it emphatically and your audience and i get trolled but i'll i'd rather take the trolling because the data is there we are not in a bubble we are not in an ai bubble and when i say this i mean the publicly traded stocks anthromic may be in a bubble open ai is not it may be in a bubble i mean it may be right that that's a different story but for the sap 500 this is not a bubble this is the the early stages of a bull market this is inning three or four it's more like 96 97 not like 99 or 2000. this is not the last leg um and uh and i think you know if you've got money that you don't need for five to ten years you'd be along the s&p 500 there's all kinds of really interesting companies sub the s&p 500 um that uh that provides some really juicy double triple kind of returns that's hard for a hundred billion dollar company to get but easy to see a two billion dollar company become a four billion dollar company and enjoy the return on that in your portfolio so that that'd be my final thought even though your listeners are going to troll me uh i get i get the data's there i don't know what to say the data's there we're not in a
Speaker 1bubble all right well thanks for that and thanks for being here joel it's always a pleasure to talk
Speaker 2with you thank you dan more power to you and uh and great to see your audience again thank you
Speaker 1all right thanks a lot it's always a pleasure to talk with my old friend joel littman uh i don't know if you folks noticed but dan doesn't have to work too hard when joel's here because i can say anything and that guy has a lot of really good information to to give you i feel like i can just say hi how you doing and he talks for five minutes about why why the market is cheap when everybody says it's expensive or all the wonderful things that are happening in defense technology um or you know the simple fact that there's so much demand for ai that things aren't as bad as they're going to be in the future and that's why i'm here today and i'm going to talk to you a little bit about why the market is cheap when everybody says it's expensive or all the wonderful things that are happening in defense technology um or you know the simple fact that there's so much demand for ai that things aren't as bad as they're going to be in the future as as a lot of people like to represent i mean and you you heard us we were talking about venezuelan oil just because that was what we had talked about the last time we saw each other there's always a lot to talk about with joel but this defense thing is really interesting to me um because he's talking about finding you know like he said two billion dollar companies that can get you know hundreds of million dollar contracts and that'll really move the needle on a stock like that so you can go you can you can sign up for his presentation on september the 24th um i think i'm gonna have to be there with a pen and a pencil because i want some of the ticker symbols um that that he's going to talk about um you can go to defensegoldrush.com defensegoldrush.com and sign up for it it's totally free um and joel will do a much deeper dive and he'll have you know special guests from his connections inside the defense industry and so forth and it'll be um you know it'll be joel littman man it'll be good it'll be a deep dive what can i say defensegoldrush.com i always enjoy talking with joel because he is so well informed so that's another great interview and another great episode of the stansbury investor hour i hope you enjoyed it as much as we really truly did remember to hit like and subscribe that's the first thing i want you to remember to do second thing is remember to sign up for our free daily email so you don't miss out on any future episodes of defense go to defensegoldrush.com and sign up for our free daily email so you don't miss out on any future episodes of defense go to defensegoldrush.com
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