Whats a longterm investor to do . ll start by asking one the grgreatest value invtors of the lastwo decades. Bob stein, i want t to start with the political climate. Does any of that come into y you philosophyor t the investing. Whats going to becomome law and how does ieffefect the free cashsh flow of comnies or industries we arlooking at. But we cant twhroins all thi stuff from politally active people. Gary thfact tt you have the politicaextremes going on in this cycle . The mararket, 80 of th market. Hedge funds that arerent there with the spreads anynymore. When the trarading has become ridiculous. The ananalysts are look at if somebobody has beaten the estimates or not. We have record volatility we takedvantage of it. Ry so youre working more on the fundamentals and leson the news and currents formation thats out there. There is a differenceetween an investment decion and marketecision. Most anasts, there are real companiebehind those stocks. And you have to value e businesses. The values of those businees do not changnge as rapid as the stock prices do. Garywewell g get into the specific compapanies later. By want t to address two things yoyou d i have spoken about. The first is the differencnce beeeeen buying an index funden buying a an active manage more picks individual stocks. S. And the second thing is s you he a philosophy, you dont want to lklk to company management, you upon want to look at the numbmbers. So s should people be thinking about index or thinknking about active management, underststandg you are an a active manageger wo produced outsideesesults against the inindex over the years . I believe its peoples jobob to find activeanagers. The governor of pennsylvanania says there is s no risk in the indes. Ththey bought enron, all the ne is goi intdeking. They are add toget p. E. Ratio of net flex averagflix and amaz. Its creing pockets of overvaluation inhe index gary the index hass beaten 90 of active managersff you quantitatitive easing since 199. I dont look tatistics. Y put 10,000ur fund its now woworth 60,0. Gary you hear executiveves me on air and talk about theirr result you always told me you dontt want to do that. Longterm performrmance, the people w who tear about individl companies. The lolongterm performance of e people who m make the fewest errors. Its the mag tiewcd your error thatetermines your longterm performance. If they dont ite about the people w march over the cliffs trying to find it. If the 4years in this industry i nevehad a management ever tell me or ever saif you dont vacate my stk, you are going to get burned because have problems we cansolve. Whwould i ask somebody or talk to mananent. I care about managemement but i look behind the mbmbers. Well talk about looking b behid the numbers todayy andnd the faitgogoing on in accounting today. Anthonony indexex investing, yu buy in who. Value investing. Inde or outstside that index that are f fundamentally longerterm attractive t than te index. By thes super harr e average inveor to understand the fference. How would you summit up in 30 second find people to mana your moy unless they are going too the work we create volumes of informati on every mpany we look at. Loing behindnd the numbers. If you dont have at ability, then i guess you he to bite index. But there is no guarante if you dont want to bebe iaa plane being fln byobot. Wananthony scaramucci flying that plane. Gary well be ght back. Announcncer next b olstein tells you stococks that are undr vava patrick 1 whats it like t to be the boss of you . patrick 2 pretty great. patrick 1 how about a 10 ise . patrick 2 how about t 20 . patrick 1 w about done . patrick 2 that the kind of control i li. And thatwhat they give me at natiol car rental. I can choose any car in th aisle i want without having to ask anyo who better t the boss of you. patrick 1 than me. Memean, you. Us. vo go nationalal. Go like a p. To separate expensnses just swipe. [passenger] i wowork for me. It estimates my taxexes,so i i w how much stays in mymy pocket. And ththats how i own it. [announcer] ststay in the flow with quickbobooks selfemploye. Starart your free thirtyday trl today at joinselflfemployeddotco. Gary we are back with b olstein of capital m management. Gigives some ideas what you find tractive . What we find attractive is ususually what other people find in trorouble. Getting the right prprice is the y for longtermrm investing. Bebed, bath and beyond be everybody hates itit, we think this companyny is real, its relelevant. The r nins will drop to 10 . Thats enough to prododuce 6 a share. We like the problems becauause e get the right pricice. E. We think eququity capital can me in the stock. I remember tking about petsrt. Is company is the type of stocock under valued, 10 free cash flow. W. Gary whentocks arare tradg count average retail invesr scared d starts selling em. They sell them m to us. You could have a s stock a value trackck is where the problem is not team m prairie le we think in is nonot temporay to o stbed bat. Away f fro it. It looks attracti on aa valuation basis. But that stock is jammed in. N. You can have a stock cheapt 2525 times earnings and a stock exnsive atat 10 times earnings. You have to do your homomework. Garyry you made a legendary cas on lucenen i believe it was ththe most widely shelled secuty ananyone v vestors around the countrtry. It became publbl in the mid90s. Then was a high flyer. But asou points out. You were native on it. It doubled and eveually collapsed. What are some of the names tt have the red flagsgs, most overvalues wrtd stocock ice doesnnt line up . I would s say its netflix. That t to me is so unrealistic. They are in a competitive environmenent. They are spending billionsns. 120 milli i in earnings which are not real eararnings because they are getting stock compensation back. Bibillion dollars is being spe inrogramming. I would worry abt the 2 llion. Gary me itors are look at the number of new subscriberers. Your point is s they are putti them as s sucrcribers but they e losing money o object a cash flw basis. He Business Model says thehey have to buy y more andnd more programming to keep their progogmming relevant. 20 . 20 of all expenditures s on programs make it. They h have 12 billion in futue liabilities. Its o one of the most overvalu stocksn my history. Anthony scaramucucci you were crititicizing amazon and stocksp 20 since th. I said netflix was ththe most overvalued. The stock wass 129. Amazon is if you w were just the earning, for the fact theree is full payouout with no cash flow and they add bacack stock compmpsation. There is no frfree cash flow there. Ththey have a Good Business mod. But when thehey have gone from 4 bibillion to 135 billion in sas and there is still n no eeash flow. Anthony scacaramucci yoyou are oking for cashsh that treeches your botottom line. The bulls say it will becomoe profitable at some p point i in time. I buy all mymy goods in amazon t i woultt invest in it, its too muchisisk. I how do i protectyself he if im ainveor. Anthony is g fly a ane. Hes probly had two o years of lessssons. Thony you dont have to worry, im never goi to be flyi plane because i unrsta r risisk managemement. Value investors are often appldeded for their r rise be magegement. D their risk magement. What are some ofouour risk managements. S. Free cash flo wewe buy companiesith 9 free cash flow. Whdo they y have them . Valuedompanies, what great about valued comnies is while you are waiting for thpublblic to know at gng on. You are addingo the value. Free cash flow is our safet net. Gary ay right there, well backck with more in a few minut. Announcer coming up. Kyle bass breaking n news on ths show talking about a loomiming receioion in the u. S. Is he right . T . Well break it down why y bob olstein, andnd melissa franc next. The heirloom tomato. O. Intenselyflavored. Befullymisshapen. When you cook k with incredibe ingredients. You make incrible meals. Get your firstst two meals freet blueapapron. Com cook. Looktry aligign obiotic. Our didigestive system . Fofor nonstop, sweet treat goodness, hold on to your tiara nd of day. Live 2 24 7. With 24 7 digigese support. Try align, the 1 ge recomommend probiotic. You premium like clockwork. Month after month. Year after year. Then one night, you hydroplane into a ditch. Yeah. Surprise. Your Insurance Company tells you to pay up again. Why pay for insurance if you have to pay even more for using it . If you have Liberty Mutual deductible fund™, you could pay no deductible at all. Sign up to immediately lower your deductible by 100. And keep lowering it 100 annually, until its gone. Then continue to earn that 100 every year. Theres no limit to how much you can earn and this savings applies to every vehicle on your policy. Call to learn more. Switch to Liberty Mutual and you could save up to 509. Call Liberty Mutual for a free quote today at see Car Insurance in a whole new light. Liberty mutual insurance. T they have a giant creditt bububble that s reacd its atrophy level and its going to happenhe n next three or four ars. Whher that causea main or minor recession, its 40 50 chance in the nextear. Anthony scaramucci thats le bass talking about a p psible recession n in the near future. Boolstein is here with. Sandra here with sabdr. Smith a. Melissssa this is one of the flash pointsts to. There are so many things goioing on. You u look at earnings this quarter which are projecected to be very weak. But there e are a lot of differt data pointnt piling up and not looking great. Add to that, we have theeaeakest recovery from the finanancll crisisis ever in history. And d there are a lot of facrs poininting out the w weakness. The stock market isp. It back to alltime high. Melissa does that ge somebody a job or increase their wag . Its only one aspecto it. We arere look at stagnant wagesn this country. Ththrough earning season we have seen t the profits arent that great at u. Scorporations. When you look at chinana, it should be a d flag. First it was property, t then chinas stock market. Then it turned intnto chinanas credit bubble problblems. Gary i thi d donald trump said 100 . Sam ll said ll definitely ve a recession later this year. Do yougree with that and does it matter whenou are thinking about iestment . Ay wonder about is something nobody italking g about. We a finding 8, 9, 10 free cash fw yiyield companies which tells s us there i is still root tied to ththe market. 2 to 3 years. What ii worry autut is the fact there is s a recession in china a is alrlready in the mar. Anthony scaramucci this s is a tale of two different cntries. The middle class is stagnati. What can be done about that . Melissa the federal reser juiced the markets a forced peopleo go out and chase yeelt yields. D and chase yields. The middle class jobs people can count onon are gon so many people a ting to li and parttime and minimum wage jobs. We have seen a great divid m afraid of what the remedy is. A lot of thehe js have to do with compuputer programming an technology and things u need to be trained for. Thesare the jobs going overseas. But thats not a qck fix. Ndra donald trump has wonn over so mamany voters by stickig to the economy a and making this betterer. Anthony scaramucci d do you thik government canan cure the probls melissa is talking a about . Sandra we dont w want to looko governrnment to cu our economic woes. But we need to relelieve b busis of some e of the regulions weighing them down. Obamacarhas been difficult on a a lot of companies. Witfree cash flow, whats the unememployment plate this country. Anthony y between 5 and 10 . Everybody is complaining. Where wewe are in business to me money for our shareholdeders, ad thatss criritical. L. Gary are e you trying to make e point could you have p problemsn china and the Uniteded States bt as aininvestor you can still find companies that will o offer rereturns to investors . 23 im a viewer ofof this progr, whwhy should i even care if thee is a recession. If you work in f financial rvices or the energy space, you havennt beenn a scscission, you have been in a depression. So i just ignorett allll . N n my business im not a politician, im not in governrnment. People m m mead people hired mee them money. Since thcrusades there is no person on this earthho has projectewhere the market is going to any regarity. Lissa government is important, one exaxample, the wr on banks. Talk about breakp the big banks and confistingheir profits. Look at hillaryys ties to wall street. Thats the le blood this gary maybe she e shouldilify government there are more crooks in government. Melissa knead banks givg consumers credit to keephe economy flowing. Every time thecrk down on banks they have to raiseeeso itsarder on the consumer. This is one example e of havinga governmentnt so hostile to busisiness and the economy. The queuestion i have for all of you, the next 2 to 3 arars bullish fofor stocks mel. Heatather it depends on who is elected. You think a repubublican woud be betteter . Melissa y. Sandra we know the polies uld be more business friendl and taxes inhis untry. They are a huge burden othe American Consumer and biness. Gary bob you said who wins the election wont aect your business pross. Who do y think wld be best for the economy . I cant answer th one because i donnt know. People say a lot of thingsgs. Trump p wantnts to change everything, hihillary has more perience. I just dont go ouout there. I lolook whathes going to haen. Gary you lookfree cash flow. You g it. Next week our guest is llionaire t. Boone pickens, well see yothen. Ousands of people cameut today to run the race for reretiremen. So we asasked them. Are you completely prepapared fr retirement . Okay, mostly prepared . Could you save 1 momore of your incomeme . It doesnt soundnd le much, bubut ving an additional 1 now, could mamake a b big differene over t t im gog be even better about sa. You cadot, it helps in the ng r. Prudential bring your challs annou the following ram is a paid advertisement for the food lovers faloss system, brought toou by provida lifeciences Practical Solutions for beer living. Im annette, im om studio cy, california. Im a mother othree,e, i weht 1551 2 pounds. This is thheaviest ive ever been. M a size 10. And thiis me now i lost 25 pounds andent from that size 10o this size 2 in just 12 weeks. How d i do it . I became a foolover. I a food lover and i lost 36 pods. Im a food d ver and ive lost 50 pous. Im aood lover and i lost 60 pounds im a foolover and i lost 82 pounds in eight mons