Buying Hamburgers in Choppy Waters: An Interview with Whitney Tilson and Herb Greenberg
“The companies you can buy today that have fallen are really good businesses. They're gonna go higher. We know that, and they may go much higher. It's just a matter of your duration and what you choose.”
These are the words said to me during an interview I conducted with two of the most famous and successful investors I know: Herb Greenberg and Whitney Tilson.
Herb Greenberg is one of the best-known investigative financial journalists in the world. He was a senior commentator for CNBC, and has written for the Wall Street Journal, Fortune, MarketWatch, and the San Francisco Chronicle.
Whitney Tilson is one of the most successful hedge fund managers who ever worked on Wall Street. He was a regular on CNBC and profiled by the Wall Street Journal, the New York Times, Forbes, CNN, and dozens more. He’s met with legendary superinvestors Warren Buffett and Charlie Munger, he’s met with President Obama, and is best friends with Bill Ackman, who leads another historically successful hedge fund.
Tilson predicted the dot-com crash, the 2008 crisis, he called the bottom of the 2020 Corona Crash, and more.
Simply put, these two gentleman know what they’re talking about when it comes to the markets.
Whitney Tilson has managed hundreds of millions of dollars in the market, and invested (and profited!) during some of the most difficult market periods in history.
They’re definitely the types of people you want to be talking to when it comes to making money with stocks.
My work involves interpreting what’s going on in the market so you can understand what’s happening in your stock portfolio.
This is a key part of the service I provide for DIYwealth readers, and it’s extremely important in the market conditions we’re facing, where everything feels uncertain.
So this I decided I’d share with you what these Wall Street veterans are saying.
I asked Herb and Whitney about the market today, where they think the market is going, where the opportunities are, and what people should be doing with their money right now.
The first thing Whitney said?
“There’s a stealth bear market going on that does not reflect in the S&P 500.”
I’ve been talking about this since December 2021: The price of the market is being propped up by a few large companies, and many small and mid-sized growth companies have fallen -20% or more in recent months.
Whitney continued: “The average individual investor and all active money managers tend to own more smaller and mid-cap stocks and tend to own more growth stocks. And those are the sectors that have been hit especially hard this year.
“The combination of the war and further supply chain issues and what's going on in China have all combined to just make it impossible to gain.
“And yet at the same time, the Fed is under fire to try to figure out [whether it should] continue to raise into rates into an environment like this, or [whether it should let] the market do its own thing? [If] stock prices start coming down, that starts affecting wealth. I don't think anyone quite knows.”
Herb joined in…
“I think anybody who's a serious investor has learned a lot [this year]. And in the process of learning, they've learned what their risk tolerance is. And I think that now is the time for them.
“I feel very strongly about this: if they're very serious about remaining in the stock market, [they need] to get serious about investing. Because this [downturn] is gonna be a great opportunity, but it's just not necessarily gonna be great overnight, or lead to 100% gains.”
I asked Herb what he meant, and he replied, “You want to be in the market, but it damn well better be in good companies. This is not the time to speculate. I really believe that this is an opportunity for people to get real. You have to revert to real investing and it takes patience.”
Real investing? Patience?
Herb went on: “One thing you hear consistently from people who seem to have been able to protect their wealth is they avoid losing money. They have patience and discipline. And discipline is the hardest thing to have.
“If people didn't learn that in the past two years, they should not be in the stock market. I mean, this is a great opportunity. I gotta tell you if right now, if I was 20 years younger, my level of tolerance for risk would be going up, not down in terms of longer term [investing].”
Whitney joined in: “Look, I have always tried to invest with Warren Buffett’s admonition: ‘Be greedy when others are fearful and fearful when others are greedy.’ A lot of stocks are down -60% to -80%. That is demoralizing to average people.
“But as Warren Buffett says, if you're going to be buying hamburgers for the rest of your life, do you want cheap hamburgers or expensive hamburgers? Obviously everyone gets the right answer here: You'd rather be buying cheap hamburgers. It's only when it comes to stocks that people get confused and they're say, no, no, no. I want stocks to be high.
“But the vast majority of people are still working. They're still saving and they're not in retirement. Therefore, they should be excited about cheap hamburgers. So amid all these bottomed out stocks, it just means valuations have come down a lot.
“By the way, corporate earnings are still pretty good across the board. Corporate balance sheets are very strong. And so I think there are tremendously more opportunities in the market today than there was a year ago, concentrated in the most bottomed out sectors.”
I asked Whitney to give me an example of what sectors he’s most interested in right now.
He said, “Two of my favorites are the absolute, most bottomed out, hated sectors. Which are SPACs and pot stocks.”
That caught my attention.
I asked what other sectors they were excited about.
Herb replied, “We can see the expansion of the [Ukraine] war coming, and this may become a full blown war. I'm sure that there's gonna be a point when things really get bad and people discover defense stocks. I mean, again, they're speculative at this point, from that perspective. But when they really get bad? People will go, ‘Why didn't I own that thing?’ These are [the sorts of opportunities] that are staring people in the face.”
But Whitney had a different, more measured response: “I'm not sure. Sometimes in the market, there's just a high degree of uncertainty. I hate times like this. Times when there's lots of storms and my ship is getting knocked around, but I don't see exactly where I should steer it, where the calm waters are, whether those dark clouds are going to turn into a hurricane, or whether they're going to clear and it will be sunny soon. I just don't know.”
Whitney continued: “So what do you do when you don't have a beautiful growth opportunity to guide you to what to do? The answer is: you play defense. That doesn't mean you go all-in on gold and cash. It means you have a diversified portfolio that’s got things like Berkshire at one end and probably more cash than usual. I'd be carrying 20, 25% cash right now. Not 5%, 10%, and not 50% cash.”
He went on: “And I would have some beaten down growth stocks. I'd have some Netflix in there, have some Facebook in there for sure. You know, here are three stocks, Google is down now -20%, Facebook’s down -50%, Netflix is down -70%. You know, Facebook would be a 4% position. Netflix would be a 4% position. Google would be a fixed position at 8%. Bigger positions for companies with safer balance sheets.”
Herb jumped in: “I'm excited about the fact that the market has just blown up and people really need to have their entire mindset pivoted. People are hiding under the table and they don't want to hear anything about stocks. So now they've gotta rethink: what do I do with my portfolio? The thing to do is take everything you just learned and use it to your advantage. That's the only thing that makes common sense to me.”
He continued: “I don't want a portfolio that I have to look at every day. I've been there, done that. I do not want that. That's a trading mentality.
“The moment we're in is actually a very special moment, but you can only have conviction over the longer term. I don’t know if it's 5 years, 10 years or 2 years. The companies you can buy today that have fallen are really good businesses. They're gonna go higher. We know that, and they may go much higher. It's just a matter of your duration and what you choose.
I asked if they had any final thoughts or insights to share.
Whitney replied, “Just recognize that there's a lot of uncertainty and that you need to prepare yourself mentally. Prepare your portfolio for a wide range of potential outcomes. I call it a barbell approach. Most of your portfolio should be in a mix of great and maybe some beaten down blue chip stocks. And then, put in a few little bottomed out smaller stocks that you think will do really well 5 to 10 years from now. And then, carry more cash than usual, just so you can take advantage if things get worse.”
Herb answered: “And my approach would be just use this as an opportunity. This is something where you need to take your head out of the sand, take a deep breath and really start thinking about what your opportunities are.”
We said our goodbyes and concluded the call.
If I were to list out some takeaways the average investors could use, this is what I’d emphasize:
No one can fully know what the future holds, so it’s important to prepare your investment portfolio for all possible outcomes…
It’s incredibly important to focus on companies with solid fundamentals and stable businesses…
As stock prices decline, valuations become more attractive and your risk tolerance should go up rather than down.
There are more opportunities in the market today than there was a year ago, so long as you have a long-term mindset.
In uncertain times, like what we’re experiencing, hold a diversified portfolio of stocks and cash.
Remain calm and rational and think about where the opportunities are.
And all of that, I think, is advice I can fully endorse and which I hope you take to heart.
Both Whitney and Herb write for Empire Financial Research, which puts out a daily newsletter with loads of financial news and commentary. You can sign up for more of their content here.
