The Chris Voss Show - The Chris Voss Show Podcast – License to Steal: Turn Wall Street Greed into your Gain by Stuart Kruse CFA

Episode Date: December 30, 2022

License to Steal: Turn Wall Street Greed into your Gain by Stuart Kruse CFA Kruseassetmanagement.com His first book, License to Steal: Turn Wall Street Greed into your Gain, is about the pitfall of investing both from the industry and the investor’s standpoints, and how to make the system and people biases work for you instead of against you.

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We have an amazing author and brilliant mind on the show. He's going to be talking to us about his forthcoming book. And the book is going to be called License to Steal. Turn Wall Street Greed into Your Gain. And we have Stuart Cruz, CFA, on the show with us today. He is a numbers cruncher and positive expected value seeker. We're going to find out what that means in his bio. Stuart, after getting a chemical engineering degree from Northwestern

and working for Goodyear out of school, he got his MBA, and it wasn't his stupidity. That was mine. But there's still time. He can go to that if he wants, but I wouldn't advise it. He got his MBA from Kellogg in finance and game theory. He cut his teeth in the investment industry with Lehman Brothers in New York and Chicago. And then Bear Stearns, where he became a CFA charterholder in 2005.

He then founded Cruise Asset Management in 2007 in a desperate attempt to hold the investment industry to a higher standard instead of purely relying on relationships or marketing to drive business. in 2007 in a desperate attempt to hold the investment industry to a higher standard instead of purely relying on relationships or marketing to drive business. His audacious goal to let numbers lead the way and not the commissions so the clients will reap the rewards. And in other words, he tried to money ball finance. Welcome to the show, Stuart. How are you?

I'm doing great, Chris. Thanks for having me. There you go. There you go. So welcome to the show, Stuart. How are you? I'm doing great, Chris. Thanks for having me. There you go. There you go. So welcome to the show. Give us your dot com so that people can find you on the interwebages in the sky. Yeah, all the intranets. It's cruzeassetmanagement.com.

So Cruz is K-R-U-S-E, not like Tom Cruise. There you go. Not like Tom Cruise. And so you're probably not part of crazy religions or anything like that. So there you go. I'm a numbers guy, so I try to avoid that. There you go. We just had that Rinder guy from Scientology on who escaped Scientology.

That was a great episode. So let's get into some of who you are and what you do. Tell us a little bit about your upbringing. What got you into finance? What got you motivated to get into this field? Well, that was a wild – so, man, I'm going to tell on myself, I guess. I got my chemical engineering degree and took a job with Goodyear right out of school in Houston, Texas. And this is back in the late 90s and – I'm sorry, back in the late 80s.

Wow, a whole – bypassing the entire decade for myself there so back in the late 80s i get this uh job with goodyear and i can remember um now this is back think about this nobody had a computer on their desk like nobody had one and our plant which was the second largest rubber producing plant in the world, the plant manager got this IBM PS2. So it was a 286 machine. He had zero idea what to do with this thing. So since I was the young kid, they gave it to me and put it on my desk. And then he said, can you write some software to help manage vacations

and budgets and things like that? And I said, I can do that. And so I did that. And then what I wasn't supposed to do was upload all of the salaries of all of my co-workers that I could see. So that was supposed to be blind. But what I realized was my plant manager, the guy that I was working for, who was just about to retire, was making just a little bit less than twice the amount of money that I was making just out of school. Oh. It was just – so I said to myself, wow, I can work 35 or 40 years and that is my pinnacle.

Or maybe I take a different route and learn a little bit more about money. There you go. That's what I did. So I ended up leaving chemical engineering and got my MBA and then got into the world of finance after that. Yeah, most people don't do chemical engineering and then move into stockbroker and Wall Street trade and all that sort of stuff. Did you work – let's see, you probably left Lehman Brothers before the final end, right?

Yeah, I did. That's probably a good – So I left Lehman to go to Bear Stearns, and that was in 2000. And I left Bear Stearns in January of 2007. So for any of those people that were really following along at home, January of 2007, everything was hunky-dory at the time. Nobody saw any inclination that there was any problem in the markets. In fact, I left two days after the very peak of the Bear Stearns stock price. So my recollection is correct.

It was trading at around $176 a share at the time. And what it ended up with, I don't know if you remember seeing this picture, it was a $2 bill taped to the outside of the Bear Stearns office because they were supposed to, Jamie Dimon was supposed to buy Bear Stearns at $2 a share. Oh, wow. That was the agreed upon. So it lost 99% of its value from when I left. So I take that as they couldn't deal without me. There you go. That's hilarious.

Yeah, maybe when you left, man, they lost their key asset and they just went down. That's crazy, man. And so you went and started in 2007 your own investment company? Yes. So when I left, everything looked great. I actually looked like it was somewhat unstable because these large investment banks were doing fantastic, and I was going off on my own. But there were some personal reasons why I left,

but also there were some very fundamental things wrong with what I thought was with the brokerage industry. And so just by way of example, and by way of maybe even a joke, I play basketball with some guys that still work in that field, and one of the jokes he told me was that when he has to get up at 3 o'clock in the morning to get a glass of water because he's thirsty, compliance hands him the glass. He doesn't have any freedom. When I was at Bear Stearns, they were contemplating getting rid of email, not because it was better for the client or it was better for anybody.

It was just so that somebody didn't type something inadvertently that was incorrect and that they would be held to that particular contract, if you will. Like if I said, hey, what's the price of Apple trading at? And I said, oh, Apple, it's at 101. And I mistype it. And then the client says, you need to fill that price at 101 even though it's trading at 150 or 129 or whatever it is. So somewhat ironically,

it wasn't a broker that brings the firm down. It was the upper management making poor risk choices that brings all the firm down. So I wanted to go off on my own, which is a business model that is a fiduciary model. You have to put your client's needs first. You have to do what's in the best interest of your client

as opposed to giving them something that's suitable, that's okay, but that's very protective as a firm. There you go. So you start your own firm, but you're on the cusp of what turns out to be one of the greatest kind of stock market sort of investment firm crashes of all time. What is that like? Yeah. So that happened to me twice. So I got my first, my desk originally at Lehman Brothers in the late nineties. So 1999, I went through my training at Lehman Brothers in New York.

I came to Chicago, got my desk in November 1999. Everything looked fantastic. And then the market peak, I want to say, was March 9th of 2000. So I had my desk for three or four months. And then the dot-com crash came. I spent the next three years trying to build up my book of business and my contacts in a declining market. And then so not to do myself in 2007, at the peak of the financial markets and the whole mortgage-backed security bubble, if you will, I left in January. And then I think it was three months later, two Bear Stearns hedge funds that were based in mortgage-backed

securities went from being priced at roughly 100 cents on the dollar to overnight being priced at zero cents on the dollar. And people were like, what has happened? And ultimately those hedge funds failed and I had already left Bear Stearns, but the market still didn't realize what was happening. So I even had clients saying, is my money safe at Bear Stearns? Is everything okay? And I said, well, your accounts are segregated. Your money's fine. You weren't in those hedge funds. You have nothing to worry about getting your money back. But then not much very longer after that, the banks started failing. These large hedge funds started shorting Bear Stearns, started pulling out their capital. There was kind of an institutional run on the bank.

We can get into all that details. But then for the next 18 months, while I was starting Cruise Asset Management, the financial markets were in another one-in-50-year event decline. So we saw those events in like 20 years. I was smart with the dot-com thing. I made a lot of money doing the dot-com game, and I knew the top of the market and called it and pulled out everything. You're awesome. So you didn't get that BS and stupidity that you said. No, no.

In fact, I helped my mom make a bunch of money in it and it wasn't that hard. I mostly just put her in AOL and I think Home Depot or something back then. And AOL was splitting every five days or some crap. I don't know. It seemed like it. But it was just

calling the ball. I just felt like it was just calling the ball. I just felt like it topped out of the market. And once it started going down, I'm like, this is going to keep going. It was like Bitcoin. You're just like, I'm pretty sure it's peaked, which is probably what I did back then. I was probably peaking. But so you started your own company in 2007. Was it a bit of a struggle?

What was it like starting your own business, you know, being an entrepreneur? You know, when you start your own business, I think as every entrepreneur will attest to, and I started small and bootstrapping it, and we're still a very, we like to say, small but mighty team. Every decision is, do I do it myself? Do I outsource it? Do I, you know, create some sort of tool to do it? So the first day, you're setting up your printers and your technology and taking out the garbage and everything. So it was a challenge trying to figure out all of that and what's the most efficient way.

Now, I think my advantage in the marketplace is technology and using my engineering degree to help make things more efficient, make the analysis more efficient, systematize events, systematize the way we look at portfolios, systemize the portfolios themselves. Not that they are cookie cutter, but it enables us to get to the information that we need much more quickly. There you go. Let's dig into your book a little bit, and then we'll come back to your company and get into some details of what they're doing. The title of the book that's coming out, what's the release date on this, by the way? So I just finished my second or third round of editing,

so I'm hoping it's going to be released in the next couple of months. So we're looking for three months maybe. There you go. License to Steal, Turn Wall Street Greed into Your Gain. Why did you title the book that way? So to me, this was a great story. So as I mentioned, I trained in New York. So I'm at Lehman Brothers and we probably have a class of 100 would-be brokers at the time. We know also that the rate of success is less than 20% in a year. So 80% of the people just flush out within 20 months. So you're looking around to see which one's going to last, who's going to be there. So we're all training for a Series 7 or studying for a Series 7.

And we all have to take the test together. And that's the exam that allows us to basically be able to trade and sell securities. Without that exam, without the Series 7, it's not legal to trade or to even solicit any securities. So it's paramount that you pass this exam. And so we all got the results at the same time. And one of the big brokers that are there is making more than seven figures a year. So we're just like kind of in awe of him.

And he comes by and he says, so did you pass? And I was like, yeah, I did. And he said, congratulations. You now have a license to steal. Wow. And I was like, holy crap. Okay. I was like, that's not what I was really signing up for.

Right. But to be honest, that was kind of the mentality, not kind of, in New York, at Lehman Brothers at the time, that was somewhat the mentality of how they operated. Like what is the way that I can get commissions and or trades out of the client and get that money in my pocket? I had never been in a meeting where – and this was routine. But we would have a morning meeting every morning at whatever, 6.30, 7 o'clock in the morning. And you'd have people come in and present products. And the number one first question always was, how do we get paid? What's the commission? How do we get paid?

It didn't matter what the topic was. If we're launching an internal product, how do we get paid? What's the payout? What's the structure? And that was just the mentality of, and it wasn't, can we do right by our clients? Can we make them more money? Can we make sure their life is safer and secure? It was how do we get paid?

And so it was like you have a license to steal. I thought that was a politician line. Oh. It should be. It should be both. So that's not what I wanted. I'll even give you an example of this like i was cold calling one day at and this is just how the mindset was i was cold calling and i called in to somebody's

wake i literally called in is mr jones there can i ask this calling this is stewart cruz with lemur brothers did you know mr? No, I'm just calling for blah, blah, blah. Mr. Jones just died. I am terribly sorry about this. I am so sorry. My condolences. My heart goes out to you.

I'm sorry for the interruption. Click. I hang up the phone and I'm like... So then I go to one of the guys and I'm like, oh my God, I just called into a funeral. And they said, did you ask about the estate? Did you ask about the estate? No. Did you need help managing that money you just inherited?

Yeah, I mean, there's money in motion right now, so I can probably help you with that. That's the mentality, right? Yeah. That's not the mentality I wanted to be a part of. It was a crazy time. I mean, uh, we were talking pre-show about the greed is good line from either

Mioski. Most people don't know that comes from the wall. You know, they use that in the wall street movie with Michael Douglas, but it comes from my Mioski. And this was the eighties when I took my, uh, my schooling for license,

the license for, uh, become a stockbroker. Uh, I picked the wrong time to do that, too, because Black Friday wiped out the brokerage that was going to take me on. Or Black Monday?

Black Friday? Black Monday? Black Monday? 1987? I always get those confused, too. I always say Friday, and I think it was a Monday. I think it was Black Monday. But yeah, it wiped out the little trading firm that I was going to join. Back then, the penny

stocks were crazy. Denver was this hub of the most insane penny stock sellers. One of my friends worked for the Wolf of Wall Street firm back in the day. This is the day when it was crazy what they were making

on commissions. that was kind of why I wanted to be a stockbroker. The greed is good era. Yeah. So you've taken the book or the idea, the concept of

how to basically take that power of the license to steal, the Wall Street greed, and make it people's personal game in your book. Tell us a little bit

about that, how that plays out. Yeah. Well, ultimately, the idea is I don't want to be part of that, hey, mentality, let's steal. I mean, I've been around people who are saying, well, you know, I had Mr. Jones as a client. Well, what happened? I blew him up.

That means I blew up his book, meaning I traded him so much that he lost so much money and I generated so much commissions that he's just not even worth being a client anymore. Holy shit. And that was just like, yeah, I blew him up and move on to the next guy. The calluses of that too. It was brutal, right? So I didn't want to be a part of that. And so I'm trying to figure out how I can add value.

Like how can we go about and do the right thing? And, again, as an engineer, I think in things, I think in numbers. And so very clearly, very early on, when you start looking at what is available to our clients, Bear Stearns or Lehman Brothers or most investment banks or even most mutual funds, what is available to them as an investment option? And you look out at most money managers year in and year out to this day still underperform the benchmark. They underperform the S&P. 60% to 80% year in and year out active money managers underperform.

And our money managers at the time were no different. And at the time we had to overcharge. So I had to overcharge. So I had to overcharge for underperformance. And I said, because of the name, there was an amount of inherent safety and security. And the only saving grace of our industry to some extent is that individuals tend to do worse. They tend to trade so much and be so emotionally involved in their own money that they tend to underperform inflation.

So they eat up their own purchasing power. Or at least the professionals, while they underperform the benchmark, they do better than the individuals. So there is some value add, depending on where your point of reference is. But I said, why can't I just tell the client

to buy the index, the S&P 500, and they outperform our money managers, we don't have to overcharge them. You could do that, but you don't get paid. Yeah, there's no crazy commission on it. Right. So what are you going to do?

And I was like, well, okay. I either have to literally either have to get out of this industry or have to figure out a different way of managing money. And so I, again, this is back prior to, I've had a couple of these prior to there being, you know, where there's data everywhere. So this is early 2000s. People had computers, but there wasn't big data out there. So I said, well, if I were managing money, I would not use the methodology that's out there.

Like you have all the analysts out there and all the economists, and I'm really playing our industry down. But there's, again, a joke, why do God make economists? Well, to make the weathermen feel better about their predictions. Oh, I never heard that line, but that's a good one. I like that. Yeah. So that's not great. And then you have the economists that are building models.

Let's say you have an airline economist. He's saying, okay, I'm going to guess on fuel prices and weather conditions and vacancy rates and travel amounts and the strength of the dollar versus the overseas. And I'm going to try and figure out how much money an airline is going to make with all these unknowns. I'm going to take all these unknown factors. And out the end is a known estimate. And so as an engineer, one thing I know about any model that I build, the only thing I can tell you about that model is it's going to be wrong.

Like I can't, I guarantee you a model with a bunch of unknowns out the other end is going to be an unknown quantity too. But you're just trying to see what levers, how the levers work. Like if I change this, what happens to that? Where's the sensitivity? Where's the stress test? But I'm certainly not getting an exact number out the other end. But that's how Wall Street treats these analysts when they come up with the earnings. And when you look at the data, the earnings estimates tends to be no better than statistical noise. It tends to just be a crapshoot. So to pin all of the stock price on analyst estimates because they have access to the CEO and all this stuff, when you look at the actual result, they don't do a great job. And in fact, back in the day, especially when I was there, the investment banking side made so much money that the private client services group was a rounding error. So when it came to putting down recommendations for a stock, do I buy Apple, sell Apple, buy

Cisco, IBM, what have you, they were only putting buy ratings on the companies they wanted to do iBanking business with. Because if you had a sell rating on that company, they weren't going to do any business with you. And it didn't matter from the personal client's standpoint what was rated on the stock. Like it didn't help you. So if you looked at the data, the buy ratings underperformed the sell ratings. And the strong buy underperformed the buys. So it was upside down.

And if you think about it, like all the strong buy ratings, all the analysts had already upgraded the stock. So there's really no place for that stock to go. So if you see a strong, strong buy rating, then you should kind of sell that stock. Like if everybody's in, then there's no place for upside. And as a basket of stocks, sometimes that company is going to fall from grace. They're going to miss their earnings, and that's why they get killed. So my options are to try and outsmart that system with all these analysts, and I certainly didn't have the resources to do that, or to do it the way I would do it as an engineer and just look for fundamental characteristics of companies that tend to outperform in a period of time.

So you look at characteristics like P.E. ratios, price to earnings ratio. Do you buy high P.E.s where I'm paying more for dollar earnings? They tend to be very growthy companies. Or do I buy low P.E.s, which tend to be more value companies that are making more money? I didn't know the answer to that question. So I did the work. I did the math. And I found out that over time, in any three-year rolling window,

buying a basket of low PE companies tends to outperform about two-thirds of the time. There you go. Price-earnings ratio. Yeah. I'm like, I like it. Now, you have a three-year window where, by definition or by the research, 33% of the time, you're going to underperform. Then for three, four, five, sometimes six years, that strategy won't work.

My clients, no clients, are going to wait around for that thing to work after five years, right? So you need to do more than just P-E ratios. So what my book talks about is all of the research that I did. And I looked at hundreds and hundreds of these characteristics. And this was back before, again, big data was available. So P-E ratios and price to book and price to sales and asset turnover and having some debt and momentum. And so anything I could think of, second derivatives of this, peg ratios, is the growth rate increasing

in growth? Is it decreasing? Is it peaking out? Like, what's the slope? I looked at everything I could think of. And then when I found a characteristic that tended to work over time, I kind of put that in my vault and collected them as factors that work. And then I built a model of those factors, eliminating factors that were overshadowed by other factors.

So my book outlines all that research, what things tend to work over time, and how you can buy stocks using that strategy. And probably no surprise, but a lot of these strategies line up with a Warren Buffett-esque type of mentality. It's kind of more about that long ball, though, a little bit, isn't it? Yeah, 100%. I mean, that's really what he does. He usually buys stuff and holds it into eternity, and he just tries to make really good bets to my understanding. So basically it helps people give them your recipe of a license to steal and how to turn wall street greed into your gain. So is it mostly geared towards individual investors,

private investors, people, mom and pops who just want to get in the market? Yeah, for the most part, it's a, it's a good entry point to what's um what works you know there's another guy that uh when i was at i think i was at bear stearns his name was jim

he wrote a book called what works on wall street and it was similar in the philosophy of hey um some things work and some things don't work. You want certain things to work. Like you want growth rates to work. But if you look at basket stocks, they tend to not work over time. So he wrote a book about what works on Wall Street. And this is kind of the same idea, but with my research and my event, like what works and what doesn't work.

And a lot of people just in this last couple of years, a lot of people were really buying all these growthy companies because there was kind of no other alternative. All the tech stocks, we kind of, I won't say we had a repeat of the.com craze, but for example, Apple is a company that dented the universe,

right? They, there was nothing bad I want to say about Apple itself as a company. It does. It's changed the world, fortunately. But as an investment, when you see Apple pre-COVID traded at a PE range between 12 and 18 and averaged around 15, meaning for every dollar Apple made, people were willing to pay $15 for a dollar of earnings of Apple.

That's what the P ratio is. So if it traded for 10 years and it was still an awesome company then, for 10 years it traded at a range of about 15. And then post-COVID, after the Fed put in roughly $6 trillion into the economy, it went up to a PE of 45. Oh, wow. At least about 40. It wasn't growing any faster. It didn't launch a whole new product or a PE of 45. Oh, wow. At least about 40. It wasn't growing any faster.

Didn't launch a whole new product or a whole new group. I mean, it's trying to do these things, but it was trying to do those things pre-COVID too. The growth rate was roughly 5-ish percent. So it wasn't like it was growing 40% year over year. I mean, it was growing, but not very fast by most company standards. And yet the price people were willing to pay for a dollar of earnings tripled. It's not sustainable.

Like, it's just not. And right now, I don't know, I think Apple's fee is roughly around 22, 25. It was 25, but it's been trading down a little bit. So still above average. It's long-term average. And now interest rates are no longer at one. They're at seven, or inflation rates are at seven. So the discounted cash flow of Apple's future earnings should be smaller.

So its multiple should actually be compressed. So should it trade at 15? Maybe it should trade at 14 or 13 with higher interest rates. So to me, Apple is still expensive, even though it's an amazing company. And we made videos about that. Like it's just, it's not sustainable. And so when people flood those areas and say, hey, we're just going to keep making money

in these growthy stocks, you know, it goes back to, it goes back to the company has to make money and you have to be willing to pay and get paid back for those earnings eventually. Or you're behind. Yeah, that's what a lot of people don't realize, especially in the crypto space and Bitcoin and all this craziness where it's gone down. With investing in the stock market, there's a price to earnings ratio.

There's an asset value to the company and an earnings value to the company. We don't have that with crypto. And it's interesting you mentioned this. It looks like at this point in time, because people watch our videos 10 years from now, at this point in time, it looks like the stock peaked on December 10th, 2021, at 150, well, I can't get it here,

but it looks like about 179.45, and it's now trading at 128 so you called the ball on that one yeah well we we made a fundamental call back in january so january the infamous january 6th it wasn't the same day it was the next year but january 6th we posted a video that said from the market standpoint fundamentally where theEs were, and they were trading, forward PEs were on 21, 22. Hadn't been that high since the dot-com crisis. But when you look forward five years, we've never had good forward five-year returns from multiples at this level. It's never happened.

The best was 5% a year, best. And if you did a regression on all the times that these multiples hit this level, the expected average annual return for the next five years was 0%. So you're guaranteed volatility in the stock market. Your expected average annual return for the next five years was zero. So you have a lot of risk and no reward. And we said, we are getting out of equities, not a hundred percent, but we're like, we are substantially reducing our equity position at this point.

And so Apple broke down a little bit before that and peaked, but the stock market itself was at a position where it just wasn't in a viable spot. And again, using data to put the odds on your side or the odds on the client side, we didn't have a crystal ball, but we had the numbers on our side. And it turned out that I think January 5th ended up being the peak of the market. We put that video out on January 6th.

So we sidestepped a substantial portion of this downturn. And I can argue right now that even though the market's probably down 20% on PEs, 4Ps are around 17, the long-term average is still 15 or 16. So we're still expensive. Just by relative standpoint, we're still expensive even though we pull back. And with inflation rates going from zero or going from, let's call it 1% back in January to 7, even though inflation is coming down, but it went from 9% down to 7%. There's a rule of 20 saying if your PE plus your inflation rate is over 20, you're kind of expensive in the marketplace. If you're at 17 plus 7, that's 24, I could argue we're more expensive today than we were when we made that call. And most of the time when you see these pullbacks, and I've seen a few of them, as we've discussed,

usually not that great. So most of the time it doesn't stop at fair value. The market doesn't go, oh, good, we've worked off all that excess. We're good. Normally, it goes through fair value into cheap. Normally. I don't know what will happen this time, but most of the time it goes into cheap. And you could argue that cheap would be a ratio of 12, 14.

So I don't know what that looks like, and I don't know if that's going to happen. But even if we went back to standard multiples, you're still looking at S&P 500 or 3,200, 3,300, and we're substantially above that right now. So we could very easily pull back 10% to 15%. That really makes sense what you said. It was funny. When I was trained to be a stockbroker back in the day, 15 was kind of like the cap of the PE. You're like, it's at 15?

We're not buying that shit. And then along came the dot-com era where it was like 50,000. P.E. P.E. P.E. P.E. P.E. P.E.

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P.E. P.E. P.E. P.E. P.E. P.E. P.E. P.E.

P.E. P.E. P.E. P.E. P.E. P.E. P.E. P.E.

P.E. P.E. P.E. P.E. P.E. P.E. P.E. P.E.

P.E. P.E. P.E. P.E. P.E. P.E. P.E. P.E.

P.E. P.E. P.E. P.E. P.E. P.E. P.E. P.E.

P.E. P.E. P.E. P. just sit there at 7.30 a.m. I was in Pacific time zone. And you'd sit there and the market would open. You'd just buy like AOL or whatever tech stock was launching and you'd pull 20 grand in about an hour, if not 20 minutes. It was fucking crazy.

But that makes sense what you're talking about with the P-E. The P-E ratio still on Apple right now is 20.97 and then you add on your algorithm you're using with the adjusting for inflation and how the Fed is responding with the Fed rates.

So that's interesting. Do you see kind of a bear market going forward still? Yeah, I mean a couple things support that. A, again, we're still expensive So that's interesting. Do you see kind of a bear market going forward still? Yeah. I mean, a couple things support that. A, again, we're still expensive from a multiples ratio. And if you look at price to book, price to sales, a lot of other valuations, we're still expensive relative to inflation. And people are justifying these high multiples when inflation was low,

but now inflation is higher than it is average, than it has been long-term average. So I can't really justify any high multiples anymore. Now, one of the other things you talk about in your book is non-financial related activities. Talk to us a little bit about what that's about and what you advise people on doing. In my book? Is that what you said? Oh, okay. So this is just you personally, your non-financial related activities. Oh, mine. You jumped out of a plane more than 100 times. Yeah.

You're all about enjoying life. I've taken off in more than 100 planes that I've landed in. So that's for sure. I used to do those formations. I haven't done them since. Now, was that on Southwest recently? There was a big football, though, at Southwest. That's why I did it.

Just in case. Just in case you got that skill down. You're like, hey, we all got to bail on the plane and pull one of those. Who's that guy who jumped out of a plane in the 80s? They still haven't found him. But you got to jump out of a plane a hundred times. I need to go do that. I want to do the jump out of a plane thing.

I'll tell you, I had a skydiving club in college. So I went to Northwestern. Our mascot is the Wildcats. So we were the Skycats. And jumped out of... I couldn't afford to buy my own jumps at the time. They're an expensive sport. So we would

get a bunch of first-time jumpers, and we'd travel out to Skydive Chicago, or it was in Sandwich, Illinois at the time, and take people skydiving. Usually, after they lost a bet, or they have a hellacious hangover from drinking the night before because they think they're going to die,

we'd all get there, and they'd go through. Skydiving is an amazing cure for a hangover, I'll tell you that. Really? I don't think I want to do one on a hangover. If your mind is clear, then you're just I'll bet. Pretty much.

We had two very specific groups of people. Some people that always wanted to do it, like yourself, Chris. They always wanted to do it. Let's go do that. They have invariably loved it. Every single one. Loved it. Can't wait to go again. Can we sign do that. They have invariably loved it. Every single one. Loved it.

Can't wait to go again. Can we sign up? Can we go again right now? It was amazing. Fantastic. Now, most people didn't go again, but still, they're just like on a high. And then there were those that like lost a bet or were going in support of somebody else or just got some crazy idea or they were just trying to check something off the box.

Like, I can't believe I'm doing this. There's no way I should be jumping out of a perfectly good airplane kind of thing. And they all hated it. They're like, I'm glad I went. That is never happening again as long as I live. That is the most terrifying thing

on the planet. I think it's a blast. It feels like flying. Like once you get out of the plane, you feel like Superman. You just, you can just fly around the sky. It's amazing.

It's really pretty great. I got to go do that. I love, I love the feeling. My favorite feeling in the world. One of my favorite feelings in the world. I guess I have a couple. you should have at least some of the bedroom. Uh,

but my favorite feeling in the world is that moment that you're on an airplane and the moment it takes flight and you feel the air or the wind, whatever, take the wings and that power takes over and you're no longer on the ground, but you feel that like you're fine. But it's like that feeling of the wind and just taking off, and you are now airborne. And to me, every time I visit it, and I just sit there in that moment of presence and go, wow. So as we round out the show, let's get a plug in here. Let's talk a little bit about your company and how you can help people and those who are listening,

maybe how they can reach out to you and maybe help you manage their money. Yeah. So we do two things. Obviously, we do everything quantitative on our side. So all the stocks we buy, all the ETFs, the calls we make, when we build models, we only use what we consider to be in favor asset classes. So stocks were out of favor last year. So we were not particularly solid in stocks, but what was in favor were commodities.

And so we didn't allocate everything to commodities, but we had a healthy exposure to commodities that have done great. Energy was in favor. Right now, silver is in favor. So when we build a model of somebody's portfolio, we use only in favor asset classes. And that's basically derived from relative strength and momentum. Relative strength can be thought of like this, like we're in football season. And so we're about to make the playoffs. So if we said next year, which teams do you think will do well?

The teams that made the playoffs in this year or the teams that didn't make the playoffs this year? Do you think the teams that didn't make the playoffs, like the Bears, are they all of a sudden going to do awesome? Or are they going to continue to build up? And the teams that made the playoffs, are they going to continue to do well? Well, most people, even if you don't watch football, they're like, well, the teams that did well are probably going to keep doing well. That's relative strength in the stock market, and it works. There's a reason why companies are doing better than other companies. There's a reason why they're not losing as much money. And same thing for countries and sectors and segments of the market. So let's say, like Turkey and Thailand,

I am not an expert in those areas at all. I would not even call myself an expert in the United States stock market. It's just too broad to understand. I've been devoting my life to learning more about it, but how are you an expert in this? How could I be an expert in an area that I just don't know anything about, but I can follow the money and I can follow the relative strength. And when those two countries from an ETF standpoint are turning up, that's usually from the math that says it's a good place to buy. So that's what we do. We initially will build clients' portfolios using math and statistics,

first from a top-down looking at all asset classes that are in favor, and then we'll use those to build a model. And from the bottom up, what are the fundamentals of these areas? Like fundamentally, is the market cheap or expensive? And then over and underweight according to those fundamentals. So again, one of our odds is kind of a kitschy little thing. But you know, it's a math thing. I've got a poker chip that says put the odds in your favor, right? So people feel like investing can be a gamble. And it can be a gamble if you're

on the wrong side of the odds. But while the house doesn't always win, the house plays enough hands with the odds in its favor. It's a mathematical certainty that will come out on top. And that's what expected value is. So you started like, we'll find out what expected value is. It's in every iteration, do you have a positive expected return or a negative expected return? And the house in Las Vegas has a positive. Always or a negative expected return and the house in las vegas has a positive always right they don't win every hand they lose a lot of hands and lose big money but if on average they're expected to win 52 of the time then their expected value or

each expected transaction is positive that's what we want to do with our clients is have each expected transaction or investment to be positive because what we want to do with our clients is have each expected transaction or investment to be positive because the odds are on their side. There you go. What's the best ways they can reach out to you if they're interested in working with you guys? Yeah, so you can reach us at LinkedIn. I'm at Cruise.

A lot of things are Cruise AM. So LinkedIn at Cruise AM. I have a YouTube channel at Cruise AM or Stu Cruise, S-T-U-K-R-U-S-E. I was going to say the other thing that we do that might be interesting for your people and your audience is we also have a virtual family office platform. So what that means is my clients tend to not need a family office. And a family office is somebody that's so wealthy they have a team of financial professionals looking after their money. Investment advisors, CPAs, estate planning lawyers, whatever. You need to have hundreds of millions of dollars to afford that payroll to make sense. But some of my clients need some of those services some of the time. And so we have a team of 50 professionals that

are on our network, basically our platform. So if you need tax mitigation services or advanced state planning or cost segregation studies, or you don't even know what you need, we do a diagnostic to say, what area in this family office might be helpful to you? Can we reduce your taxes? Can we help you with your state planning? Can we do X, Y, Z? And then we bring these experts in with your CPA, with your other trusted centers of influence and operate as a team as opposed to just in my little silo, you have a team working for you

to help take advantage of an opportunity or a section of the tax code or what have you. There you go. And then you also have your website. I believe this is it, cruzeassetmanagement.com? That's right. There you go. People can find that and join up. Well, this has been really interesting.

I love your P.E. price-to-earnings ratio, for those who don't know what that is. I love your P.E. effect because it makes sense. It makes sense that the inflation and the Fed rate should adjust to that. You know, I had a mortgage company for 20 years. I know how painful that Fed rate can be. And, you know, now we're seeing that pain again. And, you know, we we're seeing that pain again. And, you know, we've seen massive downturns to the market, et cetera, et cetera.

Any final pitches or tease-outs on your book you want to take and make? I don't know about my book, but what I'll say is, you know, for those investors that are out there, and you asked me, and I didn't quite finish what's going to happen, we think that the market's set up for another downturn. And that once we get into this recession, which should happen, the market usually bottoms out prior to that. So we're looking at a bottoming in the first quarter or so. So then we'll see through the recession and we should be off to the races. There you go.

Yep. There you go. I love the price-to-earnings ratio thing because I remember just being beaten into my head that 15 is the top PE back in the day. And it seems like that almost seems like it's still going. I was looking at Tesla. We're discussing stuff. And I've got friends that I was talking to a friend yesterday who's taken a beating on

this. But Tesla peaked at November 5th, 2021, 407. It now trades at 121. And the investor is, of course, really mad at Elon Musk for taking over Twitter. But I don't think it would have had much of an effect. It looks like they're still trading at 37.36, so they're still really high on their PDE ratio. Right. Yeah.

I mean, Elon Musk is a genius. There's no question about it. It's just a matter of – I mean, I've had some people say, are we actually watching somebody that's unraveling? Like he's definitely been somebody that has succumbed to, we'll just say, some mental ping-pong back and forth from time to time. And, you know, just taking on this Twitter is obviously a distraction. I mean, how could it not be a distraction from the main point of view?

And if you've got Tesla and you've got people betting on him to make Tesla great, and they're betting on the come, right? You know, as you said, fees too high. They're making money, not necessarily because of their cars. At one point, they were valued more. Tesla itself was valued more than all the other auto companies combined. And they were selling like a tenth of maybe even a twentieth of all the cars. So it was a maddening kind of valuation.

So they're clearly betting on the future. And if your CEO and your genius behind this is unraveling or at the very least distracted, that doesn't bode well for Tesla at all. Yeah, definitely. And it seems kind of interesting. People don't realize the stock market usually is predicting, what, a year or two into the future? And so you've got to realize that when you're pricing this stuff in. Yeah.

It tries to look forward. And I think it's more like maybe nine months, but it tries to look forward to the discounting mechanism. Okay. And that's kind of what I was saying is if we're going to have a recession in six to nine months, the stock market right now is looking into the recession. But as we get closer to it, it will look through it. So that's why it tends to bottom out prior to the economy bottoming out. But we haven't even figured out whether we're going to have a hard or soft landing.

The Federal Reserve has raised interest rates four and a half percent in a very quick period of time. And the reason why Powell's doing this is because the Fed has never successfully been able to combat inflation with the Fed funds rate below the two-year treasury. And we're just now even. So he was raising it fast and furiously to get above the two-year treasury. So I actually think he's doing a good job. The problem is, here's the analogy.

It's like he's trying to drive the U.S. economy with data that's old and knowing that whatever he does isn't going to take effect for six to nine months. So it would be a little bit like driving your car, and when you turn the steering wheel, it doesn't turn for nine seconds. But then what you're looking at out the front in your outer window is actually three second delay. So you're seeing cars come and you're like, OK, I'm going to turn and then you have to. So to get it right, I think, is just ridiculously hard. And if you do get if it does get right, it's going to be dumb luck.

It works great when the road isn't changing in front of you, right? But if you have to turn that steering wheel or make an adjustment or put on your brakes and nothing happens for several seconds and all the data you're getting is delayed data, how do you do it right? I just don't know. I just don't know how that's possible. Yeah, and they really messed it up. They waited way too long to start. I agree. They waited maybe six months to a year too long.

I 100% agree. They should have been after it during the thing. But it's a hard balance because you're trying to not do a 2008 again with the COVID thing where the economy came to a screeching halt. You're trying not to do that. You're trying to throw money at it. And we kind of maybe threw too much money in it um you know with the bailouts and stuff and the spending but i don't know it seems to work it's really interesting what the future of quote-unquote recession might be because we have the flip side of it where the baby boomers appear

to have left the job market uh a lot of gen xers bailed out early too and they're not coming back and so we have this uh high demand for employees and growth i mean they're throwing up buildings all over my place up here in utah there's like just stuff everywhere yet every company has got a sign up going hey we don't have enough people i went to a restaurant last night they had one server and they're like please be patient because we just have one server we're desperately trying to hire people and'm like, I just passed like five fast food restaurants that are being thrown up like it's going out of style. And so it's going to be really interesting this session because we're going to, instead

of having, you know, a 10%, 8% to 10% unemployment, we're still going to be probably, I don't know, 1% or whatever we're at now in this employment demand, but we'll have pricing coming down from deflationary measures. So it's going to be really interesting. Hopefully it does make a soft landing, I would hope. I don't really want to see a crisis. So it's a really weird place to be. You're just like, wait, we have high employment? Right.

Or whatever. Full employment. What the fuck is this? Soft economy. Yeah. Everyone's still going to judge. Yeah, it'll definitely be interesting. Great. Full employment. What the fuck is this? Soft economy. Yeah. Everyone's still going to judge. Yeah, it'll definitely be interesting.

Well, it's been wonderful to have you on the show, Stuart. Thanks for coming by and talking to us about everything you do. Give us your plugs, your dot coms, wherever people will follow you on the interwebs. Yeah, so cruisessetmanagement.com. You can always email us at info at cruisesetmanagement.com. You can always email us at info at cruiseassetmanagement.com. Or I said LinkedIn is a good place, Cruise AM. And our YouTube channel is linked YouTube at Cruise AM. There you go.

And order up the new book. I'll let you read us off the title. Go ahead and shoot it at us. And the title, License to Steal, How to Turn Wall Street Greed into Your Game. Hopefully, it's going to be out in a couple months. There you go. Watch for it to come out on Amazon or wherever fine books are sold. Thanks for tuning in, my friends. We certainly appreciate it. Thanks for coming by the show, Stuart. Thank you

much, Terry. Thanks for having me. Also go to our sites on goodreads.com, youtube.com, every place, just search for The Chris Foss Show. We're pretty Fortuna's Chris Voss. Every place. Just search for Chris Voss. The Chris Voss Show. We're pretty much everywhere except for that other guy. Thanks for tuning in.

Be good to each other. Stay safe. And we'll see you guys next time. And that should have us out, man.