tv Wall Street Week FOX Business April 22, 2016 8:00pm-8:31pm EDT
>> guarantee, no. tom: 53% of you say donald trump does not need the gop establishment to defeat hillary clinton in november. that's it for us. good night. >> announcer: this show has never been solely about investments. we have talked about anything that have affected people and their money. from fox business headquarters in new york city, the new "wall street week." >> welcome to wall street week. i'm anthony scaramucci. gar will be i'm gary kaminsky.
what's a long-term investor to do? we'll start by asking one of the greatest value investors of the last two decades. bob olstein, i want to start with the political climate. does any of that come into your philosophy for the investing. >> what's going to become law and how does it effect the free cash flow of companies or industries we are looking at. but we can't twhroins all this stuff from politically act people. gary: the fact that you have the political extremes going on in this cycle? >> the market, 80% of the
market. hedge funds that aren't there with the spreads anymore. when the trading has become ridiculous. the analysts are look at if somebody has beaten the estimates or not. we have record volatility we take advantage of it. gary: so you are working more on the fundamentals and less on the news and currents information that's out there. >> there is a difference between an investment decision and market decision. most analysts, there are real companies behind those stocks. and you have to value the businesses. the values of those businesses do not change as rapid as the stock prices do. gary: we'll get into the specific companies later. by want to address two things
you and i have spoken about. the first is the difference between buying an index funden buying an active manage more picks individual stocks. and the second thing is you have a philosophy, you don't want to talk to company management, you upon want to look at the numbers. so should people be thinking about index or thinking about active management, understanding you are an active manager who produced outside results against the index over the years? >> i believe it's people's job to find active managers. the governor of pennsylvania says there is no risk in the indexes. they bought enron, all the money is going into deking. they are add together p.e. ratio of net flex averagflix and amaz.
it's creating pockets of overvaluation in the index. gary: the index has beaten 90% of active managers if you quantitative easing since 1999. >> i don't look at statistics. if you put $10,000 our fund it's now worth $60,000. gary: you hear executives come on air and talk about their results. you always told me you don't want to do that. >> long-term performance, the people who tear about individual companies. the long-term performance of the people who make the fewest errors. it's the mag tiewched your error that determines your long-term performance.
if they don't write about the people who march over the cliffs trying to find it. if the 48 years in this industry i never had a management ever tell me or ever say if you don't vacate my stock, you are going to get burned because we have problems we can't solve. why would i ask somebody or talk to management. i care about management but i look behind the numbers. we'll talk about looking behind the numbers today and the falsity going on in accounting today. anthony: index investing, you buy in whole. value investing. inside or outside that index that are fundamentally longer-term attractive than the index. by the's super hard for the average investor to understand the difference. how would you summit up in 30 seconds.
>> find people to manage your money -- unless they are going to do the work -- we create volumes of information on every company we look at. looking behind the numbers. if you don't have that ability, then i guess you have to bite index. but there is no guarantee. >> if you don't want to be in a plane being flown by robot. >> i want anthony scaramucci flying that plane. gary: we'll be right back. >> announcer: next bob olstein tells you stocks that are under valued and will make you money.
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olstein of capital management. gives some ideas what you find tractive? >> what we find attractive is usually what other people find in trouble. getting the right price is the key for long-term investing. bed, bath and beyond be everybody hates it, we think this company is real, it's relevant. the rar nins will drop to 10%. that's enough to produce $6 a share. we like the problems because we get the right price. we think equity capital can move into the stock. i remember talking about petsmart. this company is the type of stock under valued, 10% free cash flow. gary: when stocks are trading
count average retail investor gets scared and starts selling them. >> they sell them to us. you could have a stock -- >> a value track is where the problem is not team prairie like we think in -- is not temporary like in bed bat. and basically you want to stay away from it. >> it looks attractive on a valuation basis. but that stock is jammed in. >> you can have a stock cheap at 25 times earnings and a stock expensive at 10 times earnings. you have to do your homework. gary: you made a legendary calls on lucent when i believe it was the most widely shelled security anyone vestors around the country. it became public in the mid-90s.
then was a high flyer. but as you points out. you were negative on it. it doubled and eventually collapsed. what are some of the names that have the red flags, most overvalues wrtd stock price doesn't line up? >> i would say it's netflix. that to me is so unrealistic. they are in a competitive environment. they are spending billions. $120 million in earnings which are not real earnings because they are getting stock compensation back. a billion dollars is being spent in programming. i would worry about the $2 billion. gary: some investors are look at the number of new subscribers. your point is they are putting them as subscribers but they are losing money object a cash flow basis.
>> the business model says they have to buy more and more programming to keep their programming relevant. 20%. 20% of all expenditures on programs make it. they have $12 billion in future liabilities. it's one of the most overvalued stocks in my history. anthony scaramucci you were criticizing amazon and stocks up 20% since then. >> i said netflix was the most overvalued. the stock was $129. amazon is if you were just the earning, for the fact there is full payout with no cash flow and they add back stock compensation. there is no free cash flow there. they have a good business model. but when they have gone from $4
billion to $135 billion in sales and there is still no free cash flow. anthony scaramucci you are looking for cash that treeches your bottom line. >> the bulls say it will become profitable at some point in time. i buy all my goods in amazon but i wouldn't invest in it, it's too much risk. >> i how do i protect myself he if i'm an investor. >> anthony is going to fly a plane. he's probably had two years of lessons. anthony: you don't have to worry, i'm never going to be flying a plane because i understand risk management. value investors are often applauded for their rise be
management. d their risk management. what are some of your risk managements. >> free cash flow. we buy companies with 9% free cash flow. why do they have them? valued companies, what great about valued companies is while you are waiting for the public to know what going on. you are adding to the value. so free cash flow is our safety net. gary: stay right there, we'll be back with more in a few minutes. >> announcer: coming up. kyle bass breaking news on this show talking about a looming recession in the u.s. is he right? we'll break it down why bob
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call today at see car insurance in a whole new light. liberty mutual insurance. >> they have a giant credit bubble that has reached its atrophy level and it's going to happen the next three or four years. whether that causes a main or minor recession, it's 40% to 50% chance in the next year. anthony scaramucci that's kyle bass talking about a possible recession in the near future. bob olstein is here with. sandrahere with sabdr. smith an.
melissa: this is one of the flash points to. there are so many things going on. you look at earnings this quarter which are projected to be very weak. but there are a lot of different data point piling up and not looking great. add to that, we have the weakest recovery from the financial crisis ever in history. and there are a lot of factors pointing out the weakness. >> the stock market is up. it's back to all-time high. melissa: does that give somebody a job or increase their wages? it's only one aspect to it. we are look at stagnant wages in this country. through earning season we have seen the profits aren't that great at u. s-corporations. when you look at china, it
should be a red flag. first it was property, then china's stock market. then it turned into china's credit bubble problems. gary: i think donald trump said 100%. sam zell said we'll definitely have a recession later this year. do you agree with that and does it matter when you are thinking about investment? >> way wonder about is something nobody is talking about. we are finding 8, 9, 10% free cash flow yield companies which tells us there is still room not tied to the market. >> 2 to 3 years. >> what i worry about is the
fact there is a recession in china is already in the market. anthony scaramucci this is a tale of two different countries. the middle class is stagnating. what can be done about that? melissa: the federal reserve juiced the markets and forced people to go out and chase yeelt yields. d and chase yields. the middle class jobs people can count on are gone. so many people are trying to live and part-time and minimum wage jobs. we have seen a great divide. i'm afraid of what the remedy is. a lot of the jobs have to do with computer programming and technology and things you need to be trained for.
these are the jobs going overseas. but that's not a quick fix. sandra: donald trump has won over so many voters by sticking to the economy and making things better. anthony scaramucci do you think government can cure the problems melissa is talking about? sandra: we don't want to look to government to cure our economic woes. but we need to relieve business of some of the regulations weighing them down. obamacare has been difficult on a lot of companies. >> with free cash flow, what's the unemployment plate this country. anthony: between 5% and 10%.
>> everybody is complaining. where we are in business to make money for our shareholders, and that's critical. gary: are you trying to make the point could you have problems in china and the united states but as an investor you can still find companies that will offer returns to investors? 23 i'm a viewer of this program, why should i even care if there is a recession. if you work in financial services or the energy space, you haven't been in a rescission, you have been in a depression. so i just ignore it all? >> in my business i'm not a politician, i'm not in government. people mir mead d people hired e them money. since the crusades there is no
person on this earth who has projected where the market is going to any regularity. melissa: government is important, one example, the war on banks. talk about break up the big banks and confiscating their profits. look at hillary's ties to wall street. that's the life blood this country. gary: maybe she should vilify government. there are more crooks in government. melissa: you knead banks giving consumers credit to keep the economy flowing. every time they crack down on banks they have to raise fees so it's harder on the consumer. this is one example of having a government so hostile to business and the economy. >> the question i have for all
of you, the next 2 to 3 years bullish for stocks mel. heather: it depends on who is elected. >> you think a republican would be better? melissa: yes. sandra: we know the policies would be more business friendly. and taxes in this country. they are a huge burden on the american consumer and business. gary: bob you said who wins the election won't affect your business process. who do you think would be best for the economy? >> i can't answer that one because i don't know. people say a lot of things. trump wants to change everything, hillary has more experience. i just don't go out there. i look what the's going to happen. gary: you look at free cash flow. >> you got it.
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does not need the gop establishment to defeat hillary clinton in november. that's it for us. good night. >> announcer: this show has never been solely about investments. we have talked about anything that have affected people and their money. from fox business headquarters in new york city, the new "wall street week." >> welcome to wall street week. i'm anthony scaramucci.