The Power and Payoff of 'Non-Consensus Investing'

The Weekend Edition is pulled from the daily Stansberry Digest.

Rental-car company Hertz Global (HTZZ) is going electric...

In its first move toward electrifying its fleet, the company said last Monday that it had placed an order for 100,000 electric vehicles (EVs) from industry pioneer Tesla (TSLA).

Both stocks jumped double-digit percentages with the news... And Tesla's roughly 13% gain pushed it past $1 trillion in market cap for the first time ever.

According to Tesla CEO Elon Musk, Hertz hasn't yet signed an official contract with Tesla. Still, this order marks the single largest purchase ever for EVs. It represents an estimated $4.2 billion in revenue for Tesla – and the number of cars is one-tenth of what the company currently produces in a single year.

The idea is for Tesla to make and supply Model 3 sedans that Hertz will rent out in the U.S. and Europe in the fourth quarter of 2022. Drivers will have access to Tesla's current charging infrastructure, and Hertz also has plans to build out its own network of chargers.

Although nothing is set in stone just yet, the potential deal speaks volumes about Tesla's position in the growing market. In fact, Hertz interim CEO Mark Fields went as far as to say...

Tesla is the only manufacturer that can produce EVs at scale.

That would mean General Motors can't do it... Ford Motor can't do it... Toyota Motor can't do it... You get the point.

No matter how you feel about the company, this puts Tesla in a strong position when it comes to the future of transportation and what will inevitably be a multitrillion-dollar shift in the industry.

In the past and even today, not all of our editors like Tesla...

That's OK with us, though. Our editors and analysts are allowed to have their own thoughts and opinions. They'd just better come armed with the facts to back them up.

And when it comes to Tesla, our newest editor Matt McCall has brought the facts for years...

He has proven to be spot-on with his bullish stance amid plenty of critics – both here at Stansberry Research and in the outside world.

At the 2019 Stansberry Conference, Matt went against the crowd and spoke highly of Tesla's potential... while others went as far as predicting its bankruptcy.

So it was only fitting that the Hertz-Tesla news broke as Matt took the stage at our 2021 conference last Monday.

And here's the kicker... Tesla's stock is now up roughly 20 times since his bullish comments two years ago.

The potential Tesla-Hertz deal provided a perfect transition into Matt's presentation on "Transportation 2.0" this year...

As Matt mentioned in his launch issue of The McCall Report and in last Saturday's Weekend Edition, this is one of the many "megatrends" that he sees manifesting in the next decade.

He's calling this decade the "Roaring 2020s"... a period of converging tech innovations that will create all-new industries, with potentially life-changing profits for investors.

According to Bloomberg, EVs represent a $7 trillion opportunity during the Roaring 2020s. That's a remarkable number.

As the leader in the space, Tesla should do well. But during his presentation, Matt went much further... He shared the names of more than a dozen other companies that could potentially shine as a result of this Transportation 2.0 megatrend as well.

Hertz's electrification plan wasn't the only hot topic our speakers discussed at the Stansberry Conference...

Before Matt hit the stage, economist Mohamed El-Erian talked about something else on everyone's minds – inflation.

As the former CEO and co-chief investment officer at investment-management firm PIMCO and current adviser to global financial-services provider Allianz, he had a lot to say about this topic. In short, El-Erian told conference attendees that inflation isn't going away anytime soon...

We've written a lot lately in the Stansberry Digest about how the Federal Reserve wants you to believe that the ongoing bout of inflation – running at 5.4% – is "transitory"... that is, temporary.

But that's looking like an increasingly tenuous assertion... partially because the nature of inflation has changed, as El-Erian explained to the audience.

As El-Erian noted...

We've transitioned from a world of inadequate demand to a world where the supply side is a problem.

Often, inflation stems from a surge in demand. That has certainly been one piece of the puzzle in the post-COVID-19 economy. For example, retail sales in September jumped by an incredible 13.9% compared with the same month last year.

But this time around, while catch-up demand is fueling inflation, there is also huge pressure from the supply side. The global supply chain has too many weak links. It's a double whammy that's compounding rising inflation.

Supply-chain problems, El-Erian thinks, aren't going away for "a couple of years." That's a lot longer than what Fed Chairman Jerome Powell suggested two weeks ago, when he said that supply-chain issues are "likely to last longer than previously expected, likely well into next year."

In other words... unless you define "transitory" as "for the next two years at least," it's time to get used to current (if not higher) levels of inflation.

El-Erian also cautioned that because of the unique nature of inflation this time, the probability of a "policy mistake" is greater than in years past...

Because of persistently high inflation, central banks around the world – and the U.S. Fed in particular – will be forced to tighten monetary policy by raising interest rates and by reducing asset purchases.

But getting the timing right on that kind of major policy shift is always difficult, even in the best of times. If the central bank raises interest rates too soon, it risks putting a damper on economic growth... and if it does it too late – which El-Erian suggested is an increasing risk now – inflation will be more difficult to bring under control.

Given the high valuations of so many assets... have markets lost touch with reality?

Markets have behaved rationally in "pushing the everything rally as high as can be," El-Erian explained, because of the many trillions of dollars that the Fed has pumped into the global economy. More from him...

If I tell you that whatever asset you buy, the next buyer after you is going to legitimize your purchase by pushing the price higher, and also provide the liquidity in case you change your mind... if I tell you that buyer has an infinite balance sheet, a willingness to use it, and is non-commercial – and will buy at any price – you would front run that buyer, all day long.

By "front run" he means buying or selling an asset based on knowledge of a future transaction. It's often illegal, but not in this case.

In short, he's saying that the "everything rally" isn't driven by investors with no sense of value. Rather, El-Erian thinks it's the knowledge that there's a "greater fool" – the Fed and the endless liquidity that it has pumped into markets – out there to buy at a higher price.

El-Erian also shared the investment books he likes to read...

What I have found really helpful is reading books on behavioral science, and how we tend to frame things in a particular way, and how we can have blind spots that evolve.

Specifically, he says, it's helpful to focus on "active inertia." That is when we recognize we should be doing something different, but we end up doing the same old thing anyway.

To illustrate this concept, El-Erian employed an amusing example of the stereotypical American tourist in Paris, who needs directions and goes up to a French person and speaks in English...

The French person either doesn't understand English, or doesn't want to understand English and just shrugs. The most likely response of the tourist is to say exactly the same thing in English... but louder.

The "active" part here is, I have to change something... but the "inertia" part of the equation here is saying the same thing – with, of course, the same inadequate results.

Unless we understand our own behavior, El-Erian said, we'll make the same investment mistakes... and those mistakes can rapidly multiply. As he explained...

It's so difficult to override our human tendencies... but if you want to be a successful investor, you have to step outside of yourself.

On a similar note, folks heard from other great speakers...

For example, Ariel Investments Chief Investment Officer Rupal Bhansali discussed the power and payoff of "non-consensus investing." (She also wrote a book in 2019 on the topic.)

In short, as Bhansali explained during her presentation, success is created from "and," not "or." If you're correct and prove the consensus wrong, you'll thrive – just like Apple co-founder Steve Jobs or former Oakland Athletics General Manager (and Moneyball inspiration) Billy Beane.

And when it comes to investing, it's about higher returns and lower risk. As Bhansali noted, this approach can help investors get big payoffs for "upset victories" in the markets. But you must be careful... While you could get big payoffs if you are correct with non-consensus thinking, you could face big penalties for wrong answers. In the end, Bhansali shared a critical takeaway that should sound familiar to longtime readers...

In order to be successful, avoiding losers is more important than picking winners.

That's the key to this approach. And as contrarian investors, it will serve us well in the years ahead...

You might focus on riding transformative winners to life-changing gains, like Matt. You might aim to protect your wealth by covering your blind spots, like El-Erian. But as Bhansali reminds us, it pays to do both... That's how you make big gains – and keep them – by going against the crowd.

Good investing,

Kim Iskyan and Dean Jones Jr.

Editor's note: Speaking of Matt... the megatrends he sees manifesting over the next decade could alter the course of your financial future. And he says now is the time to buy into the opportunities that are cropping up. Matt has put together a "basket" of stocks that are positioned to soar when the Roaring 2020s takes off. Click here to learn how you can position yourself for 10X returns or more in the coming decade.