we'll see you next "fox ne gary: welcome to wall street week. our guest today says investors are putting good money in bad stocks and missing out on terrific opportunities. anthony: he will give us his market outlook and tell us where the discounts are and what companies can have long-term value to your portfolio. >> this show has never been solely about investments. we have talked about anything that invest in people and their money.

>> from times square in new york city, the new wall street week. gary: please to welcome baubles olsteen. with us. bob: my pleasure. s talk about the bronx. bob: i grew up in the bronx. i was captain of my baseball team, starting halfback of the football team and valedictorian. gary: your father was a lawyer. bob: he was a postal worker in the depression. and :00 in the morning, -- 9:00 in the morning, we would go out and play stickball.

anthony: talk about sports and the influence of sports growing up. bob: it teaches you rejection. you think you are the greatest and you start expanding. you learn quickly that there are you strike out with the bases loaded. you are the number two halfback and it teaches you how to work hard and basically, sports are a major influence in my life. i majored in mathematical statistics and learned a lot in college and concentrated on my academics. i went on to law school. anthony: you were a good student in college. bob: i made time between going to the library and i was ready to party at 6:00 at night.

habits. bob: this include, i read the lecture. i made a wide use of time . time. i went to the library and study mathematical statistics in my undergraduate class ended onto a graduate degree in accounting accounting was. i started originally any management consulting. i studied under some of the great accountants and learn how to rebalance sheet and that has been a major -- how to read a balance sheet. gary: he transitioned into money management. bob: i was at a small retail firm. i became a hotshot in the late 1960' s. i was all of a sudden making more money than i ever dreamed.

my father made $12,000 a year and i was making $50,000. i listened to what management told me and reported it and put it on the research report. this stock started falling from 50 down to 20 and every broker wanted to lynch me because half of the portfolios were in the stock and i told management the rumor is the quarter is down. one penny. there i am coming in to work monday morning, sweating. i read a report and in those t earn anything, they left it blank. down there was a d. it meant deficit.

they sold the plant for $.25 a share. i originated the can open stock. you never did that in those days. the stock opened down four. i had to address the brokers in tears. one analyst comes up to me and says there were early warning signs and not dollars sheet. the company was capitalizing. their financial statements were amuck. you could have realized this a year ago. from that day forward, he was my partner. we predicted the bankruptcy, levitt' s furniture. we went to the bureau of television advertising and relies as they were going at the

secondary cities, the advertising budget was too much to support the level of sales. the leasing companies were depreciating. computer equipment over six years to get earnings and we begin the watchdog of wall street, the largest grossing service on wall street. we were charging $18,000 a year. my income went to six figures in two years. anthony: you talk about the experience you had with the bureau and how it shaped you. you speak for themselves. explain to the viewers what the different investment philosophies of strengths and weaknesses of looking at it both ways and what you believe your way is superior. bob: the difference is we look at management and analyze them

and what they say in a series of shareholder letters, annual reports. conservative we are, whether they talk about problems or not. low term performance in my opinion is determined by the losers. that you are up 80% one year you up. gary: i understand. ameristar i had never had a manager in my career called me up and said the problems you are discussing cannot be solved. if i am worried where the problems are, i am going to spend full-time looking rather than calling management who is not going to tell me squat. in essence, we believe that you look at your downside risk. i' m not talking about volatility risk.

when talking about fundamental risk in terms of where does the free cash flows. those kinds of analysts are gone. i think hastings is the ceo of netflix. he would say i cannot believe the price of the stocks. gary: did you ever have a stock that did not generate free cash? bob: temporarily, yes. >> sign-up for the free wall street week newsletter we dive deeper into the most recent episode. go to our website and sign up today.

gary: what is your view on the market right now? ameristar i will tell you 80% of the people in the market are rapid trading. they have no idea what the evaluation of security is. i am concerned by the fact -- there is always been speculation in the market. not as bad as it was. we not in a bubble but there are always bubble segments. they are in the social media.

there is a disregard for free cash flow. anthony: s terms. bob: a company has sales, expenses. you deduct the expenses from the sales and you get capital expenditures. re left with free cash flow. gary: that is the value of the capital assets. you add to it. bob: you add it back to you subtract expenses. worn buffet -- you have cap x and another

company may have a huge cap x. anthony: the technology area has been the best performance this year. the fact is, investors are paying. going back to the philosophy of long-term investment, keeping your winners and selling your losers. bob: sometimes stocks are wrongfully punished and others, they are rightfully punish. i' m concerned about the s&p 500. anthony: when you look at using your metrics, the s&p 500 is

fairly valued, overvalued? bob: i would say fairly valued. even in value investing, there is no sure thing. gary: it means you are doing an intrinsic analysis study of the company' s earnings in their operating statement. that is revenues, expenses. you are looking at their core earnings and the multiples of those earnings relative to interest rates and other assets. bob: correct. there are two kind of investment. market investing and investment decision. market says where are the stock price is going to go. now for real companies with real metrics -- sometimes, we are being stampeded by markets. gary: he said there are some similarities to this market to the dot com crash.

and the 1950' s. anthony: investors are paying very high multiples for topline revenue growth. is that the similarity? bob: that is the similarity. they are playing for topline revenue growth. if you brought the ceo of netflix on the set, he would say i cannot believe the press of the stocks. -- price of the stocks. $35 billion to buy netflix. there are $12 billion of capitalize cost and future cost for programming. 95% of the program will be written off. we don' t shorten the fund anymore. i will never forget shorting amazon at one time and probably

in a week, it went up 50%. anthony: in 10 years, what are the companies that will not grow multiple values? bob: monday 5% of the bio techs, the social media companies, and some of the crazy technology companies in the cloud. there is no way to justify it. as public companies, if i walked up to you today and said do you want to buy amazon? give me $200 billion or i will give you macy' s at $22 billion, pick. but because everyone is killing themselves to pay more -- gary: there is a dislocation between the perception of a stock and its popularity in the market.

buffett once said -- let' s talk about the companies that are undervalued for another you like. bob: we are buying companies like general motors. we know cars are down in china. the company' s balance sheet has shaped up. they have earnings power, free cash flow, an excess of three dollars a share. sales peaking? they have three dollars a share. i' ve never sitting there, talking about cisco and microsoft in 2000 and they continued to march on. revenues. it wasn' t priced right.

gm is not priced right. here is a company that has free cash flow and 10% yield. it has excess depreciation. they have real estate underneath. we think the stock is worth as much as $140 a share. osh kosh -- how do you get valued? you get valued because something is wrong right now. with general motors, their sales in china. in osh kosh, military sales with the trucks. this company has earnings power in a normalized year of four dollars plus a share. the stock is down 60 5-48.

anthony: for the average of the work, he went -- for the average viewer come you' re not buying the stocks you are about on business tv all the time. you are buying the things out of favor. the companies you are looking at are generating free cash. what do you as a long-term investor won the companies to do with the free cash to benefit shareholders? bob: it depends. if they have great returns on equity, i wanted to investor. in. when apple and icahn got in that fight, i agreed with carl. it all depends. there is no answer on wall street. anthony: was there a stock that t generate free cash?

bob: temporarily, yes. wrong with an index fund but you have to understand the way they operate. >> like us on a spec, follow us on -- on facebook, follow us on twitter and instagram.

anthony: we have huge thoughts about this over the last several years. you are an active manager. a tremendous amount of money advisers have put clients in. all you concerned about what has been happening?

bob: there is nothing wrong with an index fund but you have to understand the way they operate. every dollar goes into netflix, look, and -- facebook, amazon. it is overvalued. we are funding the values away from the index on the lower percentages. don' t forget, the biggest buyers of all of these companies in 2000 was the snp index -- snp index -- s&p index. anthony: this is extremely important. using your financial statement analysis , you came out with a

similar warning. bob: here is a company that is we consolidating joint ventures, receivables. in order to justify the stock price, they would have to sell optics on mars. one year, the stock was up 30% -- 50%. one year later, up to 90%. eventually, they said we cannot support this. it hit one dollar a share two years later. gary: this is a big lesson. you have to value things on their promise and reward earnings, not on the perception or popularity. bob: all you have to do is read the wall street journal. you talk about index investment. our fund since its inception,

you put one million in -- anthony: from 1995 -- bob: $1 million becomes $1.7 million. we are not amazon. they make it into a football game. if you lose 49-0 what is the score the next game? 0-0. you are down that and you' re not coming back. this is a marathon investment. gary: i want to talk about something related to that, the ats. -- ets. why are you worried? what will happen there? bob: etf sponsors. they are not doing research on

their stocks. he better do -- gary: the etf is bundling a group of chinese or indian names or financial services. a class of docs -- stocks in that sector. you think you are buying diversification but what you are getting is what? bob: we had a bit of a warning in the crash. don' t forget, this is a stock. what i am saying is you are taking the risk. the sponsors say they will buy things back but when the issue shares, those are not the shares outstanding. etfs are sophisticated investors like you understand they' re not for the general public.

buy the fund, not the etf. gary: this is an important point. the etf is a stock trading with a demand and spread. embedded inside is this underlying stocks. that makes it a complicated thing to value that they e financial media -- anthony: there will be a market correction in our lifetime. in the next, do you anticipate they will be an etf is not able to liquidate because there is not enough trading ? bob: 80% probability. i cannot say 100. gary: they go into the market and sell them. a bid, yes or no?

bob: maybe. i cannot remember the etf. this is going to happen. gary: liquidity in the markets. bob: the sophisticated traders are creating more shares and there are a lot more shares outstanding one responses are agreeing to support stuff that is a hidden -- support. that is a hidden part of the market.

>> i am watching wall street

week and i hope you are too. gary: we are going to say a word and you will get a reaction. bob: delta airlines. citibank. gary: favorite movie. bob: mr. roberts. anthony: favorite meal. bob: veal parmesan. anthony: most treasured possession. bob: my fishing pole. anthony: what is your motto? bob: stick to what you know. virtue? bob: graduating from college. anthony: words or phrases you most overuse. bob: long-term value. overpriced.

anthony: tell and you would most like to have you don' t think you have no. -- now. bob: become bruce springsteen. gary: thank you for spending time with wall street week. that is it for today. until next sunday, have a prosperous week. prep trauma unit 5.

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