Which Beaten Down Stocks Are Worth a Closer Look?

Summary

Ask The Compound: Which Beaten Down Stocks Are Worth a Closer Look?

Date: April 1, 2026
Hosts: Ben Carlson & Duncan Hill

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Episode Overview

This episode tackles some of the most pressing questions from Compound’s audience during a turbulent market period marked by notable drawdowns in major tech stocks ("Mag 7") and unexpected strengths from less-discussed sectors. Ben and Duncan dive into the underlying performance dynamics of the US stock market, examine whether the sell-off has created bargain opportunities, debate the impact and wisdom of 24/7 trading, analyze why today’s valuations are higher than in previous decades, and share advice for financial advisors looking to build a personal brand.

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Key Discussion Points & Insights

1. The Mag 7 Sell-Off and Index Fund Performance

(02:27 – 05:31)

• Context: Listener asks how S&P 500 index funds hold up when the "Mag 7" (top mega cap tech stocks) sell off.
• Ben's Analysis:
  • Every Mag 7 stock is currently in correction (down 10%+), with Tesla, Meta, and Microsoft in a bear market.
  • Despite this, the S&P 500 is only down 7-8% from its highs, while the Mag 7 index is down almost 14% YTD.
  • Equal-weighted S&P 500 is flat to slightly positive, buoyed by sectors like energy, materials, and industrials.
  • Quote: “People look at it in a vacuum. If the Mag 7 crashes, the market is screwed. …And there is [a counterbalance]. These other stocks are doing. Energy stocks are almost 40% this year now, they make up like 4% of the index. …So far it’s helping.” (04:24 - 05:26)
• Conclusion: Market breadth offers resilience—the fall in tech is countered by gains elsewhere, at least for now.

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2. Where to Go Bargain Hunting?

(06:48 – 14:18)

• Duncan’s Question: Are there “babies being thrown out with the bathwater” among beaten-down stocks?
• Ben’s Breakdown of Troubled Sectors:
  (Ben categorizes and lists household names that have dropped 10-80%+ in the past year.)
  • Software: Adobe, Salesforce, CoreWeave (down 50–60%+)
  • Private Equity Managers: KKR, Apollo, Blackstone (down 40–50%)
  • Credit Cards/Financial: Capital One, Ally, American Express, Visa, MasterCard (down 17–30%)
  • Fintech: Robinhood (down 55%), Coinbase (down 60%), Block/Square (down 80% since 2022)
• Ben’s Approach:
  • Hesitant to speculate in names facing existential tech risks (software, fintech).
  • Prefers "plug your nose and buy" approach for blue chip companies after big corrections:
    • Microsoft, Meta, Netflix: All down about a third. High-quality, proven business models.
    • Quote: “With the caveat that I'm generally not very good at this, here are three stocks I think you could pretty much plug your nose and buy every time they're down like this…” (10:09)
• Duncan’s Moves: Has been buying Microsoft “because we've had multiple guests recently talking about Microsoft and making good cases for it.” (12:09)
• Meta’s Durability: Despite losing billions on metaverse, rebounded after 70% drawdown—regulatory/lawsuit fears are ever-present, but market shrugs when core business is strong.
• Amex Noted as a Buffett Favorite: “Amex, he bought it in like 1964. So I don’t know if we can still call it…” (14:34)

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3. Is 24/7 Trading a Bad Idea?

(14:44 – 18:59)

• Listener Dave’s Concern: 24/7 trading would remove cooling-off windows and fuel speculative/compulsive behavior.
• Ben’s Take:
  • Prefers markets to have downtime, especially in high volatility/bear markets, to allow reflection and calm.
  • Views 24/7 trading as inevitable: “This is just where the world’s going, right? People want to gamble… But you can still be a low frequency trader in a high frequency world.” (16:09)
  • Cautions that after-hours means less liquidity, wider spreads, more volatility—pros will likely profit at expense of amateurs.
• Duncan’s Perspective: Sees some appeal (“there is something nice about just being able to do it”), but overall agrees with Ben’s reservations about the change fueling more reactive trading.

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4. Why Are Stock Market Valuations So Much Higher Today?

(19:05 – 26:06)

• Listener Mark’s Theory:
  • Higher valuations since 1990 driven by massive capital inflows (401k shift, wealth concentration), institutional allocations to equities, and shrinking public company pool.
• Ben’s Deep Dive:
  • Number of Stocks: Wilshire 5000 peaked at 7,000+ firms (1990s), now below 4,000; most microcaps, not much in total value lost.
  • Disproving "Supply Shrinkage" Argument: Market cap more concentrated, but big businesses have diversified business lines; fractional shares mean size isn’t a limiter.
  • The Real Drivers (Key Quote, 25:26):
    • “Automatic investing revolution, higher allocation to stocks, people are more knowledgeable, and corporations are more efficient.”
    • More investors are funneled automatically into equities via default 401k settings and high allocations for decades (nearly 70-90% for younger investors).
    • Corporate margins/profits are much higher for tech-driven giants.
    • “Shouldn't valuations be higher in a world where companies are earning more profits and they're more efficient in how they earn those profits as the margins increase? That would make sense to me.” (25:26)
• Duncan’s Reflection: Surprised at how much harder it used to be to diversify or even know what stocks existed.

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5. Content Creation for Advisors: What Works?

(27:12 – 35:31)

• Listener Brennan (30-year-old CFP): Asks whether it’s better to publish articles in major publications or focus on personal brand/content.

• Ben’s Story & Advice:

  • Started his blog (2013) with zero audience, low expectations—writing for himself, friends, and family.
  • Emphasizes ownership: Building your own site/newsletter (Substack or Beehive) is better than scattering work on external platforms.
  • Email newsletters are most effective: “It’s the only thing—that’s the last place people still check every single day.” (28:09)
  • Write regularly, in your voice, and build a “library of expertise” answering common client questions.
  • Focus on immediate audience (clients/prospects), not trying to be the next influencer. If your reach expands, that’s a bonus.
  • Media trends: Writing is less competitive, but personal flavor and clarity triumph over jargon-heavy trade writing.
  • Quote: “Financial services is a trust-based industry. There’s no widget you produce at the end. People want to know that you’ve thought about this stuff.” (30:49)

• Duncan’s Addition: Podcasting/video is optional—only do it if you’re genuinely interested, not just for business.

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Notable Quotes & Memorable Moments

• On the Mag 7 correction:
  “Once you think you have the market figured out, it changes the rules on you.” (03:37, Ben)

• On market breadth:
  “Energy stocks are almost 40% this year now, they make up like 4% of the index.” (04:24, Ben)

• On bottom fishing:
  “If you’re going to do this, go bottom fishing, you’ve got to be willing to—okay, I’m buying Microsoft down a third, it might be down 40% in two weeks. I don’t know.” (14:01, Ben)

• On 24/7 trading:
  “Just because 24/7 trading exists… doesn’t mean you have to participate in it. You can still be a low-frequency trader in a high-frequency world.” (16:09, Ben)

• On valuations:
  “Margins have marched higher… shouldn’t valuations be higher in a world where companies are earning more profits and they’re more efficient in how they earn those profits?” (25:26, Ben)

• On content creation:
  “The most important thing you can do still to this day is getting into someone’s email inbox.” (28:09, Ben)

• On writing style:
  “Write for your current and future clients… build a library of expertise that answers questions you know people will have.” (30:06, Ben)

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Timestamps for Key Segments

• [02:27] – Mag 7 sell-off and S&P resilience
• [06:48] – What’s been hammered: watch list of bargain stocks
• [10:52] – Meta, Microsoft, Netflix as “boring” rebound bets
• [14:44] – Is 24/7 trading a terrible idea?
• [19:05] – Why are valuations so much higher today?
• [27:12] – Advice for advisors: building a brand and client trust online

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Tone & Style

Ben and Duncan’s discussion is conversational, candid, and tinged with wry humor—balancing data-driven insights and long-term investment wisdom with self-deprecation (“I’m not very good at stock picking,” Ben) and relatability (“throwing those tubs up? We lost another baby”). The tone is educational but non-technical, emphasizing approachable language and real-world examples over theory or jargon.

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Summary

For investors worried about market corrections, this episode demonstrates how sector and index diversity can cushion blue-chip drawdowns. Cautious optimism is recommended for buying bruised industry leaders like Microsoft and Meta, but with the humility that cycles can always surprise. The hosts are skeptical about the wisdom of non-stop trading, seeing more risk of speculation than benefit. For advisors seeking visibility, authenticity and owning the client relationship via quality, email-based content wins over chasing prestige in major publications. Above all, the theme is clear: market history, business models, and personal connection matter—timing and fads less so.

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Got a question for Ben and Duncan? Email askthecompoundshowmail.com

Transcript

[A]

Welcome to Ask the Compound, the show where you ask and we answer. The stock market is down a little this year. Maybe not as much as you'd think given all the geopolitical drama going on. Maybe it'll get worse. We shall see. But there is plenty of carnage under the surface. Over the last year, the US stock market is up around 15% in total, but nearly one third of the stocks in the overall market are down 10%, including some household names. One out of every five stocks is down 20% or worse in that time period. Are there babies being thrown out with the bathwater? Is it time to go bargain hunting? I'll answer those questions and more on the show today. Let's do it. Our email here is ask the compoundshowmail.com Duncan is worried about the market, so that means I should be buying. He's my contraindicator.

[B]

Hey, I'm excited. This, this show's going out on April Fool's Day and it's not an April Fool's joke. I got Ben to talk stocks. He's going to talk stocks today. True. All right.

[A]

On today's show, we'll be answering questions from our Compound audience about what happens to the stock market when the Mag 7 sells off. Which beaten down name should be on Duncan's watch list. Is 247 trading a bad idea? Why are valuations so much higher than they were in the past today? And what's the best avenue for producing content as a financial advisor. But first word from our sponsor. Today's show is brought to you by Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks by bonds, options, crypto and more. And now generated assets which allows you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year. You can literally type any prompt and put AI to work. Screens thousands of stocks, builds you a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks generated assets like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.comatc and earn an uncapped 1% bonus when you transfer your portfolio. Public.comatc paid for by Public Investing. Full disclosure in the podcast description. All right Duncan, you're nervous. We should. I'm on spring break so we're recording this a Little early. What's the date today? March 27th.

[B]

The 27th?

[A]

A few. So our numbers. A little off.

[B]

Yeah. Don't quote any charts. Don't. Yeah, don't quote any charts.

[A]

Directionally we're right, though. All right, let's use a question. We're talking about today. Yeah. And we're doing current stuff today. Usually we don't.

[B]

Yeah, I like it. I'm excited. All right, up first, we got a question from Jeff. And I gotta say, Jeff, this one's a little late, so I'm not sure when this one came into the inbox, but what happens to my S&P 500 index fund when the MAG 7 stocks get slammed?

[A]

No, I put this in here because of this question. Came out about a year ago. I've been holding on to it.

[B]

Okay. Okay, well,

[A]

figured it made more sense to cover this one after the fact rather than guess about it before the fact. Okay, gotcha, gotcha. So the Mag 7 stocks are currently getting slammed. Let's do a chart on here. This is all the Mag 7 stocks. This is drawdowns from the highs. So every single Mag 7 stock as of this taping is down 10% or worse. Every one of them is in a correction. Three of the MAG7 stocks are in a bear market. Tesla, Meta, Microsoft. It's a decent. The S, p is down 7 to 8% from the highs. So mag7 is getting slammed a lot worse than the overall market chart off.

[B]

It is crazy how fast the market moves because I remember not that long ago on this show, we were sitting here and talking about questions like, is the Mag 7 invincible? And like, do you even need the other 497 or 493 and all that kind of stuff. You know, it's just so weird.

[A]

There's an old saying, something like once you think you have the market figured out, it changes the rules on you, which I think is one of the reasons it makes it so fascinating. So let's also look at the year to date performance of the S and P and the equal weighted S and P. And then the Mag 7 as a whole because there's actually an ETF that tracks this. So let's do our next chart here. So this is just this year alone. And this isn't a drawdown. This is the performance. The Mag 7 is down almost 14% on the year. S&P is down 5 in total because there was a few. It went up a little beginning of the year. And it's interesting. The equal weight is actually flat on the year. Positive 6 slightly. So this shows why the stock market actually is doing well because there's other components that are holding up. Right. The Mag 7 did get killed, but the rest are doing okay. Go to the next chart. This shows why.

[B]

Wait, I didn't realize that you're saying the equal weight is flat on the year. You're not down this year.

[A]

Crazy, right? Yeah. So why is that? Why is that? Because energy and materials and utilities and consumer staples and industrials. Now those are a smaller piece of the S and P, obviously, than tech and communication services. But you can see with tech down and financials down and consumer stocks down and communication services, which is essentially tech, Facebook's in there. These other components, these hard asset sectors are picking up the slack. You do chart off now. If the Mag 7 continues rolling over, the S and P will almost certainly go lower. Right. Such a big part of it. But it isn't nearly as bad as Jeff and other people would have feared. Probably. Right. And I'm sure you are kind of surprised by this. The Mag 7 is getting taken down, but the rest of the market is stepping up. We shall see how long this lasts. But so far I think people look at it in a vacuum. If the Mag 7 crashes, the market is screwed because they don't think that there's a counterbalance. And there is. These other stocks are doing. Energy stocks are almost 40% this year now they make up like 4% of the index. Right. So that's part of it, but so far it's helping.

[B]

What was their peak? They were a lot more than 4%. Right. Of the index.

[A]

Yeah. Way back. Well, they got down to 2% in the early 2000s in the pandemic when oil went negative. Right. Energy was written off for debt, but yeah, no, energy was. If you look at the top 10 names in the S&P in 1987, out of the 10 were energy names. So it got up to 30% or something in the early 80s, after the 70s and oil, all that stuff. And then it's slowly but surely fallen since then.

[B]

And not to derail things or anything, but what's the Cliff Notes reason that financials are down so much this year?

[A]

Well, rates are rising. It's a good question. I think.

[B]

So rising rates is bad for banks.

[A]

Well, people are also worrying about the credit card companies. I'm going to get to that next question. Being derailed by AI and a lot of these things, but yeah, financials are getting killed too. That's.

[B]

Yeah, yeah. It seems like an overreaction based on

[A]

and think about the private. Think about the private credit stuff. People are worried about a credit cycle finally rearing its ugly head.

[B]

Oh, that's true.

[A]

And so that. That's part of the financial. It's not just like the big banks. It's like all these other ancillary holdings as well.

[B]

I see.

[A]

Okay, let's do another one. Two weeks in a row you got. You finagled your own question in here.

[B]

Yeah, I feel. I feel special.

[A]

This is like podcasting nepotism.

[B]

People are going to like this, though.

[A]

I'm getting you.

[B]

I'm getting you to talk stocks. And the people want to hear some stock.

[A]

Hold my feet to the fire.

[B]

So this one is one that I just asked you the other day in private, which is what are some stocks that appear to have been thrown out with the bathwater?

[A]

So do you think that the baby's being thrown at the bathwater? That's got to be a Shakespeare quote, right? I've never known where it came from.

[B]

It's funny you mentioned that because I was thinking we have a very international audience for this show, and I was thinking, like, are there going to be people in other parts of the world like, what. What is this?

[A]

It is funny that people just use that as a saying, even though it's. I don't know, it doesn't seem like the best.

[B]

How many babies got thrown out with bathwater? I mean, was this a big problem,

[A]

throwing those tubs up? We lost another baby. That's why people had 12 kids back in the day. Sometimes when you threw the bathwater out, you lost a kid. So over the past year, I mentioned this at the lead in the Russell 3000, which is the total US stock market is up 15% in total. Let's do a chart on Daniel. But nearly one third of the stocks in the index are down 10% or more. 20% are down 20% or worse, and nearly 14% are down 30% or worse over the last year. Again, the total market is up double digits and this many stocks are down just over the past 12 months. And there are some household names in here, too. So I'm going to go. Duncan here. Do shut off Daniel. I'm going to do go a rundown of all these stocks that have gotten hammered. Okay, this is your watch list to see if any of these pique your interest. And I put these into categories, too. Okay, so we'll start out with the software stocks, right. Chart on Adobe Salesforce, Core Weave, all down in the 50 to 60 plus percent range. Like these stocks have gotten smoked. Okay, we talked about software stocks before. Remember when Josh was on next one? You could look at the private equity managers. Okay. Kkr, Apollo, Blackstone, big well known private equity managers. Yes, private credit is in trouble, but these companies also have real estate funds, private equity funds, infrastructure funds. They manage a ton of money. They are down anywhere from 40 to almost 50%. Right. These stocks have gotten hammered.

[B]

Makes me think barbarians advocate. Right?

[A]

Yeah, they're still collecting their fees. They'll be okay. Now, credit cards, next one. This is, these ones aren't as bad, but Capital One, Ally, American Express, Visa, MasterCard, you mentioned this. Down anywhere from 17 to 30%. Okay, so again, maybe people are finally worried that higher inflation and a slowdown in the economy is going to start impacting credit cards. And now some of this worry is, you know, how are credit card fees going to be impacted by AI Somehow seems a little out there to me, but maybe so. This is another area to me.

[B]

Seemed like a bigger risk to a lot of those names like Visa and that didn't.

[A]

I don't. Yeah, I don't think people are worried about that anymore.

[B]

Yeah, yeah.

[A]

I mean these, Visa, MasterCard, American Express either. Again, these are brand names that are down in pretty much bear markets. What else do we got? Oh, how about Fintech? This interests you at all? Robinhood down 55%. Coinbase down 60%. Block, which used to be square, that's Jack Dorsey's. It's down 80% and this thing's down 80% since like 2022. And it just hasn't gone anywhere. So this is carnage. Right? Robinhood is getting smoked. Coinbase is getting smoked, which makes sense. Bitcoin is down 50% from the highs, almost 50%. So that makes sense. Right? Okay. With the caveat that I'm generally not very good at this, here are three stocks I think you could pretty much plug your nose and buy every time they're down like this. Do the last one. So this is Microsoft, Netflix and Meta all down around a third. Okay. And Netflix has had a nice little comeback from being down 45% or so after their bid for parent fell through. But you got Microsoft.

[B]

I've been nibbling at some Microsoft.

[A]

Ok, so chart off here. I'm pretty boring. I wouldn't go fishing in the pond of these stocks that are like, am I going to worry about software stocks being their moats, being upended forever? That doesn't interest me. I don't want to play that game where I'm trying to guess what the technology is going to do some of those could be great buys. Fintech, same things. It feels like if you're buying Coinbase or Robinhood, I don't know, you probably would be better off just buying Bitcoin. It's the same thing, right? Maybe. Maybe those are leveraged plays on that idea and you'll get more upside if you bought those. I would say the highest probability bet is plugging your nose and buying Meta and Microsoft here and just don't look at them for five years.

[B]

So you're not concerned at all about all the lawsuits coming Meta's way potentially after this WASP that they had in court?

[A]

Do you think we live in a world where regulation to big corporations actually happens? They pay a fine and they move on. They tried to do the Metaverse for three years and wrote it off and guess what? It didn't matter to them.

[B]

Now that's something else that I was asking you about the other day behind the scenes, for everyone's edification. I was asking like, is there another company in history that has blown that much money on a failed venture and has seemed to just be perfectly fine?

[A]

The Stock was down 70% after the metaverse debacle. Right. So it's not like it didn't get hit, but then it came roaring back. So again, I'm pretty boring with the caveat that I'm not very good at stock picking. I think your highest probability bet is probably Meta and Microsoft because they've had big, you know, those are big, high quality companies and could they roll over more if this gets bad? Yeah, sure. So I'm. So my question to you is, do any of these stocks that I rent through pique your interest at all?

[B]

Yeah, no, I've been. Personally, I've been buying Microsoft because, yeah, we've had multiple. For those of you watching that, you know, watch tcaf. We've had multiple guests recently talking about Microsoft and making good cases for it. So no, they could be.

[A]

They might be a proxy for OpenAI right now because they made a huge investment there.

[B]

Right.

[A]

And people are worried about that. Like, oh my gosh, anthropic is eating OpenAI's lunch. What did Microsoft do? So it kind of makes sense.

[B]

Been buying some more Nvidia just because from what I've heard, it's at a cheaper valuation than it has been in a very long time right now based on their earnings growth and how much the stock has fallen off.

[A]

So I think Meta is trading at like 17 times forward earnings or something. Now the thing, someone to throw in Our face would be like, listen, yeah, every time during the 15 year tech cycle, you bought these stocks that came back. You did wonderfully. What if, what if this cycle's changed? What if this is a different time and these behemoths don't come back? That's your risk. But guess what? That's always.

[B]

I'd be more interested in Meta if they moved, moved away or changed Facebook. I'm just. Facebook just seems like a ball and chain around them at this point to me. Like I don't know anyone other than, you know, older people that are, are on Facebook. And it just seems Instagram is super relevant and growing rapidly.

[A]

But yeah, Facebook would be kind of funny if they just change your name. Maybe they change your name to Facebook. With AI though. F A I C E book.

[B]

There you go.

[A]

Right? Facebook. Because the Meta. I can't believe they changed their name. That's.

[B]

Yeah, that. Yeah. They have to change it back now. Right?

[A]

You'd think so.

[B]

I mean, they're no longer doing the Metaverse, so I mean, meta makes no sense.

[A]

So. Yes, it is interesting that the s and P500 is still the NASDAQ today, I think went into a technical correction at 10%. Right. The S and P still isn't there. But a lot of these firms have gotten smoked. So there are. But you said before, listen, the dip happens and I buy the dip and then it dips further. I have no more cash left.

[B]

That's what happens to me.

[A]

Yeah, that's your concern. So again, if you're going to do this, go bottom fishing, you've got to be willing to. Okay, I'm buying Microsoft down to 33%. It might be down 40% in two weeks. I don't know.

[B]

Right.

[A]

So that's, that's what you have to open yourself up.

[B]

Yeah. Obviously not investment advice. You know, do your own research.

[A]

People know not to take my stock picks. I'm not good at it.

[B]

Right, right. You know what else piques my interest after looking at my list is Amex. That's. I mean, Amex seems like a pretty solid.

[A]

That's one of the ways to play if you wanted to play the K shaped economy or the top 10% or whatever. Right. It's more affluent people that own this. And guess what? Even a bear market in stocks, is that really going to ding the highest earners and the highest wealth people?

[B]

Right. Isn't that a big Buffett stock too?

[A]

Amex, he bought it in like 1964. So I don't know if we can still Call it. Yeah.

[B]

All right, awesome. Thanks for talking in the chat.

[A]

Tell us what, Tell us what you're buying these days. All right, let's do another one.

[B]

Yeah, let us know. All right. Up next, we got one from Dave. It seems that the New York Stock Exchange and others are making preparations for 24. 7 trading. Aside from eliminating the ceremony of the opening and closing bell, it sounds like a terrible idea. No chance for the market and all of those affected by it to pause and think about or digest news and other events. A boon to late night gamers and other day traders, maybe. What are your thoughts?

[A]

I'm with Dave. I don't love this, especially during bear markets. I like the idea of giving investors in the market some time to catch their breath. I think during the COVID people were actually talking about should we shut the market down? When we had Those like down 8, 9, 10% days, we needed the market to close for people to go, okay, all right. So I do think that closing window from 4pm one day to 9:30am the next day helps calm the panic a little bit in those types of environments. The thing is though, this is just where the world's going, right? People want to gamble on options and stocks and futures and crypto and prediction markets and all these things and, you know, but the thing is, after hours trading already exists, right? It's relatively liquid. Not a ton of investors do it. You see way bigger swings in those markets because they're not as liquid. People aren't trading as much. My guess is that's how 24. 7 trading would work as well. It would be wider spreads, fewer traders, so less liquidity. Robinhood already does. I think they do 24. 5 trading. So five days a week, not the weekend. I mentioned this in Animal Spirits recently. The stock market used to be open from like 9:30am to noon on Saturdays. And I think people use it like catch up on their trading books.

[B]

Yeah, I don't know how Robinhood has set that up, but they have some stocks you can trade all night, you know. But yes, like when I look at, you know, when I look at it, it looks like, you know, something like maybe half or 40% of stocks are eligible to be traded overnight.

[A]

And my guess is most of this would be happening around earnings events. So you'd see more, more investors and more traders and more liquidity around the big earnings events when this happens. Because that's what happened. That's what moves stuff after hours. And then if there's a big geopolitical thing and something really moves Markets, I think people want to know what's happening like during the war right now people want to know like oh, our market's moving on the weekends. We had to wait for them for the Sunday night futures to open up. Do you really need that? Probably not. I guess my only advice here is that just because 24. 7 trading exists and seem like it's inevitable, like it doesn't mean you have to participate in it. You can still be a low frequency trader in a high frequency world, but I don't think there's any use fighting this trend. Obviously this is what people want and if there people want to speculate at all hours of the day, guess what? The exchanges are going to do that for them. So you can fight it as much as you want. But I still think, listen, they're still going to have the opening and closing bell. I think that's still when most trading is going to occur. And my guess is like a lot of professional traders, citadels of the world and the hedge funds will get in here and arb away all the idiots that are trading after hours. No offense to you people, but that's probably what will happen. They'll be the ones that make the most money and people thinking they can like outsmart the market after hours will get smoked.

[B]

Yeah, I mean I do see value in it's the weekend, you finally have time to catch up on all the news and reading you want to do and you discover a stock in your research and you're like man, I really want to buy this stock. There is something nice about just being able to do it and not be like oh I'll cube a trade for Monday morning or something like that. Like there is something nice about just being able to go ahead and place the trade. But, but yeah, in general I agree it seems like a lot of probably negative externalities of, of moving to 24. 7.

[A]

You're going to be, people are going to be more tempted to trade.

[B]

Right.

[A]

And yeah, I mean listen, it already happens in crypto Obviously we have 247 markets there. I think that market hours probably matter a little more for crypto now because of the ETFs and such, but there's still some movements overnight.

[B]

Yeah, I think prediction markets and gambling are changing this too. Right?

[A]

Yeah, that's the thing people, people have, there's obviously a market for it and even if it's 5% of the population, the exchange is going to, you know, again they could make wider spreads and higher fees on them. And I, this is just the world we're moving into, I guess.

[B]

Right? Yeah. So I, I don't think it's probably long before all of them public, you know, Robinhood, Fidelity, I don't know, maybe Schwab will be the like hold out and be like, we're not doing it.

[A]

But Vanguard won't, right?

[B]

Vanguard won't. Yeah, you're right. Yeah. Yeah.

[A]

All right, let's do another one.

[B]

Okay. Up next, we got a question from Mark. I have a theory about the inflation of market valuation. Since 1990, massive and increasing capital inflows to public equity have been created by the demise of defined benefit pensions and the shift of 401k style investments and invest in indexing. Also, the increasing concentration of wealth in the US has created a large pool of capital seeking returns. Institutional investors, mainly pensions, have had to take on more risk to maintain solvency, which has meant higher allocations to equities. At the same time, the supply of public equity has been shrinking. There are fewer IPOs, more delistings, and more profitable companies are staying private. If more demand is chasing fewer public equity assets, maybe this time really is different. I know Ben loves delving into market history, so I'd like to hear his thoughts.

[A]

All right, Mark, this is right up my alley. Something I've been writing about for a while now. Valuations have been trending higher for some time now, but as he pointed out, like it really is since the early 1990s. So let's do chart on here. Chart kit map made this one for me. It shows a cape ratio since 1881. The, the average used to be before this decade like 15 times and now it's closer to 18. The current level is like 38 and the average for the past 30 years is 28, almost 30. So these are like the average just keeps stepping up a little bit higher and higher. There are many good reasons still.

[B]

This is up to date. We're still that high right now with all this turmoil.

[A]

Yeah, it's close to 30. It's 37ish.

[B]

Wow.

[A]

You know, maybe, maybe a little lower now that this wasn't updated for this. The current. You can take the chart off, Daniel. The, the supply and demand thing does make sense on the surface, but I'm going to disprove this one. So Daniel, gimme a chart on. This is the. Used to be called the Wilshire 5000. This is the entire stock market of everything. Micro caps, small caps, mid caps, large caps, mega caps. It peaked in the mid-90s at more than 7,000 names and now it's below 4,000. So the Wilshire 5000 doesn't have anywhere near 5,000 stocks anymore. Public companies, it's been halved. Chart off. But here's the problem. In 1979 there were like 2000 micro cap companies, right? Tiny, tiny companies, small to the small. In 1997 there was 4200. That's the peak. Now it's like 1500. So we went a little bit of microcap, a lot of microcap, back to a little bit. This is weird to me.

[B]

I would think that the Internet age would have made it easier to have more companies listed.

[A]

Well, it did do it. It did in the 90s. Then they changed the rules and it's harder to be. But it's harder to be a public company now. So that's one of the reasons they don't. But microcaps make up something like 1 to 3% of the total market depending on the time frame. So it's not like having more stocks has made a huge difference in terms of market capitalization. Most of the micro caps that came on board in the 90s were crap companies. They went out of business, they got acquired, it didn't matter. And a lot of companies are saying private longer, as Mark mentioned, but a lot of the mega caps and big businesses are just way have way more business lines than they did in the past. You mentioned Meta bought Instagram, Google bought YouTube. So a lot of these huge companies that have huge valuations, they have tons of different business lines within them. Apple is not just computers and iPhones. It's Also iPads and AirPods and Apple Watches and all these different business lines. So does it matter if you buy one $2 trillion company or four $500 billion companies? I don't think so. In a world of especially fractional, fractional share ownership, I say no. So I actually don't buy into the idea that the supply of equities has anything to do with this valuation increase. It's. It was a lot of microcaps back in the day. So that the 90s was the outlier. Not today. Now there are more companies saying private longer. True, but the stock market has done just fine. And I don't think that is the now. The one I think I do agree with Mark on is the 401k retirement angle. That makes a lot more sense to me. I call this the automatic investing revolution. So you have companies with default settings that benefit retirement savers. So if you join a new company that you have to opt out of a 401k plan instead of opting in that's huge. Your default investment choice is a target date fund, not some stable value fund. That's like a money market. And the default savings rate tends to be high as well. It's like 6% for most people. So they default you into investing. And most of that money is going into stocks. So that's more investors automatically putting money into work on a regular basis, regardless of what's going on in the market. Josh called this a relentless bid. And it also means higher equity allocations than people had in the past. Daniel Chardon. This is from Torsten Slot. This week he shows 401k asset allocation to equities by age group. People in their 20s and 30s. We're talking like 90%. The average for all investors is closer to 70%. Even people in their 40s of 80%. It was not this high in the past. This is a relatively new phenomenon in the past 30 years or so where people have much more of their money in equities than they did in the past. Chart off plus. So in the 80s, the early 80s and the 70s, people had way lower allocation to stocks, mainly because interest rates are so much higher. Then IRAs hit and 401ks hit and people had tax deferred accounts for the first time ever. It's like, oh, I have a reason to invest for the long term. And ever since then, equity allocations have slowly been moving higher. And on last week's show we talked about how the barriers to entry in the stock market are so much lower than they were even 20 years ago.

[B]

We also have HSAs now that are kind of blowing.

[A]

Yeah, all these different accounts, investing those. So tech is one of the big reasons that so many young people now are investing in stocks. So it's just easier. And so having millions of people put money into stocks on a regular basis is absolutely making valuations move higher over time. Like that's a big part of it. Then the other reason Mark didn't mention is the fact that companies are just much different than they were in the past. Tech makes up 40% of the market, maybe more. However do you find these companies, these companies are just more efficient than the companies of the past. They have all, all these companies in the past had like all types of property, plant, equipment. They had to constantly, you know, they were just asset heavy. They're more intangible today. Even though the mega caps now are getting into data centers, profits per employer are way higher, margins are higher. I use this chart a million times in the show. It's worth using again the Margin chart margins have marched higher. Like, shouldn't valuations be higher in a world where companies are earning more profits and they're more efficient in how they earn those profits as the margins increase? That would make sense to me.

[B]

Yeah.

[A]

So makes sense, right? It does. So, in summary, Ben's three reasons for higher stock market valuations. Automatic investing revolution, Higher allocation to stocks. People are more knowledgeable, it's easier, barriers to entry are lower, and corporations are more efficient. But I do not agree with the idea that it's supply and demand. That doesn't make sense to me. If a bunch of other new IPOs hit, I don't think that really makes a difference.

[B]

It's surprising to me to see that difference in number of overall stocks because I feel like I'm learning about new publicly traded stocks every two days.

[A]

Yeah, there's still plenty.

[B]

Not from IPOs, but I just mean from the world of stocks. It feels so big. It's funny to see that it's such a small percentage of what it used to be.

[A]

And the thing is, even with all those stocks, it was really difficult to diversify in the past because you had to buy all those stocks individually and you had to pay really high fees to do so. So diversifying was very hard. I read Jim O' Shaughnessy's book, what Works on Wall street, when in like 2005, when I just started working, and he's talking about using factors to pick stocks, and he's like, buy a basket of 50 of these stocks based on valuation momentum and quality and all this stuff. And I thought, I can't even imagine how much that would cost me in terms of trading costs to buy all these stocks and then rebalance them every month. And guess what? An ETF can do that for you automatically now. And the fees are pennies on the $1.

[B]

I mean, if you have experience with this, let us know in the comments, because I enjoy market history, too. But like, back in the day, how did you even know all the stocks in existence before the Internet?

[A]

Like, before broker told you about them or you looked up in the paper, Remember that? Maybe they said all the Wall Street Journal.

[B]

Do they. Do they have most of the universe?

[A]

Yes. They listed their returns every day.

[B]

Okay.

[A]

Or again, yeah, you. And you called away and had someone send you a report and. Yeah, it's just way easier now. Yeah, that's a big part of it.

[B]

It's hard to even imagine.

[A]

All right, we got one more.

[B]

Last but not least, we got one from brennan. I'm a 30 year old CFP looking for ways to grow my client base. I've been pretty active on LinkedIn with short punchy posts, but had an idea to write more extended articles on financial planning topics that I could attempt to get guest published in financial publications to establish my credibility as a guy. Who. Who got your start in blogging. What are your thoughts on this? Do you think I'd be better off writing under my own name and brand or trying to get published in the classic publications or blogs?

[A]

Okay. I've got a lot of experience with this. Question advisor.

[B]

Where did you get your start? Just. Just for everyone's.

[A]

Yeah, I'll talk about it.

[B]

Okay.

[A]

I got my start doing on WordPress, so I just. I created a WordPress blog back in the day. It was like 2013. I did it and just because that's what everyone was doing.

[B]

So Fortune magazine and stuff came much later for you?

[A]

Yeah. Oh yeah. No, I. I was writing to no one for about a year. No one was reading my stuff.

[B]

Okay.

[A]

And I think my biggest thing that I tell people is go into this with little expectation. When I started doing it, there was not this whole plan of like, you got to build a brand and you got to build an audience. And I had none of those expectations. I kind of wanted to write for my family and friends and I was looking for an outlet. I just wanted something to do that would like. I was. I wanted like something different from my current job. So I wanted an avenue to release all these thoughts I had. And blogging was a way to do that. And I just started following Josh and Barry and Eddie Elfenbein and some of these other bloggers. And I thought, man, I could do that. I would really like to. But I went into zero expectations. I didn't expect it to lead to anything. The fact that it totally changed my career trajectory was not something I was looking for. I think a lot of people go into it now. Like I need a plan and I need this many readers and I need this many new clients. And I think if you go into it with that idea, you're probably going to fail. Because if you don't hit those benchmarks and a lot of people don't, then you're gonna wanna give up. Like, I probably should have given up on blogging the first six months. Cause literally no one is reading me. But I kept at it. Cause I enjoyed it. I was like, oh, writing is thinking. This is great. I'm finally collecting my thoughts for once. And anyway, so I don't see much value for building an Audience by blogging on other financial publications. How is that gonna give you anything? Maybe you gain some advisor followers, but you have to have somewhere to point people to. You need the funnel, you need your own platform. You have to own the platform. And I think the most important thing you can do still to this day is getting into someone's email inbox. It's the only thing that's the last place people still check every single day. People come and go on social media. There are die hard YouTube watchers, but it's not a place people check every single day. Right. Most people, everyone checks their emails multiple times a day. Right. So if I was doing it today, I would start with a substack or a beehive. I would use one of those newsletters because it's so much easier to create. Like I had to go, I had to learn like HTML and coding. When I first started my blog, I had to learn, I had to do the banner myself and all these things. And it was a huge pain in the ass. It took a long time.

[B]

WordPress was a chore back in the day.

[A]

Yeah. And there was not the. If I had ChatGPT now to help me build it, it would be way easier. It was not easy to build. I learned a lot, but it was not fun learning. So I would use one of those newsletter options. And you build an email list slowly but surely. You take the current emails you have of clients, prospects, industry friends, friends and family members. And then asking people to sign up for a newsletter or just taking someone's email and inputting it in yourself is not a heavy lift because it's easy. They can just unsubscribe or delete. Right. So I think you want to write on a regular basis. I say at least weekly to start. You want people to expect you in their inbox. You don't want to write once a month and people forget about you. You write in your own voice. You write about stuff you're interested in and then you can cross post this stuff to other platforms like LinkedIn or whatever you're using. But you need your own website attached to you and only you. So that's, I think, the thing that matters. And I think as an advisor, you should be writing for your current and future clients and that's it. Right away. Don't try to like think I'm gonna build this audience, I'm getting huge and I'm gonna be the next Josh Brown or whatever. Like if other people like it, great. But that should not be your end goal. Build a library of expertise that answers questions that you know, people will have. Because guess what? Regardless of the environment, you kind of know what questions people are gonna have. Right? Is now a good time to buy? Should I lump some or dollar cost average? What do higher rates mean for me? Hey, the Fed's lowering rates, what does that mean for me? Inflation's higher. Now what? So then you build this library of expertise that you've already thought of. Because guess what? Financial services is a trust based industry. There's no widget you produce at the end. People want to know that you've thought about this stuff. Hey, advisor, what do you think about this? Oh, I wrote a blog post about it six months ago. Here, take a look. I. Oh, they already thought about this. That's what you want to do, build a library. You want to do it on your own platform so you can build up a list of people that are constantly reading your stuff. And then, oh, by the way, someone's been looking at your inbox or your newsletter for 12 months and then they have a life event. Huh? Who should have talked about this? Oh yeah, this advisor that I've been reading for 12 months. Let's see what they think.

[B]

It's probably the noisiest environment ever to do that kind of thing and to try to be discovered. But I think your advice is good to focus on your current clients and, and their needs because that way it's not a wasted effort, right?

[A]

The competition is way higher than when I started.

[B]

You got to have something that makes you stand out or that gives people a reason to read, right?

[A]

Yeah, if you want to. Yeah, you have to have everyone else, some sort of niche. But that's why I think you have to really write in your own voice and give your own thoughts. And when I first started blogging, I was a little nervous, like, do I have something to say? But I'm like, oh, I'm going to do it in my voice. And I'm. My end audience that I'm picturing in my head is like my friends and my family that aren't in the industry. And I didn't even think that that had some sort of benefit to the wealth management industry. And it's funny, within the first year or so I got emails from a financial advisor being like, hey, I like the way that you explain this in plain English. Can I use this for my clients? And I never even thought of this. I was in a totally different field. I was in institutional asset management. I wasn't writing for them, I was writing for like regular people. And they said, guess what? Guess who regular people are. Our clients. This is the kind of stuff that makes sense for them. Then I thought, like, oh, light bulb, that makes sense. So that's what you want to do. You're right. The barriers to entry for producing content today are much smaller. It's way easier to do. But that means more competition. You're competing against more people. Yeah, I had less competition, but the barriers to entry were higher. I had to actually, again, do stuff. It was hard. So that's what I. Yeah, you want to start with just your clients. If it goes beyond that, that's icing on the cake.

[B]

Yeah. And I don't think you need to launch a podcast and do video and all that kind of stuff. I get questions a lot of times from people about how do I launch a podcast? And if you want to do something like that, that's fine if you're really into it. But I don't think I would launch one thinking, like, this is going to make my business explode. I think I would do it because you enjoy it and want to.

[A]

Yes, that's the thing. That's why Josh and Barry and Michael and myself, when we started blogging, we all did it from different backgrounds in different areas. And we did it because we enjoyed it and liked it. And we felt that we had something to say, not because we went through like, oh, this is gonna be great for like, we backed into it being a business. It was never our intention to do that. Then we came together and thought, oh, okay, this actually can work. And yeah, that's the thing. And there are. Listen, the podcast thing is it shows your personality. So there's something to it there. Like the trust element is there as well, but you need to work at that too, work at writing. And I think both of those things are. You can get better at them. I'm a way better writer than I was when I started because I do it a lot. I'm a way. But like, when Michael and I first started podcasting, it was terrible. And we got better at it because we practiced well.

[B]

And a lot of the writing, the financial writing, I read as a non finance pro, it's very jargon heavy. It's very much written for the trade. It's to kind of like impress other finance people or you don't want to do that. Respect you. I mean, that's one. That's one route if you want to just try to get some respect, I guess, in finance. But yeah, you're not probably getting clients that way. Right. Like, you don't want people being like, I don't understand half of what they just said.

[A]

Well, and that's the stuff that I was reading. That's why I wanted to make mine so much simpler. Because I was reading all this jargony stuff and I'm going, who is this for?

[B]

Right?

[A]

What regular person wants to read this stuff that they don't understand? My thing was people were making the world way too complex. From where I was working in the institutional world, I'm like, I need to make this way simpler. And I'm writing for like my mother and my father in law and, you know, my friends from college that aren't in this field and they need to understand it. That's how you should think about this, I think. But you should know who your audience is right in advance. That's a really good point too.

[B]

Good advice.

[A]

Okay, we'll see how our stock picks do.

[B]

I think. I mean, I think I'm going to make a little paper trading ETF of your stocks. Maybe we can get tricking that to track it.

[A]

All right, let's see it. Askthecompoundshowmail.com if you have a question for us, ask away in the live chat. As always. Next week I will be on spring break. We have a special guest filling in as host.

[B]

No one will be able to guess.

[A]

No. Yeah. So send your tax questions. Bill might bring some guests on as well. So send your questions into Bill. Be nice to him.

[B]

It's tax season.

[A]

See you next time. Yes.

[B]

See everyone.

[C]

Thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill and any of their guests are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.