← Excess Returns 
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- [00:01]
A
This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate. C. According to Indeed data, Sponsored jobs have four times more applicants than non sponsored jobs. So go build your dream team today with Indeed. Get a $75 sponsored job credit@ Indeed.com podcast. Terms and conditions apply.
- [00:28]
B
When you're priced to perfection, Just meeting expectations no longer is great. I call it a badger market. First off, I think this market's going to move ferociously like a badger and it's going to have spurts that it's just.
- [00:39]
C
Yeah.
- [00:40]
B
And it's going to bite you a little bit for a long time there. It definitely paid to be concentrated in US large caps, 100% and we've been there about eight, nine years. Like almost no international EM or small cap. And that was rocking and rolling. But you cannot fight a little bit of the fact there's an underlying shift. It is either fiscal or monetary policy that will kill off this bull market. And that is the tried and true way to kill off a bull market. It is not because of pe. So if you're looking at PE or you're looking at Case Shiller, it's a terrible way to value where we are in this bull market.
- [01:13]
C
Victoria, welcome to Excess Returns.
- [01:16]
B
Thanks Justin. Great to be here.
- [01:18]
C
We're looking forward to having this discussion with you today because I always find you to be very thoughtful, balanced and grounded in real world market experience. You're a regular contributor to cnbc. That's how I first learned about you. And so it's always nice to have someone with your sort of level of experience in the markets, but also like I said, taking like a balanced long term approach to how you kind of look at the market.
- [01:46]
B
So yeah, it's almost like blue collar investing. You know, like we're, we're here to try to speak in a way that people resonates with people and, and makes sense. And you know, we're not trying to be crazy. We're just trying to make a lot of money and be where we need to be and avoid any of the landmines that we need to avoid.
- [02:03]
C
I love it. And that's how you kind of approach, you know, how you work with clients at G Squared Private Wealth. Today we're going to work through a number of different think themes and investment ideas, including things like why you say cash flow never lies, the importance of diversification, particularly this year what you mean by a potential badger market and a bunch of other things that I think are on investors mind including AI market concentration and sort of where you see maybe some of the rotation and leadership coming in this market today. Before we get into all that, I do just want to say your website is g^privatewealth.com on there. You can sign up and get on their distribution. They have a whole bunch of market insights, quarterly outlooks and a bunch of great content, a lot of it that we use to kind of formulate this sort of outline.
- [02:50]
B
And we're very proud. We don't use AI to write anything like I will put that disclaimer so if there's typos or grammar or I use the wrong there there or it's it's because it's written by me and if I fat fingered things it's my bad. But that is all and I feel like there needs to be a disclaimer in this day and age as content gets gets a little bit less individualized, it's what's actually being written versus what's being AI written.
- [03:13]
D
I love that.
- [03:13]
C
We'll hold you to it. Maybe you can come on in the future and we'll see if AI has influenced any of these articles. But so let's start. Let's start with your investment philosophy which this is. You kind of express that it starts with a top down macro view but you're also using fundamental bottoms up analysis to inform your stock in your positions and then there's an overlay of technical analysis. So give us a sort of overview of how that all comes together for.
- [03:39]
B
Yeah, it's basically like the Mosaic theory but we always start top down. Where are there opportunities and most importantly where are the risks? So number one, I have it on my portfolio side for individual stock selection but we're also looking on the private client side. Where do we want to be in our asset allocation range? Is risk on, risk off. So number one is always going to be start with macro and that's where do we see growth, where do we see opportunity? And for the first time in a very long time we are moving out and have been moving out for the last 12 months. We still got core US holdings but we're also adding in a little more international and em. You know for a long time there it definitely paid to be concentrated in US large caps, 100% and we've been there about eight, nine years. Like almost no international EM or small cap and that was rocking and rolling. But you cannot fight a Little bit of the fact there's an underlying shift, a little bit of a sector rotation going on here and a little bit of a risk management trade just in case sell America accelerates. Some of it's the dollar. But all of this comes into play with macro. You know, where do we think we are on the economic cycle? Where do we think we are in this, this AI eventual bubble cycle? You know, where do we think other countries are and where do we think there are opportunities on currency? But also because I work a lot with private clients, we are very focused on risk management. So it's not just where's the opportunities on the macro, it's where are the risks. And I talk about it as stepping on a landmine. I can maybe survive stepping on one, I don't want to step on two or three. So I have to be very picky and choosy about where I want to layer in risk and beta and take that, that opportunity versus where do I want to play defense. And that I think is key this year. So we start that macro, then we go into and say, okay, if we like this, we want to be more defensive. You know, here's maybe some sectors we want to overweight or here's, you know, we want a little more international. And then from that on the individual equity models, obviously then we want to look at fundamentals, right? So maybe we want more in energy, but who do we want to own in energy? You know, are we services, integrated refiners, you know, EMPs. And then from there, who do we think is best to breed? And each sector obviously has a little bit different, you know, you want to see, you know, I love cash flow, I always talk about that, but you can't really evaluate necessarily a growth tech company on cash flow. So you have to be really looking at individual companies. What matrix matters most to them? Is it valuation, which oftentimes for growth companies, not as much. Is it, you know, cash flow is, is it, is it growth? Is it? Is it P and E is a balance sheet? Is it different ratios? So you also have to say it's very hard to have one size fits all for individuals companies. Finally, we can't be agnostic to technicals, boast on broad market trends. Short term technicals can be a really great indicator. We're not a hedge fund, we're not trading around every single month. But we can't be agnostic to different trends. Whether it's a sector rotation, whether it's moving averages, advanced declines and where we are on, on how many people are above trading, above their 200 day moving averages or below. So you put all of that together and I think you can build a quality portfolio.
- [06:29]
C
That's great. That's a great overview. So talk about, you mentioned cash flow. So and I know like you said, it doesn't apply to every single sector because some sectors are going to be based on different metrics that you're, you're going to be selecting based on different metrics that you're looking at. But I know that cash flow is very important. You have this line that cash flow never lies. So can you explain that principle and how you apply it?
- [06:50]
B
So, and I'm going to be a little bit nerdy here and I apologize, but there are so many ways you can kind of jack around earnings. You've got depreciation, you know, we've got ebitda. Like by the time you get to the EPS earnings numbers, there's a lot of manual adjustments happening in there. And a big one obviously can be depreciation or tax expense or interest expense and all this other stuff that goes into that. I love cash flow from operations as a way to say is a company actually making money doing what it says it's going to do? And have they successfully grown that said money that they said they were going to do? Because you can't. Cash flow from operations means did you actually generate free cash flow doing what you said you were going to do? And then you can look back and say how's this cash flow been growing? You know, is this something that we feel comfortable with? Is it sustainable? What are their moats? What are their catalysts? And so I love it because really it doesn't lie. Like free cash flow is one of those matrix I think doesn't lie and really tells you the health of the underlying business. Works a little bit better on the value side than the growth side obviously. But for a value company, a quality company, a blue chip, I'm like one of the first matrix I'll pull up and look at is free cash flow, cash flow from operations and then also what the growth trajectories of those are.
- [07:57]
C
You talked about sort of diversifying a little bit more into other areas. Non US you mentioned international, you mentioned em. But what there's obviously relative strength or price performance in some of those areas versus the US market. But what else is driving this emphasis of diversification this year for you guys?
- [08:17]
B
Yeah, for US one, it's a presidential second year, presidential election cycle. Not a great year historically for the US and for growth stocks. Number two is A little bit. We can't be agnostic to some of the things US is doing with tariffs and other things that maybe wants us a little bit more diversified. And then number three is what's happening with currencies in the US Dollar. You know, with the US Dollar coming down, that is great for some multinationals, but we also think it's a good driver for a lot of international markets as well as, um. And some of it's also the valuation. You know, we think there's opportunities. Europe's investing heavily, Japan's finally breaking out. South Korea is really fascinating. We're not the only people that are really good at technology. A lot of Southeast Asia is phenomenal. You know, India's been a little bit mired, but the opportunity set is there if they can get it together. And we've got all of these shifting trade and tariffs and alliances. And so for us, we're saying we're. We have been so concentrated, though, in US Large cap, some of it is just taking a little bit of that risk off the table and saying we just want a bit more diversification. Diversification can be killer to returns, but at the same point, when the markets get a little bit harder and we're seeing a little bit more breadth and broadening out of what's working, we want more value and we want more international and we want more.
- [09:24]
C
Well, and we, like we talked about before we jumped on, I mean, Microsoft, which is like a stalwart here, you know, down 12% today. So.
- [09:31]
B
Yeah, and that's. That's one of those. When you're priced to perfection, just meeting expectations no longer is great, you know, and so that's one of those. It was a great earnings. You know, I think if you gave somebody a case study in five years and were like, these were Microsoft's revolts versus expectations, what do you think would happen to the stock? Almost everybody be like, oh, well, it went up, right? They did great. And then the problem is the expectations are so high, you can't just meet them. You got to beat them and raise and just blow it out of the water. And so it's being a little bit picked on, right. It's all about. It's all about Azure for them. It's all about the Azure Growth came in right on the spot, 38% growth. Not what people wanted to see. They wanted to see more than expectations. So you're seeing a little bit. And they also, again, when we say we look at technicals, their chart had looked a little ugly going into this. So we still own some Microsoft that we had trimmed it earlier in January a little bit below market weight. We still think it's a core holding, a wonderful quality company, but occasionally that doesn't matter. Right. Market sentiments against them. They're laser focused on what's happening on the hyperscaler on the cloud side. And candidly, we have a little concern about Copilot and monetizing that. And then you've got all the messiness with OpenAI and that kind of just made it a loud quarter for them. So when expectations are high, you can't afford to have any warts, and you're seeing that today.
- [10:45]
D
I don't know if you guys saw this, but on your point about expectations, Liz Ann Saunders tweeted something yesterday that companies are essentially getting punished for both beats and misses this quarter so far. Just to show the expectations are probably higher than even what we think the expectations are. Companies seem to be getting punished regardless. Right now.
- [11:01]
B
Yeah, there's a hidden number they have to hit. Nobody knows what that is, but it's not the announced, you know, average analyst estimate. You know, and for us, we knew it's always going to be. Right now it's about Azure. It's the same with when Amazon Reports is going to be about aws. You know, there's going to be focuses that matter a little bit more. We know everybody spent a billion dollars buying Christmas gifts on Amazon. The question is going to be what their AWS growth looks like and kind of overshadows things in this AI world.
- [11:29]
C
What did you mean when you described 2026 as potentially being a badger market? What is that concept?
- [11:35]
B
Okay, I do care, like being silly and I'm an old millennial. So you guys remember the memes, the honey badger don't care if they have a. Yeah. So when I looked at it, it's actually a twofold reason. I call it a badger market. First off, I think this market's going to move ferociously like a badger, and it's going to have spurts that it's just.
- [11:53]
C
Yeah.
- [11:53]
B
And it's going to bite you a little bit and just be ferocious. So you've got to be ready for that. And then the second one is, as an investor, you got to have a little bit honey badger don't care because you're going to get caught out. I think you're going to have policy announcements. You know, policy by tweet is happening. And so things change very rapidly right now. It's a little bit. You got to channel your inner honey badger. Find that Courage to, you know, confront all of the craziness in the market and not to panic. So partially, it's, we think that the market's going to act like a badger. And partially, we think that as an investor, you need to channel your inner ferociousness and inner honey badger and be, be prepared to, to stand in the face of danger and understand some of these drawdowns might look terrible and ferocious, but you need to have that courage and conviction and stand your ground even if you got little short legs.
- [12:38]
C
So, 106 million views on YouTube. If you want to watch the honey badger video, which I will be watching.
- [12:43]
B
This, it was like 13 years ago now, and I was like, dang it, I'm old.
- [12:52]
C
What do you think of the. I mean, a lot of the 6040 had done so well up until a few years ago, and even since the end of 22, it's actually been a pretty solid performing strategy. It's very simple. 60 stocks, 40 bonds. Do you see any sort of possible or potential flaws in that? Or how do you guys think of the 60 40?
- [13:10]
B
Just in general, I don't think the 6040 is dead. I think you got a lot of alts managers that like to say the 6040 is dead because that's what they would like to see happen and have less in bonds and more in alts. But we're seeing a struggle bus on the endowment side, right? You're seeing your yields and the other things that are struggling because of their overweight alts. So I don't see anything wrong with 60 40. I have been layering a little bit more commodity exposure because I think that's going to be a place that investors want to be as a hedge against the US dollar, a hedge against risk, a con of caution jumping in. Now with silver and gold being parabolic, you know, I think a month ago we were like, oh my goodness, gold could get to 5,000 and now we're like 7,500, you know, silver to 200. You know, some of this, like voracious demand for metals, but not just metals. You're seeing the precious metals, you're seeing copper rise, you're seeing oil rise. You know, some of the stuff when the commodity set, which has been pretty beaten down, starts to rally. I do think commodities do take a little bit of a next look. And I, I don't mind some of the alternative income sources. You know, I think you gotta be a little bit careful just loading up on alts, because alts is such a broad terminology. And I think you. That is One area we talk about using a scalpel, not a sword. That you really need to understand what you're owning, what the liquidity is like, you know, is this really gonna be the place you wanna be? We're, we're, we're just a little concerned, you know, private credits obviously having, having a few little issues this year because so much money flowed into it. And I'm not saying with doom and gloom. I'm just saying investors need to be very picky and choosy. And alts could mean anything from a hedge fund, a venture to private equity to private capital and even within private capital, right, you've got all your subsectors, asset based or you know where they are and they all like to talk about, oh, we're middle market and we've got all these great deal flows and we're still getting, you know, all of that. We're not covenant light yet. And I'm like, there's a lot of covenant light loans getting written right now because so much flowed into it. So maybe a little bit fuddy duddy on us. We're not huge into alts. We, we like our 60 40, we have layered in a little bit more commodity or commodity exposed stocks. And some of that again is a hedge against inflation, a hedge against the US dollar and a hedge against geopolitical risk, which I'm not sure you noticed. Just a wee bit sketch of risk out there.
- [15:20]
D
That is definitely true. As someone who talks to clients on a regular basis, these geopolitical risks, I'm hearing more and more about it, but it seems like despite all this, you still are. As much as you think the market might be up and down this year, you are still ultimately positive on the market for this year. So what are some of the positives you're seeing that might drive us higher this year?
- [15:36]
B
Obviously, and a lot of these in my opinion outweigh it. So we have this huge doom and gloom macro, kind of like, oh, what's happening with politics? Or you know, it's been 20 minutes since I checked the news. Are we at war with somebody else? Like I'm not quite sure, you know, so we have all of this risk out there. But to me what matters much is fundamental earnings growth, which is 100% intact and earnings are still working. We're seeing the shift, we're seeing the productivity increase from AI come. That's great for corporate profits, not maybe amazing for labor, but great for corporate profits. And we see continued layoffs. You know, Amazon, I think Dow today said they were going to Lay some people up. That's wonderful. For, for profit margin. So corporate profit margins are growing. Profits are growing. That means you're making more money and you're keeping more of the money that you can give to shareholders. Number two is the tax refund deluge is a real thing. We're expecting at least $1,000 more on average, you know, or maybe another a hundred billion or so in stimulus. Going to start seeing that come down the pipe here in February, March, you know, it's very front end loaded. We think you're going to get some good refunds from people. The IRS never gave guidance to update people's withholdings after the tax bill passed last year. So the likelihood people see more favorable tax policy as well as corporate tax policy this year is pretty good. And some of the deductibility for depreciation on things should drive lower economic activity. And then lastly is like AI says, still early mid innings. Right. You're still having plenty of activity. Look at Caterpillar today. You know, they're not selling the big yellow tractors as much is about energy and power and gas generations and turbines and everything else. That's where Caterpillar growth is coming from. It's not just people are buying big old, you know, tractors and cranes and everything else to build, which is what I think people traditionally think of Caterpillar. Caterpillar's got more of an AI play to it. And so you're seeing all this ancillary in the industrials that should continue to support economic expansion. And then number three, it's an election year. So candidly, they're going to do everything they can to keep everybody happy through November because people are going to vote with how their wallets feel. So affordability is a big issue. They're trying to get more and more money into, into people's pockets as quickly as they can. So you put all that together and that to me is a rosy picture for, for equity, equity fundamentals and equity growth. And, and I know kind of have to, you know, put your, your binders on or find your inner badger because there's going to be so much noise, you just kind of have to drive through it. Yeah.
- [17:47]
D
That putting your blinders on is, is. It's such an interesting time for that because when you talk to clients, on one hand you've got a market that just keeps going and on the other hand you've got in the news every single day something new, something crazy is going on. And like, I think people have trouble like separating those two things. Like they Want to. When I talk to clients, like, they want to sell because of all this stuff in the news, but they realize the market's going up. It's like, it's an interesting dichotomy, like investors have to fight through.
- [18:10]
B
Yes, yes, it is. And also, candidly, it kind of matters how they feel about the world. If you're Republican, you tend to be very bullish and maybe overly bullish. And if you're a Democrat, you tend to be a little bit bearish and possibly overly bearish because that's the way you view what's happening with kind of Trump and his policies around the world. But I always talk to people that politics matters much more to us personally than it does to the market. Yes, there are going to be some. Currently you're having a pretty large swing in executive actions. You know, you've had had actions against, you know, the defense contractors potentially, or credit card cap. You know, you're having things that are a little bit targeting sector specific and not quite the regulatory light we thought we'd be getting. But at the same regards, the overall framework has been lower taxes, lower regulations, which is good for, for business, you know, and I think that you have to just ignore the noise. We talk about this market being a Teflon market. Like, you've thrown so much at it, and it really, truly is powering forward because markets often care more about what's coming down the pipe than what's happened. Right. So is this good for us or is this bad for us? And, you know, and if you look through and you look at a study of markets and war and conflicts historically, conflicts have not had a lasting impact on U.S. markets. And I always find that surprising. I'm not trying to minimize conflict or war. I think they're horrible. There's a huge human cost to it. But if you look at it purely economic, from a market situation standpoint, wars are a little bit less consequential. Political stuff's a little less consequential because a lot of it, especially now that we're in year five of the Trump administration, between first and now, people are kind of used to the bombastic, you know, like, you're just starting to get a little bit worn down by it now. Candidly, I love to wake up one morning and not be like, oh, what consequential event happened while I was asleep? That would be super great. Just not sure I'm going to get that.
- [20:02]
D
Yeah. To your point, as an investor, you almost have to ask yourself the question over and over, like, how Will what I'm seeing affect the earnings of US Companies? Because to some extent, like, a lot of this other stuff becomes noise when you. Even though you feel very strongly about it personally, like, it becomes noise when you sit, when you try to attach it to. Is it actually going to affect the earnings of companies that comprise the stock market?
- [20:19]
B
Yeah. And we also tell people not to pre panic, because that can also happen. You kind of work yourself up and you start doing the what if, what if, what if, and that can kind of cause you to pre panic. And I'm like, well, let's maybe take this in stride. You know, often things don't play out exactly how we think it will in our heads. You know, there's, you know, we try to give empirical data of like, well, this is how markets have performed during different types of administrations, and this is how markets have performed during shutdowns, or this is how markets have performed during the. During wars and conflicts. And just trying to put that information out there is empirical data. And just to say, you know, sometimes this isn't quite as bad as we think it's going to be. And. But the desire a little bit right now to kind of pre panic is significant because the what ifs do feel endless. You know, Iran or Taiwan or we're going to completely break up with Europe and what's happening with China, you know, and so you look at all that and you just have to take a step back and realize that oftentimes the headline news is not actually what's getting implemented. And. And you got to kind of take it and divide it by like 10 in your head, you know, so if you've got some event, you're like, this is the massive, you know, go ahead and divide it a little bit and be like, all right, well, this might be impacted. Yeah.
- [21:30]
D
One of the things you wrote that I thought was really good because investors tend to overuse valuation as a timing indicator. And one of the things you wrote is that it's policy error and not valuation that historically kills bull markets. So can you explain that?
- [21:41]
B
Got you. So it is either fiscal or monetary policy that will kill off this bull market. And that is the tried and true way to kill off a bull market. It is not. So if you're looking at PE or you're looking at Case Shiller, it's a terrible way to value where we are in this bull market. And I'll candidly say Case Shiller has been a really terrible indicator for, you know, if you've been on that, you've been Sitting on the sidelines for like five years because it's been massively overextended. But policy will be. So it's either going to be fiscal or monetary. So the Fed gets it wrong, right, that we're, we're holding rates now and labor market completely implodes and they'll be late or they're holding rates here and inflation accelerates and we have a 22 again and that they're late to that fed error is 1. But you can also have the other side of it that they can't get out of their own way. We have a massive tariff issue or trade issue dissolve all the trading blocks we have, and now we're like 50% tariffs with everybody around the world that could have a massive impact that markets wouldn't like. So those are kind of the tried and true ways. And so the one thing is, and I know glib being like valuations don't matter, but if that's, you're looking at them being like, oh, the PE is and keeps climbing, that's a really bad reason to sell out. You should sell out because you think fundamentals are deteriorating because markets typically don't go enter a bear market when earnings are growing. So if you look at your fundamentals and they're actually helping moderate pe, right? You know, you look at the PE of some of the Mag 7 and you take Tesla out of it because that one's just the insane one. You know, your PE is actually fairly moderate, not cheap. Nobody's arguing this market is cheap, but because earnings are growing, you're actually not seeing PE just skyrocket like it did in the mid-90s or the late 1990s.
- [23:27]
D
So through that lens of monetary and fiscal, it seems like things are probably pretty okay right now, right? I mean, you had an article where you said, don't fight the admin, in addition to the yoju, don't fight the Fed. And it seems like the administration right now is having mostly pro market policies. And you know, the Fed's kind of in hold mode, but they have been cutting. I mean, do you see any, anything on the horizon that concerns you on either one of those two things?
- [23:47]
B
I mean, a little bit what the Fed does, you know, the Fed independence, I think is one thing. We want to remain independent. I think that could shake global. You know, you say what's consequential. You know, if suddenly he really goes after Powell and gets him, fire, fires Powell. You know, I think you'll see a knee jerk from that. But I like, don't Fight the admin. The admin wants to go to Venezuela and get oil. You should probably be long refiners and oil service companies. You know, the admin is pushing for, for, for more oil exploration. Like for me, some of this stuff is like, you really don't want to be on the other side of politics. Actual policy, not tweets, but things that are like, hey, this has been picked up by, by all of the people in the administration and carried water. But I do, I think the economy, you know, I wrote a piece a while back and I refer to it as the Subway sandwich economy because you know what, does anybody really love going to Subway? No, it's not like your dream to have lunch at Subway, but is it acceptable? Yeah, you're on the road, you're at an airport. You know, candidly, they do a fine job. It's tasty sandwich like, nothing wrong with Subway, just not excited about it. That's the way I look at this economy. Like it's fine. It's trucking along. There are definitely risks out there. There have definitely been better economies, but is it fine? Yeah, and the Fed reiterated that yesterday and it was like a very milquetoast Fed because basically it's like, yeah, things are balanced. We're a little worried about inflation and labor, but things are okay and stable and we're just kind of in status quo to see which way it breaks. So either the economy is going to grow and break up or and upward trajectory and we're going to have labor stay stable and inflation stay stable and things are going to run or candidly it might start breaking the other way. You know, and I was a little surprised they weren't as concerned on labor. Obviously we've had some good labor numbers, but to me that one is the bigger risk. And we'll get into that a little bit because I do have continued concerns on the whole K shaped economy and what that's doing with the labor market. Yeah.
- [25:39]
D
And all the labor market. It does seem like if the Fed has a choice, they're going to lean towards the labor market versus inflation. So it does seem like if we see more deterioration in the labor market, they probably will continue to cut. It seems like they've indicated that's going to be the one they're going to favor, at least for now.
- [25:52]
B
And candidly, the Fed is doing a great job. They don't really get a lot of credit. It's a horrible, thankless job. Right. Because they're often wrong because they have minimal tools. They can, they, they, they can actually use and everybody loves to blame them when the, the market ends. But look, we are in like the third year of a bull market. We have more stable inflation. But I always have to remind people that stable inflation is not deflation. So we're not going back to 2019 prices. That's just not happening. Like grocery stores, you know, are, they are what they are. Like that is just the, the natural world order that inflation. Now we had a period of high rapid inflation but short of deflation, you're not getting these prices back. So some of this is like recalibrating and getting people off their base of remember when, you know when we're all going to sound like like 90 year old sitting on the front porch. Gas was, you know, a $25 a gallon and eggs were this. And you know, and just some of that is okay, well this is what it costs now and that is getting absorbed a little bit better because the sticker shock of some of it has stayed stable now for a while. It's just not getting cheaper. But you need deflation for that. And you know, obviously that was a bit of a concern on will we ever get deflation. And I think that's really hard for us to get in this environment.
- [27:05]
D
You mentioned the K shaped economy and that's something a lot of people have concerns about. Well, you know, we've had a good economy but a lot of it has been driven by the top end. And many people worry about if that's sustainable long term. Like how are you thinking through that?
- [27:16]
B
I'm hoping tax refunds help a lot. But I'm very concerned about the K shape recovery because it has, if you looked at consumer spending and you actually broke out the consumer spending, almost 50% of that was by the top 20%. And that's not sustainable. I mean they're still spending money. And that's one reason you've seen luxury brands do fairly well. You know, you've seen, you know, cruises and cruise lines are taking off today. People are still paying money to travel. They love to travel. They want their experience, they want to eat out, they want the fancy car. You know, you're seeing some things that are really great but on the other end you're seeing the, the bottom which is the K shape. Right. So if you're upper, middle or upper, then your incomes, you're doing fairly well. You're for, you've got 401ks, you've got investments, you likely own a home. That stuff has gone up. So you have seen your net worth grow and oftentimes outpacing what's happening with inflation, you know, with the market growing the last couple years, you know, 15% plus you've seen your 401k grow or your brokerage account has grown, you likely have money in savings that you were getting paid higher interest on. But if you don't have those and you're on the bottom half, you have really been on the struggle. Right. Because you haven't seen your investments grow, you have minimal or no investments and your paycheck doesn't stretch as long as it far as it did, you know, a decade ago. And so that continued. I think, you know, right now we are betting a little bit on tax refunds. But you know, we also don't mind, you know, as a play in the markets, you know, like a dollar General or Walmart, you know, people that are picking up the value seeking consumer. We have seen that be a huge play across the markets that you either need to be upper end or you need to provide value with that middle that's been crushed. And you know, it's the Cavas and Chipotle's of the world that nobody really wants to spend $20 on a burrito bowl. But Chili's who is really great at communicating their value is doing phenomenal. So it's not all restaurant traffic is slowing. It's if you're in the middle and you're either not upper end and providing an experience or you're not providing value, you're really seeing that, that middle part of the economy on companies get crushed. And that's the one you say what's the biggest, my biggest concern is that the K shape breaks and the lower income just starts to break and employment rolls over because instead of 15 people working in a call center, you need three people in an AI algorithm or back office staff keeps getting trimmed and we are seeing more of that. You talk about jolts or ADP and consumer confidence and people seem much less confident about finding a job. Much more. I want to stay put because we're very worried about could I find a new job. And then you have seen continued layoffs. So some of that's been picked up and absorbed. But we're seeing all these pressures and you say what could break the market other than policy error? Unemployment just starts to, to roll over pretty hard and the, the, the lower middle income part of the US just gets stopped spending. They can't do it anymore.
- [30:05]
D
Yeah, I just saw an advert Chili's the other day, like they're giving you a lot for your money.
- [30:09]
C
There was like all kinds of stuff.
- [30:10]
D
You're getting like 10 or $12 or something. They're doing a good job of taking advantage of this.
- [30:14]
B
Yeah, no, and, and I think, you know, that's why Costco's and, and Walmart, anybody that can be like, hey, what, what, what? Can you come in and, and feel like you're getting a good deal? Those companies have generally done fairly well because they appeal to the consumer. And the other thing we look at when we look at K Shape and kind of on the pushing back on why we're still bullish is look at that. Credit card companies, almost universally banks and credit cards, we had, you know, MasterCard today. Delinquencies aren't rising rapidly. People are using their credit cards, credit card balances are growing, but they're not concerned yet. So if you're saying most of our US Financial system that is publicly traded has reported on the banking side and nobody's really setting aside huge things for loan losses. Nobody's really saying, you know, we're worried about the consumer. Almost universally they're like, the consumer is okay, so they are stretched, they're not happy, but they're still spending money. Now what shuts the economy down is if they finally stop spending money because they're tapped out. But for right now, they're not tapped out. And yeah, they are some using credit to get there, but they're still certainly spending money. And you know, you can check under the hood. That's why I think financials are hugely important for the health of the US Economy is under the hood. People really weren't worried. They were pretty bullish on the consumer. So you kind of have to say, okay, well, if the people that are actually lending and holding the money feel pretty good about the consumer, while I'm worried about it, at the same point, it's not manifesting itself yet. So I don't want to kind of fully bunker away from consumer spending.
- [31:38]
D
Another thing we've been talking about, the podcast, which gets to the same issue, is the separation between hard data and soft data. You know, the hard data says the economy is doing really well. If you ask people about anything, though, they think things are going very, very badly. And it's like, it's just interesting to think about how does that potentially resolve over time? Like, do you have any feelings on that?
- [31:54]
B
Well, they're trying desperately to resolve it before November, but I think a little bit of that's lipstick on a pig. It's very hard because our base case is still pre Covid. Right. Most of us adults are like, well, this is what it costs and so affordability. And it's easy because I think the world feels terrible that you find reasons to not like your position. Now, candidly, there is a widespread of the US Population that is struggling. They're living paycheck to paycheck, and that paycheck is not stretching as much. So again, I'm not trying to be glib for people that are struggling, but at the same point when the world feels terrible, it's kind of like everybody likes to, to, to be like, well, it doesn't give you a lot to be excited about. The future feels uncertain. We're worried about inflation, we're worried about our jobs, we're worried about, you know, how we're going to pay bills. You know, what if we go to war with someone? You put all of these what ifs in a jar and shake it up, which is basically where we're at. And then it's very hard for people to have a good sentiment reading. Yeah, consumer sentiment was the lowest it's been in a long time. And a lot of that was just their outlook is terrible right now. So if we can dial back some of this noise, give people a little bit more certainty that like, cool, we're not going to invade anybody and like, maybe we're just going to be a little bit more status quo. I think the messaging could be a little bit better and that would make people feel more certain that, okay, the economy is good because that's getting lost in all the noise. The average person doesn't feel good because there's so much noise. It's hard for them to, you know, they're not following, you know, Meta's earnings or, you know, they might loosely look at the stock market. They're feeling the noise from all of the crazy surrounding the world today. And I don't know how to fix sentiment other than to dial down the crazy.
- [33:33]
D
So, yeah, to your point earlier, I have to think political polarization is playing a role here too. I mean, people are just seeing people at war with each other constantly. That has to affects how you feel about the economy and how you feel about what's going on in the world.
- [33:45]
B
Yeah. And it feels, I mean, almost everybody in their life has somebody they either family member or friends that they're in disagreements with now. It feels like. Right. Because of the polarization. And that just makes it hard because then you feel your relationships maybe don't feel as certain. And that just brings the kind of polarization closer to you. And again, it's very hard for people that feel upset about what's happening in the world to feel good about anything, even if you know they got a raise. You know, there's just the counterbalance with the noise is just causing people to, to be worried about, about what's coming. And so that soft data is, is generally going to be difficult until I think you can get the noise dialed down.
- [34:25]
D
You mentioned the labor market before and I wanted to dig into that a little bit because I think there's a lot of different factors going on right now. You've got the usual economic factors of the labor market, but you've also got this AI thing sitting out there. You've got the reduction in the labor supply through immigration sitting out there as well. It seems like a very tough thing to analyze right now. So can you talk more about how you're thinking about the labor market?
- [34:42]
B
Yes, I am waiting and watching. I am not pre panicking. I think labor is one of the bigger risks. I think unemployment is one of the bigger risks. I think dislocation and employment is also a big risk of matching people with the right skill sets and the right geographies with job openings, you know, and that dislocation is going to be hard. I also have a whole rant about data collection right now with the federal government and how these surveys are actually getting collected. Like for me like Jolts is the worst reading ever. Like use Jolts as like barely directionality. Like like it shouldn't be read at month to month because the, the actual survey response is like 20%, 30%. And so they're extrapolating so much data from low survey response. And so you have to be a little bit worried about. And it's not, not saying they're cooking the books. I'm just saying all of this stuff is done by survey. And that's why you see some difference between the adp, which is just private payrolls, but then the US labor employment and some of these revisions. It's just their survey response. Like nobody wants to fill out a survey. So you're seeing a little bit more survivorship bias or response bias because you've got response rates and they're 30, 40%. It used to be, you know, 80% of people would respond and you got a really great reading. Now you're having a lower response rate. So some of these things get jerked around. And so for me, some of this stuff, especially Jolts, I'm like use that as like a six month trend line. Do not look into jolts as a month to month reading that, oh my gosh, we missed by 100,000 in jolts because it just gets jerked around tremendously because it has one of the lowest responses across the federal government. So one, some of this is you got to have good data and it's getting harder and harder to get good data as people don't want to fill out surveys. So one is data issues, two is then obviously, you know, what are we seeing as employment opportunities? We've seen so much do it on the service side, right? It'll be hospitality, travel, you know, things like that, where at the same point manufacturing has been stuck. So there's so many dislocations, that's very hard for me to get a good read. And so I'm just a little bit, you know, if you can be neutral, I'm about as neutral as I can be. I think there's some bright spots, you know, but manufacturing has been a thorn in our side both on, on ism and other economic readings as well as employment. And so we're, we're waiting for that number to kind of get better. But for right now, a lot of that employment continues to trend down as people move more and more towards automation.
- [37:00]
A
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A
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- [38:02]
D
Another thing you mentioned in one of your outlooks is this idea that you think the yield curve might steepen in 2026. So can you talk about why that is?
- [38:09]
B
Inflation concerns on the rising debt level? Like there are multiple things. If you look at that long end, I think the long end may stay a little bit higher even if the short end and rates come down because people are worried about the long term health. You know, as we continue to, to grow the deficit and we continue to have, you know, continue issue Treasuries and then there's continued risk on, on inflation if we have massive policy changes, tariff changes, the US Dollar. And so I think that long end is going to stay a little bit higher and then that steepener could be a little bit painful at times, you know. And so yeah, I think the 2 year and 10 year treasuries are the two areas that people pay the most attention to, which you should. But then you got to look at that long end and the long end telling you they think there's some, some concerns on inflation. And so, you know, intermediate has been a decent sweet spot. You know, bonds have been great. You know, we had that run, there was a 22 and 23 where bonds were net negative for two years, which were just brutal. The portfolios and that's when the rallying cry of the 6040 is dead started, started coming out. But at the same point you've seen some decent returns from bonds. And especially if you look at global bonds and international, you know, we're, we're, we're fine staying on the corporate side, but I would take a little bit more, you know, credit over duration right now. You know, I want medium, moderate duration. But I'm not, you know, dumping it all into tlt, chasing after that.
- [39:25]
C
Talk about the idea that, you know, the one thing is the Fed is, excuse me, Trump is obviously pressuring the Fed to lower rates, but yet they only really impact the short term rates. You know, long term rates are much more driven by inflation expectations, growth expectations. So those two things are like sort of in conflict. And I think a lot of the Trump's policies, you know, are sort of like a little bit more inflationary in nature. So it's kind of a disconnect between what he's saying and what would actually happen if the Fed lowered rates. Possibly.
- [39:56]
D
Right?
- [39:57]
B
Yeah. And again, I think they're hyper focused on November. So can they get two more cuts before November or kind of stimulate, juice the numbers a little bit as much as you can juice the economy, get money flowing? Because right now looking at it, it's looking pretty ugly on the reelection side for Republicans because people are angry they feel like they're broke. They feel like the world's uncertainty and they're going to vote with that. And if they don't have a better feeling about the economy, they're not going to be happy in November. But the Fed, like I said, it's a thankless job. They don't control exactly everything people think they control. They all they can do is set rates and then they can do obviously open market purchases to keep the liquidity and bond market flowing. You know, we even heard Powell pushback yesterday. U.S. dollar stuff. Oh, that's all treasury not touching it. Like we're not, we're not in charge of that department. And so I think you've got to realize the Fed controls, you know, front end and short term rates, but long term is driven, like you said, by inflation expectations. And people are worried that some of these especially, you know, either tariffs or what were happening on the geopolitical side or if commodities, you know, come up in pricing. You know, that's been a really great add to inflation recently. It was the low gasoline prices. Energy prices have been a deflator. Now we got WTI chicken up to 65. The oil costs are up, you know, about 13%. We just saw like a huge spike in power costs, huge spike in natural gas. You know, energy could come back and bite a little bit on the inflation side, move from helpful and deflationary to more inflationary if we see this continued, you know, commodity cycle continue to go up. So I think the market's not wrong on long term inflation. I think there's, there's risk to upward inflation over the next three to five years because of policy and cycles.
- [41:38]
D
Are you thinking more like we'll have the type of inflation we have now which is above target inflation longer term or are you thinking there's a risk of acceleration?
- [41:45]
B
I think there's a risk of acceleration. If you look at the 70s and 80s charts, you could potentially get an acceleration here. And some of that just may be driven also then with everything that's happening with currencies, it's all interconnected. So if the value of the dollar falls and the price of foreign goods is higher for us coming in, that feels inflationary, even if it's not truly inflationary. But we're importing goods, they cost more for U.S. citizens, that's not a great place to be. Travel is going to be more expensive. And so for us, we look at it and say, yeah, there's a risk, there's a real risk of reinflation here. I'm not sure it's going to be rampant and runaway. I'm not calling for like 10, 12% inflation, but there's a risk of reacceleration which is again why the Fed is, is, you know, I feel like they're in the middle of a teeter totter, desperately trying to not let it tip one way or the other. But they are going to have to be ready to react. You know, what was it six months ago? Everybody's favorite term was stagflation, you know and we have seen good GDP growth. So that's kind of been taken off the, off the table. But yeah, there's, there's real risks because of some of these policies being a little bit inflationary. And look at M2 like you look at the amount of money in the system and the amount of money still being printed and the amount of tax refunds we're going to issue. You know, that's not great often for inflation if you're pumping money into the system that's historically been fairly inflationary.
- [43:07]
D
When you look at the steepening yield curve and you look at potentially higher inflation, how is that affecting how you're constructing portfolios?
- [43:14]
B
I mean we are playing a little bit more defense this year like I talked about, you know, we've picked up some energy, we've picked up some more, some cyclical, some defensive, a little bit away from tech. Some of that was just we wanted to broaden out the portfolios and diversify a little bit. But some of it is playing a little defense. Right? We get some more inflation, we get the economy a little bit, you know, rockier then, then you want to play a little bit more defense. Your utilities, staples, energy, industrials, financials have a little bit more value. And I get. Growth has beaten the pants off of value the last three to five years. I'm just saying looking forward, if we have a bit of a rockier time. Some of those growth stocks are hugely rate sensitive. They're going to be more concerned on inflation because they're promising future profits. And if we have big inflation, those future profits may not be worth quite as much as they are today. And so a little bit more value in there just helps you take some of that risk and minimize its home. And you're seeing that sector rotation play out. Energy is the top performing sector in January. Cereals is doing well, you know, again some of the commodity cycles you want. And then staples. Staples has come back from the dead. You know, nobody wanted to touch staples. Like you're poking a dead animal with a Stick last year with staples like you couldn't, nobody wanted a staple to save their life and suddenly everybody's a little more excited about defense this year.
- [44:29]
C
Let's get into AI here. So we want to ask you, how are you, Is there any way that you guys are specifically playing AI or is it more like allocating to the large tech companies because they have their hands in AI? How are you viewing that?
- [44:42]
B
Both two pronged approach. I think you need some of the big names, nothing wrong with a Nvidia Meta in my opinion has always been the company that has utilized AI best, maybe outside of Palantir, to actually drive revenue growth through AI targeted ads. If you were to say who actually is using AI, Meta is in my opinion one of the best uses of AI because they've targeted ad growth, they were able to charge about 9% more and their revenue target blew it out of the water. So I think you want a toehold in that. But I tend to think you need to be careful on the software side and be a little bit more on the hardware side because a lot of this build out is, you know, we want, you know, and that's why memory stocks are running a little bit this year. You want your chips, you want your memory, you want your infrastructure and I think you gotta be careful on the software side because to me those are most at risk for disruption. And that is a really hard question right now of whose moat is sustainable and who is at risk for AI just completely destroying their business model. And you're seeing that play out a little bit today. You know, if you look at the, the losers today, it's almost all on the services side and software. And so I think you gotta be kind of careful on that, you know, I think, you know, and then you've gotta pick your battles on what an AI are you most excited about. Are you saying, hey, we're gonna have all this capex investment? That's why to me hardware and infrastructure is attractive because people are absolutely still printing money and you know, the data center play isn't dead, is it? Hey, I want the companies that are supporting AI with the build out, you know, like a Caterpillar energy company or natural gas companies or power companies, you know, so you have kind of your whole full lifecycle of AI that I think is worth looking at. And at the bottom of my ranking is most software and services stocks. Because I'm very concerned in three to five years how much are people going to be paying for that? If there's a lot of great free models out there now I think there's a lot to do with like say an IBM who we've owned for a very long time, who is in the consulting. Because companies right now are looking at this and saying, how do we implement AI? Are we going to build it or are we going to buy it? Right, that's the first question, you know, are we going to buy modules from people and kind of piecemeal together, you know, kind of pre built prefab AI and piecemeal that in or are we going to try to build our own, we want our own kind of servers, we want our own networks, we want to build our own AI models and kind of have a private and public AI. Then maybe you have, you know, Gemini or some other large language model plus what they're building on the private side and database side and then you want your own infrastructure and some of that's. What's your size of your company? How much capex are you willing to do? But that is happening across the US ecosystem right now. How are we actually going to do this? Okay, great, you put an AI chatbot in. Good for you. What's next? How do you actually use AI across your company to drive higher, higher profitability, higher margins. And that's actually a harder question that maybe you have to pay somebody to come in and consult because, and then help you build it or help you figure out what modules you need to buy to put it together. And then the last one I look at I think is key is cybersecurity. I think as AI gets better, I think there's going to be a ton of money flowing into cyber because your risks of hacks continue to go up and up and up. And candidly, I can keep myself up at night when I think about, you know, quantum and AI together. Quantum computing and AI is terrifying for bad actors right now. Our good actors are working hard to counteract that. So every time you have technologically breakthrough that, you know, but that's happening so fast to me that, that those two things together, quantum computing and AI, when that comes together in the next few years, that is a game changer on how fast things are going to move. And there's going to be a lot of people and countries and companies unprepared for, for some of these, these potential cyber attacks. And you know that that's going to be how do you, how do you protect from that? How do you recover from that? How do you, you know, people are probably going to buy a lot more cybersecurity insurance of how do I recover from a data attack because it's going to be so much harder to prevent them as the speed moves through this world and AI moves, and then their compute power behind it goes exponential with quantum.
- [48:50]
C
I think one of the things that a lot of investors are trying to figure out is where we are in this technological AI revolution. We've had some people on the podcast that sort of say if this were the 90s, we'd be like in the 1997 period and there was still a couple years of great returns there for, you know, those tech stocks. I heard a guy recently saying he thinks this is like we're 1994, which would really put us early in sort of this AI technical, sort of revolutionary, you know, timeline. Do you have any thoughts on where you think we might be?
- [49:23]
B
So this is a time lag series. The dark blue line here is Nasdaq starting in 96 through 2000. Green line here is the MAG7 starting out, coming off of the bear market in 2022, and the same then for S and P and the NASDAQ deposit. So these three are starting in 2022, coming off the bear market. The blue line is starting in 1996. So if you look at that and you ask where we are, I mean, look at the Mag 7, we're 98, 99 maybe, you know, you got a ways to go before we're peaking. But in my opinion, we're six, seventh inning, maybe. Just looking at some of this and the. And if you look at, you know, data doesn't always. History doesn't repeat, but it rhymes, you know, to me, especially considering how correlated things were, at some point we may potentially get a little bit more of a parabolic movement. And that parabolic move is when I'm going to go a little bit more nervous about bubbles popping. But for now, sixth, seventh inning, you know, we've got a couple more years, a year and a half, two years, I think. Easy. I don't think we're 94, though. Especially if you look back at how the markets have moved for this kind of new technology and new technology innovation.
- [50:37]
C
You honestly spend time thinking about bottoms up, fundamental analysis and stock selection because, you know, you. Some of these work their way into the portfolio. You have opinions on them. Do you think that fundamental analysis has become tougher for active managers just given the dominance of passive investing? Or do you think the field is still ripe and, you know, there's alpha and there's edge for people that are willing to do the work?
- [51:05]
B
I think there's still alpha And Edge. I think it was a bad market to be a MActive manager in 23 and 24, 25 was a little bit better. When Nvidia, you know, you're so top weighted it's hard to be overweighted and not be crazy. Right? So if you're thinking Nvidia at one point was 8% of the S&P 500. If I like Nvidia, I needed to be 10% of a portfolio in Nvidia for me that that's outside of our balance of what we would do. So it became extremely difficult to beat the S&P 500 due to the market cap concentration in those names and those names doing fairly well. Finally last year we did see a little bit of divergence. In the last six months we've seen like this broadening out which is much, much better for, for active manager. So I look at it when anything is rallying and the big guys are rallying, it's very difficult for active to outperform without taking on de risk. And that's not my job. We're not a hedge fund. We're never going to be 15, 20% in the stock. You know that that is unacceptable risk and any type of basic equity portfolio that you'd want to hold as an investor. So you have this conflict between risk management and concentration and what the market was doing which became extremely difficult to outperform. Now if you were say a growth manager and you had other kind of growthier names you could add that did well. But for a while there, the S and P was just brutal to beat because the top weighted names were leadership and that became extremely difficult to outperform. But I don't think Apto is dead. I think it's actually going to have a better comeback here in 26 because it's going to matter where you are a lot more. And especially if we see some of these seven names falter, like how are you weighted with Microsoft? You know, it's not just OwnAll7, it's where were you, you know, versus bench on some of these names. You know, candidly it's going to come down to what Nvidia says some or what Apple, you know, they're talking about, you know, 15% of the market cap between those three stocks there. That became an issue as an asset manager of how do you outperform a market that was so concentrated in some individual names that in my opinion we really couldn't set up an underlying core equity portfolio that most managers have a min max security position and candidly most won't go above 8%, 10% max. It became extremely hard to overweight. Now we came around that, right? Broadcom did very well for us. So maybe it wasn't all in the video. You also had a Broadcom. But we was, it was a really tough 23 and 24 anytime. Also, it's a crazy bull market. It's very hard often for Active to outperform because sometimes, especially if you have like I do, a quality bias, quality doesn't do great in a raging bull market. Nobody cares about quality. Everybody cares about what are you going to do for me lately? What are you going to do for me next? Like, it becomes like the, you know, the value and the blue chips fall out of favor and everybody wants to put it all in Nvidia and Palantir.
- [53:57]
C
One of the nice things about wealth management is, you know, hopefully your clients aren't always holding you to the benchmark. If you're building their wealth over time and you're getting decent returns and managing risk like you guys are doing like, you know, the vast, vast majority of clients will be happy. But my question is, and you had mentioned valuation earlier and that you know, clearly it can't be used as a timing tool. But when you, and this might be a little bit more wealth management oriented question, but when you sit down with your clients and you look at valuations and then you talk about future returns, future expected returns and helping clients meet their goals, do those valuations come into play at all? When you are looking out over, let's say, you know, a seven to ten year time horizon and trying to do probability based analysis with your clients, like how do you approach that or does it come into the picture?
- [54:50]
B
So one, we always use super conservative assumptions with, with our Monte Carlo analysis for planning because we always tell people, I don't want to depend on the market to get you there. Like we're going to have like a very low, candidly we estimate a 5, 5 to 6% equity return when we do forecasting, a probabilistic monitoring for clients. Because the point is, can you make it even if you have a bad decade? And the sequencing of returns matters so much for people. You know, you retired in thousand was brutal, right? You got hit with the tech bubble, then you got hit with OA and just horrible sequence of returns. You retire in 2009 and you've been on this glorious run of excess returns, you know, excess returns, you know, to that have, have, have made retirement. We had some people that retired in, you know, 2009, 10, 11 that have more money now than they started with because the market's been on such a good bull. I tend to think we're still on a secular bowl. But the way I talk about it is I talk about average annual returns used to be 7%. Now the S&P is averaging about 10. But I talked to them that 20%, 15%, that's not normal. That's still above average returns. Doesn't mean we can't still have a glorious decade, which we think we are in a secular bull. So we should have above average returns still to have a bear market in there. But we're not thinking it's going to be the end of the world bear, just a normal, average bear. And then we'll continue our march up on this secular bull. But that, hey, 15, 20%, that's not normal. Used to be we were talking about average returns back in the 2000s. Tony fans, you're talking 7%, right? And now we're talking 10% average return. And so some of it's just setting expectations. 20% a year in the S and P is not a normal average returns. And I do a lot of time talking about the lead up to the tech bubble and periods of expansionism, and I tend to think, you know, I'm not one of those. I know a lot of people lower their cap and market expectations, you know, tremendously for average equities. I think equities can still average your, you know, 8 to 10% over the next decade. We just maybe have to own some other things other than just large cap growth and be prepared at some point. Large growth in tech is probably going to kick you in the face. Not to say that there aren't going to be great survivors from that and great companies, but in the history of the world, whenever we have had a move like this, there hasn't always, inevitably been a bubble.
- [57:09]
C
So we like to ask all of our guests two standard closing questions. The first is, what is one thing you believe about investing that most of your peers would disagree with you with?
- [57:19]
B
There is more than one way to skin a cat. I think everybody goes out there and like, my way is the best way ever. And I do tend to think my way is the best way ever. But I'm a very understanding that there's a lot of different ways to make money in this market. There's a lot of different ways to view the market. You can make money as a quant trader. You can, you know, small cap growth might, you know, there's tons of different ways you can either evaluate a stock, you look at a stock or you look at a market that can be extremely successful. Now some of it can be cherry picked. You know, what timeframe are you looking at? You're like, what are your returns versus your benchmark? But I tend to think there are multiple different ways to skin a cat and that's okay. I like to learn and listen about how everybody else was viewing the market. I think that's one of the best and most exciting parts of finance, is that you and I can look at an earnings release and have two diametrically opposed responses to it. Like you can look at Tesla, as always one of the most polarizing stocks. You can look at Tesla and take what he had to say in their earnings release and be like, this is the stock for the next decade. Like you should be overweight Tesla, because this is robotics and it's about what they're bringing and they're going to get full self drive license. You can look at that earnings and be like, man, their core business is getting decimated. They're selling less cars. They're making this like, you know, kind of slightly conflicted $2 billion invested in XAI. Their capex is doubling this. This company doesn't know who it is anymore. You know, Elon Musk is often very late with, you know, they might get there, but it might take him five to 10 more years to get there. And so I love that about investing. We can look at the same data at the same time. Unless you're kind of doing Martha Stewart cheating. We're looking at the same data at the same time and we evaluate it differently and that's what makes the market work. And so I tend to think like it's great if you're a technical analysis and you're good at it, good for you. If you're a quant trader and you're doing algorithmic trading, good for you. If you're a pure bottom up fundamentalist, I feel sorry for you because you probably aren't doing great, but good for you. You know, like I tend to think there's a lot of different ways to make money in this world.
- [59:11]
D
Love that.
- [59:12]
C
And last one, based on your experience in the markets, what's the one lesson you would teach your average investor?
- [59:18]
B
Don't let one mistake become two. You are going to make mistakes and you're going to get things wrong. And I often talk to people about what you do with a mistake, you know, is almost as important as how you made the mistake. So let's say that you didn't believe in AI. You know, you need to evaluate it going forward, not back. Don't look at your sunk cost, don't look at your what ifs. You know, figure out how you maybe made the wrong decision, but then make a good new decision going forward and don't be got into the what the sunk cost. Or well, I'm too late or well now it's too expensive. Like either, you know, you need to have your conviction, but you need to not let your conviction be shaken just because you get something wrong. Because we're all going to get trades wrong. We're all going to make dumb decisions. It's a badge of honor in finance being like, you know, honestly, if you sit around a bar talking with a whole bunch of traders, you're usually talking about like what I got right. But a lot of times they're talking. There were horror stories of like, oh, I missed this trade or I got this one wrong. So one, nobody gets it right a hundred percent of the time. And then two, but how you deal with that, either you missed something, you're late on a trade, you, you bought a stinker, you know, and it's going to happen to you. So don't let one mistake become two. And then the kind of the same part of that is there is a very fine line between conviction and stupidity. And make sure you walk on the right side of that because having conviction about something is great, but you might just be wrong about it. And being stupid, like you're not. You know, sometimes the market does under misprice or undervaluate things and you might be right about it, but sometimes you're just flat out wrong. So that that whole what is a high conviction that the market just doesn't appreciate you? And what is this? I was flat out wrong and I'm being stupid. That line is extremely, extremely fine line to walk, especially with underperformers.
- [61:01]
C
All right, Victoria, I am going to go watch the Honey Badger video and grab the subway sandwich. So thank you very much for joining us. This has been great. Really appreciate it.
- [61:10]
B
It's fun guys. Thanks for having me.
- [61:12]
C
Thank you for tuning in to this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the Excess Returns network@excessreturnspod.com. if you have any feedback or questions, you can contact us@excessreturnspotgmail.com no information on.
- [61:32]
D
This podcast should be construed as investment advice.
- [61:35]
B
Securities discussed in the podcast may be holdings of the firms of the hosts.
- [61:38]
F
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- [62:08]
A
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