C (2:23)

I mean, first of all, this is like a meteor. There's never been somebody like him. You were telling me what you thought his return had been for his fund since it started. It was something, some crazy number you said.

B (2:37)

Yeah, from 1965. And I remember looking at this, he publishes an annual letter every year. And it's so straightforward the way they do it. They put the Berkshire return and The S&P 500 return since they started. When you look down the column and compare them, they don't look that different from a year to year to year. But the numbers come out to something like since he started, The S&P 500 has compounded at about 11% a year and Berkshire is almost 20% a year. So it's like 19.9% annualized compound rate of return. So the S&P 500 is up, call it close to 40,000%, something like 39,000%. Which sounds unbelievable.

C (3:26)

Sure.

B (3:27)

Berkshire's return is more like five and a half million percent.

C (3:32)

All right, you got to say those two numbers again because it doesn't even. Because it just doesn't even compute.

B (3:39)

Right. You would think 10% compounding versus 20%. How could they be so different? It's, it's that every tick higher when it comes to compounding, it gets exponentially greater, not just proportionally greater. And that's why, and I've had to double check these numbers because you're right, it's hard for your mind even comprehend it. Think about this. To be that high, that long term compounding, a thousand bucks back in 1965 would have turned into more than $55 million. So do you keep invested?

C (4:10)

So that's such a great question because first of all, Warren Buffett's always said himself, it's time in the market, not timing the market. And the stats you showed either way show the value of through thick and thin, staying in the market, being well diversified, staying in the market. So for me, I think back to the Magellan fund and Peter Lynch. Peter lynch days, who was considered to be at that point, the greatest investor in the history of humanity. Right, right. So the fund, when he stepped back and retired, he was just exhausted, I think.

B (4:48)

Yeah.

C (4:49)

Because he worked seven days a week. Never.

B (4:52)

I mean, he was flying all over the world.

C (4:54)

Yeah. It was never the same once he was gone. And my late father, who as a young man, I don't know if you know this, he worked on the floor of the New York Stock Exchange, was.

B (5:04)

He was a trader or he, he.

C (5:06)

Was one of the Grunts running around. And he learned investing right on the floor of the exchange. He always said that advice he got from an old grizzled trader was something he carried with him his whole life. And that was, you always follow the jockey, not the horse. So at this point, Berkshire Hathaway, the big question mark, the big unknown with him fading into this, they lose their jockey. They lost their jockey. That's what I would say is not. Did they lose their jockey? They did. I mean, they lost Munger and he was so good and he was the Yang to the Yang. And now both the Yang and the Yang have stepped out. I mean, Charlie Munger is deceased, but I don't think it's the same going forward. So does that mean you dump. I would say no. I'd say you, you don't go all in. Diversification is everything. What are the three funds? Warren Buffett's always said if you don't have a lot of money and you're trying to invest, there's like three Vanguard funds. He says, buy those three and you just hold them in your hand.

B (6:18)

And I remember he's famous for making bets on the portfolio managers, not being able to outpace the S&P 500 over a 10 year period. I think he's bet many people that, but he's really said S&P 500, S&P 500, which of course Vanguard has. There's a couple of things that were interesting about it and I read a lot about it on the day that he. I guess it must have been New Year's Day or the day after New Year's. And he has. There's two things that really strike me about this transition. One, he was very adamant that Greg Abel, the new CEO, is in his mind the most competent person he knows and said in several different ways that he wouldn't trust anybody on Wall Street, a financial advisor, anyone else that he knows to manage his money rather than Greg Abel. So that's a huge vote of confidence for Greg Abel. And Sid also said that Greg Abel is extraordinary at understanding businesses. And I think it's always important when investors talk about businesses because we think about the market, we think about stocks, we think about prices, but in the end we're really just investing in people, pieces of businesses. And Berkshire is about owning a conglomerate, dozens and dozens of other businesses. And it's funny how he threw around. Oh, Greg Abel came and ran. He went overseas and ran something in Asia for us and he went and ran something for a couple years over in the UK and Then came back here to Omaha and did something here for, ran this company for three, four years like it was just nothing. But he said he's an amazing operator and understands what businesses need to grow. So I think that's a big vote of confidence. The other thing, Clark, over the last year or last year here on the Ask Advisor show, there were a lot of questions from our listeners, and I think the question still stands to this day about the top heaviness of the stock market, the concentration in just a few companies and the diminishing number of companies. Right. Remember, we go back, if you go back 25 years, there were 8,000 publicly traded companies. And I'm rounding here today there's less than 4,000. So you've. And that's because of consolidation.

C (8:33)

Sure.

B (8:33)

Think RTX was Raytheon. And all these different businesses that are now five different businesses are now just one stock because they merge. Warner Brothers Discovery is just one company. But the one thing I think is really interesting about, and you may not like this because our last debate, count it, we started talking about private companies, so don't get too excited here. One thing that I think is cool and unique about Berkshire is how much exposure they have. They're publicly traded to all these private companies.

C (9:06)

Sure.

B (9:06)

And I think that's interesting. Do you like, would you call that private equity?

C (9:11)

No, I would not call that private equity because Berkshire Hathaway doesn't lay on one layer after another after another of expenses. That is so much a heart at the heart of private equity operators, where private equity operators to me are sales organizations. They're story sellers. And the way they sell the story is making sure that everybody gets their cut except the end consumer, the end investor. So I would say that's a different thing. But my thing with Berkshire Hathaway is it was a unique thing. Totally unique. There's never been anything like it. And it was driven so much first by one man and then by two. And no matter how able. Able is, it's going to be different. Yeah. So I would say you don't throw the baby out with Bathwater. You just don't sell your Berkshire Hathaway. But you need to be careful how much of the investing you do is tied up in this one company with a big question mark on what they're going to be going forward. The returns you talked about, double the s and P500. That is so out of the ordinary.

B (10:36)

So rare and probably all virtually impossible moving forward.

C (10:41)

Exactly.

B (10:41)

Virtually impossible.

C (10:42)

Exactly. Because it's a much bigger base as well.

B (10:45)

Exactly. If you really want to understand how it got to have such a outperformance, it's those early years. If you go back to the 60s and some of the decades, I remember looking at different annual rates of return. You go back to some of the 60s and the 70s, they had a couple years where it was over a hundred percent and they were able to do that when they were relatively tiny. So. And he and Buffett has talked a lot about that over the years. It's that it's really, it's a lot easier to double a hundred million dollar company, 100 goes to 200 million than it is to double a $200 billion company to grow another 200 billion to get to 400 billion.

C (11:26)

And a lot of, a lot of.

B (11:27)

Them, that's where they are.

C (11:28)

A lot of their base are slow growing companies, methodical. You cannot grow at the same way from when you're a baby entity to now you're a lumbering giant. Yeah. So I would say that Geico is.

B (11:44)

An example, one of the privately held companies within Berkshire Hathaway.

C (11:47)

We all know that that's fallen way behind Progressive with technology. I mean they are not as sharp. Yeah.

B (11:53)

You don't like GEICO as much, do you as some of the others?

C (11:56)

No, I mean Progressive. When I look at insurance companies, the companies that are doing all kinds of experimentation with charging per mile and then you look at Progressive that has been the most precise at calculating risk on an individual driver and charging premiums that work with that, I mean those are the kind of things that GEICO has been lagged lead footed on. So.

B (12:24)

And by the way, Progressive has the best commercials of all the insurance carriers.

C (12:28)

And by the way, Flo is a very nice woman I've met, you know, flow that.

B (12:32)

Right, you met her?

C (12:34)

Yeah.

B (12:34)

So our consensus is that I agree with you, it's, it's different moving forward. Berkshire Hathaway, we can't recommend whether you buy, sell or hold it. I, what I would just say is that I think that it's still under very able management, no pun intended, and that it's a unique business because it's publicly traded. To Clark's point, there's not a whole bunch of, there's not a layer of private equity fees inside of it because they just own the privately held businesses within Berkshire Hatch, which is completely different.

C (13:07)

Than the whole Wall street private equity. I won't call it a scam, but a lot of times it's a rip off for the individual end investor.

B (13:16)

Whereas this form of private ownership in a big public company is a lot cleaner. To your point, I would agree with.

C (13:24)

All right, so.

B (13:24)

So we're okay with it.

C (13:25)

So theoretically. Theoretically is not. This is not you having to call balls and strikes. It's just a question for you. If you theoretically owned Berkshire Hathaway, I don't know if you do individually, but if you did, would you just sit with what you've got? Would you reduce your position a little? Would you increase at this point? Would you sit on your hands with whatever you have?

B (13:48)

Rubber meets the road. And I would just say I'm a long term investor. I try to be a buy and hold investor. And unless something fundamentally and drastically changes. And I don't think that this is a fundamental or that a drastic enough change.

C (14:05)

But we both agree. I don't want to put words in your mouth. Yeah, both of us would agree that the, that the returns forward are not going to be 5 million percent or whatever you said. Was it 5 million?

B (14:16)

Five and a half? Almost. Yeah. More than that.

C (14:18)

Yeah. That's not. If you were to look from 65 to, to and 25.

B (14:24)

25.

C (14:24)

25 looking forward to 85, we're not going to see a 5 million percent return.

B (14:31)

There's, it just would be virtually. It's almost impossible. The other thing we'll close with, this is one of the things that I liked that Buffett said that if he had to make a bet on a company that would still be around. Here's maybe the key. In 100 years from now, he likes Berkshire's chances. All right, coming up, coming up, we're going to answer some of your listener questions and we're going to look at the outlook and try to answer the big question coming up in 2026, can the market possibly have another good year?

A (15:03)

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D (15:31)

Could have done better. Like cutting your own hair. Yikes. Or forgetting sunscreen. So now you look like a tomato.

B (15:38)

Ouch.

D (15:39)

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B (16:02)

Ouch.

D (16:03)

Coulda done better. Same goes for where you invest. Level up and invest smarter.

E (16:09)

Schwab.

D (16:10)

Get market insights, education and human help when you need it. Learn more@schwab.com.

B (16:18)

Welcome back to Ask an Advisor. I'm Wes Moss along with Christa Diaz.

E (16:24)

Sorry, Clark's not here anymore.

B (16:25)

Clark exited, went to one of his other many jobs. Krista's back.

E (16:30)

That was so fun. I love it when you guys do stuff.

B (16:33)

I love that none of that is planned, by the way. If people are wondering, that is a very impromptu thing where Krista Dibias, who is one of the reasons she's a great producer, just says, hey, wait a minute, I'm going to go get Clark. And then that's what happened. So we're going to start with 2026.

E (16:50)

Yes.

B (16:50)

Because we're in 2026. So the reality here is that there are always Wall street outlooks and every single firm, the big Goldman Sachs, Morgan Stanley, Merrill lynch, bank of America, they're all everyone tries to do an outlook. There are outlooks for S&P 500 targets. And you'll get the top 12 investment banks that give their target S&P 500 and they're all the smartest people in the world. And then one of them comes up with one number that is 20% different than the other number and they all have great reasons for them. So it's interesting to look at. But there's just everyone has an opinion. And even if you were to ask the folks that are putting out target numbers for where the market is going to end up in 12 months, they'll tell you that it's just, it's a lot of that is guesswork. So one of the things I wanted to do for the 2026 outlook is just answer what I think are some key questions now that we are in the new year and try to get some context around where we think things fall on some important questions then can maybe help us determine if we're going to have a good year or not. So let's start there. Here are the five questions that I want to address. 1. What does history tell us about a mature bull market? We've been in a bull market for three years. What usually happens once we've already had a long run? Number two, is AI finally ready to deliver on all the hype and all the promises. Three, what kind of stimulus is starting in 2026 over this first couple of quarters? And what does that mean for economic growth? Four, what about interest rates? Where are interest rates headed? What does that mean for investors? And five, midterm elections. What usually happens around in a midterm election? So let's get some context around those five areas. One, the reality is that bull markets typically have a longer Runway than bear markets. Bear markets tend to be short, violent. They're three months, six months, a year, year and a half and they are so they're quick and they're painful. Bull markets on the other hand are typically five to six years long. Once they get momentum, they last a long period of time. If you go back and look at charts of bull versus bear, the periods of time the market is climbing without a 20% decline, those are significantly longer. So the average bull market lasts 58 months and rises about 172%. That's the last 14 bull market cycles. It's a lot of Data. We're at 139 when it comes to this expansion and about 90, 92%. So the average bull market is 172% word, about 92%. What does that mean? Well, mathematically you can't just divide the two. You can't just subtract those two numbers. Mathematically we would have another 40, 41% to go to get there. Now that's just history. But I think it's an indicator that if history continues to repeat, this bull market we're in now isn't necessarily that old. It's not an old, it's not an infant, but it certainly could have more room to run. What about AI we've had now? It's kind of no. I think it's not a coincidence that the stock market has had a very strong three year run. And that coincides right around the same time that OpenAI launched ChatGPT. And then there was a flurry of other AI tools that were early in the cycle three years ago. Then I would say they became more well adopted. And now we're looking at not just for adoption but productivity in the year 2026. Are we going to get productivity? So it's 2023 was excitement and imagination. 24 was all the build out chip centers, data center or chips, data centers, power usage. And then 2025 we had adoption and we had experimentation. Still early, still only three years in. The question will be does the market itself move away from only favoring the particular AI players versus Having that productivity spread out to all industries. Now there's something interesting about, we're seeing about earnings and again earnings drive equity markets. If you go back to the fourth quarter of 2024, so a little over a year ago, the MAG7, the big seven companies that again most of these are heavily involved in AI, they had earnings growth of 62%. The rest of the market was one. But what we've seen is almost every single quarter since. So 5 quarters since the MAG7 earnings growth has come down and the rest of the market earnings growth has come up. If you go out the next five quarters, estimates are that we'll get to parity, meaning that AI, the MAG7 earnings growth will be around 15%. And the rest of the market, the other 493 companies forecasted had earnings growth of around 15%. So what that tells me is that we are early but not brand new in having productivity spread out to the other sectors. And I think that's an interesting development to really watch for in 2026. And then what about rates? We know that the Fed has continued to cut rates. We were at 5.5%. Now we're down to 3.7%. There's $7.5 trillion in money markets right now. Those money market rates as you may have already started to see, they're coming down. They tied to the federal funds rate and that could change the landscape a little bit. When, when money market rates are 5, it's pretty easy to let money just sit there Krista, because you're getting compensated really well. When money market rates come down and now you're getting three and a half or three. If rates go even further down, you're getting two and a half. Investors start to get a little antsy about money not working for you and it encourages investment. So with seven and a half trillion dollars in money markets with if rates continue to come down, we could see more of that money. Want to go back into equities, back in to stocks which could be a tailwind for, for the market in general. And then five, this is a total wild card. I have no idea what's going to happen here. What I do know is over the course of history when it comes to the election years, midterm years, they're kind of the worst of the four year cycle. You got your election year, post election, which is midterm, then you've got the pre election year, then you have your final election. So you've got post election year, midterm year where we are today. Then the post Midterm and then the election year. This is the worst year of the four year cycle, but it's still a positive year on average, up 7%. But the drawdown is the biggest of the four, down 17 18% on average. It makes sense. We give a lot of uncertainty all through the summer and the fall as we're headed up to midterms. I think this year will be no different. We could have a change in control. The House and the center are very tight. So those elections are going to create some consternation because of all that uncertainty. Put it all together, Krista. And we don't know if we can have another great year for the s and P500. But to me. Well, we skipped number three.

E (24:35)

Yeah. The taxes.

B (24:36)

Were you going to tell me or let me just.

E (24:38)

I didn't. I thought maybe you did it on purpose.

B (24:40)

No. I'll make this one quick. Tax refunds in the first quarter and the second quarter of 2026 are going to be tremendous. Going to be over $500 billion. That's a huge increase from last year. It's equivalent to about $1,000 per taxpayer that we know typically gets spent. That money goes back in the economy. Those tax refunds that could add a whole half a percent to GDP on two and a half percent GDP. That'd be a 20% growth rate or bump to GDP. So that's another tailwind. Put that all together and there's no guarantee that 2026 is going to be a good year for equities or a good year for the economy. But the way I see it, there are a lot of tailwinds supporting a pretty good year for the economy that could translate into equity markets as well.

E (25:28)

Great. All right. Well, Q and A. Q and A. We're going to start with Andy in North Dakota. Thanks for submitting your question, Andy. And if anyone else has a question, you can go to clark.com ask. Andy's question is this.

B (25:41)

I love these from North Dakota. All right.

E (25:43)

Can you briefly review dry powder options? I'm looking at money market through Fidelity. Is that and similar funds considered dry powder. And I gave you the fund name.

B (25:53)

Sp I think that's just a money market. Anything that is a money market mutual fund is absolutely dry powder, Andy. You know, I was drawing the buckets out the other day and there's, you know, there's four of them. There's the cash bucket income growth and then there's the alternative income bucket. That's the way I see. You can look at your investment allocation as A pie chart with four different pieces of the pie that are all different asset classes or more than that. I like to look at them in the form of these four buckets. I think it's important to understand that dry powder lives. Everything in the cash bucket is dry powder. And then a good portion of what lives in your income or bond bucket that's also dry powder. Dry powder is in both of those buckets. Absolutely. Money market mutual funds count because those are usually ultra short term Treasuries or ultra short term government bonds. And they are highly, highly Safe. So that plus cash, plus CDs, also that things that are a little, they're not perfectly stable. Like a money market fund would be a bond fund that's short term or even short to intermediate term fund that has a high level of credit, meaning either government bonds, Treasuries, high quality municipal bonds can count that are relatively short term and high quality corporate bonds. All of those, in my opinion, as long as they're not long dated, as long as they don't have long durations, those are there to protect you and be stable when equity markets go down. And for me, that qualifies. And there's some subjectivity to this, Andy, but they qualify as. That's those safety assets that you want to have three years of or so when you're in retirement.

E (27:40)

Okay, this one's from Tammy in Florida. My son received a settlement for $70,000. He's afraid that the stock market is a bubble. He's 34 and he just began investing in his company's 401k and Roth IRA. What do you advise? He lives in California, has no debt, but his rent is $3200 per month. He works full time, and even though he makes around $100,000 per year, it's a real struggle in California. He has maxed out his 401k and Roth IRA and is looking for ways to reduce his tax burden. Please help me help him.

B (28:12)

Sounds like a scene out of Jerry Maguire. Help me help you, Jerry. I'm going to help Tammy help your son. Tammy, this is an interesting. This makes me think of. There is this thought, Tammy that, and this happens to lots of people, that there's something safe about investing in your Roth account or your 401k. And there's something less safe about investing after tax money. And that's just not true. It's not true at all. But here's why it makes sense that people think that it's because you automatically, especially when you're in your 30s, for your son, Tammy. He knows that he can't really, he shouldn't touch that money until he's almost 60. So he creates, and rightly so, a long time horizon around that money, which makes investing much safer because the longer we hold assets that are volatile, equity market assets, the higher the probability that they increase in value. And our shorter time horizon, the more uncertainty we have, particularly around equity investing. So if he's maxing out his 401 and he's maxing out his Roth, he's already investing. He just knows that that is a long time horizon. Help him understand that it's the same thing for that 70,000. Now he may want to take 35 of it, let's say, and keep it in High Yield Savings because it's an emergency type fund. He's too young to have to worry about dry powder. That's for, that's really more for people getting close to retirement or in retirement. For now, it's really just emergency money. And perhaps half of that could be emergency money and the other half label it with a long time horizon because it's money that could be worth an awful lot when he's 60 or 55. And everyone's always worried about this is so it's such a classic worry. Everyone's always worried that we're at the top of the market and you don't want to invest. When markets are down, you're also worried that they're going to go down further. So you don't want to invest. There's always a reason that it's kind of scary. So what can you do to get over that? One, understand it's a long horizon. Explain that to him. Number two, mechanically it may just be easier to do it systematically or as a dollar cost average. So you say I'm putting leaving half it in High Yield savings. The other 35 is going to get invested, let's call it in a broad diversified index fund. And I'm going to do it over six months. So I'm going to do five or six grand per month and then it'll be invested in half a year and that could be helpful as well.

E (30:48)

Okay. And then this one came in from Kevin in Ohio. Hello, Wes. I wanted to get your take on dividend producing ETFs as a strategy in retirement. I don't hear many talk about it, but it seems like it could be a viable option. For example, I'll have a state sponsored pension when I retire in 15 years, so that will be my main source of income. I also have a 457B account that I'm anticipating will have approximately $250,000 in it when I retire. If I rolled that over into an IRA and into a dividend paying ETF, paying an annual dividend yield of about 4%, that would give me an annual income of approximately $10,000 to go along with my pension. I'll also have a Roth IRA in retirement and no Social Security. Do you think this is a good plan, Kevin?

B (31:36)

Absolutely. I think that dividend investing is that is how I like to invest, particularly when you're thinking about your retirement years and you need to start taking income. So I'm a big believer in income investing. But income investing isn't just dividends. It's dividends from companies. So I'm a believer in dividends on the equity side. And when I talk about income investing, it's getting income from many asset classes or multi asset class. So I want to get interest from bonds and distributions that come from REITs and pipeline companies, et cetera. But when it comes to creating income in a retirement, I'm just a huge believer in doing that through dividends. But there's a little bit of a reality check now. You're way out. You still have another 15 years. Who knows where yields will be then? But note that right now, sure, you can find 4% dividend yielders in this market and you can have a portfolio that has all equities and you only are looking for dividend payers and you're getting a 4% yield. You've got to get really specific to the really high dividend payers to do that. Historically, 4, 4 isn't that high for dividend payer. It's just that yields are low right now. They're only a little above 1% for the S&P 500. So 4% is four times that. So just note that I would be less inclined to find the highest dividend payers and more inclined to find moderate dividend payers that are growing. And if that is only 2.5% or 3%, that's still good. You're really relying that $10,000 from the 250,000 is really utilizing the 4% rule. The 4% rule is not that you're just getting that much in income. It's about getting part of that in income. Maybe it's 2, 2.5%, 3% of the 4 and then the rest is appreciation. And that's how you should be able to safely withdraw that 4% plus inflation over time. So simple answer there. Yes I'm a big believer in dividend investing.

E (33:45)

All right. Well, thank you for joining us today and every week on Tuesdays. Clark will be back tomorrow with a brand new episode. And please, if you would like to receive daily money advice from Team Clark and once a week we send out an investing specific newsletter that has a lot of advice from Wes in it. You can sign up@clark.com newsletters. Have a great rest of your day.