Podcast Summary: The Compound and Friends – Live in Naples with Brian Belski
Release Date: February 21, 2025
Hosts: Downtown Josh Brown, Michael Batnick
Special Guest: Brian Belski, Chief Investment Strategist at BMO
1. Introduction and Welcome
The episode kicks off live from the Alamo Drafthouse in Naples, where hosts Josh Brown and Michael Batnick welcome their special guest, Brian Belski. The atmosphere is casual yet informative, setting the stage for an engaging discussion on current market trends and investment strategies.
Notable Quote:
- Josh Brown [00:12]: "Ladies and gentlemen, in front of your eyes, the Compound and friends live from the Alamo Drafthouse with your host, Josh Brown. Let's have some fun."
2. Market Overview and Historical Context
Brian Belski brings a seasoned perspective, highlighting the ongoing 25-year secular bull market. He emphasizes the importance of recognizing cyclical bear phases within this long-term optimism.
Notable Quotes:
- Michael Batnik [03:31]: "The S&P 500 is up 17% since then."
- Brian Belski [04:46]: "Our call remains resolute. 25-year secular bull market."
Josh Brown recounts his last appearance with Brian in May 2024, reflecting on past market movements and the inevitability of pullbacks in sustained bull markets.
3. Investment Philosophy and Strategy
Josh Brown discusses his conservative approach to investing, particularly when portfolios perform well. He references a guiding principle inspired by a Bible verse: “Act justly, love mercy, walk humbly,” underscoring his cautious optimism during market highs.
Notable Quotes:
- Josh Brown [05:08]: "When things are going really, really good on stocks, Mike, I literally shit my pants because I'm thinking something happens. Figuratively."
- Josh Brown [06:05]: "We have very, very low turnover. But I have three jobs at BMO..."
Brian Belski adds that managing actively traded equity portfolios gives them an edge over other strategists who primarily advise without direct portfolio management.
4. Critique of Market Sentiment Surveys
A significant portion of the discussion centers on the reliability of sentiment surveys. Brian highlights the paradox where 89% of fund managers view US equities as overvalued yet maintain minimal cash reserves.
Notable Quotes:
- Brian Belski [08:58]: "We have the fund manager survey that Bank of America does. IS this quarterly, how often monthly?"
- Josh Brown [10:13]: "When you talk to a fund manager, if I'm going into Fidelity... I can tell by the way he's looking at me whether he's scared or interested."
Josh criticizes these surveys as "a bunch of shit," advocating for direct communication and proprietary models over generalized sentiment indicators.
5. Media Influence and Investor Behavior
Michael Batnick introduces two theories explaining the current market noise and heightened uncertainty:
- Media Business Model Shift: Transition from subscription-based to attention-driven content, leading to sensationalism.
- Frequent Bear Markets: Experiencing two 50% bear declines in seven years has ingrained a perpetual state of caution among investors.
Josh concurs, linking these factors to the emotional volatility seen in investors since the early 2000s, compounded by events like the financial crisis and the COVID-19 pandemic.
Notable Quotes:
- Michael Batnik [14:35]: "The business model of the media changed around 99, 2000..."
- Josh Brown [13:55]: "We've been under duress and craziness since, I think, 2000."
6. Focus on US and Canadian Markets
Emphasizing a strong domestic focus, Josh advocates investing in US-based companies, echoing Warren Buffett's advice: “Don't ever buy anything unless you can reach out and touch it.” He underscores the benefits of supporting businesses with significant US revenue streams, reducing exposure to international volatility.
Notable Quotes:
- Josh Brown [20:49]: “Warren Buffett said, don't ever buy anything unless you can reach out and touch it.”
- Josh Brown [21:07]: “I believe the US is the place to be.”
Brian and Michael further discuss the strategic inclusion of Canadian stocks due to their close economic ties with the US, enhancing portfolio diversification.
7. Dividend Growth vs. High Dividend Yield
A key segment delves into the merits of focusing on dividend growth stocks over merely high-yield dividends. Josh explains that high dividends can sometimes indicate stagnant growth, whereas dividend growth stocks demonstrate both reliability and potential for appreciation.
Notable Quotes:
- Michael Batnik [46:28]: "Why is dividend growth your focus versus high dividend?"
- Josh Brown [46:00]: “There's three parts to a portfolio... Dividend Aristocrats... high yield... companies initiating or accelerating dividends.”
The hosts highlight the sustainability of dividend growth strategies, noting their ability to perform well both in bull markets and during downturns.
8. Stock Picking and Sector Strategies
Josh introduces the “barbell” strategy within sectors like Consumer Discretionary, where they underweight volatile giants like Amazon and Tesla while overweighting stable performers like Home Depot and T.J. Maxx. This approach aims to balance potential high returns with risk mitigation.
Notable Quotes:
- Josh Brown [24:49]: “Barrel it... Overweight Lulu, Home Depot, T.J. Maxx, Marriott.”
- Michael Batnik [25:12]: “Neutralize Amazon and Tesla and overweight some of the other large names.”
The conversation emphasizes fundamental analysis over momentum, advocating for investing in companies with solid earnings and growth prospects.
9. Managing Volatility and Contrarian Moves
The discussion touches on strategies for handling market volatility, including selling stocks when company fundamentals deteriorate or when management actions undermine trust. Conversely, they advocate for contrarian investments during sell-offs based on strong fundamental beliefs.
Notable Quotes:
- Josh Brown [32:24]: "If I have a company that lies to me... sell the stock right away."
- Josh Brown [33:05]: “We're gonna initiate a 200 basis point position... he’s getting fired.”
An example cited is the strategic purchase of Starbucks during a period of executive instability, which later resulted in significant gains.
10. AI and Technological Trends
AI's transformative impact on various industries is highlighted, with Josh noting that some of the greatest beneficiaries are non-traditional tech stocks like Costco and Walmart. The hosts discuss incorporating AI-driven efficiency gains into their investment thesis.
Notable Quotes:
- Josh Brown [35:57]: “We think some of the greatest AI stocks aren't even technology stocks. They're Costco and Walmart.”
- Brian Belsky [35:59]: “You believe the efficiency gain story.”
This perspective broadens the scope of AI investment beyond conventional tech firms, recognizing its pervasive influence across sectors.
11. Fixed Income and Bonds
The conversation briefly addresses the bond market, emphasizing the shift from price-based returns to yield-based performance. Josh anticipates a more normalized bond environment which could complement equity investments.
Notable Quotes:
- Josh Brown [45:52]: “The majority of total return in fixed income vehicles was in price performance... we are going back into a period where we're going to have more performance from yield.”
12. Future Outlook and Nvidia Earnings
Looking ahead, the hosts discuss expectations surrounding Nvidia's earnings report, recognizing its significant influence on the broader market. They anticipate that guidance and revenue growth figures will play crucial roles in shaping investor sentiment.
Notable Quotes:
- Michael Batnik [60:25]: “How do you think a good number will be? Is there a number good enough they could report that won't be a disappointment to some?”
- Josh Brown [61:11]: “Real believe that the guidance and the revenue growth thing is gonna be a really, really big deal.”
13. Personal Reflections and Closing Remarks
In a heartfelt conclusion, Josh shares personal news about becoming a grandfather, highlighting the balance between professional insights and personal life. Michael acknowledges the production crew, appreciating their behind-the-scenes efforts.
Notable Quotes:
- Josh Brown [62:18]: “I have a grandson. I'm looking forward to my grandson turning one.”
- Michael Batnik [63:22]: “We love you, Naples. Thank you so much for coming out.”
Final Thoughts:
The episode offers a comprehensive exploration of current market dynamics, investment strategies, and the hosts' philosophies. By integrating expert insights from Brian Belski and personal anecdotes from Josh Brown, listeners gain a nuanced understanding of navigating today’s complex financial landscape.