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- [00:12]
Josh Brown
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. Michael Batnik and their special guest, Brian Belsky. Give it up for the combat of Friends Live.
- [00:46]
Michael Batnik
All right, ladies and gentlemen, thank you so much for being here. We had so much fun planning the show. We spent the last two days in Naples. We absolutely love it here. If you're a local, make some noise. Let me hear you. All right. And if you flew in here or drove here from somewhere else, make some noise. Let's hear it.
- [01:12]
Brian Belsky
Okay, so Brian was clapping. This is a home game.
- [01:14]
Michael Batnik
Brian is. I don't know if you know this Naples, most of the time. Resident.
- [01:18]
Josh Brown
Most of the time. Would you say seven months out of the year.
- [01:21]
Brian Belsky
And it's a home game for me too. This is my favorite theater in the world. Shout out to Alamo Drafthouse. Let's go.
- [01:28]
Michael Batnik
And guys, you are in for a treat. This is a really exciting time in the markets. We got off to a rock and roll start and today was quite an exciting day. And we're going to get Brian's take on what to make of the momentum sell off. We don't know if it's short lived or a sign of more to come, but we absolutely are extremely lucky to have Brian here. Before I read you his official introduction, I do want to thank our sponsor, public.com and the public trading app. Public has been an incredible sponsor for the compound. And friends, we know a lot of you guys have tried out their app, their website for some of your own trading. So let's make some noise for public. And I want to just level set the room for a moment just so Brian has an idea of who's in attendance. If you are my generation, Gen X, make some noise. Let me hear.
- [02:25]
Brian Belsky
Oh, wow.
- [02:26]
Michael Batnik
Okay.
- [02:26]
Josh Brown
All right.
- [02:27]
Michael Batnik
Okay. Michael's generation. Generation Y. Millennials.
- [02:32]
Brian Belsky
Millennials.
- [02:33]
Josh Brown
Let's go.
- [02:33]
Brian Belsky
Millennials. Let's go.
- [02:35]
Michael Batnik
Okay. Jen Y. Brian's generation. The silent generation. Okay. Just the trophy wives. The Naples trophy wives. Do we have. We have a few. Okay. All right. Ladies and gentlemen, Brian Belsky is the chief investment strategist and leader of the investment strategy group for bmo. Brian, we say bmo.
- [02:59]
Josh Brown
Say bmo.
- [03:00]
Michael Batnik
Bmo. Brian has held various senior strategy and research roles, including positions at Oppenheimer, Merrill lynch and Piper Jaffrey. Brian also oversees 10 actively traded equity portfolios and two quant ETFs for US and Canadian wealth, clients of BMO. How long have you been there now?
- [03:19]
Josh Brown
13 years, three. 13 years, three months, four days and 12 hours.
- [03:26]
Michael Batnik
All right, Brian, the last time we had you with us was May of 2024.
- [03:31]
Josh Brown
Yeah. I thought you broke up with me.
- [03:32]
Michael Batnik
I'm nervous. Nope. The S&P 500 is up 17% since then. And of course, one of the things that you're most known for was having been bullish the entire way up. And now it seems easy to have ridden the market all this time, but in the moment, at many of the moments at which you joined us on the show, you were kind of a voice of hope in the darkness. And I think you've been that for investors, but institutional investors, retail investors, I think for a great many years. And we're very thankful to have access to you, be able to speak with you in those times. And I couldn't think of a better person to be talking to right now. I do want to remind people what you said when you were with us last spring. Our call, this is Brian's words, our call remains resolute. 25 year secular bull market. Within secular bulls. You can have cyclical bears and cyclical bulls. We are in year two of the cyclical bull that started in October of 2022. We need some sort of a pullback. There's never been a bull market in the second year that has not had a pullback more than 5%. We ended up having one that summer, right after. Right after the show, almost immediately after.
- [04:47]
Brian Belsky
He spoke and Brian said he was. You said you were scared shitless. You remember that?
- [04:51]
Josh Brown
Yep.
- [04:51]
Brian Belsky
Because everything was going your way.
- [04:53]
Josh Brown
Yeah. I mean, I think, you know, thanks a lot for reminding me of that. No, but I think in this business, in this world, you have to be. And I always, not to get too preachy on you, but before I always do anything publicly, I always quote a Bible verse in my head. Act justly, love mercy, walk humbly. So when things are going really, really good on stocks, Mike, I literally shit my pants because I'm thinking something happens. Figuratively.
- [05:22]
Michael Batnik
Yeah. Not literally.
- [05:23]
Josh Brown
Well, and I'm so worried because things are going so well. And that was one of those times last summer. And thankfully that we rode the storm out and we had an amazing year performance wise for our portfolios. But I think we kind of. That's part of the reason why we've been known to think a little bit differently than most strategists because we actually run money and we have long term positions and we have 10 different strategies and we just crossed 10 billion AUM at the beginning of this year. Now Obviously, a little higher for their performance. So we're very blessed to do what we do. But actually, when we're doing really well is when I really, really get worried. When we're not doing very well is when we can pull up our bootstraps and really defend our process and discipline.
- [06:05]
Michael Batnik
Can we double click on that? You run money, and most of the other strategists do not. They advise clients of the bank, they talk to financial advisors, they talk to institutions. You do all of those things, but also you manage portfolios. And you see that as an edge.
- [06:22]
Josh Brown
I do. And, you know, when I first came to bmo, I started doing this at Merrill Lynch. When I took over the Chuck Claw portfolios, they were known as the client profile portfolios. And Merrill was worried. And then all my subsequent jobs since then were worried that a portfolio manager, say a JP Morgan or Morgan Stanley or Fidelity, would be worried that I was competing with them. But actually they really like it because I kind of think and act and feel like they do from a positional standpoint. And I'm living and dying with positions. And we talk a little bit more of that. Obviously, a big mutual fund manager at that type of shop manages money very differently than I do. Meaning 150, 200 stocks. We have usually 50 stocks. We're more concentrated, and we have very, very low turnover. But I have three jobs at bmo, so I forecast the US Stock market, which I have as the person at the top of the piece of paper since 1998. I've forecasted the Canadian stock market since I got to BMO in April of 2012. And then I also do portfolios. The majority of people that you have on or talk to, really amazing strategists. They have one job, and all they do is talk to. And they talk to everybody. Hedge funds, the professional money managers, to travel the world. They have global clients. They talk all day long about their view on the market, usually. And I was schooled under the adage of, I'm kind of the. Like Bill Murray said in the movie Stripes, I'm the last of a lost generation of strategists that I look at stocks and how they fit into industries and sectors in the market. I think the majority of my competitors, quite frankly, only look at the market, and they just want to make these big market calls. And I think that actually has added to the volatility, number one. It's actually helped me do my job a lot better.
- [08:04]
Michael Batnik
How many people are still in the same seat since 1998 the way that you are in that strategist role that started at the same time as you. Almost none.
- [08:16]
Josh Brown
Michael Goldstein, but he was at Bernstein at the time. Now he's got his own shop, and I think he's retiring. Ed Yardeni was obviously in the biz then. We lost recently. Tobias Lefkovich was the other person that's been doing it that long. Citigroup. But I'm the longest standing senior strategist, or top of the piece of paper strategist on Wall Street.
- [08:36]
Michael Batnik
That's pretty wild. You want to get into the fund manager.
- [08:39]
Brian Belsky
So, Brian, you love to talk about what your competitors are thinking about talking about. And there's. For people in the audience and for people listening, there's so many contradictory. I don't even call them signals because they're not signals. Just noise in the market. So, for example, we have the fund manager survey that bank of America does. Is this quarterly, how often monthly?
- [08:58]
Josh Brown
It's monthly.
- [08:59]
Brian Belsky
And so here's the latest US equities seen historically overvalued by 89% of investors surveyed 89%. Okay. In the decade to date, an average of 81% of fund manager survey investors have consistently viewed US equities as overvalued. For the last decade, a historical market of 15% compounded 81% of the time. They say they're overvalued US equities. But then you also have. On the other side. They do. How much cash do you have in your portfolio? So how is it possible or why is it possible that the same people who say the stock market is as overvalued as it's been ever basically have only 3.5% of their portfolio in cash, which is basically not.
- [09:45]
Michael Batnik
Basically the lowest on record.
- [09:46]
Brian Belsky
The lowest on record.
- [09:48]
Michael Batnik
So you've got like an ocean of people saying stocks are overvalued, but they're all fully invested.
- [09:55]
Josh Brown
Well, the answer to that is a couple things. I used to work at Merrill lynch, so I kind of know how that was. In the old days, you didn't have a lot of US Investors answering. That fund survey had a lot of.
- [10:07]
Brian Belsky
Hang on. Come on.
- [10:08]
Josh Brown
No, no, no, no, no. Here's the deal. I don't. Mike, when you get a survey, do you fill it out?
- [10:14]
Brian Belsky
No. Never.
- [10:14]
Josh Brown
Okay. Exactly. So that's number one. Number two, this is how you judge somebody. And this is where the millennials and I call them the gen Zers. The zers.
- [10:23]
Brian Belsky
Woo.
- [10:24]
Josh Brown
They are sol. And here's why. They had the thing called the vid. Nobody knows how to talk to each Other anymore look anybody in the eye or shake hands or talk, whatever. The greatest gift in this business is marketing and sitting across the table from somebody and know when they're lying to you, okay? Especially on Wall Street. And so if we're talking to a fund manager, if I'm going into Fidelity and I'm talking to Tom Allen law, I know Tom Allen for 25 years, small mid cap guy, amazing. I can tell by the way his body language is and how he's looking at me with whether or not he thinks I'm full of shit or he's there or he's asking me a question about a stock because he's actually really scared about it or he's actually really interested. That's how you find out about sentiment, not these stupid surveys because they preach, preach. They do not answer them, I'm telling you. So I think it's a bunch of shit. And with all due respect, Michael Hartnett, who I used to sit next to and actually I replaced Michael Hartnett, he went up. The whole reason why I went to Merrill is he was head of wealth management strategy and they moved into global market strategy and I took his job as head of.
- [11:28]
Michael Batnik
So if you don't believe in the fund manager survey, then you probably also ignore a lot of the bull bear AAII sentiment stuff as well because that if anything, that's probably even junkier. Junk science.
- [11:44]
Josh Brown
It is junkier. We've talked about this before. I've been blessed to be on your show for at least four times. And we talk about Bill O'Neill. And my very first mentor on Wall street was William O'Neill from Investor's Business Daily, God rest his soul. And he used to tell me, Belsky, he said, there's always something going on, there's always news, there's always things making stocks go up and down and don't get involved in the noise. And back in the early 90s that stuff worked. So did put to call ratio. Put to call ratio was great, but. But you have so much focus on investors intelligence. You have so much focus on the vix and so many people are building products around it. It's manipulated it now. So again, the best sentiment from my perspective is talking to clients, number one. But number two, we have models that we look at in terms of price performance. We do standard deviations and things like that from an intra sector type basis. That's how we try to measure volatility.
- [12:42]
Brian Belsky
It's funny, we think this is like a noisy period. Uncertainty is heightened. It's never been this Crazy. The S&P 500 is at an all time high. Credit spreads are at an all time low. The Vix is at 15. So what is this noise that we're hearing about?
- [12:57]
Josh Brown
I think it's. I don't know. I mean, I have some theories about it. It kind of goes in backwards order. I mean, I think Covid really messed us up emotionally. And then before that, from the financial services side of thing, was the financial crisis. And then before that, even. I'm talking about the tech wreck. I think the last. Since 1999, 2000, we've been so emotional in trying to. We're so afraid to be wrong. We don't want to be right. That's why analysts like the great Dan Ives. He had a dead period in the early 2000s. Why nobody trusted analysts. It was all quant. It was all leave, do your own models. Now he's coming back because he's so awesome and he's been so right, and he thinks thematically. But analysts and looking at bottoms up research went away after the tech wreck. Then the financial crisis. We were even more worried. We were printing money. We have not seen a normalized market, which hopefully we get to talk about that. We have not seen a normalized market since the 1990s. We've been under duress and craziness since, I think, 2000.
- [13:56]
Michael Batnik
I have two theories to add to that. You can throw both of these things on the pile and different people would probably weight them differently. But here goes. Number one, the business model of the media changed around 99, 2000. When you were selling newspapers and magazines for subscriptions. Pretty much the subscription money was gonna come in no matter what, regardless of whether people opened the newspaper or left it on the driveway. It was subscription. And they had an ad business, too. But the ad business wasn't as important with the birth of the Internet. Now it's not about subscriptions. Now it's about people. A certain amount of people have to click every day, no matter what. If you run a media business, you must bring in eyeballs, which turns the reporters into carnival barkers and forces them to frame everything in such a way that somebody coming across the headline will click on it. That's a business model shift. It's a secular shift. And it's hard to imagine us ever going back to, quote, unquote, normal markets like what we used to have, because everybody's in the attention business now. So that's. For me, that's a big one. The second one is we had two 50% bear market declines within seven years. And nobody wanted to be caught bullish ahead of the third one. That hasn't come yet, but it's 15 years and counting. But when you go through a decade with two back to back 50% drawdowns, it's really hard to just say everything's normal, everything's fine. It almost seems like you're saying that and it's setting you up to get your head cut off. So I think that both of those two phenomena have produced this environment where we are quote, unquote always on alert. What do you think?
- [15:38]
Josh Brown
No, I think that's spot on. It's directly correlated with what I was talking about. And if you think about the impact it's had on the actual investor in the United States, I was at Piper Jaffrey in 99, 2000 where the average US investor had 90% stocks and 100% of them were tech. And so that really burned them for a long time. Then if you think about the emotional side of that, where we went through nine, 11, we went through two recessions, we went through Enron, WorldCom, yeah, yes, Lucent, all those JDs, Unifase and Select, all these things. But then we also went through the advent of the euro where America didn't matter anymore. We were chasing the euro, we were going into emerging markets. Oil was hot, Canada was hot. China, China. China.
- [16:33]
Michael Batnik
And so is that a Maria Bartiromo impression?
- [16:37]
Josh Brown
Maybe.
- [16:37]
Michael Batnik
Not bad.
- [16:38]
Josh Brown
Thank you.
- [16:39]
Michael Batnik
What do you think about China?
- [16:41]
Josh Brown
What do you think about China? Anyway, so I think that was a big part of it. And then we lost credibility and hope for the financial services industry. I was at Merrill lynch at the time when my blessed firm was involved with a hostile takeover by bank of America, also known as the Evil Empire. And I was there during that time and it was scary. I mean that was scary. Cause we didn't know what was going on. And then Covid. And so I think the emotional response to this and now given the fact that we're tiktoking, this is how we read nowadays. We read like this. Okay. Yeah, okay. Yeah, yeah, yeah.
- [17:20]
Michael Batnik
We're in a post literate society. We're back to our oral traditions of a thousand years ago, right?
- [17:25]
Josh Brown
So that's where I'm going back to what I said before. To the zers out there, man. To the Z ers out there. Learn how to write. Not like this or not like this. Learn how to write and actually speak and look people in the eye and say hello and shake their hand and talk with them because you will set yourself Apart from anyone else.
- [17:45]
Brian Belsky
Brian, you said markets were normal in the 90s. What is abnormal? Like what feels so different about today versus that time period?
- [17:53]
Josh Brown
Well, the way that, I mean today was a typical day, which is now normal with all these crazy reversals and I'm sure we'll talk about it, but. So BMO has learned, I like to say that interest rates aren't going back to zero, okay? Interest, the way that the Fed has operated since 2007 is not normal. The way that they printed money, the way that stocks in the markets have gone in these wild gyrations is not normal. We believe that normalcy looks like kind of a 9596 market or an 8485 market where you've got. Going back to the historical returns of. Let's just keep it simple. Stupid. 10% appreciation, put a little dividend on the market. 10% earnings growth multiples somewhere between 18 and 22, which, oh by the way will be coming down because earnings are going to be coming up. We've had this whole transition of multiple expansion. Now it's going to be earnings growth and a trading range in the 10 year Treasury. I hate it when fixed income people come on or they talk about equities. So I'm not going to talk. I'm not a bond person. I stay in my lane. But I think what needs to happen is some sort of a trading range 100 basis point range 350 to 450 in the 10 year Treasury. That's a damn good backdrop to own equity. We're there, we're there. So I think this year we have jump started normalization. Hear me out. The deep seek thing was a shot across the bow. The Deepsake thing was a shot across the bow because people were buying Nvidia for the wrong reasons. People were buying Nvidia because it was going up. They didn't understand the funnel.
- [19:37]
Michael Batnik
How could it be wrong when it feels so right?
- [19:41]
Josh Brown
So it only works until it doesn't work. I think that was a major, major thing and they learned that. So I believe that is only going to exacerbate, is only going to exacerbate the spreading out, the broadening out into value, into dividend growth, into small cap, into mid cap because they got their ass kicked. And now we're going to kind of go back into stocks that are actually working and earning fundamentally.
- [20:04]
Michael Batnik
I want to talk about the bull case for America and this is you. You say use a domestic focus to dilute the tariff noise. We have been bullish on America for quite some time and have developed many of our investment strategy opinions around this premise. We continue to believe the US Will be a main source of relative growth in the coming years. As such, we have been advocating that investors not only focus on US stocks relative to other regions, but also focus on those stocks that derive a significant portion of revenue from domestic sources. And then you go on to talk about how you can kind of delineate between the two different buckets within the S&P 500. Share those thoughts with the audience and why you think that's so important for this year.
- [20:50]
Josh Brown
So here we are. Michael's talking about earlier. I tend to be on this program where there's these crossroads and the crossroads recently has been we've had this amazing news on Europe hitting new highs and China's working. And when it talks about Alibaba.
- [21:06]
Michael Batnik
Not a fan.
- [21:07]
Josh Brown
You know what I think about that?
- [21:08]
Brian Belsky
Such a hater. I love it.
- [21:09]
Josh Brown
You know what I think about that? Whatever. And Kurt Cobain said it best. Whatever. Never mind. And this is what I mean by that. So, as you know, I probably told my Warren Buffett store before, but Warren Buffett said, don't ever buy anything unless you can reach out and touch it. I don't understand why anybody want to go anywhere else that buy companies outside the United States. That's number one. Number two, I think that there is going to be continued volatility around the world. Fundamental volatility. And what do you do when you buy, when you want to combat volatility? You buy quality. What's the best quality asset in the world? US equities, period. And so everybody wanted to chase Europe because it's been a shit bag for a decade. That's great. Go for it. God bless ya. I'll say hello to the Holy Father for you. But they're not making anything. They don't do anything. Go there for vacation. That's fantastic. With respect to China, China needs us more than we need China. That's a declining asset. They've been declining for 10 or 15 years. So I think the US is the place to be. Now, from a distributive standpoint, I think we have the best franchises in the world. So from a fundamental perspective, you wanna find that has the sweet spot in terms of valuation, earnings growth and operating performance.
- [22:18]
Brian Belsky
So, Brian, you break it down. This is interesting to me. You say that you break it down in terms of companies that get more or less than half of their revenue from inside the United States. And from what is this? From the GFC to the Onset of the pandemic, it was basically even. It was 16.3 versus 16.6. But from the pandemic to today, stocks that have more than half the revenue outside the United States have kicked the shit out at 19 versus 17. A big spread. Is this just a tech story or is there more to it?
- [22:50]
Josh Brown
A big part of it. Is the tech story capsized too? Capsized. And a lot of people, I think a lot of people are confused about why technology works sometimes, especially after this big run after bouts of volatility. Guys, you'll notice that in the old days you just buy the big. The top 10 companies market cap wise because there's liquidity. Oh, by the way, are the top 10 companies, they're tech stocks. I mean there's something behind that. In terms of a liquidity standpoint, people seek things that they can get in and out of. From an equity perspective, in terms of liquidity, it is a tech side of storyboard. I think the big kicker though, again, you want to look forward, you don't want to look back. I think the big kicker in terms of earnings are going to be financials going forward. I think financial stocks remain undervalued.
- [23:35]
Michael Batnik
The analysts are even with the rally last year.
- [23:37]
Josh Brown
Yes. If you talk to financial stock analysts, they're still pretty negative. And we haven't seen any kind of major banking cycle. That's why when you hear about we have an AI bubble, can't have an AI bubble until we have all of these deals either consolidation or IPOs. And we haven't seen this major wave of IPOs.
- [23:56]
Brian Belsky
You know, it's a bull market when Citigroup and Wells Fargo are at multi year highs. So if Deepseek was the first shot across the bound, by the way, Nvidia closed the gap. So that entire decline has been brought back. Let's just say that tech pauses or stalls or heaven forbid even has a sell off. Can the market continue to work without the giants?
- [24:15]
Josh Brown
I think it can because look at what's happened in the MAG7. The MAG7 is comprised of three sectors, right? It's not all tech stocks, it's three sectors. Technology, communication services in Consumer Discretionary. We'll start at Consumer Discretionary. Our theory and our strategy for 2025 is barbell it, man. Barbell it. So on the magnificent seven properties within Consumer Discretionary, we're going to neutralize Amazon and Tesla and we're going to overweight Lulu, Home Depot, T.J. maxx, Marriott. Why? Tracking error. And we can get better performance there.
- [24:49]
Michael Batnik
I say so you Knew. So just for people that aren't fully versed in portfolio construction, the way to neutralize Amazon and Tesla is to own less of them than the market cap weight and take the excess capital that you have and overweight some of the other large names in the basket. And that way you're not making a bet on the highest priced securities in the sector.
- [25:13]
Josh Brown
Correct.
- [25:13]
Michael Batnik
But you still get the upside of the sector.
- [25:15]
Josh Brown
Correct. That's in our tactical stuff. Same thing within communication services. You've got the Netflix machine and the Google machine Meta. I don't own any meta but those two on one side. And on the other side of the barbell, Spotify, which isn't in the index. So you already have a big tracking area there. Spotify is an amazing company, but you also have AT and T and names like Reddit and things like that. That's how you can gain tracking error there.
- [25:39]
Michael Batnik
You're talking about tracking error positively.
- [25:42]
Josh Brown
You want the tracking error, I want tracking error because. So we've talked in the business, they talk a lot about stock picking. Right. When I go into institutional clients, I start talking about the golden age of stock picking and what I think stock picking is. The Gen Zers and the millennials, they look at me like these clouded eyes because they have no idea what I'm talking about. Can't I just buy an ETF and then that won't work.
- [26:07]
Brian Belsky
Brian, watch your mouth.
- [26:11]
Josh Brown
What did you expect? Anyway, I'm here to speak the truth, but I think that if you. I know that how you add value to a client is making a bet. Making a bet and believing in it and sticking with it and doing the homework. And that's how we've been able to outperform. That's why we bought Oracle 10 years ago. That's why we bought Palantir two years ago. That's why we Bought Nvidia in 2019, that's why we bought Netflix in 2014. Just because I believed in it. And I just kept on adding it and moving it around as Spotify is.
- [26:44]
Michael Batnik
An amazing example what you're talking about with tracking errors. So is it 200 billion yet?
- [26:49]
Josh Brown
Yeah, I bought it when it was. I bought Spotify and put it in my SMID portfolio when it was $30 billion.
- [26:56]
Michael Batnik
But what's so great about it is because it's not in the S&P 500, because it's a Scandinavian company, 100% of the upside is pure alpha. It's not in the index. And you ask why do people bother with Alibaba? Same Thing. If you're a hedge fund and you need a big liquid stock and you want to drive pure alpha, that's not part of the beta portion. You can do that with only a few international stocks that move like that. So Spotify has been a great tool.
- [27:26]
Josh Brown
To be able to Spotify. You know, I never. I'm in love, love, love, love, love with Apple. Love Apple. One of my really good friends in the business named Gene Munster, he was the Axon Apple Earth early on at Piper Jeffrey in the early 2000s. Like Belsky, you're not getting it. It's about the operating system. Cause I would say, I got a Dell Music Match. I got a Dell Music Match. It sounds great. He's like, belsky, you're not listening to me. It's about the operating system. Then finally I'm like, okay, I got it. And I've owned Apple ever since. But going back to Spotify, Spotify has a better product when it comes to music. You have better music. You can mix the songs together. There's no space in between.
- [28:07]
Michael Batnik
Show of hands, how many people listen to this show on Spot.
- [28:10]
Brian Belsky
Wow.
- [28:11]
Michael Batnik
It's like. It's more than half.
- [28:12]
Brian Belsky
Wow.
- [28:13]
Michael Batnik
And Spotify lets us upload the video concurrent with the audio now, which we started doing two weeks ago, which is like the new thing in podcasting. Apple's not. Apple does not provide that. They're behind the curve.
- [28:25]
Brian Belsky
Brian, you mentioned you're throwing out a lot of names. TJ Maxx, Lulu, Home Depot, AT&T. Reddit. How does the work get incorporated into your system? Are you leaning on the analysts? What exactly are you looking at to say, I want to buy that, I want to sell this?
- [28:42]
Josh Brown
It's a wonderful question. So we published this book in half son since 1998. It's called chart Book. And in the chartbook, we have four pages of information, four sections for every sector. And then we have in the background the spreadsheets on the industries and obviously the market. And so the four sheets are valuation, earnings growth, operating performance, and price performance. So that's how we make a lot of our sector decisions in terms of adding all that up together. And then we layer that into stocks. And so, for instance, the reason why we've owned Apple all these years is just because of price to free. Cash flow and earnings discernibility, meanings consistency of earnings of Apple have just been amazing. So it scores high off that. But we also have. We have all of these different screening mechanisms through FactSet or Compustat and all this kind of thing. But being that, you know, I'm the Doogie Howser of Wall Street. I've been in the business 35 years. I started when I was seven, by the way, ladies and gentlemen. I know a lot of people and if I don't have an analyst that covers it at bmo, I call them, I call them up. And so I lean on a lot of cool people, one of which I've already named. Dan Ives, his very good friend. Known him for a long, long, long time. And he, he's the one that, that convinced me to stick with Tesla.
- [30:07]
Brian Belsky
I know it's a science, not an art, but when you think about things like fundamentals, free cash flow versus valuation, so Apple, for example, not even specific to them, but I guess in this case specific to them, the fundamentals aren't great. There was a lot of valuation expansion last year. So how do you think about that? Again, doesn't be Apple specifically, but how do you like what supersedes what. What's the most important part of your story? Does it depend on the sector? Does it the stock, the market, the future?
- [30:29]
Michael Batnik
If you were just going by earnings growth, you would not. Love, love, love, love, love Apple.
- [30:33]
Josh Brown
Yeah. So here's the way I think about it. I think about Mrs. Thompson in Wilmer, Minnesota, where I grew up. And I think about Mrs. Thompson about. I'm not going to be your first love. My first love, she broke my heart.
- [30:48]
Brian Belsky
Was she with Veronica Vaughn?
- [30:50]
Josh Brown
She was Veronica Vaughn. I was an obscure Billy Madison. I have the microphone, so you listen to me for doing Adler. Anyway, I think about her, about why would I sell Apple if Apple's one of the best companies in the world? If I'm trying to limit turnover to 22%, that's really low turnover, ladies and gentlemen, where the majority of portfolio managers.
- [31:14]
Michael Batnik
In the 100, 150% turnover, 22% is extraordinarily low.
- [31:19]
Josh Brown
Yes. So for instance, in tech, I can hold Apple at a market weight position where I can underweight Nvidia. Why would I underweight Nvidia? Because I can't possibly keep up with the market cap changes. It's too volatile. But Apple, I can, because Apple's a stock I wanna own until something fundamentally operationally changes. Oh, by the way, that's why I buy companies too, because they fundamentally broken or operationally broken. And I put them in my value portfolio. So I look at the overall thematics everywhere, from company leadership to background to, to how they make it and their earnings. And it doesn't have to be a home. Every stock does not have to be a home run. Everything hasn't. Have to be working all the time. That's why you have a portfolio.
- [32:02]
Michael Batnik
Do you, when you decide that something is fundamentally broken with one of your stocks, do you sell slowly just in case you're wrong and price continues to prove you wrong? And then you say, all right, we got out of a third of the position, but this thing is still running and maybe, I'm not sure. Or do you ax it and you go from one quarter to the next? You own it. You don't own it, period. What's your methodology?
- [32:25]
Josh Brown
It's a great question.
- [32:26]
Michael Batnik
I'm very good at this.
- [32:27]
Josh Brown
You're very good. If I have a company that lies to me on a quarterly conference call where they were upping the numbers, talking the numbers up, and then they lie, sell the stock right away because I have to be able to trust them, and I'll put them in the penalty box.
- [32:44]
Michael Batnik
And you don't care what happens after?
- [32:45]
Josh Brown
I don't care. Guess what?
- [32:46]
Michael Batnik
You will take a position from 2% weight in a portfolio to 00 in that moment.
- [32:51]
Josh Brown
And I will. But I'll do the opposite, too. So one of the best stories over the last 12 months was Starbucks, okay? I'm sitting there with my team, and for some reason we had the stupid channel. I'm on cnbc. I'm sorry, CNBC was on.
- [33:05]
Michael Batnik
Best channel in the world.
- [33:06]
Josh Brown
Best channel in the world ever. And I watched this interview with the CEO of Starbucks, and I looked at my team. I said, this guy's getting fired. He's getting fired.
- [33:19]
Michael Batnik
I remember the day, too. I know exactly which interview you're talking about, okay?
- [33:22]
Josh Brown
He was talking about. And I'm like.
- [33:24]
Michael Batnik
I was watching it.
- [33:25]
Josh Brown
I'm like, dude, why are you talking about $9 mango teas, man? We can't afford those. I said, this guy's getting fired. So I said, guess what? We're gonna initiate a 200 basis point position, which is a big position for a brand new position in our value portfolio. And so my team's like, what? Pelski, you're nuts. I said, this guy's getting fired.
- [33:44]
Michael Batnik
The stock's in free fall. It's coming from 100 to 70.
- [33:47]
Brian Belsky
I bought it the same day. Let's go.
- [33:49]
Josh Brown
Right? So I bought it. And then what happened was it literally.
- [33:53]
Michael Batnik
Six weeks later, maybe not even. Yeah, they did the. You got almost instant gratification baller move.
- [33:58]
Josh Brown
They did the baller move by getting the dude from.
- [34:01]
Brian Belsky
They traded for Luka.
- [34:02]
Josh Brown
Yeah, they traded for Luka.
- [34:04]
Michael Batnik
They did they got Luka.
- [34:05]
Josh Brown
And so that's a different strategy though, right? You want to be a little bit contrarian and think differently, but on the opposite side, I will sell a stock if somebody lies to me. Or in our more disciplined, formulaic side, especially dividend growth, where we will sell a stock if they cut the dividend. If they cut the dividend, what's the.
- [34:25]
Michael Batnik
Worst sale you've made in the last five or ten years that you can think of, where you just say to yourself, I can't believe I'm not in this stock?
- [34:32]
Josh Brown
Meta.
- [34:34]
Michael Batnik
Same, same.
- [34:35]
Josh Brown
Yeah, I sold Meta. And from an operational standpoint, if you remember, he was talking about the Metaverse, we don't need to be in a WhatsApp or Instagram or Facebook because it's boring business. And we're gonna go to the Metaverse. I said, what the is the Metaverse? So I'm like, I'm out. I sold it. And then during the vid, he comes back and goes, we're gonna focus on our legacy businesses of WhatsApp, Instagram and Facebook. I'm like, this guy doesn't know what he's doing. And I said, you know what, From a correlation standpoint, what does that mean? How does the stock trade fundamentally in terms of earnings evaluation, but more importantly price performance relative to Google? Well, it's pretty much the same at that point. It was. I'm like, okay, guess what? I'm just putting all my Meta stock into Google and it's worked out okay.
- [35:22]
Brian Belsky
Brian, do you need to have a strong view on the future of AI, given it's like the dominant theme in markets today to manage a portfolio?
- [35:33]
Josh Brown
Yes and no. Obviously, I'm just a kid from Minnesota. I know, exactly. But I call really smart people like Dan and I have him explain it to me. Like, I'm four years old and I spent two hours on the phone with Dan on Sunday night when the whole deep sea thing and he calmed me down. But I mean, I think some of the greatest AI stocks aren't even technology stocks. They're Costco and Walmart.
- [35:58]
Brian Belsky
So you believe the efficiency gain story.
- [36:00]
Michael Batnik
Beneficiaries of AI.
- [36:01]
Brian Belsky
So 1000% say more.
- [36:04]
Josh Brown
I just think that. I just think that if you think about what AI is doing and you think some of the banks are. Some of the banks were very, very early adopters and huge, huge investors in fintech, which ultimately became big parts of AI. We're going to be able to walk into a branch anywhere here in the country, and the ATM or the teller is going to know what language you speak. That's all through A.I. think about that. So it's these types of things I don't think anybody thinks about. Obviously we think about walking into McDonald's and what kind of hamburger you want and Shake Shack and all that.
- [36:39]
Michael Batnik
But you pointed at me Shake Shack, because I wasn't there today.
- [36:44]
Josh Brown
No, but it's one of your favorite, by the way, you talked about earlier about why we buy stocks. So I really challenged my team. I said, what are people buying now? Where are the Z ers in the millennials? How are they spending their money? It's experiential still. Right. And that's what got us in Reddit. That's what kept us in Reddit. That's how we went into Shake Shack. Because I think they want it, they want the experience. I think Shake Shack is to the Z ers what Chipotle was to Millennials. The millennials.
- [37:13]
Michael Batnik
That's my actual thesis.
- [37:15]
Josh Brown
And my son went to the University of Nebraska and his apartment was on top of a Chipotle. And just let me tell you something, that kid spent a lot of money at Chipotle after 3:00 in the morning, three or four nights a week.
- [37:29]
Michael Batnik
You mentioned that Dan Ives calmed you down on Tesla. I want to ask you just broadly on Tesla, what do you do when a paradigm breaking company like that comes along? There's no way it fits neatly into any of the traditional models that you've ever looked at. It doesn't make sense as an auto manufacturer, even if you say this is innovation tech from a fundamental standpoint five years ago, it looks like it's going bankrupt. Of course you have no way to know that he's going to become the right hand man of the eventual president. Like none of those things are possible to predict. How do you have a research process? And then also, oh, by the way, we're long Tesla. What's the magic ingredient that you have to see that enables you to pull the trigger on a long situation like that?
- [38:20]
Josh Brown
Well, we default to the process which Tesla doesn't fit any of those. Process. That's number one, as you said. Number two, I have these amazing resources. And what do I say about how do you diffuse volatility through faith. And what's faith in our business? Fundamentals. I mean he is the Albert Einstein of our generation. He is. I don't understand him. I think he might be nuts, but at the end of the day, what he's been able to do with all these different companies. So I had an amazing Dinner with Danny Ives and a really, really great friend of mine, Nancy Tangler, who is one of the top 10 people I've ever met on Wall Street. She's amazing. We're having this dinner and I'm like, Danny, I said, prove to me, I said, prove to me that the crazy narcissist Musk can actually. Nobody caught that he can actually do all of these things. Okay. He's like Belsky, man, you don't get it, man. You don't get it. I said, what I get, man? He said, this is Dan. He's not doing really good. Dan Ives. But he said, the AI. The AI. The AI. They are the AI. You know what the bell's command. He's. He's been passionate my entire life. I've known him for 20 years. He's passionate about cutting costs. I said, what are you talking about? I said, even. He said, even when I was first going in and talking to Tesla, he has had spreadsheets and working on cutting costs in the United States government. He's been thinking about this.
- [39:39]
Michael Batnik
Is that true?
- [39:40]
Josh Brown
That's what Dan Ives told me.
- [39:42]
Michael Batnik
He was passionate about the United States government's budget.
- [39:45]
Josh Brown
Yes.
- [39:46]
Michael Batnik
Really?
- [39:46]
Josh Brown
Yes.
- [39:47]
Michael Batnik
Okay. Maybe there's more than meets the eye for all of us.
- [39:49]
Josh Brown
That's what I'm thinking. I'm like, okay, but you know, going back to my thesis, right? So if you barbell. If you're barbell. Consumer discretionary. Which it's in. Which is ridiculous, right? Like Uber's and industrials. Ridiculous. But at the. But. But we bought it Uber because you can take advantage of that anyway. So if you neutralize, you can be overweight Amazon. Right. And be underweight Tesla and be neutral. That part of the. Part of the Magnificent Seven. And then you overweight Lulu and Marriott and Home Depot and are you long Uber? I am.
- [40:23]
Michael Batnik
Okay, me too. It's my. That's my biggest conviction. Long.
- [40:26]
Josh Brown
I bought it two months before I got into the index.
- [40:29]
Michael Batnik
Okay.
- [40:29]
Josh Brown
Three months last year.
- [40:31]
Michael Batnik
So give me some copium. The stock is not at an all time high. It's close.
- [40:36]
Brian Belsky
Copium. It's working.
- [40:37]
Michael Batnik
It's 8. 79. I think it should be 100. I think it should be 100 to 120. I think the discount there is coming from fear about Wayne at Google and the Cyber taxi from Tesla. The stock was on its way and then the Cyber Cab announcement hit in April and it hasn't been the same. How do you think about competitive threats in disruptive industries? Because to me it looks like Uber has like I don't know, 50, 60% market share. And people think like, magically, overnight everyone's gonna be in an autonomous taxi. And it's just hard for me to picture.
- [41:15]
Josh Brown
Well, that speaks to the reactionary mode that we are in in terms of investing the binary red, red, green, yes, no, love it, hate it, Democrat, whatever. What are we. And so we're gonna react to everything. I think Uber's market share actually only increases because it's the better Company, number one. Number two, if you are an S&P 500 or Russell 1000, which are the proper indices for if you' large cap money in the United States of America, if you're walking into Fidelity and their benchmark against the S&P 500 and they have to be neutral, the industrial sector, Right. What is that portfolio manager buying now? What is he buying? He's worried about Lockheed Martin, he's worried about waste management. What are you gonna do with Boeing? Right? And then you got Uber. So now Uber is in the S&P 500 industrial sector. So he can't be naked, quote unquote naked, that sector or that stock. So he's got to buy it. So there's some implicit demand there. We got ahead of that because we kind of felt like it was going to get in the index. But we also. The stock was just terrible in the summer of 2024, if you remember. But at the end of the day, we're going to buy it because I think its market share goes up. I'm not going to overreact to what's happening with driverless cars and all that stuff. I think Uber's a really great company.
- [42:28]
Michael Batnik
You mentioned that if a CEO lies to you or to the people they're speaking to on a conference call, you're an automatic sell. I would not put Alex Carp at Palantir in that category, but I think he did surprise investors by announcing a larger insider selling program for him to get liquid on his own stock. By the way, from my perspective, with good reason, that stock has just gone up. I don't know, 5x. Who wouldn't want to sell some stock? How do you think about situations like a Palantir where you've obviously made a ton of money, you were very early to the name. Now it's, I don't want to say controversial, but now all of a sudden it's become a plaything of the bulls versus the Bears and extremely volatile this week.
- [43:12]
Josh Brown
I go back to the product. They've got a great product in terms of the software side of The AI and putting that together, number one. Number two, in terms of the defense stuff that came across that the defense budget's going to be cut, we don't know exactly where they're going to cut. And I would venture to. And again, in classic Wall street, sell it. We don't know, so sell it. It's just like the guy that the CEO from Lockheed was on today. I don't know why our stock, our contracts aren't going down. And so I think that's been an overreaction.
- [43:40]
Michael Batnik
But I do think sell first, ask questions later is the mentality.
- [43:44]
Josh Brown
I think he's a transformational CEO with a fantastic product and we can live with this volatility and we're sticking with the stock.
- [43:54]
Brian Belsky
Brian, I know you're not an economist, you're not a bond guy, but you are a strategist and you do manage models. In 2022 especially, it was all about inflation and interest rates. And I'm really happy that story's behind this. But it was the fear of inflation and rising interest rates that killed growth stocks. But now interest rates have settled in at around the same spot as they were when these stocks were getting killed. The companies have rebounded. Why do you think it is or what do you make of the fact that these businesses are no longer bothered, at least investors are no longer bothered by competition for interest rates?
- [44:30]
Josh Brown
Well, I think in the very beginning we talked about our original call Talking about the 25 year secular bull market and did a great job. Starting when, by the way, 2009.
- [44:44]
Michael Batnik
Not bad. We'll allow it.
- [44:46]
Josh Brown
Thank you. But nobody really talks about the impact of the 40 year secular bull market in bonds. And we had that year 2022 where both stocks and bonds were down together. And then we've heard a lot about the death of 60, 40 and a lot of investors lost money in bonds. And I think we need to kind of think about over the last 40 years, the majority of total return in fixed income vehicles was in price performance. Mike. It wasn't in yield. I think we're going back into a period where we're going to have a combination. We are going to get more performance from yield. You're going to be much more diversified. And so I don't think people talk about enough the destruction that the bond market did. Needless to say, I think just like everything else, if we're yes, no, green, red, walk, run, doing this all the time, I think a more flattish, normalized environment will be actually good for fixed income and equity.
- [45:52]
Michael Batnik
I want to not rehash, but we had a mini debate about dividend, high dividend versus dividend growth.
- [45:59]
Josh Brown
On television.
- [46:00]
Michael Batnik
On television. But we weren't really arguing. We were talking past each other. Because I actually agreed with the point that you made. Break down for us. Why focusing a portfolio selection process on dividend growers versus which stocks are paying the highest nominal yield today is so important for outperformance. Why is dividend growth your focus versus high dividend?
- [46:28]
Josh Brown
Well, sometimes high companies are paying high dividends because they're not growing at all anymore. And part of our whole process that we've talked about for decades is that there's three parts to a portfolio. When how we run a dividend growth portfolio. The largest part of the portfolio is what we call dividend aristocrats that are a subset of companies that have never cut the dividend for at least the last 20 to 25 years, that have free cash flow yields above the dividend yields because you have to be able to facilitate the dividend, meaning pay the dividend has positive earnings. Okay. And a yield above the market.
- [47:02]
Brian Belsky
So small list. Smallish.
- [47:04]
Josh Brown
No. Well here, here's a great, that's a great point. That's a great question. We in the beginning stages at bmo, we couldn't buy any financials. Why couldn't we buy financials? Because they cut the dividend during tarp. They couldn't pay dividends.
- [47:15]
Michael Batnik
They had to.
- [47:16]
Josh Brown
So a couple of the only companies in the financial services sector that we could own, Ameriprise and blackrock. Right. And so it took a while to get the banks going in there. And so that's the biggest part of the portfolio. Then you get a little juice in there in terms of high yield. We want to try to buy companies that do pay a higher yield like an AT&T or Verizon. 3, 4, 5% yield. Maybe they don't have the earnings growth, but they have the yield. And then finally, where the kicker is, you try to find those companies that are either beginning to initiate a dividend or really accelerating the dividend. And oh, by the way, there's some tech stocks in there. There's Microsoft and Apple. Who would have ever thought those names would be dividend growth names? But they are.
- [47:56]
Michael Batnik
You have some really great points about this in some of your recent research. Investing in consistent dividend growers has been a favorable long term strategy. Increasing interest rates do not hinder returns of dividend growth strategies. That's a big misnomer. I think people have. You have found that that is not the case you also point out, dividend growth stocks can help mitigate losses but also participate in market strength. So this is playing offense and defense simultaneously, which I think is sort of a lost art in the markets. Dividend growth has a diverse sector composition with a strong cyclical tilt. So a lot of people think of dividends and they think, oh, it's too defensive, it's utilities. So you're talking about how dividend growth is not necessarily that.
- [48:44]
Brian Belsky
What even are cyclicals these days? The economy is not cyclical anymore.
- [48:49]
Josh Brown
Well, I mean I grew up in the days that financials were cyclical, but they're not as much anymore. But it's parts of consumer discretionary cyclical industrials. Energy would be thrown there, materials are cyclical and there are some dividend names in there. But from our perspective, the biggest parts of where dividend growth is coming from are actually financials and technology.
- [49:14]
Michael Batnik
Right. You've pointed out, if you look at rolling one year monthly returns since 1990 in which the S&P 500 registered gains of 10% or more, dividend growth stocks actually eclipsed the broader market by 4.4 percentage points on average. So in bull markets, dividend growth stocks don't hold you back. They may not be the most exciting AI companies, but you've actually outperformed bull markets tilting toward dividend growth, which I would guess most people would not think would be the case having not seen your work.
- [49:50]
Josh Brown
They don't. And we have the good fortune of running two dividend growth portfolios for bmo. One's a North American dividend growth portfolio which has Canadian companies in there which traditionally pay higher yields. So we get even more torque there. But our US dividend growth portfolio also outperformed last year in a year that was just amazing for the overall market.
- [50:09]
Michael Batnik
What's the case for Canadian stocks?
- [50:13]
Josh Brown
Big game at 8:00. I'll tell you then.
- [50:16]
Michael Batnik
Well, I know. So BMO is obviously a Canadian domiciled bank and many of the clients of the bank, both individuals and institutions, they are Canadian. And of course it's not just home country bias. You tend to want to invest in things that you know. And you guys cover Canadian stocks extensively. What do you tell someone who's not Canadian why they should or should not consider Canadian stocks as a diversifier for their own portfolios?
- [50:44]
Josh Brown
Very big picture. A couple things from a management perspective. I think in a lot of ways corporate managements in Canada are better than in the US because they think of really long term, especially in the financial services industry. Now they're cheap as hell at the banks, but they're amazingly run, they're excellent stewards of capital from. The second thing is that a lot of people don't understand that 90% of the Canadian population lives within 100 miles of the US and there's a lot of stuff going around, which is why.
- [51:12]
Michael Batnik
We need the wall.
- [51:13]
Josh Brown
We need the wall. But so anybody. So everybody here from Naples?
- [51:21]
Michael Batnik
Yes.
- [51:21]
Josh Brown
Okay. All right, so you're driving down Immokalee, right? From. And before you hit the freeway, on the right hand side there's a circle K, right? Do you know that's a Canadian company? No.
- [51:34]
Michael Batnik
Oh, boycott.
- [51:37]
Josh Brown
No. So they have these amazing companies that the majority of revenues are here in the U.S. so it's couchtard, it's waste connections, it's the rails, some of the banks Shopify. I mean, Shopify's an amazing company. It's the portal for small mid cap companies. But so the day that Trumpy was talking about all the tariffs, right? February 2nd, I'm in Minnesota for a family function and I purposely did not turn my BMO phone on cause I knew all hell was gonna break loose. So I get on the airplane, man, and I have 50 emails. Belsi, you gotta write a report. You gotta write a report.
- [52:15]
Michael Batnik
Defend our honor.
- [52:16]
Josh Brown
Yes. So it's like so when someone's relying on me to be the voice of reason. No. Anyway, so I was up till midnight writing this piece and I said, listen, I said, control what you can control. Control what you can control. There's a bunch of amazing companies in Canada. And I said this in print, quote unquote, that can, will and should outperform the market. Canadians were acting like that day, February 3rd was the start of the recession. So I knew that. So I had this cool chart that showed the average recession, the last 10 recessions in Canada. From the start of the recession to the next six months, the average market drawdown is 4%. There was stuff floating around the press that the market was Gonna Open down 8%, open down 10%. People were freaked out. Now, with all due respect, Canada is a fearful nation. They take everything very literal, they're very serious. But I coined this phrase about 10 years ago. I believe the average Canadian investor is the moral equivalent of the mythical creature Eeyore because, oh, it's snowing.
- [53:26]
Michael Batnik
You know this is gonna air, right?
- [53:27]
Josh Brown
I know it is. And they know, by the way. And I love them. I love the Canadians. I love them. And I had one of the best client, one of the best client conversations I've ever had was with a Canadian private client here in Naples at Belen, when my portfolio that she owned was down 15% in May of 2022. It was an amazing conversation. Anyway, so the Canadians are scared. And we came in and said, just control what you can control, man. It's gonna be okay. We don't know. We don't know what's gonna happen. So this is how you do it. So what ended up? The market was down. It was down originally 5% in the open, and it closed only down 1%.
- [54:03]
Brian Belsky
No big deal. So, Brian, you've got a price target for the S and P, at least at the end of January of 60, about 9, 10% higher. Any. What are you worried about? I know you're still bullish, but what are. What.
- [54:16]
Michael Batnik
Oh, and by the way, you're not the most bullish anymore. You were and you were right. But your colleagues, many of many of them have now higher price.
- [54:25]
Brian Belsky
Yeah. What the your problem?
- [54:27]
Michael Batnik
Yeah.
- [54:27]
Josh Brown
What the is going on? So. So we were doing Adam sand earlier. So let's do a little Will Ferrell. If he ain't first, you're last. So I was the first to put my forecast out, and I put it out a week after the election. And I do that every election year because people are obviously freaked out and emotional. So we were early on the 6700. 275, which I think the 275 number is too low, by the way.
- [54:51]
Michael Batnik
275 in earnings for the S and P this year?
- [54:53]
Josh Brown
Yes. Okay. And so we wrote in the report we reserve the right to change our opinion. Meaning I think there's a possibility that we up this thing, but we'll see how that goes. But at the end of the day, we've had this. People know that we've had this long term, this long term call. And I don't like making weekly calls in the market or monthly calls on the market. A lot of my competitors love to do that stuff. I'm not that smart. So without much humility, I'll stick with our 6700 for now. 275, which is really a higher number.
- [55:26]
Michael Batnik
You gotta feel good about that 275 given what the earnings reports were for Q4, and I guess we're now 85% through those reports. I know Nvidia is the big one out there still. Next week you got Berkshire as well and a few other big ones. But the 275 has to feel safer now than it did on December 31st. Given what we have 16% 15% earnings growth so far.
- [55:52]
Josh Brown
It does. So we looked at. We had this chart in our year ahead piece that shows the top. The Magnificent Seven earnings growth kind of peaking and rolling over for the forecast. But the other 493 stocks, in terms of their earnings growth just accelerating. And that's like, okay, guess what? I'm going to be a stock picker. Let's barbell this thing. We will continue to ride the waves of the Magnificent Seven. But, oh, by the way, we're going to diffuse and dilute our risk a little bit by owning some of these other names.
- [56:19]
Michael Batnik
So back to Michael's original question.
- [56:21]
Josh Brown
What scares me?
- [56:22]
Michael Batnik
What is the one thing that you're most concerned with?
- [56:24]
Brian Belsky
You're big. Like, there's cyclical bears, right? There always are. Within a secular bull. Even a 20% decline from. From today. That would take us back to January 24 or 20. I'm sorry, 23. So nobody wants to see that. But would that be like the end of the world if we were to get some sort of a reset in this?
- [56:42]
Michael Batnik
It'll feel that way.
- [56:42]
Brian Belsky
It'll feel like shit.
- [56:43]
Josh Brown
Of course it'll feel that way. So I think that. Can we get a 10% drawdown? Yeah, I think we can. And actually, I never like to say I don't like when stocks go down. I don't like when people lose money, but we need to shake out something a little bit. And that would create the next, I think, great buying opportunity for this bull market, which I still think has a ways to go.
- [57:03]
Brian Belsky
We need a wall worry.
- [57:04]
Josh Brown
We need a wall. We need, man, we need my.
- [57:06]
Michael Batnik
What is it? Is it tariffs for you? Is it inflation?
- [57:08]
Josh Brown
It's something.
- [57:09]
Brian Belsky
Is it tech earnings?
- [57:10]
Josh Brown
It's not tech earnings. I think there'll be. I think it's going to be the inflation side of things. People not understanding that maybe we're not going to get back to 2%, what that means.
- [57:19]
Michael Batnik
Well, we're not.
- [57:20]
Josh Brown
No, we're not.
- [57:20]
Michael Batnik
Spoiler, we aren't.
- [57:22]
Josh Brown
The compound has learned that we're not going back to 2%.
- [57:24]
Michael Batnik
Well, if we do, it's really bad news. There's a really bad reason for us getting that, because it seems stickier than we thought it would be. But it also seems to be in a little bit of a stasis.
- [57:36]
Josh Brown
Right. I don't need the Fed to do this. I don't really care about the whole interest rate side of things because the Fed funds, futures, things been so wrong for two years. And it drives me crazy when people talk too much. About it. You know, I'm really happy about that. We have not said the word momentum.
- [57:49]
Michael Batnik
Okay.
- [57:50]
Josh Brown
A lot.
- [57:50]
Michael Batnik
Well, now you did.
- [57:51]
Josh Brown
I know. So if anybody ever cat out of the bag. Have you ever seen the movie Elf? And there's that classic classic line and Elf. Call me Elf one more time.
- [58:00]
Michael Batnik
Yeah.
- [58:00]
Brian Belsky
You feeling tough?
- [58:01]
Josh Brown
Yeah.
- [58:02]
Brian Belsky
You're feeling strong?
- [58:03]
Josh Brown
I'm so sick and tired. I was all momentum stock, momentum stock. Oh my gosh.
- [58:08]
Brian Belsky
You know why, what's your, what's problem?
- [58:10]
Josh Brown
Because you don't buy. We went back to deep sea. You don't buy stocks because they're going up. You buy them because they're working fundamentally. If you go back, we do this really cool report called the Factor Profile Report. We go back 57 investment factors and we measure the performance of these factors since 1990. You know the number one, you know the number one factor in the United States stock market since 1990?
- [58:28]
Brian Belsky
EPS growth.
- [58:29]
Michael Batnik
Wait, let me try to guess it. The number one, like the investment factor to overweight. That would have beat everything else.
- [58:35]
Josh Brown
Yes.
- [58:36]
Michael Batnik
Momentum.
- [58:37]
Josh Brown
No, it's not even the top 10.
- [58:39]
Michael Batnik
Oh, I'll leave then.
- [58:40]
Josh Brown
See you later. It's low price.
- [58:44]
Michael Batnik
Low price? What do you mean low price?
- [58:45]
Josh Brown
If you buy the 25 lowest price stocks in the S&P 500, you buy them in the first day of the month, you sell them on the next, the last day of the month and you reset low price.
- [58:52]
Brian Belsky
What do you mean by low price?
- [58:53]
Michael Batnik
Like, like the $10 stock versus low price.
- [58:55]
Josh Brown
Yes.
- [58:56]
Michael Batnik
Come on.
- [58:56]
Josh Brown
Yes. You know the number two, don't tell.
- [58:58]
Michael Batnik
This audience that they'll be buying dollar stocks.
- [59:01]
Josh Brown
Don't tell us the compound annual growth rate of that strategy is 25%.
- [59:06]
Michael Batnik
So why don't more people run that strategy? Because it's like embarrassing because it's insane.
- [59:13]
Josh Brown
But also price of free cash flow and enterprise value to EBITDA, you don't find momentum until like number 25, 26, 27. In the very worst of the 57 investment factors that we look at.
- [59:24]
Michael Batnik
Momentum.
- [59:25]
Josh Brown
No.
- [59:25]
Michael Batnik
All right, that guy. Best amendment.
- [59:27]
Josh Brown
Estimate dispersion, meaning the analysts that cover all these stocks, we measure all their earnings estimates. And the wider, the dispersion, meaning the wider range of the numbers. If you buy those companies with a really wide range of numbers, you're gonna lose them.
- [59:40]
Brian Belsky
That's 57 factors. What's one of them? Companies that start with the letter F. No, there's.
- [59:45]
Josh Brown
Come on. Are you kidding me? So you can go everywhere from one month percentage versus three month percentage to earnings. You can, you Can I can get.
- [59:52]
Michael Batnik
You a toe, dude, I can give.
- [59:53]
Josh Brown
You like 15 earnings by 3:00 this afternoon.
- [59:57]
Michael Batnik
Last thing, last thing we got to get to. I mentioned it. Nvidia is obviously looming large in the minds of everyone, whether they own it or not. It is the bellwether stock. There are people now throwing earnings watch parties at bars in Manhattan. I have not been to one of these. But this is a very big part of the expected earnings growth for the S and P in 2025 yet again, it's the second largest market cap in the market or the largest depending on.
- [60:25]
Josh Brown
What day it is.
- [60:26]
Michael Batnik
So they'll report on Wednesday and I expect obviously a lot of media attention on that number. How do you, 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? And what happens to the broader market in the event of an actual disappointment?
- [60:47]
Josh Brown
That's the.
- [60:49]
Michael Batnik
What is your price target by the end of that day on the S and P?
- [60:54]
Josh Brown
I might be revising. No, I think it's about the.
- [60:58]
Michael Batnik
You agree that there's going to be a lot of commotion around whatever that report is.
- [61:03]
Josh Brown
It's going to be widely speculated. I think it's all about what he's going to talk about. Revenue growth. I think that's going to really be.
- [61:09]
Michael Batnik
The key thing, the Q and A.
- [61:11]
Josh Brown
I really believe that.
- [61:11]
Michael Batnik
The guidance.
- [61:12]
Josh Brown
Yep. I think the guidance and the revenue growth thing is going to be a really, really big deal. And maybe he does a Kevin Bacon and Animal House. Remain calm. All is well.
- [61:22]
Brian Belsky
36 footloose.
- [61:23]
Josh Brown
No, I'm not gonna do that. Just slow down. Everything's gonna be okay. I mean, when you have the best product, I mean you can act like that. And so I think it's gonna be all about the guidance and what that reads out for the next three or four quarters.
- [61:35]
Michael Batnik
Ladies and gentlemen, Brian Belsky. So we like to end the show by asking our guests what they are most excited for or looking forward to in the future. And so we won't do Nvidia again. But what's something. It could be personal, it could be business, it could be any, anything. What are you excited about? What are you most looking forward to?
- [61:58]
Josh Brown
Just got done watching Landman. I highly recommend that. So good, so good.
- [62:03]
Michael Batnik
That show of last year.
- [62:04]
Josh Brown
Better than Yellowstone. I would say that I'm looking forward. Here's a little on a personal note. So I'm a grandfather, believe it or not.
- [62:18]
Michael Batnik
You're not gonna say the blue martini today.
- [62:20]
Josh Brown
No, no, no, no, no, no, no, no, no, no.
- [62:21]
Michael Batnik
All right.
- [62:22]
Josh Brown
And so I'm known as.
- [62:23]
Michael Batnik
I don't know where this is going.
- [62:25]
Josh Brown
No, no, no. I'm known as Pops because I told my. When my daughter told me she was pregnant, she said, daddy, she said, you get first dibs on what you want to be called because my. My ex wife's remarried and they've got all these other dads and stuff running around. I said. I said. I said, I don't mean to be vain or anything, but do I look like a grandpa? I said, we're going with Pops. And so my grandson. I'm looking forward to my grandson turning one. And so it's going to be amazing. And he's a monster. He's 25 or 26 pounds. He's an amazing. And I'm so blessed to have him in my life. So that's what I'm looking forward to.
- [63:00]
Michael Batnik
Have you said the word pops yet?
- [63:01]
Josh Brown
So he was here for over. Just over Christmas, and I'm literally. I let my daughter just go lay in the sun and his dad go do whatever, and I'm taking him for walks. I'm like, pop, pop, pop, pop, pop, pop, pop, pop.
- [63:16]
Michael Batnik
Come on, man. Trying to manifest it.
- [63:18]
Josh Brown
And I get to go home and back to Minnesota next week and take care of him for a couple days. So I'm really excited for that.
- [63:22]
Michael Batnik
All right, Michael, would you like to try to top that?
- [63:24]
Brian Belsky
I'm just looking forward to getting home. It's been gone for a week. It's.
- [63:27]
Michael Batnik
You've been here for a long time. All right, Michael Batnik, ladies and gentlemen.
- [63:31]
Brian Belsky
Thank you.
- [63:33]
Michael Batnik
And before I. Before I tell you what I'm looking forward to, I want to acknowledge the crew that makes all of this possible, and not just today, but every week. All of the shows that we record, we film, we edit, we publish, they are honestly. There is no one working in financial media that is capable of doing what this crew does. And I want to acknowledge them individually. Ladies and gentlemen, Miss Nicole. Big John. I think Duncan is somewhere in the rafters. Oh, we have him here. Get up here. Where are you hiding? Get up here. Wave hello. They can't see you. They can't see you. Give it up for Duncan Hill and. And the troop leader, Rob Passarella, ladies and gentlemen. And guys, they love you so much. I want everyone in the audience here live, but also everyone watching. They love you so much. We love you. They love you. They think about every detail. If we're late with a show, it bothers them. They never wanna put something out that's substandard. They edit late into the night to get this right. They really care about you. And you guys coming out to this really makes them feel like that love is reciprocal. So one more time.
- [64:52]
Brian Belsky
Thank you.
- [64:56]
Michael Batnik
And I want you to know what I am most looking forward to is continuing this show for all of you. We get incredible feedback from you guys throughout the course of the year. I know it's helping you become better investors. I know it's helping you feel better when we're going through market corrections that we're going to get out to the other side of this. I know that what we're doing is important. It's not just something that you throw on when you're riding a bike or whatever. I know it's meaningful in all your lives. And so the thing that I am most looking forward to is doing this with you guys. Like the video said before, forever. Round of applause. Thank you so much, guys. We appreciate you. And anyone that wants to come say hello, we'll figure out a way to do do that. Because I know many of you travel to be here, and I want to get a chance to say hi and say thank you in person. So. All right, on behalf of all of us here at the compound and friends, that's a wrap. We love you, Naples. Thank you so much for coming out. We'll see you soon.
- [66:03]
Josh Brown
Sa.