1 00:00:00,040 --> 00:00:03,280 Speaker 1: Out to you by b a SF We create chemistry. 2 00:00:06,720 --> 00:00:11,040 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. 3 00:00:11,520 --> 00:00:14,320 Speaker 1: This week on the podcast, I have a very special guest. 4 00:00:14,920 --> 00:00:19,320 Speaker 1: His name is Louis Navalier and he is best known 5 00:00:19,640 --> 00:00:23,600 Speaker 1: as a stock picker and newsletter writer as well as 6 00:00:23,640 --> 00:00:27,160 Speaker 1: an asset manager running about two and a half billion 7 00:00:27,200 --> 00:00:31,360 Speaker 1: dollars at Navalier and Company. If you were a financial 8 00:00:31,400 --> 00:00:34,920 Speaker 1: television viewer in the nineties or two thousands, you very 9 00:00:35,360 --> 00:00:41,560 Speaker 1: much probably saw Louie on TV discussing the markets, talking 10 00:00:41,560 --> 00:00:45,400 Speaker 1: about how and why he picks various small cap stocks 11 00:00:45,440 --> 00:00:51,000 Speaker 1: and and his approach of using both quantitative and behavioral 12 00:00:51,840 --> 00:00:56,320 Speaker 1: uh information in order to make stock selections. UH. No 13 00:00:56,440 --> 00:00:59,840 Speaker 1: less an authority than the Hulbert. Hulbert Financial die J 14 00:01:00,760 --> 00:01:04,640 Speaker 1: named one of his newsletters as the top performing stock 15 00:01:04,720 --> 00:01:09,080 Speaker 1: selecting newsletter of the past twenty years. UH. And although 16 00:01:09,120 --> 00:01:11,679 Speaker 1: we all know that past performance is no guarantee of 17 00:01:11,720 --> 00:01:16,400 Speaker 1: future returns, what I found so fascinating about my conversation 18 00:01:16,800 --> 00:01:21,880 Speaker 1: with Louis was the approach he took to selecting stocks 19 00:01:21,920 --> 00:01:25,400 Speaker 1: and how that grew out of a project that he 20 00:01:25,480 --> 00:01:28,920 Speaker 1: began in college. What what is so interesting is Navalier 21 00:01:28,959 --> 00:01:31,880 Speaker 1: and Company is pretty much the only job he's ever had. 22 00:01:32,000 --> 00:01:34,760 Speaker 1: Right out of school. In college, he was working on 23 00:01:34,800 --> 00:01:38,040 Speaker 1: a project to try and find a cheaper way to 24 00:01:38,200 --> 00:01:43,440 Speaker 1: put together a SMP five hundred UH substitute, in other words, 25 00:01:43,640 --> 00:01:47,680 Speaker 1: mashed the performance of the SMP five hundred but using 26 00:01:47,760 --> 00:01:52,280 Speaker 1: less stocks in order to keep your costs down. And 27 00:01:52,520 --> 00:01:55,880 Speaker 1: unfortunately they were unable to do that. Uh. They ran 28 00:01:55,960 --> 00:01:58,400 Speaker 1: into a problem and that the index that they were 29 00:01:58,400 --> 00:02:00,680 Speaker 1: putting together kept out before arming the S and P 30 00:02:00,840 --> 00:02:04,040 Speaker 1: five and so based on the research that had gone 31 00:02:04,040 --> 00:02:07,680 Speaker 1: into that, he launched Navalier and Company. He launched his 32 00:02:07,680 --> 00:02:11,320 Speaker 1: own newsletter right at his school, was pretty successful right 33 00:02:11,360 --> 00:02:14,440 Speaker 1: off the bat and has grown it into uh quite 34 00:02:14,480 --> 00:02:19,280 Speaker 1: a successful business. So, with no further ado, here is 35 00:02:19,400 --> 00:02:27,679 Speaker 1: my conversation with Louie Navalier. This is Masters in Business 36 00:02:27,760 --> 00:02:31,880 Speaker 1: with Barry Ridholts on Bloomberg Radio. I have a very 37 00:02:31,960 --> 00:02:36,120 Speaker 1: special guest. His name is Louie Navalier. He is the 38 00:02:36,200 --> 00:02:40,160 Speaker 1: founder of Navalier and Associates. And if you have been 39 00:02:40,200 --> 00:02:43,160 Speaker 1: involved in the markets for any length of time, you 40 00:02:43,280 --> 00:02:47,240 Speaker 1: certainly have to be familiar uh with Mr Navalier. He 41 00:02:47,400 --> 00:02:50,720 Speaker 1: is well regarded as both a stock picker and a 42 00:02:50,760 --> 00:02:55,560 Speaker 1: long term investor. Uh He started a newsletter in night, 43 00:02:55,760 --> 00:03:01,000 Speaker 1: which The Hulbert Financial Digest called his Emerging Growth Newsletter 44 00:03:01,480 --> 00:03:04,760 Speaker 1: as the number one performer over a twenty year period 45 00:03:05,160 --> 00:03:08,360 Speaker 1: looking from nine eighty five to two thousand and five. 46 00:03:09,040 --> 00:03:13,560 Speaker 1: In seven, he began managing assets for individuals. They his 47 00:03:13,639 --> 00:03:19,560 Speaker 1: office currently runs more than two point five billion dollars. 48 00:03:19,680 --> 00:03:22,320 Speaker 1: If you look at the period from five through two 49 00:03:22,320 --> 00:03:26,280 Speaker 1: thousand and eight, following the advice of our guest, you 50 00:03:26,320 --> 00:03:30,240 Speaker 1: would have seen gains of over two thousand percent versus 51 00:03:30,280 --> 00:03:32,680 Speaker 1: the S and P five hundred index, which had an 52 00:03:32,720 --> 00:03:37,800 Speaker 1: increase of barely eight hundred and sixty. Louis Navalier, Welcome 53 00:03:37,840 --> 00:03:40,800 Speaker 1: to Bloomberg. It's great to be here. So I I'm 54 00:03:40,840 --> 00:03:44,240 Speaker 1: familiar with your career for a long time. You you 55 00:03:44,360 --> 00:03:47,720 Speaker 1: were a fixture on the media, in the media in 56 00:03:47,760 --> 00:03:54,120 Speaker 1: the nineteen nineties and beyond. But your career kind of 57 00:03:54,840 --> 00:04:00,640 Speaker 1: started unusually. You began in nineteen eighty deep into a 58 00:04:00,720 --> 00:04:05,040 Speaker 1: multi decade bear market. What what made you in nine 59 00:04:05,320 --> 00:04:09,360 Speaker 1: eight say I know, let's go buy equities. Well, prior 60 00:04:09,400 --> 00:04:13,440 Speaker 1: to actually when I was in college, UM, I was 61 00:04:13,480 --> 00:04:17,760 Speaker 1: building them index products and UH I had access to 62 00:04:17,800 --> 00:04:21,360 Speaker 1: Wells Fargo's computers, and index funds hadn't taken off then, 63 00:04:22,040 --> 00:04:24,320 Speaker 1: but they were they were starting up. So we were 64 00:04:24,360 --> 00:04:26,640 Speaker 1: trying to figure out how many stocks we needed to 65 00:04:26,760 --> 00:04:30,240 Speaker 1: mirror the SMP five hundred and the obvious answer wasn't 66 00:04:30,320 --> 00:04:32,880 Speaker 1: five hundred? Can we do it with less and get 67 00:04:32,920 --> 00:04:35,680 Speaker 1: the same correct? It's all the tracking correlation. Anyway, I 68 00:04:35,680 --> 00:04:37,960 Speaker 1: figured I need three two stocks. So I was very 69 00:04:38,000 --> 00:04:41,120 Speaker 1: proud of this three and three two stock portfolio designed 70 00:04:41,279 --> 00:04:43,320 Speaker 1: to track the SMP. But I have to meet to you. 71 00:04:43,360 --> 00:04:45,080 Speaker 1: I was a failure. It started to beat the market, 72 00:04:45,120 --> 00:04:47,520 Speaker 1: which was not the objective. That's tracking error in the 73 00:04:47,600 --> 00:04:50,080 Speaker 1: right direct correct. So I learned that I was lied to. 74 00:04:50,200 --> 00:04:53,000 Speaker 1: There there are anomalies on Wall Street, U, there are 75 00:04:53,080 --> 00:04:55,280 Speaker 1: high off of stocks. So I went out to document 76 00:04:55,360 --> 00:04:58,279 Speaker 1: these anomalies. And originally I started in small cap and 77 00:04:58,320 --> 00:05:01,760 Speaker 1: I'm still highly ranked there, but I UH predominantly large 78 00:05:01,800 --> 00:05:04,800 Speaker 1: cap manager right now because I remember you as a 79 00:05:04,880 --> 00:05:08,800 Speaker 1: small cap stock picker from the nineties and really a 80 00:05:09,000 --> 00:05:12,160 Speaker 1: quant before we use the term quants, is that is 81 00:05:12,200 --> 00:05:15,480 Speaker 1: that a fair statement? That's correct? Um our our QUANDT 82 00:05:15,560 --> 00:05:19,320 Speaker 1: is just basically designed to find great risk adjusted performance 83 00:05:19,440 --> 00:05:23,000 Speaker 1: and also to lock in on the fundamental nomalies that 84 00:05:23,040 --> 00:05:26,480 Speaker 1: everybody's trying to identify. So we're a little different than 85 00:05:26,520 --> 00:05:29,040 Speaker 1: most quants. Most quants nowadays just want a front run 86 00:05:29,160 --> 00:05:32,359 Speaker 1: order flow, whether it's the hedge funds front running the 87 00:05:32,440 --> 00:05:34,280 Speaker 1: h f T order flow and just riding. It's kind 88 00:05:34,279 --> 00:05:37,200 Speaker 1: of like surfing. Uh. And then there's the quants that 89 00:05:37,640 --> 00:05:40,880 Speaker 1: basically front run the rustle rebalancing every year. So uh, 90 00:05:40,960 --> 00:05:42,520 Speaker 1: you know, at the end of June wrestled as all 91 00:05:42,560 --> 00:05:45,239 Speaker 1: it's rebalancing. That's a huge deal for all the tracking 92 00:05:45,279 --> 00:05:47,839 Speaker 1: managers because they want to be ahead of the rebalancing 93 00:05:47,839 --> 00:05:50,800 Speaker 1: and the ETFs come in and pop everything. So my 94 00:05:50,960 --> 00:05:53,520 Speaker 1: quand is totally different is I just want great risk 95 00:05:53,520 --> 00:05:56,880 Speaker 1: adjusted performance. As things get volto, we tiptoe out and 96 00:05:56,920 --> 00:05:59,440 Speaker 1: I have to make sure they're always fundamentally superior. But 97 00:05:59,520 --> 00:06:02,560 Speaker 1: what Wall St wants fundamentally is changing and that's the fun. 98 00:06:02,640 --> 00:06:05,120 Speaker 1: Part of what we do is UM. What we do 99 00:06:05,200 --> 00:06:07,800 Speaker 1: is called behavioral finance. We lock in UM what it's 100 00:06:07,839 --> 00:06:10,039 Speaker 1: working on Wall Street, and we score the stocks in 101 00:06:10,080 --> 00:06:13,039 Speaker 1: that criteria and then we tweak our models quarterly. So 102 00:06:13,040 --> 00:06:16,760 Speaker 1: so let's talk about those fundamental anomalies. What what is 103 00:06:16,760 --> 00:06:20,040 Speaker 1: a fundamental anomaly? And then how can investor you profit 104 00:06:20,080 --> 00:06:23,360 Speaker 1: from that? Well, we actually put all the research free 105 00:06:23,520 --> 00:06:25,880 Speaker 1: on our websites, both on the publishing side and our 106 00:06:25,880 --> 00:06:28,920 Speaker 1: our management company site. But we have a dividend grader 107 00:06:29,000 --> 00:06:31,560 Speaker 1: and a stock grader there. The dividend grader is mostly 108 00:06:31,560 --> 00:06:36,240 Speaker 1: about you know, return and equity, cash flow, UH, sustainability, 109 00:06:36,279 --> 00:06:39,000 Speaker 1: increasing dividends, while when you get to the stock grader, 110 00:06:39,080 --> 00:06:43,120 Speaker 1: it's things like sales growth, margin expansion, earning stability, earnings momentum, 111 00:06:43,440 --> 00:06:48,440 Speaker 1: cash flow um, retrying equity anserings, revisions are any surprises? Now, 112 00:06:48,560 --> 00:06:51,359 Speaker 1: those aren't all the criteria we test. And when you 113 00:06:51,360 --> 00:06:53,440 Speaker 1: get too small cap, surprises are a bigger deal, and 114 00:06:53,480 --> 00:06:56,160 Speaker 1: so is momentum. When you get to large cap, stability 115 00:06:56,200 --> 00:06:58,839 Speaker 1: is a bigger deal. Okay, And that's interesting. So you 116 00:06:58,880 --> 00:07:02,719 Speaker 1: have different rules in different neighborhoods and um, those fundamental 117 00:07:02,839 --> 00:07:07,640 Speaker 1: rules sound somewhat similar, not identical, but somewhat similar to 118 00:07:07,760 --> 00:07:10,760 Speaker 1: what the marketers these days are calling smart beta. Is 119 00:07:10,800 --> 00:07:13,160 Speaker 1: that A Is that an accurate assessment? Sure? I I 120 00:07:13,200 --> 00:07:14,920 Speaker 1: have what I have a smart beta e t F 121 00:07:14,960 --> 00:07:17,800 Speaker 1: with Oppenheimer, I've had it for years, and that e 122 00:07:17,920 --> 00:07:20,520 Speaker 1: t F happens to be sales weighted rebalance every quarter. 123 00:07:21,040 --> 00:07:23,960 Speaker 1: So they basically took our top hundred A rated stocks 124 00:07:24,200 --> 00:07:27,560 Speaker 1: and we rebounced quarterly to it. The thing with any 125 00:07:27,600 --> 00:07:31,400 Speaker 1: smart beta product is what what does it cost to 126 00:07:31,480 --> 00:07:34,120 Speaker 1: you to get in out? Okay? And in the e 127 00:07:34,160 --> 00:07:35,920 Speaker 1: t F world, you gotta be careful because et F 128 00:07:35,960 --> 00:07:37,880 Speaker 1: s can have premiums to get in and discounts to 129 00:07:37,920 --> 00:07:41,280 Speaker 1: get out, so you gotta be really careful. The rebalancing 130 00:07:41,320 --> 00:07:45,440 Speaker 1: costs um so I think some of the smart beta 131 00:07:45,440 --> 00:07:47,920 Speaker 1: products aren't as successful as they should be because of 132 00:07:47,960 --> 00:07:50,360 Speaker 1: the actual trading costs to get in and out. It's 133 00:07:50,400 --> 00:07:54,280 Speaker 1: just the traditional drag of taxes, expenses, turnover costs, etcetera. 134 00:07:54,400 --> 00:07:56,080 Speaker 1: Is that is that the problem? What do you mean 135 00:07:56,120 --> 00:07:59,080 Speaker 1: buying the e t F itself trading at a discount 136 00:07:59,080 --> 00:08:03,080 Speaker 1: of premium to its end av that last points Stanford 137 00:08:03,440 --> 00:08:05,560 Speaker 1: U C l A and honist in the University came 138 00:08:05,560 --> 00:08:08,360 Speaker 1: out with a study last year that said the ETFs 139 00:08:08,440 --> 00:08:11,200 Speaker 1: cost more than buying selling stocks. It was scandalous, everybody, 140 00:08:11,680 --> 00:08:14,680 Speaker 1: they don't cost anything, They're free. These are nice people. No, no, no, no. 141 00:08:15,200 --> 00:08:18,120 Speaker 1: In a tonal expense ratio that reflects all these calls correct. 142 00:08:18,240 --> 00:08:20,800 Speaker 1: But the specialists on exchange likes to charge you a 143 00:08:20,880 --> 00:08:24,280 Speaker 1: premium and likes when you buy, and likes to charge 144 00:08:24,320 --> 00:08:27,400 Speaker 1: you a discount when you sell. And then shortly after 145 00:08:27,480 --> 00:08:31,200 Speaker 1: that study came out, we had August and what happened 146 00:08:31,200 --> 00:08:35,160 Speaker 1: on in the morning of August one thousand, two hundred 147 00:08:35,160 --> 00:08:37,320 Speaker 1: and seventy eight stocks couldn't be priced because they hit 148 00:08:37,360 --> 00:08:39,559 Speaker 1: the little circuit breakers on the stock exchange when you 149 00:08:39,640 --> 00:08:43,160 Speaker 1: dropped more than five percently solliterating down. And for some reason, 150 00:08:43,200 --> 00:08:45,559 Speaker 1: the specialist on exchange kept training ets even though it 151 00:08:45,559 --> 00:08:48,880 Speaker 1: couldn't price the stocks. So you had all these big 152 00:08:49,000 --> 00:08:52,360 Speaker 1: liquid e t F s being discounted at a shocking level. 153 00:08:53,160 --> 00:08:55,600 Speaker 1: And so the et F industry still has to deal 154 00:08:55,640 --> 00:08:58,760 Speaker 1: with this. There's a big SEC investigation into this. But 155 00:08:59,200 --> 00:09:02,520 Speaker 1: this is a big problem, and um, we're not anti 156 00:09:02,600 --> 00:09:05,400 Speaker 1: e t F, but we basically want everybody to know 157 00:09:05,640 --> 00:09:07,520 Speaker 1: that when they turn the liquidity off of the market, 158 00:09:07,720 --> 00:09:10,600 Speaker 1: don't sell your e t F. I'm Barry Ridholtz. You're 159 00:09:10,720 --> 00:09:14,080 Speaker 1: listening to Masters in Business on Bloomberg Radio. My special 160 00:09:14,160 --> 00:09:17,559 Speaker 1: guest today is Louis Navalier. He is best known as 161 00:09:17,679 --> 00:09:20,640 Speaker 1: a small cap stock becker. These days, he's a big 162 00:09:20,760 --> 00:09:26,440 Speaker 1: cap manager, a quantitative fundamental analyst, and newsletter writer as 163 00:09:26,520 --> 00:09:30,160 Speaker 1: well as running two and a half billion dollars. Let's 164 00:09:30,200 --> 00:09:34,480 Speaker 1: start out with a little bit of your academic undergraduate 165 00:09:34,559 --> 00:09:38,880 Speaker 1: work and talk about your your brand of quantitative analysis. 166 00:09:39,280 --> 00:09:42,280 Speaker 1: So you're at cal State, you're doing this research project 167 00:09:42,400 --> 00:09:46,439 Speaker 1: to mimic the SMP five dred. What makes you, as 168 00:09:46,520 --> 00:09:49,960 Speaker 1: a young kid say hey, I think I could beat 169 00:09:50,040 --> 00:09:54,320 Speaker 1: the market. I didn't. I'm I'm basically from Berkeley, California. 170 00:09:54,480 --> 00:09:56,840 Speaker 1: I'm totally trained in socialism. I was taught that we're 171 00:09:56,840 --> 00:09:59,080 Speaker 1: all supposed to in the same amount of money because 172 00:09:59,120 --> 00:10:01,959 Speaker 1: if we don't, least we share it. Were correct. But 173 00:10:02,120 --> 00:10:04,280 Speaker 1: but the reason we're all supposed to earn the same 174 00:10:04,280 --> 00:10:06,200 Speaker 1: amount of money, we're all supposed to index is because 175 00:10:06,240 --> 00:10:09,199 Speaker 1: if we don't, will have create social unrest and so 176 00:10:09,559 --> 00:10:11,800 Speaker 1: for you know, peace, love, harmony, we're all supposed to 177 00:10:11,880 --> 00:10:14,319 Speaker 1: just blindly follow each other and um, and by this 178 00:10:14,640 --> 00:10:18,240 Speaker 1: an index UM. However, Vogel would disagree with you, but 179 00:10:18,920 --> 00:10:22,360 Speaker 1: go on. I have no problem debating with Mr Boga. 180 00:10:22,360 --> 00:10:25,839 Speaker 1: I respect him highly. The but the real issue is 181 00:10:26,040 --> 00:10:30,280 Speaker 1: is that UM indexing evolved because they passed the law 182 00:10:30,360 --> 00:10:33,240 Speaker 1: called Arissa and Orissa says, we need to match this 183 00:10:33,360 --> 00:10:37,760 Speaker 1: benchmark to cover our butt. So basically that's why indexing evolved. 184 00:10:37,760 --> 00:10:40,360 Speaker 1: And of course they started with the SMP and they've 185 00:10:40,400 --> 00:10:43,079 Speaker 1: created monsters. Okay, to be honest with you, if you 186 00:10:43,160 --> 00:10:45,600 Speaker 1: go back to the go go nineties, the big stocks 187 00:10:45,640 --> 00:10:47,959 Speaker 1: are getting bigger because of the cap weighting the SMP. 188 00:10:48,960 --> 00:10:51,080 Speaker 1: UH just before the bubble bursts in March A two 189 00:10:51,160 --> 00:10:56,200 Speaker 1: thousand SMP was in seven giant tech stocks. The issue 190 00:10:56,280 --> 00:10:59,080 Speaker 1: I have with indexing and people that just blindly buy 191 00:10:59,120 --> 00:11:02,280 Speaker 1: baskets of stock, they have no idea what they're buying fundamentally, Okay, 192 00:11:02,440 --> 00:11:04,120 Speaker 1: so let me push back on you a little bit. 193 00:11:04,280 --> 00:11:07,719 Speaker 1: Didn't we see something similar in the late sixties with 194 00:11:07,840 --> 00:11:10,880 Speaker 1: the nifty fifty with the names that everybody knew, they 195 00:11:10,920 --> 00:11:13,240 Speaker 1: were household names. They were all doing great, and all 196 00:11:13,280 --> 00:11:16,000 Speaker 1: the managers used that as their benchmark, and everyone piled 197 00:11:16,080 --> 00:11:20,040 Speaker 1: in to the same fifty stocks, which ultimately collapsed. You 198 00:11:20,120 --> 00:11:22,559 Speaker 1: had the fifty seven percent drop from seventy three to 199 00:11:22,640 --> 00:11:25,959 Speaker 1: seventy four. Is that very different than what took place 200 00:11:26,480 --> 00:11:29,240 Speaker 1: UH in the late nineties it's exactly the same thing, 201 00:11:29,360 --> 00:11:31,760 Speaker 1: except in the go go nineties it was concentrated in 202 00:11:31,840 --> 00:11:34,280 Speaker 1: fewer stocks. And then, of course we had the whole 203 00:11:34,320 --> 00:11:38,559 Speaker 1: fang issue last year, okay, where the top ten stocks 204 00:11:38,840 --> 00:11:41,559 Speaker 1: um in the SMP five hundred better than the other 205 00:11:41,640 --> 00:11:47,199 Speaker 1: four nineties. But Facebook, Amazon, Netflix, and Google overpowered it. 206 00:11:47,440 --> 00:11:49,560 Speaker 1: And actually that was an et F story. You see, 207 00:11:50,400 --> 00:11:53,599 Speaker 1: the the equally weighted ETFs got hit so hard in 208 00:11:53,679 --> 00:11:56,600 Speaker 1: August some of the big wirehouses said, get the hell 209 00:11:56,679 --> 00:11:59,000 Speaker 1: out of these things, go back to cap weighted. So 210 00:11:59,120 --> 00:12:01,960 Speaker 1: as they paraded out usually at the time, as they 211 00:12:02,040 --> 00:12:04,040 Speaker 1: paraded out of equal into cap in the last four 212 00:12:04,120 --> 00:12:07,000 Speaker 1: months a year, they made the big stocks bigger. As 213 00:12:07,040 --> 00:12:09,720 Speaker 1: we started this year, I was I'm not anti faying, 214 00:12:09,800 --> 00:12:13,520 Speaker 1: but I was especially anti Netflix because it was over 215 00:12:13,559 --> 00:12:16,120 Speaker 1: four times earnings to beginning of the year. It's rains 216 00:12:16,160 --> 00:12:18,439 Speaker 1: were forecasts of the slide, so I wrote everybody to 217 00:12:18,480 --> 00:12:20,880 Speaker 1: stay away, even though it number one performer. I had 218 00:12:20,920 --> 00:12:24,080 Speaker 1: some issues evaluations issues with Amazon, but I've since then 219 00:12:24,160 --> 00:12:27,120 Speaker 1: about face because I was very impressed with Amazon's first 220 00:12:27,200 --> 00:12:29,920 Speaker 1: quarter making money in the cloud, taking on Netflix, and 221 00:12:29,960 --> 00:12:32,200 Speaker 1: actually they're even taking on Apple. If you buy an 222 00:12:32,200 --> 00:12:34,440 Speaker 1: Apple TV you can't get Amazon prime because they don't 223 00:12:34,480 --> 00:12:40,920 Speaker 1: they yeah, yeah, so um. But you know, bubbles are 224 00:12:41,040 --> 00:12:44,120 Speaker 1: created by these industries. I would respectedly argue that Tesla's 225 00:12:44,200 --> 00:12:47,280 Speaker 1: valuation was largely caused by the q q Q. When 226 00:12:47,360 --> 00:12:49,559 Speaker 1: Oracle left the q q Q, they put in Tesla 227 00:12:49,600 --> 00:12:52,679 Speaker 1: and couldn't handle the money. And so you have to 228 00:12:52,760 --> 00:12:55,280 Speaker 1: realize getting added to some of these baskets is the 229 00:12:55,320 --> 00:12:57,320 Speaker 1: greatest thing that ever happens to some of these companies. 230 00:12:57,920 --> 00:13:00,880 Speaker 1: But the market right now is just too darn narrow 231 00:13:01,000 --> 00:13:03,720 Speaker 1: to buy the baskets. So you don't think Netflix at 232 00:13:03,760 --> 00:13:06,320 Speaker 1: four times earnings, you don't think they're gonna grow into 233 00:13:06,400 --> 00:13:10,880 Speaker 1: that valuation. No, I don't. And Amazon has been overvalued 234 00:13:12,200 --> 00:13:13,959 Speaker 1: I think forever. Is it? Is that a fair state? 235 00:13:14,120 --> 00:13:15,760 Speaker 1: That is correct? So let let me just walk you 236 00:13:15,840 --> 00:13:18,120 Speaker 1: through Amazon, because I didn't about face on it because 237 00:13:18,160 --> 00:13:20,719 Speaker 1: I'm I guess, slightly bipolar. But by the way, I'm 238 00:13:20,760 --> 00:13:24,120 Speaker 1: a huge fan of both companies as as a consumer, 239 00:13:24,320 --> 00:13:26,480 Speaker 1: not necessarily as an arrest. And my family does the same. 240 00:13:26,520 --> 00:13:29,160 Speaker 1: We both subscribed them. So here's here's my issue with Amazon. 241 00:13:29,840 --> 00:13:32,080 Speaker 1: Last year it hit almost a thousand times trailing earnings, 242 00:13:32,120 --> 00:13:34,640 Speaker 1: It lost money, the first three quarters. The fourth quarter 243 00:13:34,720 --> 00:13:39,000 Speaker 1: earnings were disaster, thirty percent below endless estimates. The best 244 00:13:39,040 --> 00:13:41,400 Speaker 1: thing I could say about Amazon late last year was 245 00:13:41,440 --> 00:13:44,719 Speaker 1: training at two arentimes forecast earnings. When I saw the 246 00:13:44,760 --> 00:13:47,680 Speaker 1: first quarter results, I didn't about face first a surprise. 247 00:13:47,840 --> 00:13:50,120 Speaker 1: They make a lot of money in cloud computing. There 248 00:13:50,160 --> 00:13:53,000 Speaker 1: are taking on Netflix and programming. You may know they 249 00:13:53,240 --> 00:13:55,960 Speaker 1: paid those top Gear guys from to leave the BBC. 250 00:13:57,600 --> 00:13:59,280 Speaker 1: They kind of had left. They were on the way 251 00:13:59,280 --> 00:14:02,120 Speaker 1: out of the BBC, got fired and they landed at Amazon. 252 00:14:02,280 --> 00:14:04,440 Speaker 1: But the two and fifty millions pretty good for three guys. 253 00:14:04,679 --> 00:14:06,679 Speaker 1: I realized, has a production team and a budget. On 254 00:14:06,760 --> 00:14:08,839 Speaker 1: top of they have a ton of great program and 255 00:14:09,000 --> 00:14:12,200 Speaker 1: in the High Tower is one and then there's catastrophe. 256 00:14:12,440 --> 00:14:16,600 Speaker 1: There's a whole run. They've become musty, cor correct and um. 257 00:14:17,240 --> 00:14:20,040 Speaker 1: And when you buy a Sony TV, you have ah 258 00:14:20,160 --> 00:14:23,720 Speaker 1: an Amazon Prime app on it and built in. You 259 00:14:23,800 --> 00:14:26,000 Speaker 1: can't get that app again on the Apple TV. So 260 00:14:26,240 --> 00:14:28,480 Speaker 1: there and then their devices they think is better than 261 00:14:28,480 --> 00:14:30,440 Speaker 1: the Apple TV, and I'll let them slug it out 262 00:14:30,480 --> 00:14:33,560 Speaker 1: with the Apple. But the other thing they got going 263 00:14:33,640 --> 00:14:36,440 Speaker 1: for rather than taking on Netflix and Apple is again 264 00:14:36,520 --> 00:14:39,880 Speaker 1: that cloud computing. They are continuing to dominate. Everyone can't 265 00:14:39,920 --> 00:14:42,920 Speaker 1: wait to have their drone delivery. Um, they're gonna start 266 00:14:42,960 --> 00:14:44,920 Speaker 1: it first in the UK. You do have to put 267 00:14:44,960 --> 00:14:49,320 Speaker 1: out a little matt for your drone delivery because we're 268 00:14:49,400 --> 00:14:52,280 Speaker 1: correct and uh so if the dog gets it or 269 00:14:52,320 --> 00:14:54,400 Speaker 1: if the sprinkles get it at your fault, okay, so 270 00:14:54,520 --> 00:14:56,080 Speaker 1: what you have to have a matt. You know, I 271 00:14:56,240 --> 00:14:58,960 Speaker 1: was reluctant to join Prime until a couple of years ago. 272 00:14:59,080 --> 00:15:01,480 Speaker 1: I finally joined AMA on Prime. And now I don't 273 00:15:01,520 --> 00:15:03,680 Speaker 1: even think about something you needed to twitch. You buy it. 274 00:15:03,760 --> 00:15:06,200 Speaker 1: It's there in two days and half the time, it's 275 00:15:06,240 --> 00:15:07,720 Speaker 1: not there in two days, it's there in a day. 276 00:15:07,800 --> 00:15:10,840 Speaker 1: It's it's so they're onto something. If one day they 277 00:15:10,880 --> 00:15:12,760 Speaker 1: figure out how to make money, they're going to be 278 00:15:12,920 --> 00:15:15,400 Speaker 1: really big. Well, they finally figured it out, and that's 279 00:15:15,440 --> 00:15:17,760 Speaker 1: why I've done in about face and now they're surprising 280 00:15:17,840 --> 00:15:20,080 Speaker 1: their capturing marketing. And you know Wall Street is desperate 281 00:15:20,120 --> 00:15:23,000 Speaker 1: for sales growth. When the second quarterins come out, it's 282 00:15:23,000 --> 00:15:24,920 Speaker 1: gonna be the six quarter row of negative sales in 283 00:15:24,960 --> 00:15:28,560 Speaker 1: the SMP, largely because the multinationals commodity stocked heart by 284 00:15:28,560 --> 00:15:30,920 Speaker 1: the strong dollars. So anything that has pots of sales 285 00:15:30,960 --> 00:15:33,640 Speaker 1: growth is an oasis at this moment. So we're no 286 00:15:33,720 --> 00:15:35,680 Speaker 1: longer going to be able to use weak oil as 287 00:15:35,680 --> 00:15:38,360 Speaker 1: an excuse for that, because oil is now hovering between 288 00:15:38,400 --> 00:15:41,080 Speaker 1: forty five and fifty. When it was under thirty dollars, 289 00:15:41,120 --> 00:15:43,280 Speaker 1: it was easy to say, hey, oil has collapsed, but 290 00:15:43,520 --> 00:15:46,320 Speaker 1: now it seems to be moving back towards a profitable 291 00:15:47,160 --> 00:15:49,400 Speaker 1: correct and the and the energy companies are doing well 292 00:15:49,400 --> 00:15:52,000 Speaker 1: because natural gas prices erupt. This little heat wave we're 293 00:15:52,000 --> 00:15:55,760 Speaker 1: having is helping, however for electricity generation. Yes, However, I 294 00:15:56,480 --> 00:15:59,760 Speaker 1: have to say this oil always goes up in the 295 00:16:00,040 --> 00:16:04,200 Speaker 1: ring and then always goes down the fall. The inventories 296 00:16:04,240 --> 00:16:07,200 Speaker 1: in America have tightened up. However, they're still higher than 297 00:16:07,240 --> 00:16:10,440 Speaker 1: they were last year. They're higher they are historically. Rotterdam 298 00:16:10,680 --> 00:16:13,360 Speaker 1: in Europe is full kept any more oil there. They're 299 00:16:13,400 --> 00:16:16,200 Speaker 1: still storing oil and tankers were nowhere to go, and 300 00:16:16,520 --> 00:16:19,320 Speaker 1: so we still have a glut. Oil demands going up globally, 301 00:16:19,400 --> 00:16:22,120 Speaker 1: but the supply went up faster. Iraq is online, I 302 00:16:22,560 --> 00:16:28,520 Speaker 1: ran his online, or US fracking is just correct, and um, 303 00:16:28,840 --> 00:16:32,160 Speaker 1: what's happening is that Iraq is the big player. If 304 00:16:32,320 --> 00:16:34,360 Speaker 1: I have a chart when I do seminars that shows 305 00:16:35,040 --> 00:16:39,800 Speaker 1: where all the productions coming from marginal editor to Iraq 306 00:16:39,960 --> 00:16:42,080 Speaker 1: is much bigger than all the fracking we've got. But 307 00:16:42,160 --> 00:16:44,160 Speaker 1: now you've got a wrong coming online. Depends on the 308 00:16:44,240 --> 00:16:46,600 Speaker 1: tankers and everybody's trying out do each other, so we're 309 00:16:46,640 --> 00:16:48,320 Speaker 1: not gonna know where oil is to the to the 310 00:16:48,520 --> 00:16:52,080 Speaker 1: to September. I'm Barry Ridhults. You're listening to Masters in 311 00:16:52,160 --> 00:16:56,480 Speaker 1: Business on Bloomberg Radio. My special guest today is Louis Navalier. 312 00:16:56,720 --> 00:17:02,080 Speaker 1: He is a quant money manager, picker, newsletter writer. He 313 00:17:02,240 --> 00:17:07,520 Speaker 1: has been actually running running cash for almost thirty years, 314 00:17:07,560 --> 00:17:11,080 Speaker 1: and it's been in the business for for longer than that. Um, 315 00:17:12,119 --> 00:17:15,320 Speaker 1: let's jump right into the whole idea of mutual funds 316 00:17:15,480 --> 00:17:18,320 Speaker 1: and e t f s. You're you're an advisor to 317 00:17:18,359 --> 00:17:19,920 Speaker 1: a number of funds and the number of e t 318 00:17:20,119 --> 00:17:23,440 Speaker 1: f s. What are some of the disadvantages of those 319 00:17:23,520 --> 00:17:28,200 Speaker 1: two structures and what are some of the advantages. Well, 320 00:17:28,359 --> 00:17:30,520 Speaker 1: I think I should just tell you why I invest 321 00:17:30,640 --> 00:17:36,280 Speaker 1: them personally, Okay, Um, I married a Canadian. Uh, she 322 00:17:36,480 --> 00:17:39,520 Speaker 1: has money in the Caymans and a trust we have 323 00:17:39,560 --> 00:17:41,960 Speaker 1: to report to. I R s. We're not allowed to 324 00:17:42,000 --> 00:17:43,480 Speaker 1: buy US funds over there, So I buy my e 325 00:17:43,560 --> 00:17:47,240 Speaker 1: t F with Oppenheimer over there. Um and uh, I 326 00:17:47,320 --> 00:17:49,800 Speaker 1: think that ETFs fine if you want to buy and hold. Um, 327 00:17:50,119 --> 00:17:51,920 Speaker 1: it is not meant to trade. The spreads are still 328 00:17:51,920 --> 00:17:53,639 Speaker 1: a little bit too wide. As it gets more liquid, 329 00:17:53,680 --> 00:17:56,280 Speaker 1: maybe that will change. But I think ETFs are better 330 00:17:56,320 --> 00:17:59,200 Speaker 1: for buy and hold investing than than trading. Because of that, 331 00:17:59,280 --> 00:18:01,480 Speaker 1: academics that e t f s cost more to buy 332 00:18:01,480 --> 00:18:03,600 Speaker 1: and sell, and then E t F seemed to have 333 00:18:03,680 --> 00:18:06,240 Speaker 1: some liquid issues on during flash crashes things like that. 334 00:18:06,480 --> 00:18:12,000 Speaker 1: So bine hold is fine trading no now over. My 335 00:18:12,119 --> 00:18:14,920 Speaker 1: personal money is in funds. So why did I Why 336 00:18:14,960 --> 00:18:17,680 Speaker 1: do I do that? Well? I do it for a 337 00:18:17,760 --> 00:18:21,240 Speaker 1: very selfish reason. Um, I sold a big chunk of 338 00:18:21,280 --> 00:18:23,480 Speaker 1: my business a few years ago at a cash event, 339 00:18:24,240 --> 00:18:25,760 Speaker 1: and so I have a lot of taxable money in 340 00:18:25,800 --> 00:18:28,399 Speaker 1: the market. When I see it a mutual fund, and 341 00:18:28,440 --> 00:18:31,159 Speaker 1: then I run around grow it because people like me 342 00:18:31,280 --> 00:18:35,240 Speaker 1: or whatever. Something happens. What happens is is the assets 343 00:18:35,320 --> 00:18:38,480 Speaker 1: point in the fund to loot the taxes. So I 344 00:18:38,640 --> 00:18:40,800 Speaker 1: run the places like New York and Los Angeles, and 345 00:18:40,880 --> 00:18:43,440 Speaker 1: I tell everybody that you new Yorkers don't have to 346 00:18:43,480 --> 00:18:45,680 Speaker 1: move to Florida. The people in ll A don't have 347 00:18:45,720 --> 00:18:47,960 Speaker 1: to move to Nevada. Just invest in one of my 348 00:18:48,000 --> 00:18:50,200 Speaker 1: growing funds, because you won't pay your fair share of taxes. 349 00:18:50,320 --> 00:18:52,879 Speaker 1: If I grow a fun tenfold in fiscal year, we 350 00:18:52,960 --> 00:18:55,320 Speaker 1: will only pay tempers on the taxes we should. If 351 00:18:55,359 --> 00:18:58,280 Speaker 1: I grow at fivefold, will only pay twenty. So this 352 00:18:58,520 --> 00:19:00,639 Speaker 1: is a function of mutual fun account me. So I 353 00:19:00,760 --> 00:19:03,040 Speaker 1: purposes seed funds of my own money, and then I 354 00:19:03,560 --> 00:19:06,040 Speaker 1: promote them and try to get them to grow. Uh 355 00:19:06,160 --> 00:19:08,600 Speaker 1: so I can better compound my money and help people 356 00:19:08,640 --> 00:19:12,800 Speaker 1: stay in Los Angeles, New York. So does that technique 357 00:19:12,840 --> 00:19:15,400 Speaker 1: only work when you have funds growing rapidly or would 358 00:19:15,440 --> 00:19:19,119 Speaker 1: that work with any fund that's seated? And subsequently that 359 00:19:19,240 --> 00:19:21,359 Speaker 1: is correct. I left a fund company that had been 360 00:19:21,440 --> 00:19:24,840 Speaker 1: with over for seventeen years as a subadvisor, and I 361 00:19:24,960 --> 00:19:27,200 Speaker 1: left them last year at the end of the first quarter, 362 00:19:27,320 --> 00:19:29,080 Speaker 1: and I was proud I was top one percent, But 363 00:19:29,160 --> 00:19:31,120 Speaker 1: the tax time bomb that went off in that fund 364 00:19:31,280 --> 00:19:35,080 Speaker 1: was just devastating. And uh So, basically when fund shrink, 365 00:19:35,160 --> 00:19:37,400 Speaker 1: they become tax tigme bonds. When they grow their tax 366 00:19:37,440 --> 00:19:41,240 Speaker 1: efficient and so that's why I've seeded funds with my 367 00:19:41,280 --> 00:19:43,639 Speaker 1: own money. And uh, they're all new and they're all 368 00:19:43,720 --> 00:19:46,119 Speaker 1: not that big. But I'm having a ball, and I 369 00:19:46,720 --> 00:19:49,480 Speaker 1: hope people don't think bad about me that I'm helping 370 00:19:49,520 --> 00:19:53,040 Speaker 1: them compound their money faster. But let's just say, for argumisake, 371 00:19:53,080 --> 00:19:55,440 Speaker 1: Hillary has become president and she gets her way, and 372 00:19:55,520 --> 00:19:57,520 Speaker 1: we have to wait six years for long term capital 373 00:19:57,600 --> 00:20:01,199 Speaker 1: gains as opposed to three years. Well one year on stocks, 374 00:20:01,240 --> 00:20:04,240 Speaker 1: it's twelve months in a day. But the bottom line 375 00:20:04,359 --> 00:20:07,240 Speaker 1: is um, that will help my business. You know what 376 00:20:07,320 --> 00:20:09,159 Speaker 1: I mean is there was a proposal that it was 377 00:20:09,280 --> 00:20:12,320 Speaker 1: a three year wait for long term capital gains versus 378 00:20:12,480 --> 00:20:14,919 Speaker 1: one year in a day. Today, Well whatever if they 379 00:20:15,000 --> 00:20:17,760 Speaker 1: lengthen it six years is I haven't heard six years? 380 00:20:17,800 --> 00:20:20,000 Speaker 1: So you said that my joy drop. This is when 381 00:20:20,040 --> 00:20:23,240 Speaker 1: she was running against Bernie and was it was the 382 00:20:23,440 --> 00:20:26,840 Speaker 1: original proposal. But the if she's modified, that's a good sign. 383 00:20:26,880 --> 00:20:29,159 Speaker 1: Of course, her husband cut capital gain, so maybe they 384 00:20:29,200 --> 00:20:31,600 Speaker 1: should talk to each other about this. You know, the 385 00:20:31,880 --> 00:20:35,080 Speaker 1: traditional politics is you run to either extreme and then 386 00:20:35,200 --> 00:20:38,080 Speaker 1: pivot to the middle. I don't think anybody has mentioned 387 00:20:38,160 --> 00:20:41,720 Speaker 1: that to the Donald pivot to the middle I assume 388 00:20:41,800 --> 00:20:43,720 Speaker 1: by the time this airs, he will have begun that 389 00:20:43,760 --> 00:20:48,760 Speaker 1: pivoting process. She's early stages of that. But six years 390 00:20:48,880 --> 00:20:51,760 Speaker 1: is a ridiculous period of time for long term That's correct. 391 00:20:51,840 --> 00:20:54,479 Speaker 1: And and the bottom line is people are stressed over taxes. 392 00:20:54,520 --> 00:20:57,120 Speaker 1: You know. I'm originally from California, and I just see 393 00:20:57,160 --> 00:20:59,879 Speaker 1: the stress uh in everybody's face over there, and the 394 00:21:01,320 --> 00:21:04,400 Speaker 1: steps they go to avoid paying taxes is quite interesting. 395 00:21:04,840 --> 00:21:07,359 Speaker 1: So let's let's talk about that. You're a multi state 396 00:21:07,560 --> 00:21:13,520 Speaker 1: sort of guy. Your offices so Navalian Associates listed in Nevada, correct, 397 00:21:13,720 --> 00:21:16,280 Speaker 1: Correct our ops compliance tradings in Nevada. I still have 398 00:21:16,320 --> 00:21:18,400 Speaker 1: a home there, all right. And you live in Florida. 399 00:21:18,520 --> 00:21:20,520 Speaker 1: I live in the Palm Beach area. So you only 400 00:21:20,600 --> 00:21:23,600 Speaker 1: like sunny places. I can't argue with that. But I 401 00:21:23,680 --> 00:21:26,160 Speaker 1: do have our private client group in New York City. 402 00:21:26,240 --> 00:21:31,960 Speaker 1: I have our publishing business in Rockville, Maryland. But basically, 403 00:21:32,080 --> 00:21:36,040 Speaker 1: tax restates are very interesting places. UM Reno is a 404 00:21:36,160 --> 00:21:41,080 Speaker 1: fascinating place because Reno has the Schwab office there. The 405 00:21:41,160 --> 00:21:43,119 Speaker 1: last I saw was the biggest in the world, Shanghai's 406 00:21:43,200 --> 00:21:47,000 Speaker 1: number two UM and what it is in California barely 407 00:21:47,040 --> 00:21:50,080 Speaker 1: three thousand people pay half that state's taxes. So what 408 00:21:50,240 --> 00:21:51,560 Speaker 1: they do is a lot of people like to put 409 00:21:51,600 --> 00:21:53,680 Speaker 1: their money in Nevada by home in Lake Tahoe or 410 00:21:53,720 --> 00:21:57,440 Speaker 1: in the hills somewhere and um, and then they drive 411 00:21:57,480 --> 00:22:00,000 Speaker 1: back to California and as long as they don't spend 412 00:22:00,040 --> 00:22:02,080 Speaker 1: more than five months there that they can live in California. 413 00:22:02,119 --> 00:22:04,240 Speaker 1: And I have to pay that thirteen three five months. 414 00:22:04,440 --> 00:22:06,480 Speaker 1: In New York's it's six months to the day. If 415 00:22:06,520 --> 00:22:08,880 Speaker 1: you're here six months in a day, you you owe 416 00:22:08,920 --> 00:22:10,960 Speaker 1: the full ride. Correct. New York will hunt you down 417 00:22:11,000 --> 00:22:12,560 Speaker 1: the rest of your life. And that's that. But and 418 00:22:12,680 --> 00:22:14,600 Speaker 1: it was a big case. Someone literally a planeman and 419 00:22:14,680 --> 00:22:18,520 Speaker 1: unscheduled landing for thirty minutes and then took off after refueled. 420 00:22:18,760 --> 00:22:21,560 Speaker 1: They counted that as the day they actually lost in 421 00:22:21,720 --> 00:22:24,680 Speaker 1: the New York lost in court. But that's how much 422 00:22:24,760 --> 00:22:28,760 Speaker 1: they're going after the six months rule. I'm Barry Hults. 423 00:22:28,800 --> 00:22:31,920 Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My 424 00:22:32,040 --> 00:22:35,639 Speaker 1: special guest today is Louis Navalier. He is a quant 425 00:22:35,840 --> 00:22:39,680 Speaker 1: and stock picker managing about two point five billion dollars 426 00:22:40,320 --> 00:22:43,440 Speaker 1: across the United States. Let's talk a little bit about 427 00:22:43,800 --> 00:22:48,639 Speaker 1: modeling and quants. What do you think people misunderstand about 428 00:22:48,680 --> 00:22:56,920 Speaker 1: the idea of using mathematics to evaluate and manage assets. Well, 429 00:22:56,960 --> 00:22:59,639 Speaker 1: I think the main thing that people should realize a 430 00:22:59,760 --> 00:23:01,960 Speaker 1: lot of the quants are are basically doing it on 431 00:23:02,160 --> 00:23:04,720 Speaker 1: order flow, so they're the nose on the dog versus 432 00:23:04,800 --> 00:23:07,080 Speaker 1: the hill on the dog. And whether they're trying to 433 00:23:07,160 --> 00:23:10,320 Speaker 1: trade ahead of the Russell realignment a tracking manager, or 434 00:23:10,359 --> 00:23:12,560 Speaker 1: whether they're trying to to to serve the h f 435 00:23:12,640 --> 00:23:16,160 Speaker 1: T systems, the high frequency trading systems in that order flow. 436 00:23:16,240 --> 00:23:18,760 Speaker 1: That's a lot of hedge funds do that. In my case, 437 00:23:18,840 --> 00:23:22,040 Speaker 1: it's about getting great risk adjusted performance. My system at 438 00:23:22,080 --> 00:23:25,159 Speaker 1: this moment says Facebook is safer than Kroger. That may 439 00:23:25,200 --> 00:23:27,920 Speaker 1: not be intuitive to you, but that's what it is, 440 00:23:28,000 --> 00:23:30,760 Speaker 1: and if you chartered both, you'd see it. So obviously 441 00:23:30,840 --> 00:23:33,480 Speaker 1: there's some more buying pressure under Facebook there is Kroger. 442 00:23:33,760 --> 00:23:37,400 Speaker 1: We know that Kroger's lower pe and all that kind 443 00:23:37,440 --> 00:23:40,800 Speaker 1: of stuff. So, um, that's the first step of quant 444 00:23:40,880 --> 00:23:44,280 Speaker 1: But then I basically try to I score my stocks 445 00:23:44,320 --> 00:23:48,359 Speaker 1: on various fundamental criteria that are very very important because 446 00:23:48,400 --> 00:23:51,520 Speaker 1: they're influencing all the order flow on Wall Street, and 447 00:23:52,640 --> 00:23:54,399 Speaker 1: there are quarters and earnings don't work. But I can 448 00:23:54,440 --> 00:23:56,320 Speaker 1: tell you they're working the last couple of quarters. And 449 00:23:56,640 --> 00:23:58,639 Speaker 1: I go into every earning season locked and loaded with 450 00:23:58,720 --> 00:24:02,160 Speaker 1: fund of my spirit stocks. And I really enjoy earning seasons. 451 00:24:02,280 --> 00:24:05,920 Speaker 1: So I'm a little old school, you know. Um. I 452 00:24:06,080 --> 00:24:08,520 Speaker 1: do meet a lot of forty year olds that I 453 00:24:08,640 --> 00:24:11,040 Speaker 1: think I'm nuts for doing fundamentals. Okay, and these are 454 00:24:11,119 --> 00:24:15,359 Speaker 1: gatekeepers at big firms. Okay. Um. I have a kid 455 00:24:15,440 --> 00:24:17,920 Speaker 1: that goes to Stanford that's been highly recruited by some 456 00:24:18,040 --> 00:24:22,120 Speaker 1: of the hedge funds to build the algrimic models to basically, 457 00:24:22,640 --> 00:24:25,360 Speaker 1: uh trade off the h f T systems and adapt. 458 00:24:25,920 --> 00:24:28,879 Speaker 1: He thinks he's never taken an accounting class. He wonders 459 00:24:28,920 --> 00:24:33,600 Speaker 1: why I do fundamentals. Okay, and um, but uh, you know, 460 00:24:33,640 --> 00:24:36,560 Speaker 1: I'm not one of those quants. I'm a tax efficient quant. 461 00:24:37,160 --> 00:24:40,280 Speaker 1: I hold stocks for over five quarters on average. I 462 00:24:40,359 --> 00:24:43,920 Speaker 1: get predominantly long term gains. Um. The interesting thing about 463 00:24:43,960 --> 00:24:48,760 Speaker 1: our models nowadays is dividend growth has invaded all our models. 464 00:24:48,920 --> 00:24:53,239 Speaker 1: Because the SMP yields more than treasuries. The dividends were 465 00:24:53,240 --> 00:24:55,480 Speaker 1: cut in the first quarter eight four percenthre in the 466 00:24:55,560 --> 00:24:58,840 Speaker 1: energy sector, and the companies are still boosting the dividends 467 00:24:58,920 --> 00:25:02,120 Speaker 1: when others are cutting. Are an oasis. And of course 468 00:25:02,200 --> 00:25:05,560 Speaker 1: we've had this huge bond rally and so dividends look 469 00:25:05,600 --> 00:25:07,800 Speaker 1: a lot better nowadays. And of course they are attacks 470 00:25:07,840 --> 00:25:10,560 Speaker 1: efficient by and large. So when we look at the 471 00:25:10,640 --> 00:25:15,400 Speaker 1: world of dividend stocks, how impactful has the FEDS policy 472 00:25:15,560 --> 00:25:18,359 Speaker 1: of of zero interest rates been to that sector of 473 00:25:18,520 --> 00:25:22,040 Speaker 1: the universe. The FED is caused this. The FED is 474 00:25:22,119 --> 00:25:26,080 Speaker 1: not driving the bus anymore. I am extremely frustrated by 475 00:25:26,119 --> 00:25:28,240 Speaker 1: the Fed. I don't know why they have to. Like 476 00:25:28,320 --> 00:25:31,359 Speaker 1: in December they told us inflation is coming back, the 477 00:25:31,400 --> 00:25:33,760 Speaker 1: economy is gonna be strong, so we're gonna four rate increases. 478 00:25:33,920 --> 00:25:36,879 Speaker 1: Then in in March they said, oh, economy is not 479 00:25:36,880 --> 00:25:39,000 Speaker 1: as strong as we thought. Inflace isn't here yet, we 480 00:25:39,119 --> 00:25:41,640 Speaker 1: only have two rate increases, and of course Janet Yelling 481 00:25:41,680 --> 00:25:44,200 Speaker 1: made it very clear we're gonna have one or no 482 00:25:44,440 --> 00:25:48,639 Speaker 1: rate increases. Uh. The other week after the FOMC minutes, 483 00:25:48,840 --> 00:25:53,960 Speaker 1: um are FED. I personally think they're mannipulated by Goldwin. Okay, 484 00:25:54,040 --> 00:25:56,280 Speaker 1: there's a lot of Golden economists that are chummy with 485 00:25:56,320 --> 00:26:00,879 Speaker 1: the FED economists, and maybe by getting the feller of well, 486 00:26:00,920 --> 00:26:03,560 Speaker 1: obviously the FED economists will like to work a Goldman okay, 487 00:26:04,359 --> 00:26:06,800 Speaker 1: And you have the you have the New York FED 488 00:26:06,920 --> 00:26:10,280 Speaker 1: chief or or the head of research of former absolutely. 489 00:26:10,520 --> 00:26:12,800 Speaker 1: Oh and by the way, Janet Janet Yell in front 490 00:26:12,840 --> 00:26:16,159 Speaker 1: of a congressional testimony the other day, pointed out that 491 00:26:16,440 --> 00:26:19,480 Speaker 1: the private economists say this, okay, so actually stunt quoting 492 00:26:19,480 --> 00:26:21,920 Speaker 1: the private economis. The truth is there's a lot of 493 00:26:21,960 --> 00:26:27,679 Speaker 1: money around the world, and uh, with negative yields in Germany, Japan, Switzerland, 494 00:26:28,119 --> 00:26:30,560 Speaker 1: money's gonna keep pouring the United States as long as 495 00:26:30,640 --> 00:26:32,120 Speaker 1: we have higher rates in the rest of the world, 496 00:26:32,200 --> 00:26:34,959 Speaker 1: as long as our currency is relatively stable, and as 497 00:26:35,000 --> 00:26:36,440 Speaker 1: long as our economy is will be decent. And I 498 00:26:36,480 --> 00:26:39,600 Speaker 1: would make an argument that this strong dollar environment that 499 00:26:39,720 --> 00:26:43,760 Speaker 1: has been haunting the United States and crushing corporate profits 500 00:26:44,000 --> 00:26:47,040 Speaker 1: for the multinationals commodity stocks is going to continue unto 501 00:26:47,119 --> 00:26:49,680 Speaker 1: our rates as low as everybody else, and our FED 502 00:26:49,800 --> 00:26:53,280 Speaker 1: is not driving the bus. You know, under Bernankie was incredible. 503 00:26:53,840 --> 00:26:56,600 Speaker 1: He spoke the London School of Economics with Mervin King 504 00:26:56,680 --> 00:26:59,160 Speaker 1: and the audience and Draggy and he said, I didn't 505 00:26:59,200 --> 00:27:01,040 Speaker 1: just save the world. I didn't say the U s 506 00:27:01,119 --> 00:27:03,879 Speaker 1: I say of the world, but he Draggingmrvin King all 507 00:27:03,960 --> 00:27:07,000 Speaker 1: went to m T together. But now we have Mr Carry, 508 00:27:07,000 --> 00:27:09,840 Speaker 1: a Canadian running the Bank of England. Uh uh King 509 00:27:09,960 --> 00:27:13,880 Speaker 1: retired uh yell and replaced bernand Key. She went to Yale. 510 00:27:14,760 --> 00:27:17,560 Speaker 1: And there's no coordination with the central bank activity anymore. 511 00:27:18,119 --> 00:27:21,200 Speaker 1: And so the market forces are really driving this. And 512 00:27:21,280 --> 00:27:24,120 Speaker 1: of course the low interest rate environments causing buy backs explode. 513 00:27:24,720 --> 00:27:26,800 Speaker 1: My average cheap borrowing go out and buy all this 514 00:27:26,920 --> 00:27:29,400 Speaker 1: absolutely now it's exploding or nationally because the rates taping 515 00:27:29,440 --> 00:27:32,600 Speaker 1: lower're there. My average large cap stock retires six point 516 00:27:32,640 --> 00:27:35,440 Speaker 1: two percent of its float a year. That's amazing. You know, 517 00:27:35,520 --> 00:27:38,360 Speaker 1: when you look at that what you described as coordinated, 518 00:27:38,840 --> 00:27:40,639 Speaker 1: it's a little out of phase because you had the 519 00:27:40,800 --> 00:27:46,399 Speaker 1: US start and finished their qui and just as Japan 520 00:27:46,760 --> 00:27:49,680 Speaker 1: was was starting their qui and there are a couple 521 00:27:49,680 --> 00:27:52,480 Speaker 1: of years into it and finally Europe is catching Oh 522 00:27:52,600 --> 00:27:56,080 Speaker 1: maybe this kewi thing is is a thing. So the 523 00:27:56,200 --> 00:27:58,640 Speaker 1: conditions that have existed for the past five years, you're 524 00:27:58,720 --> 00:28:02,520 Speaker 1: suggesting this is going to continue to go on. I 525 00:28:02,560 --> 00:28:04,920 Speaker 1: don't know how the ECB, the European central banks gets 526 00:28:04,960 --> 00:28:07,040 Speaker 1: out of this mass. They're not only a minus forty 527 00:28:07,080 --> 00:28:09,919 Speaker 1: basis points. When they boost their quantitative easy and by 528 00:28:09,960 --> 00:28:12,639 Speaker 1: twenty billion euros a month, they all the big thing 529 00:28:13,160 --> 00:28:14,840 Speaker 1: wasn't the money. It says, oh, now you can buy 530 00:28:14,880 --> 00:28:17,680 Speaker 1: corporate death. Yeah, they moved beyond just driving rates lower. 531 00:28:17,760 --> 00:28:20,359 Speaker 1: And Japan has always put their quantitative easy and all 532 00:28:20,440 --> 00:28:24,080 Speaker 1: kinds of funny places at least as well Coy real 533 00:28:24,240 --> 00:28:26,560 Speaker 1: estate that by everything and it's it's it's amazing it 534 00:28:26,560 --> 00:28:28,920 Speaker 1: of course it's in like a read over there, but 535 00:28:29,160 --> 00:28:33,760 Speaker 1: um it's it's this worldwide limbo contest. And uh I 536 00:28:33,760 --> 00:28:36,680 Speaker 1: would respectively argue that our rates are going to be 537 00:28:36,800 --> 00:28:39,160 Speaker 1: driven lower by all the fourth Where I live in Florida, 538 00:28:39,200 --> 00:28:42,160 Speaker 1: I'm the only American on my street. It's all Russians 539 00:28:42,200 --> 00:28:45,440 Speaker 1: and Europeans now, and they've all but they've all bought 540 00:28:45,480 --> 00:28:48,560 Speaker 1: homes in Florida and they based to move money out 541 00:28:48,600 --> 00:28:51,360 Speaker 1: of the country. Or the Russians are up six in 542 00:28:51,400 --> 00:28:53,480 Speaker 1: the last few years because there the ruble went to 543 00:28:53,560 --> 00:28:56,640 Speaker 1: pot and then the Europeans are probably up twenty plus percent. 544 00:28:56,880 --> 00:28:59,000 Speaker 1: This has nothing to real soon. That's just currency. If 545 00:28:59,040 --> 00:29:02,360 Speaker 1: you look at the West Coast, if you look at Seattle, 546 00:29:02,480 --> 00:29:07,160 Speaker 1: Portland's Vancouver especially, it's a lot of China money trying 547 00:29:07,160 --> 00:29:08,920 Speaker 1: to get out of the country. There are these brand 548 00:29:09,000 --> 00:29:13,920 Speaker 1: new office buildings in Vancouver completely sold and still mostly empty. 549 00:29:14,000 --> 00:29:16,560 Speaker 1: The opposite of the remember the sea through office towers 550 00:29:16,600 --> 00:29:19,000 Speaker 1: in Dallas during the oil collapse in the eighties. This 551 00:29:19,280 --> 00:29:23,240 Speaker 1: is see through residential towers in Vancouver due to Chinese 552 00:29:23,280 --> 00:29:26,760 Speaker 1: money fleeing. Well, my my son who's at Stanford has 553 00:29:26,760 --> 00:29:29,280 Speaker 1: a lot of Chinese friends and uh, he's met all 554 00:29:29,280 --> 00:29:31,959 Speaker 1: their parents because when they their kids went to school here, 555 00:29:31,960 --> 00:29:34,760 Speaker 1: they happen to come here. Apparently it's not a problem 556 00:29:34,800 --> 00:29:37,320 Speaker 1: in the United States if you bring some assets. And um, 557 00:29:38,000 --> 00:29:40,080 Speaker 1: I know, I know, we're an election, heear. I'm not 558 00:29:40,160 --> 00:29:43,320 Speaker 1: running for anything, but if I was, I would recommend 559 00:29:43,400 --> 00:29:46,160 Speaker 1: we invite a hundred million new foreigners with about two 560 00:29:46,200 --> 00:29:49,040 Speaker 1: million each, okay, to come to America. And sounds like 561 00:29:49,120 --> 00:29:51,800 Speaker 1: a plan. And that's that's what happened to Canada. Canada 562 00:29:51,920 --> 00:29:54,480 Speaker 1: was broke thirty years ago. They double the size of 563 00:29:54,480 --> 00:29:57,160 Speaker 1: their country by letting in people with money. Okay. So 564 00:29:57,360 --> 00:29:59,600 Speaker 1: one thing you can say about America is at least 565 00:29:59,640 --> 00:30:03,040 Speaker 1: we have our immigration is controversial, but we are letting 566 00:30:03,040 --> 00:30:05,360 Speaker 1: a lot of very talented people in with money. And 567 00:30:05,440 --> 00:30:07,640 Speaker 1: of course there is this corruption crackdown in China that 568 00:30:07,680 --> 00:30:11,120 Speaker 1: seems to be expediting it interesting the corruption crackdown isn't 569 00:30:11,120 --> 00:30:14,320 Speaker 1: in the province where the president China is from. Not 570 00:30:14,560 --> 00:30:19,360 Speaker 1: not not a not a terrible, terrible coincidence. So um, 571 00:30:20,240 --> 00:30:23,200 Speaker 1: what So as a quant do you look at other quants? 572 00:30:23,240 --> 00:30:25,000 Speaker 1: Do you do you see what other people are doing? 573 00:30:25,080 --> 00:30:27,920 Speaker 1: You mentioned the h F T things. I look at 574 00:30:28,000 --> 00:30:31,720 Speaker 1: someone like, um, let's use Cliff Fastness as an example. 575 00:30:32,240 --> 00:30:35,600 Speaker 1: Who who publishes white Paper. And he's a pretty big 576 00:30:36,320 --> 00:30:40,400 Speaker 1: factor um model sort of guy. He likes value and momentum. 577 00:30:40,760 --> 00:30:43,720 Speaker 1: What what other quants do you pay attention to or 578 00:30:43,760 --> 00:30:46,520 Speaker 1: at least find it interesting to read. I think the 579 00:30:47,200 --> 00:30:49,640 Speaker 1: most readable people now from a publishing point of view 580 00:30:49,720 --> 00:30:51,560 Speaker 1: are the folks that bespoke. I think they do the 581 00:30:52,720 --> 00:30:58,680 Speaker 1: most in your face graphically shocking research, compelling images that 582 00:30:58,880 --> 00:31:01,520 Speaker 1: really tell us stoy uh. And I think they do 583 00:31:01,680 --> 00:31:04,360 Speaker 1: a wonderful job. Are they the pure quants like me 584 00:31:04,520 --> 00:31:09,280 Speaker 1: with their database online? No? But they are very academic. Uh. 585 00:31:09,440 --> 00:31:11,520 Speaker 1: They like to talk about what's working on Wall Street. 586 00:31:12,120 --> 00:31:15,120 Speaker 1: They love to put a historical perspective on stuff. Um. 587 00:31:15,680 --> 00:31:17,760 Speaker 1: You know, we we had our management to have a 588 00:31:17,840 --> 00:31:20,880 Speaker 1: weekly freething called market Mail, and we have a historian 589 00:31:20,920 --> 00:31:23,480 Speaker 1: there because it's just fascinating to always look back and 590 00:31:23,520 --> 00:31:26,080 Speaker 1: see where we're at. But no, you know, you never 591 00:31:26,160 --> 00:31:29,040 Speaker 1: stop learning, and that's the fun part of our business. 592 00:31:29,560 --> 00:31:31,840 Speaker 1: I will admit that the new quants are trade a 593 00:31:31,880 --> 00:31:34,680 Speaker 1: lot more than I do, okay, but but that's an 594 00:31:34,800 --> 00:31:38,760 Speaker 1: orderflow thing. I'm still kind of an old school behavioral finance, 595 00:31:38,840 --> 00:31:43,080 Speaker 1: fundamental guy, and um, but I I respect anything that works. 596 00:31:43,920 --> 00:31:46,160 Speaker 1: You know. The bespoke guys very much remind me of 597 00:31:46,280 --> 00:31:49,400 Speaker 1: Jim O'Shaughnessy and the what works on Wall Street. It's 598 00:31:49,440 --> 00:31:51,920 Speaker 1: the same. Let's just look at the numbers and see 599 00:31:51,920 --> 00:31:56,280 Speaker 1: if there's something that's changing that's worth figuring out, well, 600 00:31:56,480 --> 00:32:00,320 Speaker 1: whether it's whether it's fundamental valuation or what have you. Uh. 601 00:32:00,680 --> 00:32:04,480 Speaker 1: That book was really seminal for that approach. Sure, and 602 00:32:04,800 --> 00:32:07,000 Speaker 1: but I think what everybody has to realize is the 603 00:32:07,080 --> 00:32:09,400 Speaker 1: market mutates. And I think the way I like to 604 00:32:09,480 --> 00:32:12,040 Speaker 1: explain it is Bill Walsh used to be a good 605 00:32:12,080 --> 00:32:14,240 Speaker 1: football coach because he had a system that no one had, 606 00:32:14,800 --> 00:32:16,719 Speaker 1: and then it stopped working because it went all over 607 00:32:16,760 --> 00:32:18,840 Speaker 1: the league, you know, I mean, everybody figured out that 608 00:32:18,960 --> 00:32:21,720 Speaker 1: West Coast offense. And that's how Wall Street is. Whether 609 00:32:21,800 --> 00:32:25,880 Speaker 1: it's cash low prices, sales or needs, momentum surprises, whatever 610 00:32:26,080 --> 00:32:28,440 Speaker 1: the factors are, people are locking in on it will 611 00:32:28,480 --> 00:32:30,720 Speaker 1: only work to everybody does it. So what we do 612 00:32:30,960 --> 00:32:33,800 Speaker 1: is we we figure out what's working and and as 613 00:32:33,840 --> 00:32:36,000 Speaker 1: the factors start to break down and get more volatile, 614 00:32:36,280 --> 00:32:38,440 Speaker 1: they get trimmed from our models and then we suttress 615 00:32:38,480 --> 00:32:41,120 Speaker 1: test everything. This is the fun part of what Navlier does. 616 00:32:41,400 --> 00:32:44,160 Speaker 1: At the end of each coreterier earning season, we step in, 617 00:32:44,320 --> 00:32:46,960 Speaker 1: we update the models, and we tweak them to locking 618 00:32:47,000 --> 00:32:50,320 Speaker 1: on what's working. So how often are those models trading, 619 00:32:50,360 --> 00:32:52,680 Speaker 1: how often do you rebalancing, and how often you making 620 00:32:53,280 --> 00:32:56,920 Speaker 1: major shifts in the holdings. Well, the models are stress 621 00:32:56,960 --> 00:32:58,680 Speaker 1: tested on a one in three year basis at the 622 00:32:58,800 --> 00:33:01,040 Speaker 1: end of each earning season. Okay, so they're being upgraded 623 00:33:01,080 --> 00:33:02,800 Speaker 1: right now because we're about going to other any season. 624 00:33:03,440 --> 00:33:05,840 Speaker 1: Then the models are run every weekend. Okay, we actually 625 00:33:05,840 --> 00:33:08,640 Speaker 1: do our research on weekends and uh, and then are 626 00:33:08,800 --> 00:33:12,240 Speaker 1: our managers have what the models recommend for the next week, 627 00:33:12,320 --> 00:33:14,160 Speaker 1: and we pretty much follow the model, so the only 628 00:33:14,200 --> 00:33:16,960 Speaker 1: time will override them if there's merger news or something 629 00:33:17,040 --> 00:33:20,560 Speaker 1: like that or liquidity events. But we fly on instruments 630 00:33:20,600 --> 00:33:22,720 Speaker 1: and then of course we have optimization models to to 631 00:33:22,880 --> 00:33:26,600 Speaker 1: wait everything to get it as smooth as possible. One 632 00:33:26,640 --> 00:33:30,280 Speaker 1: of the great things about the modeling nowadays is because 633 00:33:30,360 --> 00:33:34,480 Speaker 1: dividend stock zig one grows stock zag you can mix 634 00:33:34,560 --> 00:33:37,920 Speaker 1: dividend growth with real real growth stocks and really reduce 635 00:33:38,000 --> 00:33:40,920 Speaker 1: the volatility. So our trademark has become really as a 636 00:33:40,920 --> 00:33:44,080 Speaker 1: good risk adjusted manager, lower beta, lower max draw down, 637 00:33:44,200 --> 00:33:48,560 Speaker 1: lower stanerindiviation, and we're mensely proud of that. And and 638 00:33:48,640 --> 00:33:50,480 Speaker 1: then you can further do that by putting a tactical 639 00:33:50,520 --> 00:33:53,120 Speaker 1: overlay on and if you want. But but again we're 640 00:33:53,200 --> 00:33:56,200 Speaker 1: obsessive risk control that starts with a quant We always 641 00:33:56,240 --> 00:33:58,000 Speaker 1: have fund and many superior stocks. I don't have to 642 00:33:58,040 --> 00:34:00,840 Speaker 1: worry when things are line around because I know I 643 00:34:00,920 --> 00:34:03,840 Speaker 1: got good earnings the next quarter and then but as 644 00:34:04,000 --> 00:34:06,520 Speaker 1: as individual stocks have become increasingly risky, I will trim 645 00:34:06,600 --> 00:34:09,600 Speaker 1: them or replace them with safer stocks. And so that's 646 00:34:09,640 --> 00:34:12,160 Speaker 1: the main reason we're selling well. Most of the stuff 647 00:34:12,160 --> 00:34:14,080 Speaker 1: we sell is actually pretty good. We just gotta sell 648 00:34:14,120 --> 00:34:16,919 Speaker 1: with something that's better, they'll have less volatility and add 649 00:34:16,960 --> 00:34:19,160 Speaker 1: the portfolio. So we're running the portfolios like you'd run 650 00:34:19,200 --> 00:34:21,080 Speaker 1: a sports team. So if you're on my team and 651 00:34:21,120 --> 00:34:23,040 Speaker 1: you lose a step because you know you're getting old 652 00:34:23,120 --> 00:34:25,040 Speaker 1: and you know, I'll throw you off the team. Or 653 00:34:25,040 --> 00:34:26,640 Speaker 1: if you're young, your party too hard and you lose 654 00:34:26,680 --> 00:34:28,359 Speaker 1: stuff for that, and I'll throw you off the team 655 00:34:28,400 --> 00:34:30,399 Speaker 1: for that. Usually i'll catch your minutes or I throw 656 00:34:30,400 --> 00:34:33,080 Speaker 1: you off the team. So that's how optimization works. We're 657 00:34:33,120 --> 00:34:36,440 Speaker 1: always trying to build get the smoothest Stadius ride out there, 658 00:34:36,840 --> 00:34:39,200 Speaker 1: and we're mentally proud of that. So if people want 659 00:34:39,239 --> 00:34:42,360 Speaker 1: to find out more about Navalier or read any of 660 00:34:42,480 --> 00:34:45,399 Speaker 1: your research, where's the best place for them to go. Well, 661 00:34:45,440 --> 00:34:48,600 Speaker 1: there's two sites I'd recommend Navalier dot com the management company. 662 00:34:48,680 --> 00:34:50,640 Speaker 1: Sign up for something called market mail, which is our 663 00:34:50,719 --> 00:34:54,920 Speaker 1: free commentary comes out every Tuesday. My newsletter uh is 664 00:34:55,000 --> 00:34:57,960 Speaker 1: Navali Growth dot com. We keep those business separate, but 665 00:34:58,719 --> 00:35:01,279 Speaker 1: we have free databases on sites and start playing around 666 00:35:01,280 --> 00:35:03,160 Speaker 1: with their free databases. And of course you're welcome to 667 00:35:03,239 --> 00:35:06,400 Speaker 1: call us anytime you'd like more information. Louis, thank you 668 00:35:06,520 --> 00:35:08,040 Speaker 1: so much for doing this. Can you stick around a 669 00:35:08,040 --> 00:35:10,040 Speaker 1: little bit, We'll keep we'll keep planning through some of 670 00:35:10,080 --> 00:35:14,080 Speaker 1: these questions. Uh. If you have enjoyed this conversation, be 671 00:35:14,200 --> 00:35:17,040 Speaker 1: sure and stick around for our podcast extras, where we 672 00:35:17,239 --> 00:35:20,080 Speaker 1: keep the tape rolling and continue chatting about all things 673 00:35:20,239 --> 00:35:24,040 Speaker 1: quant modeling and stock selections. Be sure and check out 674 00:35:24,120 --> 00:35:27,680 Speaker 1: my daily column on Bloomberg dot com. Follow me on 675 00:35:27,840 --> 00:35:32,040 Speaker 1: Twitter at Rid Halts. I'm Barry Rihults. You've been listening 676 00:35:32,160 --> 00:35:36,000 Speaker 1: to Masters in Business on Bloomberg Radio, brought to you 677 00:35:36,200 --> 00:35:41,000 Speaker 1: by b A SF we create Chemistry. I'm Barry Rihults. 678 00:35:41,040 --> 00:35:44,160 Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My 679 00:35:44,320 --> 00:35:47,880 Speaker 1: special guest today is Louis Navalier. He is a quant 680 00:35:48,120 --> 00:35:51,920 Speaker 1: and stock picker managing about two point five billion dollars 681 00:35:52,560 --> 00:35:55,680 Speaker 1: across the United States. Let's talk a little bit about 682 00:35:56,080 --> 00:36:00,560 Speaker 1: modeling and quants. What do you think people miss understand 683 00:36:00,600 --> 00:36:09,160 Speaker 1: about the idea of using mathematics to evaluate and manage assets. Well, 684 00:36:09,239 --> 00:36:11,920 Speaker 1: I think the main thing that people should realize a 685 00:36:12,000 --> 00:36:14,200 Speaker 1: lot of the quants are are basically doing it on 686 00:36:14,400 --> 00:36:17,080 Speaker 1: order flow, so they're nose on the dog versus the 687 00:36:17,160 --> 00:36:19,640 Speaker 1: tail on the dog. And whether they're trying to trade 688 00:36:19,640 --> 00:36:22,799 Speaker 1: ahead of the Russell realignment, a tracking manager, or whether 689 00:36:22,840 --> 00:36:25,640 Speaker 1: they're trying to to to serve the h f T systems, 690 00:36:26,320 --> 00:36:28,600 Speaker 1: the high frequency trading systems in that order flow. That's 691 00:36:28,600 --> 00:36:31,040 Speaker 1: a lot of hedge funds do that. In my case, 692 00:36:31,120 --> 00:36:34,279 Speaker 1: it's about getting great risk adjuster performance. My system at 693 00:36:34,360 --> 00:36:37,400 Speaker 1: this moment says Facebook is safer than Kroger. That may 694 00:36:37,440 --> 00:36:40,160 Speaker 1: not be intuitive to you, but that's what it is. 695 00:36:40,239 --> 00:36:43,040 Speaker 1: And if you charted both, you'd see it. So obviously 696 00:36:43,080 --> 00:36:45,720 Speaker 1: there's some more buying pressure and your Facebook there is Kroger. 697 00:36:46,000 --> 00:36:49,640 Speaker 1: We know that Kroger's lower pe and all that kind 698 00:36:49,680 --> 00:36:53,040 Speaker 1: of stuff. So, um, that's the first step of quant 699 00:36:53,160 --> 00:36:56,560 Speaker 1: But then I basically try to I score my stocks 700 00:36:56,600 --> 00:37:00,600 Speaker 1: on various fundamental criteria that are very very portant because 701 00:37:00,640 --> 00:37:03,800 Speaker 1: they're influencing all the older flow on Wall Street. And 702 00:37:04,880 --> 00:37:06,640 Speaker 1: there are quarters when earnings don't work that I can 703 00:37:06,680 --> 00:37:08,320 Speaker 1: tell you they're working in the last couple of quarters. 704 00:37:08,520 --> 00:37:10,839 Speaker 1: And I go into every earning season locked and loaded 705 00:37:10,840 --> 00:37:13,320 Speaker 1: with fund of my spirit stocks. And I really enjoy 706 00:37:13,600 --> 00:37:17,680 Speaker 1: earning seasons. So I'm a little old school, you know. Um, 707 00:37:18,160 --> 00:37:20,279 Speaker 1: I do meet a lot of forty year olds that 708 00:37:20,719 --> 00:37:23,160 Speaker 1: I think I'm nuts for doing fundamentals. Okay, and these 709 00:37:23,200 --> 00:37:27,400 Speaker 1: are gatekeepers at big firms. Okay. Um. I have a 710 00:37:27,480 --> 00:37:30,000 Speaker 1: kid that goes to Stanford that's been highly recruited by 711 00:37:30,120 --> 00:37:33,120 Speaker 1: some of the hedge funds to build the agrithmic models 712 00:37:33,200 --> 00:37:37,080 Speaker 1: to basically, uh trade off the h f T systems 713 00:37:37,080 --> 00:37:40,600 Speaker 1: and adapt. He thinks he's never taken an accounting class. 714 00:37:40,680 --> 00:37:45,160 Speaker 1: He wonders why I do fundamentals. Okay, and um, but uh, 715 00:37:45,719 --> 00:37:47,640 Speaker 1: you know, I'm not one of those quants. I'm a 716 00:37:47,719 --> 00:37:51,880 Speaker 1: tax efficient quant. I hold stocks for over five quarters 717 00:37:51,920 --> 00:37:55,239 Speaker 1: on average. I get predominantly long term gains. Um. The 718 00:37:55,400 --> 00:37:59,000 Speaker 1: interesting thing about our models nowadays is dividend growth has 719 00:37:59,600 --> 00:38:02,480 Speaker 1: invade aid at all our models. Because the SMP yields 720 00:38:02,520 --> 00:38:06,120 Speaker 1: more than treasuries. The dividends were cut in the first 721 00:38:06,200 --> 00:38:08,920 Speaker 1: quarter eighty four percent whre in the energy sector. And 722 00:38:09,000 --> 00:38:11,680 Speaker 1: the companies that are still boosting the dividends when others 723 00:38:11,719 --> 00:38:14,759 Speaker 1: are cutting our an oasis. And of course we've had 724 00:38:14,800 --> 00:38:18,080 Speaker 1: this huge bond rally, and so dividends look a lot 725 00:38:18,160 --> 00:38:20,680 Speaker 1: better nowadays. And of course they are attacks efficient by 726 00:38:20,719 --> 00:38:24,160 Speaker 1: and large. So when we look at the world of dividends, stuffs. 727 00:38:24,320 --> 00:38:28,960 Speaker 1: How impactful has the FEDS policy of of zero interest 728 00:38:29,080 --> 00:38:32,200 Speaker 1: rates been to that sector of the universe. The FED 729 00:38:32,600 --> 00:38:35,800 Speaker 1: is caused this. The FED is not driving the bus anymore. 730 00:38:36,640 --> 00:38:39,560 Speaker 1: I am extremely frustrated by the Fed. I don't know 731 00:38:39,640 --> 00:38:41,680 Speaker 1: why they have to. Like in December they told us 732 00:38:41,800 --> 00:38:44,640 Speaker 1: inflation is coming back, the colonomy is gonna be strong, 733 00:38:44,680 --> 00:38:47,040 Speaker 1: so we're gonna four rate increases. Then in in March 734 00:38:47,160 --> 00:38:49,960 Speaker 1: they said, oh, economy is not as strong as we thought. 735 00:38:50,080 --> 00:38:52,480 Speaker 1: Inflace isn't here yet. We only have two rate increases. 736 00:38:52,719 --> 00:38:55,719 Speaker 1: And of course Janet yelemated very clear, we're gonna have 737 00:38:55,880 --> 00:38:59,759 Speaker 1: one or no rate increases. Uh. The other week after 738 00:38:59,840 --> 00:39:04,640 Speaker 1: the FOAM ce minutes, um are FED. I personally think 739 00:39:04,680 --> 00:39:07,040 Speaker 1: they're inniplated by Goldman. Okay. There's a lot of Goldman 740 00:39:07,360 --> 00:39:10,760 Speaker 1: economists that are chummy with a FED economists and maybe 741 00:39:10,880 --> 00:39:14,719 Speaker 1: by getting well obviously the FED economists would like to 742 00:39:14,760 --> 00:39:17,600 Speaker 1: work at Goldman. Okay. And you have the you have 743 00:39:17,719 --> 00:39:20,320 Speaker 1: the New York FED chief or or the head of 744 00:39:20,360 --> 00:39:24,000 Speaker 1: research of former absolutely. Oh. And by the way, Janet 745 00:39:24,200 --> 00:39:26,680 Speaker 1: Janet Yell in front of a congressional testimony the other 746 00:39:26,800 --> 00:39:30,560 Speaker 1: day pointed out that the private economists say this, Okay, 747 00:39:30,600 --> 00:39:33,360 Speaker 1: so I actually sound quoting the private economis. The truth 748 00:39:33,480 --> 00:39:36,600 Speaker 1: is there's a lot of money around the world, and UH, 749 00:39:37,040 --> 00:39:41,080 Speaker 1: with negative yields in Germany, Japan, Switzerland, money's gonna keep 750 00:39:41,120 --> 00:39:43,399 Speaker 1: pouring the United States as long as we have higher 751 00:39:43,440 --> 00:39:44,880 Speaker 1: rates in the rest of the world, as long as 752 00:39:44,920 --> 00:39:47,560 Speaker 1: our currency is relatively stable, and as long as our 753 00:39:47,560 --> 00:39:49,680 Speaker 1: economies will be decent. And I would make an argument 754 00:39:50,200 --> 00:39:52,840 Speaker 1: that this strong dollar environment that has been haunting the 755 00:39:52,920 --> 00:39:57,600 Speaker 1: United States and crushing corporate profits for the multinationals commodity 756 00:39:57,640 --> 00:40:00,040 Speaker 1: stocks is going to continue into our rates as it 757 00:40:00,120 --> 00:40:03,080 Speaker 1: was everybody else, and our FED is not driving the bus. 758 00:40:03,160 --> 00:40:06,600 Speaker 1: You know under Bernankee it was incredible. So if people 759 00:40:06,640 --> 00:40:09,879 Speaker 1: want to find out more about Navalier or read any 760 00:40:09,920 --> 00:40:13,000 Speaker 1: of your research, where's the best place for them to go. Well, 761 00:40:13,080 --> 00:40:16,200 Speaker 1: there's two sites. I'd recommend Navalier dot com the management company. 762 00:40:16,280 --> 00:40:18,239 Speaker 1: Sign up for something called market Mail, which is our 763 00:40:18,320 --> 00:40:22,520 Speaker 1: free commentary comes out every Tuesday. My newsletter UH is 764 00:40:22,600 --> 00:40:25,600 Speaker 1: naval Growth dot Com. We keep those business separate, but 765 00:40:26,320 --> 00:40:28,640 Speaker 1: we have free databases on both sites and start playing 766 00:40:28,640 --> 00:40:30,720 Speaker 1: around with their free databases. And of course you're welcome 767 00:40:30,719 --> 00:40:33,920 Speaker 1: to call us anytime you'd like more information. Louis, thank 768 00:40:33,960 --> 00:40:35,600 Speaker 1: you so much for doing this. Can you stick around 769 00:40:35,600 --> 00:40:37,640 Speaker 1: a little bit keep We'll keep planning through some of 770 00:40:37,680 --> 00:40:41,680 Speaker 1: these questions. Uh. If you have enjoyed this conversation, be 771 00:40:41,760 --> 00:40:45,040 Speaker 1: should stick around for our podcast extras, where we keep 772 00:40:45,160 --> 00:40:48,160 Speaker 1: the tape rolling and continue chatting about all things quant 773 00:40:48,760 --> 00:40:51,759 Speaker 1: modeling and stock selections. Be sure and check out my 774 00:40:51,920 --> 00:40:55,760 Speaker 1: daily column on Bloomberg dot com. Follow me on Twitter 775 00:40:56,160 --> 00:40:59,759 Speaker 1: at Rid Halts. I'm Barry Ridhults. You've been listening to 776 00:41:00,000 --> 00:41:04,800 Speaker 1: Masters in Business on Bloomberg Radio. Welcome to the podcast. Louis, 777 00:41:04,840 --> 00:41:07,200 Speaker 1: Thank you so much for for doing this, h I 778 00:41:07,320 --> 00:41:10,080 Speaker 1: said earlier, and I really didn't get a chance to 779 00:41:10,480 --> 00:41:14,240 Speaker 1: to elaborate on this in the intro. I've been following 780 00:41:14,480 --> 00:41:19,160 Speaker 1: you and your methodology and how you approach looking at 781 00:41:19,200 --> 00:41:22,160 Speaker 1: stocks for a long time. It's funny. I'm the old 782 00:41:22,200 --> 00:41:24,200 Speaker 1: man in my office and we have a lot of 783 00:41:24,239 --> 00:41:27,759 Speaker 1: young guys twenties something thirty something. So who's the guest 784 00:41:27,840 --> 00:41:30,359 Speaker 1: this week? And I knew it was coming, I said, 785 00:41:30,520 --> 00:41:33,200 Speaker 1: Louie Navalier, and they looked at me and said, who 786 00:41:33,400 --> 00:41:36,200 Speaker 1: I go go back look at some old barons go 787 00:41:36,400 --> 00:41:39,560 Speaker 1: pull some of So did you have do ruck Keiser? 788 00:41:39,600 --> 00:41:42,320 Speaker 1: And I might remember I did it. Frank Campiello was 789 00:41:42,480 --> 00:41:46,120 Speaker 1: the it was late late in the uh in the cycle. 790 00:41:46,200 --> 00:41:50,480 Speaker 1: But you you were a fixture on financial television for 791 00:41:51,160 --> 00:41:56,080 Speaker 1: for many, many years. And I'm always astonished when the 792 00:41:56,200 --> 00:42:00,279 Speaker 1: kids don't know who came before them. It's just search 793 00:42:00,400 --> 00:42:03,799 Speaker 1: navalier slash stock picking and you'll you'll find out all 794 00:42:03,840 --> 00:42:06,440 Speaker 1: you need to know. So, so, before we get to 795 00:42:06,560 --> 00:42:10,440 Speaker 1: our standard questions, is so much stuff here that I 796 00:42:10,520 --> 00:42:14,359 Speaker 1: didn't get through last time. Let's let's let's plow through 797 00:42:14,480 --> 00:42:19,560 Speaker 1: some of this. I'm fascinated by the idea that undergraduate 798 00:42:19,640 --> 00:42:24,920 Speaker 1: or graduate in I graduated from college and then I 799 00:42:24,960 --> 00:42:27,320 Speaker 1: got my m b N seventy nine. Then I started 800 00:42:27,360 --> 00:42:31,480 Speaker 1: the newsletter in June of So I'm fascinated that here's 801 00:42:31,800 --> 00:42:36,200 Speaker 1: a guy with an NBA two years from college, deep 802 00:42:36,239 --> 00:42:39,840 Speaker 1: into one of the worst bear markets and generations, and 803 00:42:40,480 --> 00:42:43,880 Speaker 1: you say, I know, let's let's go into the stock market. 804 00:42:43,960 --> 00:42:47,960 Speaker 1: That's where the fun is. What what motivated that it? Had? 805 00:42:48,120 --> 00:42:51,360 Speaker 1: You had to have some inkling, You were onto something 806 00:42:51,520 --> 00:42:55,919 Speaker 1: before saying here's a terrible industry, let's join that. Well, 807 00:42:56,600 --> 00:42:59,520 Speaker 1: first of all I had been building databases behind the scenes. 808 00:42:59,600 --> 00:43:03,920 Speaker 1: I was fortunate to get access to mainframe computers. Um 809 00:43:04,160 --> 00:43:07,480 Speaker 1: in college from Wellsford was Kevist cal State Hayward, which 810 00:43:07,480 --> 00:43:09,360 Speaker 1: was not called cal St D. S. Bay. But we 811 00:43:09,520 --> 00:43:13,000 Speaker 1: were fortunate to get access to wells Fargo's computer. So 812 00:43:13,760 --> 00:43:15,320 Speaker 1: I'm old. You know, I had a slide role. We 813 00:43:15,600 --> 00:43:18,680 Speaker 1: used to punch cards anyway, so we I figured out 814 00:43:18,680 --> 00:43:21,239 Speaker 1: what was working, and then I built my own databases. 815 00:43:21,320 --> 00:43:23,160 Speaker 1: And every stock was a card going through a t 816 00:43:23,320 --> 00:43:26,239 Speaker 1: I programmal calculator. So every week and I would get 817 00:43:26,280 --> 00:43:28,680 Speaker 1: Barrens and I update everything and key it in, and 818 00:43:29,360 --> 00:43:32,520 Speaker 1: I had my own database. But in seventy seventy nine, 819 00:43:32,560 --> 00:43:35,120 Speaker 1: and in the first few months you had a big 820 00:43:35,200 --> 00:43:38,400 Speaker 1: small cap rally and then that bubble burst. But I 821 00:43:38,480 --> 00:43:40,399 Speaker 1: knew there were an omblies on Wall Street. I could 822 00:43:40,440 --> 00:43:43,480 Speaker 1: see him in small cap, and so I started in 823 00:43:43,600 --> 00:43:48,399 Speaker 1: small cap, assuming that was the least effect efficient place. 824 00:43:48,520 --> 00:43:50,320 Speaker 1: In fact, that's that's how I first came to know 825 00:43:50,440 --> 00:43:52,760 Speaker 1: you as your rep was, hey, this is a great 826 00:43:52,840 --> 00:43:55,520 Speaker 1: small cap stock picker. Correct, And then my first letter 827 00:43:55,640 --> 00:43:58,960 Speaker 1: was O T. C Insight later renamed MPT Review. It's 828 00:43:58,960 --> 00:44:01,520 Speaker 1: not called emerging growth. The publishers like to rename us, 829 00:44:01,640 --> 00:44:04,759 Speaker 1: but the that's how it all evolved. And then this 830 00:44:04,840 --> 00:44:07,160 Speaker 1: guy Holbert picked me up and said nice things about me, 831 00:44:07,239 --> 00:44:10,120 Speaker 1: and that helped my career. And uh, and so I 832 00:44:10,480 --> 00:44:12,600 Speaker 1: publishing still a big thing. You know, we're very popular 833 00:44:12,640 --> 00:44:14,759 Speaker 1: in the in the brokerage world. Um, the way it 834 00:44:14,840 --> 00:44:17,279 Speaker 1: works is, um, if a stock goes up, it's their idea, 835 00:44:17,280 --> 00:44:19,600 Speaker 1: of it goes down to my idea. So there's a 836 00:44:19,680 --> 00:44:21,960 Speaker 1: lot of folks out there that are are trading off 837 00:44:22,000 --> 00:44:26,360 Speaker 1: our portfolios. And it's somewhat stressful because we have a 838 00:44:26,400 --> 00:44:28,799 Speaker 1: bit of a wake nowadays. So when we make a recommendation, 839 00:44:28,840 --> 00:44:30,840 Speaker 1: there's a little blip on the stock. And I'll be 840 00:44:30,920 --> 00:44:32,719 Speaker 1: honest with his ax has picked me up eighty five 841 00:44:32,760 --> 00:44:37,480 Speaker 1: percent times, so there's another blow. So this becomes an issue. 842 00:44:37,640 --> 00:44:41,200 Speaker 1: But you know, we do influence markets, but markets are 843 00:44:41,200 --> 00:44:44,200 Speaker 1: also very fragile. So it's funny. I spent the first 844 00:44:44,280 --> 00:44:46,640 Speaker 1: half of my career on the cell side, and what 845 00:44:46,800 --> 00:44:50,480 Speaker 1: you described right out of the broker handbook. Hey, you know, 846 00:44:50,760 --> 00:44:54,440 Speaker 1: anything anybody else suggests, if it doesn't work out, it's 847 00:44:54,520 --> 00:44:57,080 Speaker 1: that guy. But if it does work out, I'm the 848 00:44:57,160 --> 00:44:59,239 Speaker 1: genius who brought it to you, so that that is 849 00:44:59,440 --> 00:45:01,680 Speaker 1: I think paid to one. That's correct. And I meet 850 00:45:01,719 --> 00:45:04,120 Speaker 1: a lot of I meet clients that think I'm running 851 00:45:04,160 --> 00:45:06,080 Speaker 1: their money and then I can't find them on our 852 00:45:06,160 --> 00:45:09,640 Speaker 1: system because their brokers running it. But they're the broker 853 00:45:09,680 --> 00:45:13,440 Speaker 1: pace run newsletter. So I don't argue. Okay, and uh so, 854 00:45:14,320 --> 00:45:17,759 Speaker 1: but different how many different You have a run of 855 00:45:17,840 --> 00:45:20,359 Speaker 1: different newsletters? Oh gosh, I think we have six now, 856 00:45:20,560 --> 00:45:23,040 Speaker 1: But um, what do they typically close for a year? Well, 857 00:45:23,120 --> 00:45:25,680 Speaker 1: we start everybody in blue chip Growth, which is our flagship, 858 00:45:26,280 --> 00:45:28,640 Speaker 1: and um, I think that's two forty nine a year, 859 00:45:28,800 --> 00:45:31,200 Speaker 1: and then Emerging Growth is a little bit more. That's 860 00:45:31,280 --> 00:45:35,560 Speaker 1: more small cap. Uh. Then we have something called Ultimate Growth, 861 00:45:35,600 --> 00:45:37,680 Speaker 1: wheref you we trade socks a whole about four to 862 00:45:37,800 --> 00:45:40,719 Speaker 1: five months more for the pensions, um, and then if 863 00:45:40,719 --> 00:45:42,680 Speaker 1: you get all three, you get Ultimate Growth. And now 864 00:45:42,760 --> 00:45:45,520 Speaker 1: we have a family trust service which follows my wife's 865 00:45:45,560 --> 00:45:47,759 Speaker 1: my mother in law's money a little more conservative blue 866 00:45:47,840 --> 00:45:51,640 Speaker 1: chip hire dividend yield buying, dip selling the strength that's 867 00:45:51,920 --> 00:45:54,200 Speaker 1: kind of plays the range of the stocks. And then 868 00:45:54,239 --> 00:45:58,600 Speaker 1: we have a new dividend service. You know I should 869 00:45:58,600 --> 00:46:01,839 Speaker 1: talked to you about mentions them know, we have our 870 00:46:01,920 --> 00:46:04,160 Speaker 1: stock Grader we're mensely proud of. We wrote a book 871 00:46:04,200 --> 00:46:06,799 Speaker 1: on this. What's the name of the book, The Little 872 00:46:06,840 --> 00:46:09,839 Speaker 1: Book that Makes You Rich with John Walling? Yeah, and um, 873 00:46:10,640 --> 00:46:12,560 Speaker 1: that introduced our stock grader, and that's all freeing the 874 00:46:12,600 --> 00:46:16,080 Speaker 1: public domain. We haven't a Dividend Greater service up there, 875 00:46:16,280 --> 00:46:18,520 Speaker 1: and they are Dividend Greater, believe or not, has actually 876 00:46:18,560 --> 00:46:20,640 Speaker 1: beaten our stock greater in the last ten years, but 877 00:46:20,800 --> 00:46:23,040 Speaker 1: barely now that this locks in a dividend growth, not 878 00:46:23,120 --> 00:46:27,239 Speaker 1: high dividen and dividend growth. And when we merge the 879 00:46:27,520 --> 00:46:30,280 Speaker 1: A rated stocks and Dividend Greater with A rated stocks 880 00:46:30,480 --> 00:46:34,759 Speaker 1: and stock Grader, the rich results are incredible. But I 881 00:46:34,880 --> 00:46:37,400 Speaker 1: only can find three to four stocks a month, So 882 00:46:37,719 --> 00:46:39,880 Speaker 1: I'm actually at the stage of my life where I'm 883 00:46:39,960 --> 00:46:42,440 Speaker 1: running out of capacity. I'm running all places to put 884 00:46:42,480 --> 00:46:46,800 Speaker 1: the money. And so we have very concentrated portfolios nowadays, 885 00:46:46,880 --> 00:46:48,880 Speaker 1: and I can find that, you know, I can do 886 00:46:49,000 --> 00:46:51,000 Speaker 1: better with an eighteen stock profolion. I can with a 887 00:46:51,080 --> 00:46:55,600 Speaker 1: thirty seven stock profolio the market but better before the 888 00:46:55,680 --> 00:46:59,359 Speaker 1: market is shockingly narrow right now, well, insisting you say risk, 889 00:46:59,440 --> 00:47:01,319 Speaker 1: But my eighteen stock profo is safe in the thirty 890 00:47:01,400 --> 00:47:04,840 Speaker 1: seven because it's the putting the dividend versus the growth stocks. 891 00:47:05,320 --> 00:47:08,080 Speaker 1: And they're all lower stocks, but they move differently, so 892 00:47:08,160 --> 00:47:10,120 Speaker 1: as long as we optimize them properly. But you're ready, 893 00:47:10,160 --> 00:47:11,880 Speaker 1: You're right. If I had an extraordinary event, if I 894 00:47:11,960 --> 00:47:13,880 Speaker 1: laid an egg in one of them, I I probably 895 00:47:14,080 --> 00:47:19,720 Speaker 1: Literification implies lower potential expect returns, more draw downs. People. 896 00:47:19,960 --> 00:47:23,680 Speaker 1: People seem to misuse the term volatility for risk. What 897 00:47:23,840 --> 00:47:26,280 Speaker 1: I mean is, hey, we know what you expected returns 898 00:47:26,320 --> 00:47:29,720 Speaker 1: are based on these qualify these characteristics of the holdings. 899 00:47:30,120 --> 00:47:31,640 Speaker 1: What are the odds that we're not gonna get those 900 00:47:31,680 --> 00:47:33,279 Speaker 1: returns in anyone year? What are the odds that we're 901 00:47:33,280 --> 00:47:37,080 Speaker 1: gonna have an outsize draw down? That's the loose definition 902 00:47:37,160 --> 00:47:40,600 Speaker 1: of of of risk. I like to eat and we can. 903 00:47:40,920 --> 00:47:43,120 Speaker 1: You know, we know we have beatam extra out downstair innoviation, 904 00:47:43,239 --> 00:47:45,480 Speaker 1: we have unsus, we have all kinds of different ways 905 00:47:45,520 --> 00:47:47,920 Speaker 1: to slice it. But the bottom line is I'm actually 906 00:47:48,000 --> 00:47:50,319 Speaker 1: safer today on eighteen stocks and I'm on about thirty 907 00:47:50,360 --> 00:47:54,360 Speaker 1: seven and uh and uh. But that's the function of 908 00:47:54,360 --> 00:47:58,280 Speaker 1: the optimization models blending the dividend growth with the growth stocks. 909 00:47:58,800 --> 00:48:00,800 Speaker 1: But I we really enjoy we do. We see in 910 00:48:00,800 --> 00:48:02,880 Speaker 1: our own products. We're one of the few managers that 911 00:48:02,920 --> 00:48:05,360 Speaker 1: are willing to work for tempercent and profits build by annually, 912 00:48:05,400 --> 00:48:08,520 Speaker 1: no fixed fee. Uh, and say that again. Let's let's 913 00:48:08,520 --> 00:48:10,200 Speaker 1: go over that. So it's not two and twenty and 914 00:48:10,280 --> 00:48:13,040 Speaker 1: it's not a straight one percent, it's we won't charge 915 00:48:13,080 --> 00:48:15,239 Speaker 1: anything and we'll just take ten percent of the profit 916 00:48:15,400 --> 00:48:19,319 Speaker 1: that of all costs, advisor, brokerage, firm, everything, it's sec 917 00:48:19,480 --> 00:48:21,719 Speaker 1: real two or five dash three that the client must 918 00:48:21,719 --> 00:48:23,759 Speaker 1: say they have a two million liquid net worth. As 919 00:48:23,840 --> 00:48:26,320 Speaker 1: long as they say they have that, we're willing to 920 00:48:26,400 --> 00:48:28,239 Speaker 1: run their money for temper cent and profits build by 921 00:48:28,239 --> 00:48:30,920 Speaker 1: annually or a reasonable fixed fee. We have either or 922 00:48:31,560 --> 00:48:34,239 Speaker 1: so we really enjoy what we do. Our firm is 923 00:48:34,360 --> 00:48:36,560 Speaker 1: increasingly we run more and more like a family office 924 00:48:36,560 --> 00:48:39,400 Speaker 1: because we're very fortunate and I think I'm married well, 925 00:48:39,480 --> 00:48:41,320 Speaker 1: and I sold some business at the right time. But 926 00:48:41,440 --> 00:48:44,360 Speaker 1: the bottom line, we love what we do. We heavily 927 00:48:44,400 --> 00:48:45,960 Speaker 1: invest in what we do. We're not as big as 928 00:48:46,040 --> 00:48:48,560 Speaker 1: a rom baron or anybody like that, but we really 929 00:48:48,640 --> 00:48:52,920 Speaker 1: enjoy what we do and that gets reflected in the business. 930 00:48:52,960 --> 00:48:56,920 Speaker 1: So so let's go back to you launching a newsletter 931 00:48:57,239 --> 00:49:00,600 Speaker 1: right out of grad school. What was a mood likene 932 00:49:00,640 --> 00:49:03,560 Speaker 1: on Wall Street and in the early nineteen eighties that 933 00:49:03,760 --> 00:49:06,040 Speaker 1: that had to be you know, we we just had 934 00:49:06,080 --> 00:49:09,719 Speaker 1: a double deep precition eighty and eighty two. Inflation was 935 00:49:11,360 --> 00:49:15,800 Speaker 1: teenage numbers. The tenure bond I think was yielding sixteen 936 00:49:16,600 --> 00:49:20,080 Speaker 1: Who the hell once stopped? Well, that was interesting. I 937 00:49:20,239 --> 00:49:22,920 Speaker 1: was in San Francisco at the time, and San Francisco 938 00:49:23,000 --> 00:49:25,960 Speaker 1: was much less stressed out than um, New York, New 939 00:49:26,040 --> 00:49:29,040 Speaker 1: York because you know, they're it's kind of all land 940 00:49:29,080 --> 00:49:30,920 Speaker 1: out there, and it's it's any more. I think San 941 00:49:30,960 --> 00:49:33,359 Speaker 1: Francisco is more stressed out than New York these days. 942 00:49:34,080 --> 00:49:37,960 Speaker 1: Fights over Google buses, apartment rents, everything's gone very stressful, 943 00:49:38,040 --> 00:49:43,680 Speaker 1: stepping over homeless people everywhere. But the the uh. But 944 00:49:44,120 --> 00:49:47,560 Speaker 1: did to make a long story short, the um this 945 00:49:47,760 --> 00:49:49,560 Speaker 1: is at the end of the vocal era. But by 946 00:49:49,600 --> 00:49:52,759 Speaker 1: the way, the homeless in California was Giuliani's gift from 947 00:49:52,800 --> 00:49:55,439 Speaker 1: New York to call that was that was our gift. 948 00:49:57,000 --> 00:50:00,040 Speaker 1: They mean, well, but it is there. There's a a 949 00:50:00,080 --> 00:50:02,600 Speaker 1: few of them out there. Um l A San Diego, 950 00:50:02,760 --> 00:50:06,240 Speaker 1: the whole West coast old California's as a New Yorker 951 00:50:06,719 --> 00:50:09,600 Speaker 1: who has seen the number of homeless tick up recently. 952 00:50:10,440 --> 00:50:12,560 Speaker 1: You know, if you remember in the seventies and eighties, 953 00:50:12,719 --> 00:50:17,000 Speaker 1: homelessness in New York was terrible. That all changed once 954 00:50:17,080 --> 00:50:21,520 Speaker 1: we started treating it like a a mental health issue 955 00:50:21,560 --> 00:50:24,719 Speaker 1: and not um as a you have the right to 956 00:50:24,760 --> 00:50:28,880 Speaker 1: sleep in the park. And it's ticked up since Bloomberg 957 00:50:28,960 --> 00:50:32,120 Speaker 1: left the mayoralty, it's ticked up a little bit. And 958 00:50:32,280 --> 00:50:34,640 Speaker 1: I'm shocked every time I go to California. By the 959 00:50:34,719 --> 00:50:38,640 Speaker 1: sheer note, I have a good friend, Bruce peccable dresser, 960 00:50:38,800 --> 00:50:45,560 Speaker 1: beautiful wife, UM, very successful gentleman. UM. In the eighties, 961 00:50:45,600 --> 00:50:48,200 Speaker 1: he had a slight crack cocaine problem. We always wondered 962 00:50:48,200 --> 00:50:49,480 Speaker 1: what was wrong with Bruce. He was sitting in the 963 00:50:49,560 --> 00:50:54,480 Speaker 1: tenderloin and somebody bit his finger off. Human h Yeah, 964 00:50:54,600 --> 00:50:56,520 Speaker 1: it's I'm from the Bay Area. It's it's shocking to 965 00:50:56,600 --> 00:50:59,680 Speaker 1: see people eat pigeons and things. So it's uh something 966 00:50:59,680 --> 00:51:01,160 Speaker 1: I don't want to see ever again, do you know 967 00:51:01,200 --> 00:51:04,400 Speaker 1: what I mean? It's and yet California is not responding 968 00:51:04,400 --> 00:51:07,920 Speaker 1: to this. California is a fasciname place of Californias don't 969 00:51:07,920 --> 00:51:11,719 Speaker 1: have bank accounts. There's this huge cash economy there. So 970 00:51:11,880 --> 00:51:15,120 Speaker 1: well the other the drivers out there don't have insurance. 971 00:51:15,480 --> 00:51:19,720 Speaker 1: Well it might be the same group. You know, it's funny. 972 00:51:19,840 --> 00:51:22,320 Speaker 1: It's uh. If you went to California d m V, 973 00:51:22,440 --> 00:51:25,200 Speaker 1: they would say, don't blame us. They had Schwarzenegger's picture 974 00:51:25,200 --> 00:51:27,640 Speaker 1: there because of the budget cuts. But the ski resorts 975 00:51:27,719 --> 00:51:32,200 Speaker 1: got extra traffic because they had the mandatory layoffs. You know, 976 00:51:32,360 --> 00:51:36,520 Speaker 1: I have the mandatory leave in California and the budget problems. 977 00:51:36,800 --> 00:51:40,400 Speaker 1: I have California employees because I'm on I have some 978 00:51:40,440 --> 00:51:41,800 Speaker 1: people who live in truck you to work from you 979 00:51:42,000 --> 00:51:44,560 Speaker 1: right near the border. And I remember a few years ago, 980 00:51:44,600 --> 00:51:47,239 Speaker 1: I said, I'm sorry about your paycheck, and this is 981 00:51:47,560 --> 00:51:50,680 Speaker 1: what happened because they got less money. Well, California was broke, 982 00:51:50,840 --> 00:51:53,160 Speaker 1: so they had more withholding. They just with held more. 983 00:51:53,239 --> 00:51:55,680 Speaker 1: Figure will borrow it from the future, and of course 984 00:51:55,719 --> 00:51:58,080 Speaker 1: you can fire tax returned in time. You gotta iou 985 00:51:58,200 --> 00:52:00,880 Speaker 1: but they are benefiting from the Then they attack Boom 986 00:52:00,920 --> 00:52:03,120 Speaker 1: now and I think they're okay. But going back to 987 00:52:03,200 --> 00:52:06,200 Speaker 1: the cash economy that dominates a Silicon Valley and a 988 00:52:06,200 --> 00:52:09,160 Speaker 1: lot of other places, in Los Angeles. You know, there 989 00:52:09,239 --> 00:52:11,319 Speaker 1: is a theory that maybe the check cashing stores are 990 00:52:11,320 --> 00:52:13,800 Speaker 1: more efficient than the banks. But the truth matter is 991 00:52:13,880 --> 00:52:18,080 Speaker 1: there's there is a cash economy there and they're very innovative. 992 00:52:18,120 --> 00:52:19,960 Speaker 1: And it is what it is that that has to 993 00:52:20,040 --> 00:52:23,800 Speaker 1: be a large chunk of legal immigrants, housekeepers, gardeners, whatever, 994 00:52:24,400 --> 00:52:26,799 Speaker 1: who are getting paid in cash and don't show up 995 00:52:26,840 --> 00:52:29,880 Speaker 1: on the balance sheets anywhere. And that's a part of 996 00:52:29,880 --> 00:52:32,239 Speaker 1: the country. It's a great country. And uh, what what 997 00:52:32,400 --> 00:52:34,640 Speaker 1: can I say? And um, you know, and you know, 998 00:52:34,680 --> 00:52:36,520 Speaker 1: I'm really from Berkeley, and you know, when you're in 999 00:52:36,560 --> 00:52:39,560 Speaker 1: the pot business in Berkeley, you have to be nonprofit 1000 00:52:39,600 --> 00:52:41,680 Speaker 1: because you're doing this for the good of mankind. Okay, 1001 00:52:41,760 --> 00:52:43,920 Speaker 1: And they did arrest one of the Berkeley pot growers 1002 00:52:44,360 --> 00:52:46,280 Speaker 1: because he made too much money one year they rested 1003 00:52:46,400 --> 00:52:50,520 Speaker 1: for capitalism. That's pretty hilarious. It's so now that we 1004 00:52:50,640 --> 00:52:55,440 Speaker 1: have states like Colorado and Oregon and another two dozen 1005 00:52:55,480 --> 00:53:00,080 Speaker 1: states about to make marijuana not just medical marijuana, but 1006 00:53:00,239 --> 00:53:04,200 Speaker 1: recreational marijuana fully legal. Is that going to become an 1007 00:53:04,239 --> 00:53:08,319 Speaker 1: investible thesis anytime soon? No, because you can't you can't 1008 00:53:08,880 --> 00:53:12,319 Speaker 1: can't cash the money, can't bank. So anytime you see 1009 00:53:12,320 --> 00:53:15,920 Speaker 1: a marijuana investment, unless it's an LED lighting to make 1010 00:53:16,040 --> 00:53:20,040 Speaker 1: the plants grow faster, or hydroponics or some mechanical thing 1011 00:53:20,120 --> 00:53:22,920 Speaker 1: behind the scenes, I wouldn't invest in it, Okay, And 1012 00:53:23,000 --> 00:53:25,760 Speaker 1: that's because of the federal law on on banking doesn't 1013 00:53:25,760 --> 00:53:29,320 Speaker 1: allow them to, uh to actually put money in bank. Correct. 1014 00:53:29,400 --> 00:53:32,920 Speaker 1: And what's happened in Vegas because unfortunately, uh, there are 1015 00:53:33,000 --> 00:53:37,440 Speaker 1: some people in Nevada they're slightly stoned. Okay, Um, in Vegas, 1016 00:53:37,520 --> 00:53:41,439 Speaker 1: it's all gone to the East Cigarettes because they can't 1017 00:53:41,480 --> 00:53:44,839 Speaker 1: trace it. Uh So what do you mean the money 1018 00:53:44,840 --> 00:53:47,120 Speaker 1: has gone to East Cigarettes? In other words, they're selling 1019 00:53:47,239 --> 00:53:49,799 Speaker 1: East siggs as well as they're they're they're getting their 1020 00:53:49,800 --> 00:53:53,640 Speaker 1: marijuana through the East cigarettes and they can't trace it. Well, 1021 00:53:53,680 --> 00:53:56,080 Speaker 1: if you smoked it or ate it, they could apparently 1022 00:53:56,120 --> 00:54:00,200 Speaker 1: trace it better. So the marijuana industry in they guess 1023 00:54:00,280 --> 00:54:02,960 Speaker 1: has collapsed. Now Vegas is a big LDS area. Is 1024 00:54:03,000 --> 00:54:06,800 Speaker 1: it is it legal? Is marijuana? Is it recreational or medical? 1025 00:54:06,880 --> 00:54:09,320 Speaker 1: And you know that's a good question, but it's at everything. 1026 00:54:09,440 --> 00:54:13,040 Speaker 1: Everything is legal. It's Vegas, It's it's it's at every 1027 00:54:13,080 --> 00:54:16,440 Speaker 1: ski slope I've ever been to, even in Utah, so 1028 00:54:17,600 --> 00:54:21,839 Speaker 1: it is a performance enhancing drug. Apparently, though, Utah had 1029 00:54:21,880 --> 00:54:26,600 Speaker 1: an interesting solution to the their homeless problem is they said, 1030 00:54:27,000 --> 00:54:30,960 Speaker 1: we're spending x hours a year on each individual homeless person. 1031 00:54:31,360 --> 00:54:34,200 Speaker 1: If we can spend less and solve the problem, will 1032 00:54:34,400 --> 00:54:37,800 Speaker 1: entertain any solution. And the solution someone came up with 1033 00:54:38,040 --> 00:54:40,640 Speaker 1: was give them an expensive apartments pay for it. This 1034 00:54:40,719 --> 00:54:43,400 Speaker 1: way they get their meds, they have access to their whatever. 1035 00:54:43,719 --> 00:54:45,960 Speaker 1: And so far Utah seems to have come up with 1036 00:54:46,040 --> 00:54:50,719 Speaker 1: the only um solution that seems to be working. California 1037 00:54:50,800 --> 00:54:53,359 Speaker 1: should should take a look at what they're what they're 1038 00:54:53,360 --> 00:54:55,719 Speaker 1: doing and maybe even save some money along the way. Yeah, 1039 00:54:55,800 --> 00:54:59,279 Speaker 1: you know, I go to some states that are very 1040 00:54:59,600 --> 00:55:02,320 Speaker 1: interest saying, like Alabama's very church oring and you have 1041 00:55:02,400 --> 00:55:04,520 Speaker 1: to you know, Wednesday night's church night. You better better 1042 00:55:04,600 --> 00:55:07,040 Speaker 1: not catch you out going for dinner on Wednesday. Uh, 1043 00:55:07,520 --> 00:55:10,960 Speaker 1: for some reason in Alabama a lot obviously, Utah's very LDS, 1044 00:55:11,080 --> 00:55:16,520 Speaker 1: Nevada's very LDS as as well, um so as the 1045 00:55:17,239 --> 00:55:22,200 Speaker 1: Latter Day Saints. Okay, it's suggesting liberal Democrats, and I'm like, 1046 00:55:22,560 --> 00:55:27,520 Speaker 1: I would think that's more California than so uh Mormons LDS. 1047 00:55:27,719 --> 00:55:29,879 Speaker 1: I suspect there's a bit of a church influence going 1048 00:55:29,920 --> 00:55:32,880 Speaker 1: on in Utah too. I would be shocked if there isn't. 1049 00:55:33,080 --> 00:55:36,680 Speaker 1: Um so we probably you know that. I don't know 1050 00:55:36,680 --> 00:55:38,360 Speaker 1: if that model will work everywhere, but we have to 1051 00:55:38,400 --> 00:55:40,479 Speaker 1: see how it's strong. It's coming from the church versus 1052 00:55:40,760 --> 00:55:44,600 Speaker 1: somebody else. But kudas to them for you know, being 1053 00:55:44,600 --> 00:55:46,960 Speaker 1: a little creative and thinking outside the box and not 1054 00:55:47,120 --> 00:55:50,320 Speaker 1: just spending them. You can't just throw money at problems 1055 00:55:50,440 --> 00:55:52,600 Speaker 1: that doesn't solve them. One thing I can tell you 1056 00:55:52,880 --> 00:55:55,000 Speaker 1: is in South Florida where I happen to live, we 1057 00:55:55,120 --> 00:55:57,120 Speaker 1: have all the rehab places and we have a lot 1058 00:55:57,160 --> 00:55:59,840 Speaker 1: of the second steps and you go there and it 1059 00:56:00,000 --> 00:56:02,000 Speaker 1: it's funny when I fly back to Florida and there 1060 00:56:02,000 --> 00:56:04,719 Speaker 1: are a lot of them were flying with front of 1061 00:56:04,760 --> 00:56:08,560 Speaker 1: the front of the plane because it's very expensive rehaf 1062 00:56:09,840 --> 00:56:11,719 Speaker 1: and you know they're all, you know, getting all their 1063 00:56:11,760 --> 00:56:13,680 Speaker 1: little drinks and they have one last hit. You know. 1064 00:56:13,840 --> 00:56:16,440 Speaker 1: Most of them are opiates, you know, perkose dad and 1065 00:56:16,640 --> 00:56:19,399 Speaker 1: an oxy cotton and all the legal drugs or whatever. 1066 00:56:19,480 --> 00:56:21,279 Speaker 1: El Chapa was something I don't think you could get 1067 00:56:21,320 --> 00:56:24,480 Speaker 1: perkeo Dan. Yeah, I guess you could get percoset. I 1068 00:56:24,560 --> 00:56:27,640 Speaker 1: had my wisdom teeth out between college and grad school, 1069 00:56:28,239 --> 00:56:32,400 Speaker 1: and um uh, they gave me a prescription of Perka Dana. 1070 00:56:32,600 --> 00:56:35,439 Speaker 1: I call that the best month of my life. Yeah, 1071 00:56:35,719 --> 00:56:37,239 Speaker 1: but at the end of the month, you're done. You're done. 1072 00:56:37,280 --> 00:56:40,960 Speaker 1: There was no that seems to have changed these days. Yeah, 1073 00:56:41,080 --> 00:56:43,520 Speaker 1: and it's a serious problem. We have a good friend 1074 00:56:43,719 --> 00:56:46,120 Speaker 1: going names who had a problem for four years with this. 1075 00:56:46,280 --> 00:56:49,040 Speaker 1: He had he thought he had teeth problems, but he 1076 00:56:49,080 --> 00:56:51,880 Speaker 1: had a little aneurism in his head and they had 1077 00:56:51,960 --> 00:56:54,359 Speaker 1: opened his head. In fact, Ben Carson almost cut on him. 1078 00:56:54,880 --> 00:56:58,200 Speaker 1: Ben was his second choice, and so they got they 1079 00:56:58,320 --> 00:57:01,239 Speaker 1: deal with his aneurism. But he apparently like doxicon for 1080 00:57:01,280 --> 00:57:03,520 Speaker 1: a while. And so he's back. He's fine. We're all 1081 00:57:03,600 --> 00:57:05,439 Speaker 1: reaching out to him to help him, and he's fine. 1082 00:57:05,480 --> 00:57:09,239 Speaker 1: He's mentally he's sharpest can be. But it's it's uh, 1083 00:57:09,440 --> 00:57:13,719 Speaker 1: it's a happy place apparently apparently. You know, I don't 1084 00:57:13,760 --> 00:57:17,360 Speaker 1: mind the occasional mood altering drink or what have you, 1085 00:57:17,800 --> 00:57:20,000 Speaker 1: but it's not it's a place to visit for vacation. 1086 00:57:20,040 --> 00:57:22,760 Speaker 1: It's not a place to live in on a permanent basis. 1087 00:57:22,960 --> 00:57:24,920 Speaker 1: But uh, that's why we have to watch all our 1088 00:57:24,960 --> 00:57:28,640 Speaker 1: trading deaths. Okay, because that's a place to visit and 1089 00:57:28,720 --> 00:57:31,360 Speaker 1: not a place to uh So, so let's go back 1090 00:57:31,360 --> 00:57:34,720 Speaker 1: to when you're coming out of grad school and launching 1091 00:57:34,720 --> 00:57:38,280 Speaker 1: the newsletters. Were you working in New York where you 1092 00:57:38,360 --> 00:57:42,760 Speaker 1: were aware of the mood of wool Street or did that? So? So, 1093 00:57:42,920 --> 00:57:45,680 Speaker 1: how did that affect the way you looked at the 1094 00:57:45,880 --> 00:57:48,840 Speaker 1: decision to let's launch your business right into the teeth? Well, 1095 00:57:48,880 --> 00:57:52,000 Speaker 1: I was thinking of moving here and I prayed around 1096 00:57:52,080 --> 00:57:54,080 Speaker 1: here and then uh, of course I had to get 1097 00:57:54,200 --> 00:57:55,400 Speaker 1: used to the weather. It was pretty hot when I 1098 00:57:55,440 --> 00:57:58,400 Speaker 1: was running around here. But the I decided to to 1099 00:57:58,480 --> 00:58:02,480 Speaker 1: work for myself and um. I was originally sponsored by 1100 00:58:02,480 --> 00:58:05,200 Speaker 1: a little firm called Van Casper in San Francisco, which 1101 00:58:05,280 --> 00:58:08,560 Speaker 1: is part of Wells far Ago, and it's all my 1102 00:58:08,640 --> 00:58:11,360 Speaker 1: manage accounts were going through there. And then uh then 1103 00:58:11,640 --> 00:58:13,880 Speaker 1: I went in and started to work with other people 1104 00:58:13,920 --> 00:58:17,400 Speaker 1: and platforms and we just want to take care of 1105 00:58:17,440 --> 00:58:20,520 Speaker 1: people and treat everybody like we treat ourselves. And you know, 1106 00:58:20,600 --> 00:58:22,600 Speaker 1: in fact, I just had my sec d O l 1107 00:58:22,640 --> 00:58:26,080 Speaker 1: audit Um departmently brought it and uh I they walk 1108 00:58:26,120 --> 00:58:28,120 Speaker 1: into a growth shop and they saw how much dividend 1109 00:58:28,160 --> 00:58:30,880 Speaker 1: management a lot of our clients had. And uh so 1110 00:58:31,000 --> 00:58:33,400 Speaker 1: I think they even I can't say this, he was happy, 1111 00:58:33,440 --> 00:58:35,640 Speaker 1: but I was happy with with it. With the audit 1112 00:58:35,800 --> 00:58:38,480 Speaker 1: was not as long as I thought. And uh and 1113 00:58:38,520 --> 00:58:41,040 Speaker 1: they brought the deal lawyer there on loan to make 1114 00:58:41,080 --> 00:58:44,080 Speaker 1: sure that we do suitability and we put you know, 1115 00:58:44,480 --> 00:58:46,880 Speaker 1: we put everybody gets a mix that's suitable for them 1116 00:58:47,040 --> 00:58:49,560 Speaker 1: versus some can mix. You know. I think if they 1117 00:58:49,680 --> 00:58:53,040 Speaker 1: caught any of us, you know, treating everybody, you know, 1118 00:58:53,240 --> 00:58:55,600 Speaker 1: putting the round client in the round slot and square, 1119 00:58:55,680 --> 00:58:57,760 Speaker 1: they don't like that. You have to literally listen to 1120 00:58:57,840 --> 00:59:01,040 Speaker 1: people do what they want and to dial it in 1121 00:59:01,160 --> 00:59:04,280 Speaker 1: and change it as their needs change. So we're we're 1122 00:59:04,320 --> 00:59:06,919 Speaker 1: pretty proud of what we've done. And our private client 1123 00:59:06,960 --> 00:59:08,840 Speaker 1: group here in New York is growing rapidly because we're 1124 00:59:08,840 --> 00:59:11,480 Speaker 1: trying to taking care of people. So what was your 1125 00:59:11,600 --> 00:59:15,880 Speaker 1: take on the whole um suitability versus fiduciary standard that 1126 00:59:16,040 --> 00:59:18,160 Speaker 1: the d o L rules changed. Did you have any 1127 00:59:18,200 --> 00:59:20,160 Speaker 1: thoughts on that or I have no problem with it. 1128 00:59:20,240 --> 00:59:26,000 Speaker 1: I think uh, I think the real problem is the 1129 00:59:26,480 --> 00:59:28,840 Speaker 1: conflicts we have out there. So I don't have a 1130 00:59:28,920 --> 00:59:31,240 Speaker 1: conflict because we have either a low and stitutional figure 1131 00:59:31,320 --> 00:59:35,120 Speaker 1: that incentaphie. But what's happened to our business? And I'll 1132 00:59:35,160 --> 00:59:37,320 Speaker 1: pick on my I guess I'll pick on my daughter. 1133 00:59:37,400 --> 00:59:40,080 Speaker 1: So my daughter is a mutual fund wholesaler. She has 1134 00:59:40,120 --> 00:59:43,880 Speaker 1: a four thousand dollar month budget. The guy she married 1135 00:59:43,960 --> 00:59:47,000 Speaker 1: used to give her fund business because he was wanted 1136 00:59:47,080 --> 00:59:50,400 Speaker 1: show he loved her. Okay, now that he's her husband, 1137 00:59:50,480 --> 00:59:53,400 Speaker 1: he just as I shares because at his firm he 1138 00:59:53,440 --> 00:59:56,040 Speaker 1: gets an extra fifty basis points to I shares over funds. 1139 00:59:57,000 --> 00:59:59,720 Speaker 1: One of the conflicts we that's emerged in our business 1140 01:00:00,600 --> 01:00:02,959 Speaker 1: is the E t F hold salers have more money 1141 01:00:03,040 --> 01:00:07,720 Speaker 1: than the phone hole salers. And so there are what 1142 01:00:07,840 --> 01:00:11,800 Speaker 1: we call a pay to play system out there, um uh, 1143 01:00:12,000 --> 01:00:14,640 Speaker 1: and a lot of it's mass with intelligence that the 1144 01:00:14,680 --> 01:00:17,240 Speaker 1: firms say, well and exchange this money will will make 1145 01:00:17,280 --> 01:00:19,960 Speaker 1: you work more efficiently and tell you where you should go. Okay, 1146 01:00:20,840 --> 01:00:24,040 Speaker 1: So I don't pay to play anywhere. So this isn't 1147 01:00:24,080 --> 01:00:26,440 Speaker 1: my problem. But this is what the industry is dealing with. 1148 01:00:27,200 --> 01:00:30,440 Speaker 1: And that's a lot of people don't realize that, um 1149 01:00:30,800 --> 01:00:33,160 Speaker 1: when the E t F s a rebalance every ninety days, 1150 01:00:34,240 --> 01:00:36,960 Speaker 1: that it's that that if that e t F controls 1151 01:00:37,000 --> 01:00:39,640 Speaker 1: the specialists, the e t F might actually profit on it. 1152 01:00:40,160 --> 01:00:43,000 Speaker 1: So it's kind of like the bond business. So in 1153 01:00:43,080 --> 01:00:45,400 Speaker 1: the bond world, everybody will always give you everything without 1154 01:00:45,600 --> 01:00:49,160 Speaker 1: no fees, no transactions because all the money's in the spread. 1155 01:00:49,280 --> 01:00:51,880 Speaker 1: People don't realize how big the spreads are ants or 1156 01:00:52,520 --> 01:00:55,080 Speaker 1: or it's already a householding and the charging the markup. 1157 01:00:55,160 --> 01:00:58,880 Speaker 1: I used to have this discussion with people who would say, 1158 01:00:59,000 --> 01:01:02,480 Speaker 1: I don't understand who paying bond managers. My guy at 1159 01:01:02,720 --> 01:01:05,840 Speaker 1: filling the blank wirehouse doesn't charge me for bonds. And 1160 01:01:05,880 --> 01:01:07,720 Speaker 1: I would always laugh and say, let me explain to you. 1161 01:01:08,160 --> 01:01:11,320 Speaker 1: There is no free lunch. Of course you're being charged. 1162 01:01:11,440 --> 01:01:14,439 Speaker 1: It's just not transparent or disclosed. You're not seeing either 1163 01:01:14,520 --> 01:01:17,040 Speaker 1: it's stuff, it's house inventory that they're selling to you 1164 01:01:17,080 --> 01:01:19,040 Speaker 1: as a markup, in which case they don't have to 1165 01:01:19,080 --> 01:01:21,400 Speaker 1: show it, or there's you could drive a truck through 1166 01:01:21,560 --> 01:01:23,480 Speaker 1: that spread and they own it on one side and 1167 01:01:23,480 --> 01:01:25,440 Speaker 1: they're selling it to you on the other. That's correct, 1168 01:01:25,560 --> 01:01:29,080 Speaker 1: and so what's happened is the asset gatherers on Wall Street, 1169 01:01:29,160 --> 01:01:32,520 Speaker 1: which dominate our business, are a very good gathering assets, 1170 01:01:32,560 --> 01:01:34,800 Speaker 1: convincing where they have low fees. But they people may 1171 01:01:34,800 --> 01:01:37,320 Speaker 1: not realize they make money in securities lending with legit. 1172 01:01:37,960 --> 01:01:40,920 Speaker 1: They make money on can make money on market making 1173 01:01:41,120 --> 01:01:43,880 Speaker 1: for the e t F through their special suffiliate, which 1174 01:01:44,720 --> 01:01:46,880 Speaker 1: is legit if they don't hose them too much. But 1175 01:01:47,080 --> 01:01:50,080 Speaker 1: that's just a little bit of hosy goes. Well, this 1176 01:01:50,280 --> 01:01:52,920 Speaker 1: is what let's take some of the big robo programs. 1177 01:01:53,040 --> 01:01:55,440 Speaker 1: The robot programs, there are no managing fees, that's correct. 1178 01:01:55,520 --> 01:01:57,640 Speaker 1: But if you read like page fourteen of the disclosure, 1179 01:01:57,720 --> 01:01:59,880 Speaker 1: one of them, each et F pays a quarter million 1180 01:02:00,080 --> 01:02:01,080 Speaker 1: to be in there. Well, why would you pay a 1181 01:02:01,120 --> 01:02:02,760 Speaker 1: quarter million year if you're hardly get any feast? Well, 1182 01:02:02,800 --> 01:02:05,040 Speaker 1: because your e t F is free balanced every ninety 1183 01:02:05,120 --> 01:02:07,800 Speaker 1: days and the specialist affiliate could make a lot of money, 1184 01:02:07,880 --> 01:02:11,600 Speaker 1: especially sincludit ETF and there's an internal expense ratio built in. 1185 01:02:11,800 --> 01:02:13,600 Speaker 1: We don't have to pay a fee to buy it. 1186 01:02:13,720 --> 01:02:16,800 Speaker 1: It's not like the old days of c shares there 1187 01:02:16,880 --> 01:02:19,880 Speaker 1: the fee is is built in. You know, if you 1188 01:02:20,480 --> 01:02:22,800 Speaker 1: if you look at a number of custodians, there's a 1189 01:02:23,000 --> 01:02:26,120 Speaker 1: one of ETFs that they'll allow you to trade at 1190 01:02:26,200 --> 01:02:29,400 Speaker 1: no charge. It's like, well, why is that? Because they 1191 01:02:29,480 --> 01:02:34,040 Speaker 1: have relationships. When they're either constructing or deconstructing the individual 1192 01:02:34,160 --> 01:02:36,880 Speaker 1: shares and and there's oney to be made, they're happy 1193 01:02:37,080 --> 01:02:39,200 Speaker 1: just to have it there in house. And you know 1194 01:02:39,240 --> 01:02:42,240 Speaker 1: it's funny. I go to Europe and they do not 1195 01:02:42,400 --> 01:02:44,720 Speaker 1: like ETFs. The Bank of eng Until not to do it. 1196 01:02:45,600 --> 01:02:48,720 Speaker 1: I have a friend that used to arbitrage between London 1197 01:02:48,760 --> 01:02:50,800 Speaker 1: and New York, went to jail for three years, Mr 1198 01:02:50,880 --> 01:02:53,840 Speaker 1: Spister Gottam, And they're still are being in in Europe 1199 01:02:53,960 --> 01:02:57,480 Speaker 1: right now. Okay, because there's a difference between the e 1200 01:02:57,640 --> 01:02:59,880 Speaker 1: T F and and it's holdings. So when the U 1201 01:03:00,200 --> 01:03:03,040 Speaker 1: s what's supposed to keep those arbit treasures are supposed 1202 01:03:03,040 --> 01:03:05,640 Speaker 1: to keep the price between the N A V and 1203 01:03:05,680 --> 01:03:08,520 Speaker 1: e TF identical. In the way they do it is, hey, 1204 01:03:08,560 --> 01:03:11,560 Speaker 1: here's a market solution to not allowing these things to 1205 01:03:11,600 --> 01:03:14,960 Speaker 1: get out of black. The financial incentive allows people to 1206 01:03:15,040 --> 01:03:18,400 Speaker 1: trade that and and bring them into SINC. And I 1207 01:03:18,480 --> 01:03:20,840 Speaker 1: don't mean to be too negative, but I unfortunately the 1208 01:03:20,960 --> 01:03:23,040 Speaker 1: SEC is behind I can tell you what the SEC 1209 01:03:23,200 --> 01:03:26,200 Speaker 1: did wrong when we had first off, when they got 1210 01:03:26,280 --> 01:03:28,560 Speaker 1: rid of the twelve one fees on mutual funds. Okay, 1211 01:03:28,720 --> 01:03:31,120 Speaker 1: the firms figure out how to get paid even more. Okay, 1212 01:03:31,640 --> 01:03:35,760 Speaker 1: so actually the SEC caused this conundrum to exist. And 1213 01:03:35,920 --> 01:03:38,000 Speaker 1: when we had the flash crash in two thousand and ten, 1214 01:03:38,320 --> 01:03:41,520 Speaker 1: at five minute period, the SEC came in and broke 1215 01:03:41,600 --> 01:03:46,280 Speaker 1: every trade where somebody lost more than so they basically 1216 01:03:46,360 --> 01:03:50,000 Speaker 1: tell every specialist you can steal money until hit. And 1217 01:03:50,120 --> 01:03:53,760 Speaker 1: that's exactly what you saw in August two fifteen. Okay, 1218 01:03:54,480 --> 01:03:57,080 Speaker 1: the circuit breakers hit. They couldn't price the stocks, being 1219 01:03:57,120 --> 01:04:00,560 Speaker 1: why Melon had a little pricing issue and and uh, 1220 01:04:01,240 --> 01:04:03,400 Speaker 1: but there were E t F orders out there, and 1221 01:04:03,600 --> 01:04:05,560 Speaker 1: everybody looked at each other and they dropped a bid 1222 01:04:05,560 --> 01:04:09,240 Speaker 1: and picked everybody off. But they didn't pick off anybody. 1223 01:04:09,240 --> 01:04:11,200 Speaker 1: They picked off d v Y that I shares five 1224 01:04:11,240 --> 01:04:14,440 Speaker 1: star e t s, They picked off googleheim SMP equal, 1225 01:04:14,760 --> 01:04:16,560 Speaker 1: they picked off a bunch of Vanguard equally E t 1226 01:04:16,760 --> 01:04:19,200 Speaker 1: F s. And that's why the SEC to the scathing report, 1227 01:04:19,320 --> 01:04:22,080 Speaker 1: like what the hell is going on? And if I 1228 01:04:22,280 --> 01:04:24,640 Speaker 1: was the SEC and implementing this d O L thing 1229 01:04:24,880 --> 01:04:28,680 Speaker 1: I put, I would probably tell the E t F world, uh, 1230 01:04:28,840 --> 01:04:33,640 Speaker 1: you better behave okay, uh, because there's just the spreads 1231 01:04:33,680 --> 01:04:35,959 Speaker 1: are two wide. People E t s do not trade 1232 01:04:36,000 --> 01:04:39,240 Speaker 1: in an asset value. Okay, and this is a huge problem. 1233 01:04:39,600 --> 01:04:41,880 Speaker 1: And I have my own issues with morning Star. Morning 1234 01:04:41,960 --> 01:04:45,800 Speaker 1: Star will show in August a two thousand, um uh 1235 01:04:46,560 --> 01:04:50,600 Speaker 1: fifteen aug that that month that the d v Y 1236 01:04:50,800 --> 01:04:54,840 Speaker 1: only had a one basis point trade risk, but for 1237 01:04:54,960 --> 01:04:56,720 Speaker 1: some reason I had a fifty three point three percent 1238 01:04:56,840 --> 01:05:00,120 Speaker 1: range intra day. Okay. So I would argue that when 1239 01:05:00,120 --> 01:05:02,360 Speaker 1: he starts not doing their math right, okay, because you 1240 01:05:02,440 --> 01:05:04,600 Speaker 1: can look at a chart like on Bloomberg and you 1241 01:05:04,680 --> 01:05:07,520 Speaker 1: see the risk, and then look, morning Start wears the risk. 1242 01:05:08,360 --> 01:05:10,480 Speaker 1: So there's a lot of things that need to be 1243 01:05:10,560 --> 01:05:13,480 Speaker 1: cleaned up. And um, this is gonna be fixed really fast. 1244 01:05:13,600 --> 01:05:17,800 Speaker 1: But right now those folks that run the exchanges are 1245 01:05:18,080 --> 01:05:21,520 Speaker 1: are laughing at us, and every time there's an extraordinary event, 1246 01:05:21,560 --> 01:05:24,360 Speaker 1: they're gonna make a lot of money. That that that's really, 1247 01:05:24,920 --> 01:05:28,320 Speaker 1: um an interesting take. I can't say I disagree with 1248 01:05:28,400 --> 01:05:30,160 Speaker 1: the whole a lot of that. So I want to 1249 01:05:30,200 --> 01:05:33,880 Speaker 1: get to our favorite few questions before they kick us 1250 01:05:33,920 --> 01:05:37,200 Speaker 1: out of here. But there are so many things I 1251 01:05:38,800 --> 01:05:42,880 Speaker 1: skip through before. Let's let's talk about geopolitical risk, Brexit, 1252 01:05:43,320 --> 01:05:46,040 Speaker 1: US elections. Does any of that stuff matter to you? 1253 01:05:46,400 --> 01:05:50,080 Speaker 1: I'm sure? I mean model for that sort of stuff. Well, 1254 01:05:50,120 --> 01:05:54,240 Speaker 1: we've already seen this incredible rally in Europe because they 1255 01:05:54,480 --> 01:05:58,600 Speaker 1: briefly thought that Britain might stay, okay, because the tragic 1256 01:05:58,680 --> 01:06:01,360 Speaker 1: assassination the Member of Are went that kind of swung 1257 01:06:01,440 --> 01:06:03,680 Speaker 1: the polls. Now the polls are are going the other way, 1258 01:06:04,200 --> 01:06:06,080 Speaker 1: and there are on pins and needles. So there's a 1259 01:06:06,160 --> 01:06:08,360 Speaker 1: lot of cash on the sidelines ready to pour in 1260 01:06:08,560 --> 01:06:13,000 Speaker 1: if Britain stays. If Britain leaves, UH, the dollar will 1261 01:06:13,040 --> 01:06:17,240 Speaker 1: have this incredible rally. It will pinch uh SMP earnings 1262 01:06:17,280 --> 01:06:21,320 Speaker 1: for the multinationals commodities even more. It has profound ramifications. 1263 01:06:21,440 --> 01:06:23,680 Speaker 1: But if you look at the electric around the world, 1264 01:06:23,720 --> 01:06:26,760 Speaker 1: people seem to be a little ticked off. Nationalism is 1265 01:06:26,840 --> 01:06:30,760 Speaker 1: on its way back. And we've even here, even here, 1266 01:06:30,920 --> 01:06:34,000 Speaker 1: so we'll see what happens. I have Brits that work 1267 01:06:34,120 --> 01:06:36,360 Speaker 1: for me, and UH, they've told me they all they 1268 01:06:36,400 --> 01:06:39,680 Speaker 1: that people know are voting to leave. But you know 1269 01:06:39,840 --> 01:06:42,680 Speaker 1: it's it's um, Well, we'll see what happens. You know, 1270 01:06:42,800 --> 01:06:45,400 Speaker 1: this this office happened Canada and then they told the 1271 01:06:45,480 --> 01:06:48,200 Speaker 1: Quebeckers how much they love love each other. So maybe 1272 01:06:48,240 --> 01:06:50,080 Speaker 1: the folks in Brussels need to tell Britain how much 1273 01:06:50,080 --> 01:06:54,040 Speaker 1: they love them, you know. So speaking of overseas, you 1274 01:06:54,480 --> 01:06:58,840 Speaker 1: run models both US and international. When we look at 1275 01:06:58,920 --> 01:07:03,160 Speaker 1: the world of their value or small cap we see 1276 01:07:04,040 --> 01:07:08,040 Speaker 1: those factors outperform even more overseas than they do in 1277 01:07:08,040 --> 01:07:11,720 Speaker 1: the U S at least developed x US. When you 1278 01:07:11,840 --> 01:07:14,200 Speaker 1: create a model for overseas stocks, do you do anything 1279 01:07:14,320 --> 01:07:17,520 Speaker 1: differently or is it the same factors that you're applying, 1280 01:07:17,680 --> 01:07:20,280 Speaker 1: just tweaking them somewhat in a different balance. Well, first 1281 01:07:20,320 --> 01:07:22,520 Speaker 1: of all, we have our hottest product this year is 1282 01:07:22,520 --> 01:07:24,440 Speaker 1: an emerging market product and we're getting a lot of 1283 01:07:24,480 --> 01:07:27,680 Speaker 1: money in it. But I have to tell you, um, 1284 01:07:28,800 --> 01:07:31,640 Speaker 1: we've been pretty good on currencies. And the key is 1285 01:07:31,680 --> 01:07:34,840 Speaker 1: when you invest internationally, you better not get the currency wrong. 1286 01:07:35,560 --> 01:07:38,040 Speaker 1: And to demonstrate it, I'll give you an example where 1287 01:07:38,080 --> 01:07:41,120 Speaker 1: I'm made a mistake. Many years ago. I had the 1288 01:07:41,520 --> 01:07:45,800 Speaker 1: Coca Cola bottler of Mexico because the the Co Cola 1289 01:07:45,840 --> 01:07:48,760 Speaker 1: bottler is well, the average Mexican drinks sixty gallons of 1290 01:07:48,760 --> 01:07:50,320 Speaker 1: soft drink a year. By the way, it's better down 1291 01:07:50,360 --> 01:07:54,480 Speaker 1: there is here, It's exactly. And the time I go 1292 01:07:54,560 --> 01:07:58,320 Speaker 1: to the Islands, I picked up Coca Cola. It's delicious, 1293 01:07:58,400 --> 01:08:00,240 Speaker 1: So it's a it was a booming busines this and 1294 01:08:00,520 --> 01:08:03,120 Speaker 1: I think the bottle of the district before I forget, 1295 01:08:03,120 --> 01:08:05,720 Speaker 1: I'm starting before I forget. If you go into certain 1296 01:08:05,800 --> 01:08:10,440 Speaker 1: gourmet supermarkets in New York, like Whole Foods, you can 1297 01:08:10,600 --> 01:08:15,440 Speaker 1: buy a four pack of ten ounce glass bottle Mexican coke, 1298 01:08:16,080 --> 01:08:19,800 Speaker 1: which is made with cane sugar, not high fruit excellent. 1299 01:08:20,080 --> 01:08:24,040 Speaker 1: Sorry but no anyway, so booming business. And um, but 1300 01:08:24,240 --> 01:08:26,519 Speaker 1: if you drink sixty gallons of soft drink a year, 1301 01:08:26,560 --> 01:08:29,720 Speaker 1: as the average Mexican does, you might get diabetes. So 1302 01:08:29,840 --> 01:08:32,639 Speaker 1: I at that time I had no venordis a diabetes company. 1303 01:08:33,080 --> 01:08:35,360 Speaker 1: So I said, I am a great portfolio manager. I 1304 01:08:35,479 --> 01:08:38,479 Speaker 1: have this great bottler, and I have the diabetes company, 1305 01:08:38,520 --> 01:08:41,840 Speaker 1: and I have eliminated risk. Okay, onnesigs one perfectly hedge 1306 01:08:41,880 --> 01:08:45,240 Speaker 1: for diabetes until the Mexican paco went the wrong way 1307 01:08:45,600 --> 01:08:48,040 Speaker 1: and my trade came. And so the moral of stories 1308 01:08:48,040 --> 01:08:52,519 Speaker 1: when you invest internationally, don't get the currency wrong. And um, 1309 01:08:53,240 --> 01:08:57,040 Speaker 1: you know hedge uh currency when we don't and uh 1310 01:08:57,320 --> 01:09:01,000 Speaker 1: and you can see how wild it is right now. Um. 1311 01:09:01,600 --> 01:09:05,280 Speaker 1: Obviously there are countries that that are more commodity oriented. 1312 01:09:05,400 --> 01:09:08,120 Speaker 1: New Zealand and Australia, Canada that get hurt when their 1313 01:09:08,160 --> 01:09:11,000 Speaker 1: commodities go down. There's political risk like there was in 1314 01:09:11,120 --> 01:09:16,840 Speaker 1: Russia when they invaded Ukraine. And Venezuela I have, well, 1315 01:09:16,920 --> 01:09:19,120 Speaker 1: first of all, a lot of the middle class Venezuela 1316 01:09:19,200 --> 01:09:21,599 Speaker 1: live with me in Florida. Now they they live in Weston. 1317 01:09:21,680 --> 01:09:24,760 Speaker 1: But the UH no to say it's a tragedy. There's 1318 01:09:24,760 --> 01:09:27,840 Speaker 1: got to be a revolt there. It's it's coming, it's 1319 01:09:27,840 --> 01:09:30,000 Speaker 1: got to be. But it's on this broadcast. It'll probably 1320 01:09:30,000 --> 01:09:33,439 Speaker 1: be over. Yeah, but it's you know, no electricity, it's 1321 01:09:33,520 --> 01:09:36,760 Speaker 1: it's just no food rating, the school cafeterias for food 1322 01:09:36,800 --> 01:09:40,479 Speaker 1: with people, the schools. Everything's breaking down, it's truly. And 1323 01:09:40,520 --> 01:09:42,599 Speaker 1: then of course the oil is pronominally heavy sour crew 1324 01:09:42,680 --> 01:09:45,360 Speaker 1: No one wants the refinery blew up, and the only 1325 01:09:45,400 --> 01:09:47,000 Speaker 1: way they can sell that stuff is to refine it. 1326 01:09:47,080 --> 01:09:49,080 Speaker 1: You know. That's that's why Sawdi and Kuwait have their 1327 01:09:49,120 --> 01:09:52,080 Speaker 1: own refineries, because no one wants their heavy sour stuff 1328 01:09:52,120 --> 01:09:55,880 Speaker 1: unless they refine it. Anyway. It's just you've got to 1329 01:09:55,960 --> 01:10:00,360 Speaker 1: get the currency right. And UH. Emerging markets, going back 1330 01:10:00,439 --> 01:10:04,120 Speaker 1: to risk, UH do balance out a big diverse five 1331 01:10:04,160 --> 01:10:07,040 Speaker 1: portfolio and are getting a bigger share because they're zigging 1332 01:10:07,120 --> 01:10:10,599 Speaker 1: one other thing zag So they're the models are are 1333 01:10:10,880 --> 01:10:14,479 Speaker 1: calling for more of that right now. So let's um 1334 01:10:14,880 --> 01:10:18,599 Speaker 1: that that's really interesting. Let's let's go with the last 1335 01:10:18,720 --> 01:10:22,240 Speaker 1: question before I get to my favorites, which is how 1336 01:10:22,520 --> 01:10:26,880 Speaker 1: different is managing other people's money from writing a newsletter. 1337 01:10:28,200 --> 01:10:30,599 Speaker 1: It's not that different, you know. It's funny. The SEC 1338 01:10:30,800 --> 01:10:34,519 Speaker 1: will never let us clone a newsletter for management, so 1339 01:10:34,640 --> 01:10:38,519 Speaker 1: they never quite match. Okay, why is that? You can't 1340 01:10:38,600 --> 01:10:41,560 Speaker 1: you can't just turn it into a an E T 1341 01:10:41,760 --> 01:10:45,240 Speaker 1: F or something like that. Correct. Um, well, there's it's 1342 01:10:45,320 --> 01:10:49,320 Speaker 1: it's obviously regulatory rulings. But um there was a manager 1343 01:10:49,400 --> 01:10:52,360 Speaker 1: near me in Jupiter, Florida that was cloning his newsletter 1344 01:10:52,439 --> 01:10:54,160 Speaker 1: and he got fined two point three millions. So we 1345 01:10:54,240 --> 01:10:56,920 Speaker 1: just noticed that. Okay, So what I do even though 1346 01:10:56,920 --> 01:10:59,960 Speaker 1: there was such a rule, because you're not the new 1347 01:11:00,000 --> 01:11:05,479 Speaker 1: newsletters not not not um uh permitted marketing material. So 1348 01:11:05,760 --> 01:11:10,360 Speaker 1: if I ever have a newsletter touching my management material, 1349 01:11:10,479 --> 01:11:13,919 Speaker 1: I'm really bad. Okay. So that is why the management 1350 01:11:14,000 --> 01:11:17,599 Speaker 1: is headquartered Marina, Nevada, and publishings in Rockville, Maryland. We're 1351 01:11:17,600 --> 01:11:23,479 Speaker 1: trying to separate the correct and so, but the truth 1352 01:11:23,520 --> 01:11:27,080 Speaker 1: of matter is there's obviously a tremendous overlap. We don't 1353 01:11:27,120 --> 01:11:29,679 Speaker 1: have We have different names, So large cap might overlap 1354 01:11:29,840 --> 01:11:33,320 Speaker 1: my blue chip letter, but it might have a overlap. 1355 01:11:33,439 --> 01:11:36,639 Speaker 1: But they don't match and they have different names. I'm 1356 01:11:36,640 --> 01:11:39,640 Speaker 1: a different managers on it, and so we try to 1357 01:11:40,760 --> 01:11:42,559 Speaker 1: we do try to differentiate it. But in the end, 1358 01:11:42,880 --> 01:11:45,920 Speaker 1: the clients come to us for that good risk adjuster performance. 1359 01:11:46,920 --> 01:11:48,880 Speaker 1: What the way our system really works is we keep 1360 01:11:48,960 --> 01:11:53,840 Speaker 1: six conservative stocks modetly aggressive ten percent aggressive, and as 1361 01:11:53,880 --> 01:11:55,800 Speaker 1: things get more volatile, we start to trim or sell 1362 01:11:55,840 --> 01:11:57,720 Speaker 1: out right. And a lot of people will take the 1363 01:11:57,800 --> 01:12:00,519 Speaker 1: newsletters and they'll try it, and they forget to trim, 1364 01:12:00,920 --> 01:12:03,360 Speaker 1: and they come to us when markets are narrow. So 1365 01:12:03,479 --> 01:12:05,560 Speaker 1: this is a great time for our business because the 1366 01:12:05,640 --> 01:12:09,200 Speaker 1: markets aren't easy and it is very narrow, and they 1367 01:12:09,320 --> 01:12:11,880 Speaker 1: really want our help with the risk controls. And then 1368 01:12:11,960 --> 01:12:14,040 Speaker 1: we have to dial in on taxes. If it's a pension, 1369 01:12:14,120 --> 01:12:16,360 Speaker 1: we might chase more of our A rated stocks, if 1370 01:12:16,439 --> 01:12:18,479 Speaker 1: it's a if it's a tax efficient account, we might 1371 01:12:18,520 --> 01:12:20,080 Speaker 1: buy A's or Bees, or if they're in a high 1372 01:12:20,080 --> 01:12:22,120 Speaker 1: tech state, we might put them in a growing fun 1373 01:12:22,840 --> 01:12:24,960 Speaker 1: but we always have to blend in the dividend management 1374 01:12:24,960 --> 01:12:28,160 Speaker 1: because it zigs and other stuff zags um, the gross 1375 01:12:28,160 --> 01:12:31,240 Speaker 1: stock zag and and it's really about dialing in and 1376 01:12:31,800 --> 01:12:34,200 Speaker 1: getting everybody as smooth as possible. And of course as 1377 01:12:34,240 --> 01:12:36,840 Speaker 1: people get older, they want more income and we can 1378 01:12:36,880 --> 01:12:41,120 Speaker 1: make that transition very easily. So we were really proud 1379 01:12:41,160 --> 01:12:43,960 Speaker 1: of our private private client group, and we enjoy working 1380 01:12:44,000 --> 01:12:47,280 Speaker 1: with people and and we treat everybody like family. That's 1381 01:12:47,280 --> 01:12:49,280 Speaker 1: what we try to do, all right, So let's jump 1382 01:12:49,360 --> 01:12:52,479 Speaker 1: into our our standard questions we ask all our guests, 1383 01:12:52,720 --> 01:12:55,720 Speaker 1: and let's start right with the mentors. Who are some 1384 01:12:55,880 --> 01:12:59,879 Speaker 1: of the early mentors who influenced your thought process about investment. 1385 01:13:00,120 --> 01:13:02,560 Speaker 1: Professor Sharp at Stanford wrote a little book that was 1386 01:13:03,000 --> 01:13:05,880 Speaker 1: religious reading to me very short. Um, what was the 1387 01:13:05,960 --> 01:13:08,360 Speaker 1: name of book? I have no idea. It was red 1388 01:13:08,560 --> 01:13:10,599 Speaker 1: and it had all the formulas in there I needed. 1389 01:13:11,360 --> 01:13:15,720 Speaker 1: And no Bill Laureate, yes he's in his nineties now, 1390 01:13:16,320 --> 01:13:19,320 Speaker 1: who was the advisor for Financial Engines which is now 1391 01:13:19,400 --> 01:13:22,240 Speaker 1: running about a hundred and fifty billions. Financial Engines very 1392 01:13:22,600 --> 01:13:25,559 Speaker 1: very successful. I had honor meeting Harry Mark at Wits 1393 01:13:25,600 --> 01:13:28,680 Speaker 1: and Tahoe once, and Harry's a great guy. One of 1394 01:13:28,760 --> 01:13:32,320 Speaker 1: my professor's Arnold Lankson, who's in his nineties now, his 1395 01:13:32,360 --> 01:13:35,320 Speaker 1: buddies with Harry and likes to call Bill Sharp every 1396 01:13:35,360 --> 01:13:38,759 Speaker 1: now and then. But you know, those were the people 1397 01:13:38,840 --> 01:13:41,280 Speaker 1: that gave me the formulas, and I just set out 1398 01:13:41,320 --> 01:13:45,360 Speaker 1: the document. It um there are efficiently priced talks out there, 1399 01:13:45,479 --> 01:13:47,720 Speaker 1: and then there are things they're not officially priced. So 1400 01:13:48,600 --> 01:13:51,040 Speaker 1: what I don't care how how many anomalies are. I 1401 01:13:51,120 --> 01:13:53,280 Speaker 1: just want to find them. And basically I'm saying a 1402 01:13:53,320 --> 01:13:55,240 Speaker 1: lot of the market is efficient now, whether that's E 1403 01:13:55,360 --> 01:13:58,960 Speaker 1: T F S or indexing, but I just care about 1404 01:13:59,040 --> 01:14:01,400 Speaker 1: the inefficient one. And those are the ones that Russell's 1405 01:14:01,400 --> 01:14:03,840 Speaker 1: gonna be adding their industries poppy. Those are the ones 1406 01:14:03,880 --> 01:14:07,200 Speaker 1: that are reacting positive, their earnings are growing dividends. But 1407 01:14:07,320 --> 01:14:09,479 Speaker 1: it is shocked, Lynarrow, our dividen greater. You gotta be 1408 01:14:09,520 --> 01:14:11,280 Speaker 1: the top of leven cent our stockarate, you gota the 1409 01:14:11,320 --> 01:14:13,680 Speaker 1: top nine percent. That's how tight the markets are at 1410 01:14:13,760 --> 01:14:18,599 Speaker 1: this time. So those are those are academic mentwers. How 1411 01:14:18,600 --> 01:14:22,840 Speaker 1: about investors? What specific investors have affected the way you 1412 01:14:22,920 --> 01:14:27,160 Speaker 1: think James Stoward is at at American Centry was obviously 1413 01:14:27,240 --> 01:14:30,320 Speaker 1: very influential. He was one of the original James Stalwart 1414 01:14:30,640 --> 01:14:34,759 Speaker 1: Stours Stowers. He was one of the original um Ernie's 1415 01:14:34,800 --> 01:14:38,600 Speaker 1: Momentum guys. He was American Centry in Kansas City. He 1416 01:14:38,800 --> 01:14:41,600 Speaker 1: was buying research from B. J. Young and San Francisco. 1417 01:14:41,720 --> 01:14:44,600 Speaker 1: I remember meeting those guys. See, I did all this 1418 01:14:44,760 --> 01:14:48,000 Speaker 1: pre computers. Okay, I did on calculators, and then obviously 1419 01:14:48,200 --> 01:14:49,880 Speaker 1: I tried to stay on the head of automation and 1420 01:14:51,240 --> 01:14:55,599 Speaker 1: the those guys were we watched, well, we also watched 1421 01:14:55,640 --> 01:14:58,880 Speaker 1: the Peter Lynches of the world. Um, I think Peter Lynch, uh, 1422 01:14:59,400 --> 01:15:00,840 Speaker 1: you know, I know it all the story and all 1423 01:15:00,880 --> 01:15:03,360 Speaker 1: that stuff, but there was there was a lot of math. 1424 01:15:03,439 --> 01:15:06,240 Speaker 1: In fact, I did when I was pretty young, I 1425 01:15:06,320 --> 01:15:09,439 Speaker 1: did a report for Fidelity on my quant stuff. So 1426 01:15:11,080 --> 01:15:14,000 Speaker 1: so Peter Lynch is a closet quants another life. Well, 1427 01:15:14,080 --> 01:15:15,640 Speaker 1: he had some other people there that there was a 1428 01:15:15,680 --> 01:15:17,600 Speaker 1: guy named rich Fetton that seemed to be more of 1429 01:15:17,800 --> 01:15:20,680 Speaker 1: a quant and um but that he was a good 1430 01:15:20,760 --> 01:15:23,920 Speaker 1: mentor for that whole team of Fidelity and Um. But 1431 01:15:24,080 --> 01:15:26,280 Speaker 1: you know, it's you get to a size where you 1432 01:15:26,280 --> 01:15:28,639 Speaker 1: can only manage so much money and Fideli's at that size, 1433 01:15:28,960 --> 01:15:30,880 Speaker 1: but remember it has been for a long time. Remember 1434 01:15:30,960 --> 01:15:35,320 Speaker 1: Ned Uh, the ram Fidel, he was a pretty good man. 1435 01:15:35,720 --> 01:15:38,320 Speaker 1: It was a pretty good manager. Abigail Johnson is his 1436 01:15:38,400 --> 01:15:41,360 Speaker 1: daughter's running it. Ned Johnson was running a fund back 1437 01:15:41,400 --> 01:15:43,320 Speaker 1: in the air. Yeah, prety Peter Lynch. It was pretty 1438 01:15:43,360 --> 01:15:46,599 Speaker 1: successful too. So you mentioned Bill Sharp's book. What other 1439 01:15:46,680 --> 01:15:50,240 Speaker 1: books have been influential after that? It was just ib 1440 01:15:50,400 --> 01:15:53,040 Speaker 1: D and UH staying on the cutting edge. I don't 1441 01:15:53,320 --> 01:15:56,920 Speaker 1: agree with how to exit like ib D says. I 1442 01:15:57,400 --> 01:16:00,200 Speaker 1: wouldn't set a stop at seven percent or anything, but uh, 1443 01:16:00,360 --> 01:16:02,840 Speaker 1: you're guaranteed to get taken out of stocks that are going. 1444 01:16:03,040 --> 01:16:06,640 Speaker 1: Of course, in fact, you know because of our volatility 1445 01:16:06,720 --> 01:16:08,559 Speaker 1: last August, you know, the New York stocks change man 1446 01:16:08,640 --> 01:16:11,040 Speaker 1: physical stops and gtcs for two months and that's how 1447 01:16:11,120 --> 01:16:13,960 Speaker 1: bad it was. But yeah, you never show anybody order. 1448 01:16:13,960 --> 01:16:15,760 Speaker 1: You never show me your cards. But I learned that 1449 01:16:15,840 --> 01:16:17,960 Speaker 1: early in my career. If you put a stop out there, 1450 01:16:18,120 --> 01:16:21,000 Speaker 1: somehow a specialist will get the price they're take it 1451 01:16:21,120 --> 01:16:23,360 Speaker 1: and then move it away. Correct. And Uh, I have 1452 01:16:23,760 --> 01:16:26,280 Speaker 1: three good extrators that work for me. They aren't trading now. 1453 01:16:26,479 --> 01:16:30,400 Speaker 1: They try to educate everybody. But but the truth of 1454 01:16:30,439 --> 01:16:33,880 Speaker 1: the matter is is the markets are always mutating and 1455 01:16:34,000 --> 01:16:35,560 Speaker 1: just got to stay on top of it. And I 1456 01:16:35,640 --> 01:16:39,400 Speaker 1: don't like any theme that doesn't make money. I do 1457 01:16:39,600 --> 01:16:42,719 Speaker 1: like them when they make the transition from negative positive 1458 01:16:42,800 --> 01:16:44,680 Speaker 1: rains if I can time at that quarter, I like 1459 01:16:44,840 --> 01:16:48,320 Speaker 1: that because it's explosive, But most of the time might 1460 01:16:48,479 --> 01:16:52,599 Speaker 1: change from negative to positive. I like that, But most 1461 01:16:52,640 --> 01:16:55,000 Speaker 1: of my stocks are Most of my stocks are go 1462 01:16:55,080 --> 01:16:57,400 Speaker 1: up in a very smooth, steady manner. There's relentless buying 1463 01:16:57,439 --> 01:17:00,439 Speaker 1: pressure and buy backs into the surface. There's growing evidends, 1464 01:17:01,080 --> 01:17:02,720 Speaker 1: and so I jump on him as long as I 1465 01:17:02,760 --> 01:17:05,040 Speaker 1: can ride them and they're safe. And then eventually they 1466 01:17:05,080 --> 01:17:08,040 Speaker 1: get more erradic for whatever reason margins are under compression, 1467 01:17:08,280 --> 01:17:11,000 Speaker 1: or buy backs are slowing down, or the sectors going 1468 01:17:11,040 --> 01:17:14,040 Speaker 1: out of favor. I had this experience last year. You know, 1469 01:17:14,400 --> 01:17:18,879 Speaker 1: I had gillyad um, which is uh the hepatitis cpill. 1470 01:17:19,800 --> 01:17:21,680 Speaker 1: I would get grief on that because Hillary said the 1471 01:17:21,720 --> 01:17:23,680 Speaker 1: pill is too expensive, and I would argue, it's a 1472 01:17:23,760 --> 01:17:26,240 Speaker 1: cure for hepatitis is cheaper than dying to people death 1473 01:17:26,240 --> 01:17:30,400 Speaker 1: in the hospital to leave Gilly alone, to say, just 1474 01:17:30,560 --> 01:17:34,200 Speaker 1: to just to clarify, this is cheaper than dying a long, slow, 1475 01:17:34,320 --> 01:17:37,559 Speaker 1: painful death. And yes, yes, and so check that, okay, 1476 01:17:37,760 --> 01:17:40,760 Speaker 1: and then uh but but you know, they start to 1477 01:17:40,840 --> 01:17:43,040 Speaker 1: hit the biotech funds. They started at the farmer funds 1478 01:17:43,080 --> 01:17:44,960 Speaker 1: because Hillary was specking on the healthcare stocks. You know, 1479 01:17:45,000 --> 01:17:47,080 Speaker 1: I had to sell Allergen. I said, Hillary is not 1480 01:17:47,080 --> 01:17:49,840 Speaker 1: gonna mess with Alligien's bow talks. Okay, you know, and 1481 01:17:50,120 --> 01:17:52,120 Speaker 1: we're very familiar bowt talks in South Florida. You can 1482 01:17:52,160 --> 01:17:55,240 Speaker 1: see who has it because they're they're they're drooling at 1483 01:17:55,240 --> 01:17:58,280 Speaker 1: the cocktail parties. That the dentist to bow talks in 1484 01:17:58,360 --> 01:18:00,720 Speaker 1: South Florida mandatory at least, I think the thing you 1485 01:18:00,760 --> 01:18:02,639 Speaker 1: have to tell him not to do bow talks, okay 1486 01:18:02,840 --> 01:18:08,679 Speaker 1: if you don't want to, yes, yes, but the anyway, 1487 01:18:08,720 --> 01:18:10,320 Speaker 1: to make a long story short, you know, there are 1488 01:18:10,400 --> 01:18:12,439 Speaker 1: sectors that get hit because they're in a big basket. 1489 01:18:12,560 --> 01:18:14,000 Speaker 1: You know, they do throw the baby out with the 1490 01:18:14,040 --> 01:18:16,920 Speaker 1: bathwater when we have the big energy meltdown. You know. 1491 01:18:17,000 --> 01:18:18,680 Speaker 1: He said, well, I don't know, I don't know if 1492 01:18:18,680 --> 01:18:23,160 Speaker 1: they'll hit the terminals, the pipelines in the front. Yeah. Yeah, 1493 01:18:23,479 --> 01:18:25,960 Speaker 1: well then their knees would come out and one side 1494 01:18:26,000 --> 01:18:27,680 Speaker 1: would have her any other, but then it was just 1495 01:18:27,760 --> 01:18:30,479 Speaker 1: too long, and then they took everything out. I remember 1496 01:18:30,520 --> 01:18:32,720 Speaker 1: there was one LED lighting company that was in an 1497 01:18:32,800 --> 01:18:34,640 Speaker 1: energy et F, so they took it out because it 1498 01:18:34,680 --> 01:18:38,160 Speaker 1: was in the wrong ETF. Okay, because it made LED lighting. 1499 01:18:38,320 --> 01:18:42,360 Speaker 1: We see all sorts of people confuse symbols. News comes 1500 01:18:42,400 --> 01:18:45,240 Speaker 1: out and a similar symbol gets whacked. I mean the 1501 01:18:45,479 --> 01:18:49,640 Speaker 1: behavioral side of which is really what what I like 1502 01:18:49,840 --> 01:18:52,479 Speaker 1: how is no one can read the second sentence, okay, 1503 01:18:52,560 --> 01:18:56,040 Speaker 1: which everybody just reads the headline, and you trade off 1504 01:18:56,080 --> 01:18:58,759 Speaker 1: the headline and and then you can have a correction 1505 01:18:58,840 --> 01:19:02,439 Speaker 1: and no one cares that one's programmed a trade off corrections. 1506 01:19:02,479 --> 01:19:05,760 Speaker 1: To my knowledge, yet, that's amazing. So you mentioned a 1507 01:19:05,880 --> 01:19:07,960 Speaker 1: lot of the things that have changed since you're joined 1508 01:19:08,000 --> 01:19:11,519 Speaker 1: the industry. What do you think is the most significant changes? 1509 01:19:12,160 --> 01:19:14,200 Speaker 1: What if you had to pick one thing, what what 1510 01:19:14,400 --> 01:19:19,960 Speaker 1: has had the greatest impact on investment? Decimalization? Really, so 1511 01:19:20,120 --> 01:19:24,600 Speaker 1: going from teenas and quotas and eighths to decimalization, that 1512 01:19:24,880 --> 01:19:28,599 Speaker 1: that changed the research equation, didn't it? Yes, I missed 1513 01:19:28,640 --> 01:19:32,120 Speaker 1: the old system. I preferred the old system. I preferred 1514 01:19:32,160 --> 01:19:36,080 Speaker 1: getting on NASTAC level three. Collin Markin started colleague market 1515 01:19:36,160 --> 01:19:40,599 Speaker 1: makers cleaning out their inventory, accumuli in stocks, never moving them. 1516 01:19:41,200 --> 01:19:43,519 Speaker 1: Today I deal with an algorithm. I deal with an 1517 01:19:43,520 --> 01:19:48,160 Speaker 1: anonymous high frequency trading system, and I don't like it. 1518 01:19:48,520 --> 01:19:51,639 Speaker 1: We calculate something called unsystematic risk. The risk we can't 1519 01:19:51,640 --> 01:19:55,120 Speaker 1: diversify way in large cap stocks is about point six 1520 01:19:55,200 --> 01:19:59,880 Speaker 1: percent of trade. In mid cap stocks and small cap 1521 01:20:00,000 --> 01:20:02,400 Speaker 1: it's still running almost six d bases points of trade. 1522 01:20:03,080 --> 01:20:06,439 Speaker 1: Et f s last August were four fifties, four fifty eight. 1523 01:20:06,760 --> 01:20:11,120 Speaker 1: Now they're three fifty seven basis points of this is 1524 01:20:11,360 --> 01:20:14,479 Speaker 1: unsystematic risk, the static, the fudge factor, how much they 1525 01:20:14,640 --> 01:20:16,720 Speaker 1: might pick you off if you're careless with your order, 1526 01:20:17,640 --> 01:20:21,600 Speaker 1: and so not. So when we optimize the portfolio, we 1527 01:20:21,760 --> 01:20:26,000 Speaker 1: have to get the lowest beta possible. We have to 1528 01:20:26,120 --> 01:20:29,240 Speaker 1: get the unsystematic risk down, and we get the office 1529 01:20:29,360 --> 01:20:33,240 Speaker 1: high as possible. And there's ways optimized, but the unsystematic 1530 01:20:33,400 --> 01:20:36,080 Speaker 1: risk exploded when they decimalize the market. I like the 1531 01:20:36,120 --> 01:20:40,519 Speaker 1: old system. The fact that Europe, Europe is gone in August, 1532 01:20:40,920 --> 01:20:42,479 Speaker 1: the fact that most of my friends here in New 1533 01:20:42,560 --> 01:20:46,080 Speaker 1: York are gone the second half of August. I hate August. 1534 01:20:46,280 --> 01:20:49,200 Speaker 1: I just hate it. Okay, Now, in the presidential election year. 1535 01:20:49,479 --> 01:20:52,000 Speaker 1: Often it's better because we're all being distracted by the 1536 01:20:52,040 --> 01:20:57,479 Speaker 1: conventions apparently correct, but the I think the rhetoric will 1537 01:20:57,479 --> 01:21:01,120 Speaker 1: be pretty hot and heavy the summer, I personally is 1538 01:21:01,280 --> 01:21:04,519 Speaker 1: as long as Trump and Hillary are sucking up to people, 1539 01:21:05,080 --> 01:21:07,439 Speaker 1: that's good. I'm waiting for them to start sucking up 1540 01:21:07,479 --> 01:21:11,000 Speaker 1: to people. Okay, normally we rally going to presidential electioneer 1541 01:21:11,040 --> 01:21:14,320 Speaker 1: because of the sucker factor. It lifts consumer confidence, rubs 1542 01:21:14,360 --> 01:21:18,519 Speaker 1: off investor confidence. But I know this is not a 1543 01:21:18,560 --> 01:21:20,720 Speaker 1: conventional election er, but I would hope that they would 1544 01:21:20,800 --> 01:21:22,840 Speaker 1: make August a little smooth at this time. I know 1545 01:21:22,920 --> 01:21:25,760 Speaker 1: it'll be entertainings as can be, but it's uh. I 1546 01:21:25,800 --> 01:21:27,320 Speaker 1: would like to see a little suck up with the 1547 01:21:27,920 --> 01:21:32,120 Speaker 1: with the attacks. I love that um our. Last two questions, So, 1548 01:21:32,320 --> 01:21:36,320 Speaker 1: if a millennium or millennial or some recent college graduate 1549 01:21:36,439 --> 01:21:38,920 Speaker 1: came to you and said, Louism thinking about a career 1550 01:21:39,000 --> 01:21:42,920 Speaker 1: in finance, what sort of advice would you give them? Well, 1551 01:21:43,000 --> 01:21:45,240 Speaker 1: I'll tell you something. I told my son, you better 1552 01:21:45,320 --> 01:21:48,479 Speaker 1: take a psychology class because the market is a mant 1553 01:21:48,520 --> 01:21:54,440 Speaker 1: of crowd and um and uh, that is what behavior finances. 1554 01:21:55,120 --> 01:21:57,960 Speaker 1: We're studying crowds and we're locking in on what they like. 1555 01:21:58,479 --> 01:22:02,800 Speaker 1: And the crowd movement will last for several months, and 1556 01:22:02,880 --> 01:22:04,840 Speaker 1: so we want to lock in on it, if not years. 1557 01:22:05,560 --> 01:22:09,040 Speaker 1: The second thing is better taken an accounting class. If 1558 01:22:09,080 --> 01:22:11,599 Speaker 1: you have any criticism of all the CFAs out there, 1559 01:22:11,960 --> 01:22:15,000 Speaker 1: they're all trained to track, they're all trained to uh 1560 01:22:15,520 --> 01:22:17,559 Speaker 1: you know, hug these benchmarks throughout a few dogs if 1561 01:22:17,560 --> 01:22:20,839 Speaker 1: they want to try to beat it. And everybody's forgotten 1562 01:22:20,840 --> 01:22:24,280 Speaker 1: about accounting, okay, and they better learn finance. Um I. 1563 01:22:25,240 --> 01:22:28,120 Speaker 1: There's the number of investors out there that have no 1564 01:22:28,280 --> 01:22:31,919 Speaker 1: idea what a p ratio is or you know, it's incredible, 1565 01:22:31,960 --> 01:22:34,439 Speaker 1: you don't we deal with this because we have Tesla 1566 01:22:34,520 --> 01:22:36,680 Speaker 1: and Reno. You know, they're building the battery plant and 1567 01:22:36,880 --> 01:22:40,840 Speaker 1: uh I deal with in California and they're all they're 1568 01:22:40,840 --> 01:22:42,360 Speaker 1: all in La La land. They I don't think they 1569 01:22:42,439 --> 01:22:44,680 Speaker 1: have any idea of the risk they're incurring with that 1570 01:22:44,800 --> 01:22:48,800 Speaker 1: stock right now. Quite fascinating. And the last question, what 1571 01:22:49,040 --> 01:22:52,360 Speaker 1: is it that you know about investing today that you 1572 01:22:52,560 --> 01:22:57,120 Speaker 1: wish you knew when you started out in Well, that's 1573 01:22:57,160 --> 01:22:59,800 Speaker 1: a that's a very good point. You know, you have 1574 01:23:00,120 --> 01:23:02,720 Speaker 1: to read the credit markets because the credit markets influenced 1575 01:23:02,760 --> 01:23:06,240 Speaker 1: the stock market, but I think it's the credit market 1576 01:23:06,320 --> 01:23:10,040 Speaker 1: meltdown in two thousand and eight that's the most profound. Um, 1577 01:23:12,360 --> 01:23:15,320 Speaker 1: what happened on wall streets started to leverage debt And 1578 01:23:16,600 --> 01:23:18,840 Speaker 1: this is a goods closing point. I obviously live in 1579 01:23:18,880 --> 01:23:22,080 Speaker 1: South Florida. Bernie was up the street six home south 1580 01:23:22,120 --> 01:23:23,800 Speaker 1: to me was a guy named Tom Petters, still three 1581 01:23:23,840 --> 01:23:27,040 Speaker 1: point a billion fake and commercial paper my neighbors. Bernie 1582 01:23:27,080 --> 01:23:29,439 Speaker 1: isn't Bernie made off? Bernie was up the street. I 1583 01:23:29,479 --> 01:23:34,360 Speaker 1: thought we were talking Bernie uh Sanders. Bernie Madoff was 1584 01:23:34,479 --> 01:23:38,080 Speaker 1: up up the street, and then um, Tom Petters was 1585 01:23:38,080 --> 01:23:39,920 Speaker 1: six home south and me still three point billion fake 1586 01:23:39,920 --> 01:23:41,679 Speaker 1: in commercial play for eighteen years. I blog to golf 1587 01:23:41,720 --> 01:23:44,400 Speaker 1: club where the founder of this big fancy fund of 1588 01:23:44,479 --> 01:23:48,840 Speaker 1: funds only recommended Bernie and Petters. Well, he has no 1589 01:23:48,920 --> 01:23:51,640 Speaker 1: stereviation because everybody's lost their money and there is some 1590 01:23:51,800 --> 01:23:54,800 Speaker 1: upside as attorney generals are cover. But my neighbors got 1591 01:23:54,880 --> 01:23:59,240 Speaker 1: wiped out more by leverage debt then, more than the 1592 01:23:59,280 --> 01:24:02,680 Speaker 1: maide offs of the UH. Well, it might be the 1593 01:24:02,720 --> 01:24:06,720 Speaker 1: club I bunked, but the bottom line is the UH 1594 01:24:06,880 --> 01:24:09,080 Speaker 1: they were leverage and double A rating munis eight to 1595 01:24:09,200 --> 01:24:13,479 Speaker 1: one the Falcon Funds and uh, they lost ninety percent 1596 01:24:13,520 --> 01:24:15,280 Speaker 1: their money. This is part of the credit to false 1597 01:24:15,280 --> 01:24:20,720 Speaker 1: swap problem and uh collapsing and um. So anytime I 1598 01:24:20,800 --> 01:24:23,880 Speaker 1: see leverage debt, I freak out. Okay, and I see 1599 01:24:23,920 --> 01:24:25,760 Speaker 1: a response, I see a little now two to one. 1600 01:24:26,560 --> 01:24:28,600 Speaker 1: Obviously we had the s i V problem. That was 1601 01:24:28,640 --> 01:24:30,280 Speaker 1: tender one, that was our bet in the yield curve. 1602 01:24:30,680 --> 01:24:34,200 Speaker 1: That's what sunk bear Sterns and Lehman. But the thing 1603 01:24:34,280 --> 01:24:36,720 Speaker 1: that shocks me to this day is the guy that 1604 01:24:36,840 --> 01:24:39,640 Speaker 1: led the Falcon Funds who lost twenty one point one 1605 01:24:39,720 --> 01:24:43,280 Speaker 1: billion dollars for City Bank. He obviously got fired over 1606 01:24:43,360 --> 01:24:47,040 Speaker 1: this whole mess, and he finally got a new job 1607 01:24:47,400 --> 01:24:51,679 Speaker 1: and um and uh, and he's a very controversial guy anyway. 1608 01:24:51,720 --> 01:24:55,040 Speaker 1: His his name is is Jack Luke, and he is 1609 01:24:55,439 --> 01:24:59,680 Speaker 1: our Treasure Sasuary Secretary, United States. So that si V 1610 01:25:00,200 --> 01:25:04,120 Speaker 1: grouping lost how much money for City back the the well, 1611 01:25:04,160 --> 01:25:06,200 Speaker 1: the si vs was a big fiasco, and that was 1612 01:25:06,240 --> 01:25:09,240 Speaker 1: a whole another matter. But Jack lou to my knowledge, 1613 01:25:09,320 --> 01:25:13,080 Speaker 1: was doing the leveraged munis with leverage correct and that 1614 01:25:13,160 --> 01:25:15,640 Speaker 1: got Sally Crotchack fired and then he lost his job too. 1615 01:25:16,000 --> 01:25:18,559 Speaker 1: Because his little division lost twenty one point one billion. 1616 01:25:18,800 --> 01:25:21,519 Speaker 1: Plus you had the SIV lost on top of it. Obviously, 1617 01:25:21,600 --> 01:25:24,439 Speaker 1: somebody at City called Robert Reuben and City was deemed 1618 01:25:24,439 --> 01:25:26,960 Speaker 1: too big to fail and got built out. But but 1619 01:25:27,479 --> 01:25:30,840 Speaker 1: but it's it's shocked. It's shocking to me how you 1620 01:25:30,920 --> 01:25:33,599 Speaker 1: can blow up people and then become get a New 1621 01:25:33,720 --> 01:25:37,519 Speaker 1: Jersey secretary. That that that's amazing. I knew that City 1622 01:25:37,560 --> 01:25:41,960 Speaker 1: Group was toast long before they actually hit the floor, 1623 01:25:42,400 --> 01:25:45,479 Speaker 1: but I had no idea. The losses on leverage munis 1624 01:25:45,479 --> 01:25:47,840 Speaker 1: were twenty one billion dollars. That was that's a huge, 1625 01:25:47,960 --> 01:25:50,560 Speaker 1: huge number. That was the Falcon funds. That was a 1626 01:25:50,720 --> 01:25:54,040 Speaker 1: muni's leverage eight to one. Everybody loved him. In fact, 1627 01:25:54,040 --> 01:25:55,920 Speaker 1: I still remember I went to a party in Palm Beach. 1628 01:25:55,920 --> 01:25:59,240 Speaker 1: Everbody's bragging how much money they're making funds. Yeah, you 1629 01:25:59,280 --> 01:26:01,479 Speaker 1: can look at one. Well, leverage is great as long 1630 01:26:01,520 --> 01:26:03,439 Speaker 1: as it's going in a direction. As soon as the 1631 01:26:03,600 --> 01:26:06,439 Speaker 1: market goes the other direction, you're completely And I do. 1632 01:26:06,920 --> 01:26:09,280 Speaker 1: I do have a bond business. And my bond guy 1633 01:26:09,360 --> 01:26:11,400 Speaker 1: worked at a I G. And he tells a funny 1634 01:26:11,479 --> 01:26:14,880 Speaker 1: story that that when they kicked Hank Greenberg out of 1635 01:26:14,920 --> 01:26:18,120 Speaker 1: his own firm because he liked Hank, and they put 1636 01:26:18,200 --> 01:26:20,080 Speaker 1: in this auto insurance guide to run a I G. 1637 01:26:20,320 --> 01:26:22,599 Speaker 1: They wrote all these credit to fault swaps at bogus 1638 01:26:22,720 --> 01:26:26,000 Speaker 1: rates because they already wanted a bonus. So my bond 1639 01:26:26,040 --> 01:26:28,760 Speaker 1: guy actually blames the government for blowing up a I G. 1640 01:26:29,200 --> 01:26:31,880 Speaker 1: Okay and uh and the collapse of the credit to 1641 01:26:31,960 --> 01:26:34,400 Speaker 1: fault swap market. But you know, the bond markets wild. 1642 01:26:34,439 --> 01:26:36,519 Speaker 1: It's been wild this year, whether you've seen in high yield, 1643 01:26:36,560 --> 01:26:38,960 Speaker 1: and so I wish I knew a little bit more 1644 01:26:38,960 --> 01:26:41,160 Speaker 1: about the bond market. Uh. You know, I have I 1645 01:26:41,320 --> 01:26:43,240 Speaker 1: keep friends in the bond market. I talked to him 1646 01:26:43,240 --> 01:26:45,479 Speaker 1: all the time. They're just a wreck most of the time. 1647 01:26:45,479 --> 01:26:47,120 Speaker 1: I'll be honest with you. I mean they're a wreck. 1648 01:26:47,280 --> 01:26:49,640 Speaker 1: I mean it's this is not an easy job. So 1649 01:26:49,840 --> 01:26:51,080 Speaker 1: a stock guys, I think I have a lot of 1650 01:26:51,120 --> 01:26:54,160 Speaker 1: easier job than these credit guys. See, I look at 1651 01:26:54,200 --> 01:26:56,920 Speaker 1: the bond side as what's the big deal. Here's your duration, 1652 01:26:57,040 --> 01:27:01,040 Speaker 1: here's your your coupon, here's your risk. That stuff practically runs. 1653 01:27:01,080 --> 01:27:03,600 Speaker 1: I once had a conversation with Paul McCulley. Hey, that 1654 01:27:03,680 --> 01:27:05,840 Speaker 1: stuff practically runs itself. What do you guys having so 1655 01:27:05,960 --> 01:27:08,439 Speaker 1: much angst out in PIMCO. I have about we have 1656 01:27:08,479 --> 01:27:12,240 Speaker 1: a bond business. We play in the triple ber and 1657 01:27:12,479 --> 01:27:15,400 Speaker 1: and so but so, our neighborhoods a lot safer than 1658 01:27:15,439 --> 01:27:18,320 Speaker 1: the other neighborhoods. But it's uh, you know, the distress 1659 01:27:18,400 --> 01:27:20,800 Speaker 1: debt world is fascinating and that's where I get all 1660 01:27:20,800 --> 01:27:24,439 Speaker 1: the good Trump stories. Okay, because Trump would beat you 1661 01:27:24,560 --> 01:27:26,400 Speaker 1: up to get forty cents on the dollars and he's 1662 01:27:26,439 --> 01:27:29,760 Speaker 1: your best friend. Okay. So the theory is if he 1663 01:27:29,840 --> 01:27:33,080 Speaker 1: did become president, I realized it's not. We don't know yet, 1664 01:27:33,160 --> 01:27:36,000 Speaker 1: but if he did become president, I'm sure he's going 1665 01:27:36,080 --> 01:27:38,160 Speaker 1: to cut deals with everybody. I mean, that's what That's 1666 01:27:38,160 --> 01:27:39,840 Speaker 1: what he didn't business well, but I know I can't 1667 01:27:39,840 --> 01:27:43,000 Speaker 1: imagine him cutting a deal saying, Okay, everybody who's holding 1668 01:27:43,160 --> 01:27:46,559 Speaker 1: US treasuries, we're gonna give you sixty cents on the dollar, 1669 01:27:46,600 --> 01:27:50,000 Speaker 1: and that's how we're gonna solve our our deficit. That comment, 1670 01:27:50,320 --> 01:27:53,200 Speaker 1: I think isn't good to fly. But we do have 1671 01:27:53,280 --> 01:27:54,880 Speaker 1: a joke, and this is a joke, I want to 1672 01:27:54,880 --> 01:27:59,679 Speaker 1: be clear, And we used to joke that it's easy 1673 01:27:59,760 --> 01:28:01,479 Speaker 1: to get rid of our deficit. All we have to 1674 01:28:01,560 --> 01:28:04,360 Speaker 1: do is refinancing and negative yielding tips and our problem 1675 01:28:04,400 --> 01:28:06,760 Speaker 1: went away. Can I tell you something, I don't think 1676 01:28:06,840 --> 01:28:08,519 Speaker 1: that's so much of a joke. I think you look 1677 01:28:08,600 --> 01:28:11,000 Speaker 1: too not too far off in the future. That's a 1678 01:28:11,080 --> 01:28:14,920 Speaker 1: real possibility. Certainly, fifty year bonds when when the US 1679 01:28:15,000 --> 01:28:18,840 Speaker 1: goes to zero eight um are not unthinkable. That's one 1680 01:28:18,880 --> 01:28:21,639 Speaker 1: way to think. By the way, I think the government 1681 01:28:21,880 --> 01:28:24,519 Speaker 1: did help cause A I G. To blow up, but 1682 01:28:24,640 --> 01:28:28,519 Speaker 1: in a different way than you realize. Uh and Ron 1683 01:28:28,600 --> 01:28:31,360 Speaker 1: had been agitating for the Commodity Futures Modernization Act to 1684 01:28:31,400 --> 01:28:35,080 Speaker 1: get past, which basically took all those derivatives out of 1685 01:28:35,200 --> 01:28:42,480 Speaker 1: the normal. No reserve requirements, no exchange listings, no counterparty disclosures, 1686 01:28:42,520 --> 01:28:46,360 Speaker 1: no just transparency. And A I G wrote three trillion 1687 01:28:46,479 --> 01:28:49,360 Speaker 1: dollars worth of them. It was just a nons that 1688 01:28:49,479 --> 01:28:53,760 Speaker 1: started when Hank was there with g FP. UH. There 1689 01:28:53,800 --> 01:28:58,880 Speaker 1: should be some reasonable amount of regulation to prevent us 1690 01:28:58,960 --> 01:29:02,120 Speaker 1: from our own worst knee. Men's not an excessive amount 1691 01:29:02,160 --> 01:29:05,639 Speaker 1: of regulation that hamstrings us and prevents us from opening 1692 01:29:05,680 --> 01:29:09,680 Speaker 1: new businesses. That is the never ending battle. UM. A 1693 01:29:09,880 --> 01:29:12,400 Speaker 1: I G ended up seeing an opening and they said 1694 01:29:12,760 --> 01:29:16,360 Speaker 1: the quote from a I G. FPS president was it's 1695 01:29:16,400 --> 01:29:19,400 Speaker 1: free money. You just write premiums and countercast running in. 1696 01:29:19,720 --> 01:29:21,599 Speaker 1: You know, that's what we say about cover call writing. 1697 01:29:21,920 --> 01:29:24,360 Speaker 1: Don't you want the free money? And it makes sense 1698 01:29:24,479 --> 01:29:27,040 Speaker 1: in a choppy washing machine market, but getting a strong 1699 01:29:27,120 --> 01:29:30,160 Speaker 1: RiPP oring bullmarket, everything we get called away. So there 1700 01:29:30,200 --> 01:29:34,479 Speaker 1: are these windows out there, but as people extrapolate them 1701 01:29:34,640 --> 01:29:37,479 Speaker 1: to infinity as opposed to saying this is a temporary 1702 01:29:37,520 --> 01:29:40,160 Speaker 1: cycle and eventually, and as as a stock guy, you 1703 01:29:40,560 --> 01:29:42,559 Speaker 1: I have I want to have friends on the credit side. 1704 01:29:42,560 --> 01:29:45,599 Speaker 1: I understand what's going on out there because I need 1705 01:29:45,680 --> 01:29:48,360 Speaker 1: to see what's happening. And I respect those guys because 1706 01:29:48,360 --> 01:29:50,840 Speaker 1: I think that's a very very stressful business. And uh 1707 01:29:51,479 --> 01:29:54,400 Speaker 1: all the best stock guys always come with a some 1708 01:29:54,560 --> 01:29:57,240 Speaker 1: form of a credit background. But as we close here, 1709 01:29:57,280 --> 01:29:59,880 Speaker 1: here's the ultimate irony. The winner in the low interest 1710 01:30:00,200 --> 01:30:04,280 Speaker 1: environment are stocks because everybody's barring in the bond market 1711 01:30:04,920 --> 01:30:09,200 Speaker 1: buying their stock back. The multinationals can borrow in Europe 1712 01:30:09,200 --> 01:30:11,960 Speaker 1: and other places even cheaper than can borrow here. And 1713 01:30:12,040 --> 01:30:14,640 Speaker 1: this is the stock market is actually dying on it. 1714 01:30:14,720 --> 01:30:17,080 Speaker 1: So my average stock is going to be gone fourteen 1715 01:30:17,160 --> 01:30:20,000 Speaker 1: years from buy backs and the SMP at the current 1716 01:30:20,000 --> 01:30:23,839 Speaker 1: buy back pace might be gone in years, so obviously 1717 01:30:23,960 --> 01:30:27,320 Speaker 1: that can't go on forever. That's why the market's melting up. 1718 01:30:27,479 --> 01:30:30,040 Speaker 1: It's melting up on order and balances, it's going up 1719 01:30:30,080 --> 01:30:33,439 Speaker 1: on light volume. It's really really eerie. But as long 1720 01:30:33,520 --> 01:30:37,040 Speaker 1: as the dividends are higher than the treasuries, I think 1721 01:30:37,080 --> 01:30:39,800 Speaker 1: people should go. Because you're not Louis. This has been fantastic. 1722 01:30:39,960 --> 01:30:42,760 Speaker 1: Thank you for being so generous with your time. And 1723 01:30:43,240 --> 01:30:45,920 Speaker 1: I would be remiss if I did not say. Vonnie 1724 01:30:46,000 --> 01:30:48,120 Speaker 1: Quinn said to say hello, I know you guys know 1725 01:30:48,200 --> 01:30:51,400 Speaker 1: each other from way back when. UM let me thank 1726 01:30:51,560 --> 01:30:56,400 Speaker 1: my recording engineer, Reggie, my producer, Charlie Vollmar. Taylor Riggs 1727 01:30:56,800 --> 01:30:59,599 Speaker 1: is our booker. Mike Batnick is the head of research. 1728 01:31:00,160 --> 01:31:03,320 Speaker 1: If you have enjoyed this conversation, be sure I'm looked 1729 01:31:03,400 --> 01:31:06,000 Speaker 1: up an inch or down an inch on Apple iTunes 1730 01:31:06,080 --> 01:31:08,840 Speaker 1: and you can see any of the other nineties six 1731 01:31:09,000 --> 01:31:13,400 Speaker 1: or so such conversations that we've had. You've been listening 1732 01:31:13,520 --> 01:31:18,400 Speaker 1: to Masters in Business on Bloomberg Radio, brought to you 1733 01:31:18,600 --> 01:31:21,240 Speaker 1: by B A. S F. We create chemistry