WEBVTT - Interview With Louis Navellier: Masters in Business (Audio) 0:00:00.040 --> 0:00:03.280 Out to you by b a SF We create chemistry. 0:00:06.720 --> 0:00:11.040 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:11.520 --> 0:00:14.320 This week on the podcast, I have a very special guest. 0:00:14.920 --> 0:00:19.320 His name is Louis Navalier and he is best known 0:00:19.640 --> 0:00:23.600 as a stock picker and newsletter writer as well as 0:00:23.640 --> 0:00:27.160 an asset manager running about two and a half billion 0:00:27.200 --> 0:00:31.360 dollars at Navalier and Company. If you were a financial 0:00:31.400 --> 0:00:34.920 television viewer in the nineties or two thousands, you very 0:00:35.360 --> 0:00:41.560 much probably saw Louie on TV discussing the markets, talking 0:00:41.560 --> 0:00:45.400 about how and why he picks various small cap stocks 0:00:45.440 --> 0:00:51.000 and and his approach of using both quantitative and behavioral 0:00:51.840 --> 0:00:56.320 uh information in order to make stock selections. UH. No 0:00:56.440 --> 0:00:59.840 less an authority than the Hulbert. Hulbert Financial die J 0:01:00.760 --> 0:01:04.640 named one of his newsletters as the top performing stock 0:01:04.720 --> 0:01:09.080 selecting newsletter of the past twenty years. UH. And although 0:01:09.120 --> 0:01:11.679 we all know that past performance is no guarantee of 0:01:11.720 --> 0:01:16.400 future returns, what I found so fascinating about my conversation 0:01:16.800 --> 0:01:21.880 with Louis was the approach he took to selecting stocks 0:01:21.920 --> 0:01:25.400 and how that grew out of a project that he 0:01:25.480 --> 0:01:28.920 began in college. What what is so interesting is Navalier 0:01:28.959 --> 0:01:31.880 and Company is pretty much the only job he's ever had. 0:01:32.000 --> 0:01:34.760 Right out of school. In college, he was working on 0:01:34.800 --> 0:01:38.040 a project to try and find a cheaper way to 0:01:38.200 --> 0:01:43.440 put together a SMP five hundred UH substitute, in other words, 0:01:43.640 --> 0:01:47.680 mashed the performance of the SMP five hundred but using 0:01:47.760 --> 0:01:52.280 less stocks in order to keep your costs down. And 0:01:52.520 --> 0:01:55.880 unfortunately they were unable to do that. Uh. They ran 0:01:55.960 --> 0:01:58.400 into a problem and that the index that they were 0:01:58.400 --> 0:02:00.680 putting together kept out before arming the S and P 0:02:00.840 --> 0:02:04.040 five and so based on the research that had gone 0:02:04.040 --> 0:02:07.680 into that, he launched Navalier and Company. He launched his 0:02:07.680 --> 0:02:11.320 own newsletter right at his school, was pretty successful right 0:02:11.360 --> 0:02:14.440 off the bat and has grown it into uh quite 0:02:14.480 --> 0:02:19.280 a successful business. So, with no further ado, here is 0:02:19.400 --> 0:02:27.679 my conversation with Louie Navalier. This is Masters in Business 0:02:27.760 --> 0:02:31.880 with Barry Ridholts on Bloomberg Radio. I have a very 0:02:31.960 --> 0:02:36.120 special guest. His name is Louie Navalier. He is the 0:02:36.200 --> 0:02:40.160 founder of Navalier and Associates. And if you have been 0:02:40.200 --> 0:02:43.160 involved in the markets for any length of time, you 0:02:43.280 --> 0:02:47.240 certainly have to be familiar uh with Mr Navalier. He 0:02:47.400 --> 0:02:50.720 is well regarded as both a stock picker and a 0:02:50.760 --> 0:02:55.560 long term investor. Uh He started a newsletter in night, 0:02:55.760 --> 0:03:01.000 which The Hulbert Financial Digest called his Emerging Growth Newsletter 0:03:01.480 --> 0:03:04.760 as the number one performer over a twenty year period 0:03:05.160 --> 0:03:08.360 looking from nine eighty five to two thousand and five. 0:03:09.040 --> 0:03:13.560 In seven, he began managing assets for individuals. They his 0:03:13.639 --> 0:03:19.560 office currently runs more than two point five billion dollars. 0:03:19.680 --> 0:03:22.320 If you look at the period from five through two 0:03:22.320 --> 0:03:26.280 thousand and eight, following the advice of our guest, you 0:03:26.320 --> 0:03:30.240 would have seen gains of over two thousand percent versus 0:03:30.280 --> 0:03:32.680 the S and P five hundred index, which had an 0:03:32.720 --> 0:03:37.800 increase of barely eight hundred and sixty. Louis Navalier, Welcome 0:03:37.840 --> 0:03:40.800 to Bloomberg. It's great to be here. So I I'm 0:03:40.840 --> 0:03:44.240 familiar with your career for a long time. You you 0:03:44.360 --> 0:03:47.720 were a fixture on the media, in the media in 0:03:47.760 --> 0:03:54.120 the nineteen nineties and beyond. But your career kind of 0:03:54.840 --> 0:04:00.640 started unusually. You began in nineteen eighty deep into a 0:04:00.720 --> 0:04:05.040 multi decade bear market. What what made you in nine 0:04:05.320 --> 0:04:09.360 eight say I know, let's go buy equities. Well, prior 0:04:09.400 --> 0:04:13.440 to actually when I was in college, UM, I was 0:04:13.480 --> 0:04:17.760 building them index products and UH I had access to 0:04:17.800 --> 0:04:21.360 Wells Fargo's computers, and index funds hadn't taken off then, 0:04:22.040 --> 0:04:24.320 but they were they were starting up. So we were 0:04:24.360 --> 0:04:26.640 trying to figure out how many stocks we needed to 0:04:26.760 --> 0:04:30.240 mirror the SMP five hundred and the obvious answer wasn't 0:04:30.320 --> 0:04:32.880 five hundred? Can we do it with less and get 0:04:32.920 --> 0:04:35.680 the same correct? It's all the tracking correlation. Anyway, I 0:04:35.680 --> 0:04:37.960 figured I need three two stocks. So I was very 0:04:38.000 --> 0:04:41.120 proud of this three and three two stock portfolio designed 0:04:41.279 --> 0:04:43.320 to track the SMP. But I have to meet to you. 0:04:43.360 --> 0:04:45.080 I was a failure. It started to beat the market, 0:04:45.120 --> 0:04:47.520 which was not the objective. That's tracking error in the 0:04:47.600 --> 0:04:50.080 right direct correct. So I learned that I was lied to. 0:04:50.200 --> 0:04:53.000 There there are anomalies on Wall Street, U, there are 0:04:53.080 --> 0:04:55.280 high off of stocks. So I went out to document 0:04:55.360 --> 0:04:58.279 these anomalies. And originally I started in small cap and 0:04:58.320 --> 0:05:01.760 I'm still highly ranked there, but I UH predominantly large 0:05:01.800 --> 0:05:04.800 cap manager right now because I remember you as a 0:05:04.880 --> 0:05:08.800 small cap stock picker from the nineties and really a 0:05:09.000 --> 0:05:12.160 quant before we use the term quants, is that is 0:05:12.200 --> 0:05:15.480 that a fair statement? That's correct? Um our our QUANDT 0:05:15.560 --> 0:05:19.320 is just basically designed to find great risk adjusted performance 0:05:19.440 --> 0:05:23.000 and also to lock in on the fundamental nomalies that 0:05:23.040 --> 0:05:26.480 everybody's trying to identify. So we're a little different than 0:05:26.520 --> 0:05:29.040 most quants. Most quants nowadays just want a front run 0:05:29.160 --> 0:05:32.359 order flow, whether it's the hedge funds front running the 0:05:32.440 --> 0:05:34.280 h f T order flow and just riding. It's kind 0:05:34.279 --> 0:05:37.200 of like surfing. Uh. And then there's the quants that 0:05:37.640 --> 0:05:40.880 basically front run the rustle rebalancing every year. So uh, 0:05:40.960 --> 0:05:42.520 you know, at the end of June wrestled as all 0:05:42.560 --> 0:05:45.239 it's rebalancing. That's a huge deal for all the tracking 0:05:45.279 --> 0:05:47.839 managers because they want to be ahead of the rebalancing 0:05:47.839 --> 0:05:50.800 and the ETFs come in and pop everything. So my 0:05:50.960 --> 0:05:53.520 quand is totally different is I just want great risk 0:05:53.520 --> 0:05:56.880 adjusted performance. As things get volto, we tiptoe out and 0:05:56.920 --> 0:05:59.440 I have to make sure they're always fundamentally superior. But 0:05:59.520 --> 0:06:02.560 what Wall St wants fundamentally is changing and that's the fun. 0:06:02.640 --> 0:06:05.120 Part of what we do is UM. What we do 0:06:05.200 --> 0:06:07.800 is called behavioral finance. We lock in UM what it's 0:06:07.839 --> 0:06:10.039 working on Wall Street, and we score the stocks in 0:06:10.080 --> 0:06:13.039 that criteria and then we tweak our models quarterly. So 0:06:13.040 --> 0:06:16.760 so let's talk about those fundamental anomalies. What what is 0:06:16.760 --> 0:06:20.040 a fundamental anomaly? And then how can investor you profit 0:06:20.080 --> 0:06:23.360 from that? Well, we actually put all the research free 0:06:23.520 --> 0:06:25.880 on our websites, both on the publishing side and our 0:06:25.880 --> 0:06:28.920 our management company site. But we have a dividend grader 0:06:29.000 --> 0:06:31.560 and a stock grader there. The dividend grader is mostly 0:06:31.560 --> 0:06:36.240 about you know, return and equity, cash flow, UH, sustainability, 0:06:36.279 --> 0:06:39.000 increasing dividends, while when you get to the stock grader, 0:06:39.080 --> 0:06:43.120 it's things like sales growth, margin expansion, earning stability, earnings momentum, 0:06:43.440 --> 0:06:48.440 cash flow um, retrying equity anserings, revisions are any surprises? Now, 0:06:48.560 --> 0:06:51.359 those aren't all the criteria we test. And when you 0:06:51.360 --> 0:06:53.440 get too small cap, surprises are a bigger deal, and 0:06:53.480 --> 0:06:56.160 so is momentum. When you get to large cap, stability 0:06:56.200 --> 0:06:58.839 is a bigger deal. Okay, And that's interesting. So you 0:06:58.880 --> 0:07:02.719 have different rules in different neighborhoods and um, those fundamental 0:07:02.839 --> 0:07:07.640 rules sound somewhat similar, not identical, but somewhat similar to 0:07:07.760 --> 0:07:10.760 what the marketers these days are calling smart beta. Is 0:07:10.800 --> 0:07:13.160 that A Is that an accurate assessment? Sure? I I 0:07:13.200 --> 0:07:14.920 have what I have a smart beta e t F 0:07:14.960 --> 0:07:17.800 with Oppenheimer, I've had it for years, and that e 0:07:17.920 --> 0:07:20.520 t F happens to be sales weighted rebalance every quarter. 0:07:21.040 --> 0:07:23.960 So they basically took our top hundred A rated stocks 0:07:24.200 --> 0:07:27.560 and we rebounced quarterly to it. The thing with any 0:07:27.600 --> 0:07:31.400 smart beta product is what what does it cost to 0:07:31.480 --> 0:07:34.120 you to get in out? Okay? And in the e 0:07:34.160 --> 0:07:35.920 t F world, you gotta be careful because et F 0:07:35.960 --> 0:07:37.880 s can have premiums to get in and discounts to 0:07:37.920 --> 0:07:41.280 get out, so you gotta be really careful. The rebalancing 0:07:41.320 --> 0:07:45.440 costs um so I think some of the smart beta 0:07:45.440 --> 0:07:47.920 products aren't as successful as they should be because of 0:07:47.960 --> 0:07:50.360 the actual trading costs to get in and out. It's 0:07:50.400 --> 0:07:54.280 just the traditional drag of taxes, expenses, turnover costs, etcetera. 0:07:54.400 --> 0:07:56.080 Is that is that the problem? What do you mean 0:07:56.120 --> 0:07:59.080 buying the e t F itself trading at a discount 0:07:59.080 --> 0:08:03.080 of premium to its end av that last points Stanford 0:08:03.440 --> 0:08:05.560 U C l A and honist in the University came 0:08:05.560 --> 0:08:08.360 out with a study last year that said the ETFs 0:08:08.440 --> 0:08:11.200 cost more than buying selling stocks. It was scandalous, everybody, 0:08:11.680 --> 0:08:14.680 they don't cost anything, They're free. These are nice people. No, no, no, no. 0:08:15.200 --> 0:08:18.120 In a tonal expense ratio that reflects all these calls correct. 0:08:18.240 --> 0:08:20.800 But the specialists on exchange likes to charge you a 0:08:20.880 --> 0:08:24.280 premium and likes when you buy, and likes to charge 0:08:24.320 --> 0:08:27.400 you a discount when you sell. And then shortly after 0:08:27.480 --> 0:08:31.200 that study came out, we had August and what happened 0:08:31.200 --> 0:08:35.160 on in the morning of August one thousand, two hundred 0:08:35.160 --> 0:08:37.320 and seventy eight stocks couldn't be priced because they hit 0:08:37.360 --> 0:08:39.559 the little circuit breakers on the stock exchange when you 0:08:39.640 --> 0:08:43.160 dropped more than five percently solliterating down. And for some reason, 0:08:43.200 --> 0:08:45.559 the specialist on exchange kept training ets even though it 0:08:45.559 --> 0:08:48.880 couldn't price the stocks. So you had all these big 0:08:49.000 --> 0:08:52.360 liquid e t F s being discounted at a shocking level. 0:08:53.160 --> 0:08:55.600 And so the et F industry still has to deal 0:08:55.640 --> 0:08:58.760 with this. There's a big SEC investigation into this. But 0:08:59.200 --> 0:09:02.520 this is a big problem, and um, we're not anti 0:09:02.600 --> 0:09:05.400 e t F, but we basically want everybody to know 0:09:05.640 --> 0:09:07.520 that when they turn the liquidity off of the market, 0:09:07.720 --> 0:09:10.600 don't sell your e t F. I'm Barry Ridholtz. You're 0:09:10.720 --> 0:09:14.080 listening to Masters in Business on Bloomberg Radio. My special 0:09:14.160 --> 0:09:17.559 guest today is Louis Navalier. He is best known as 0:09:17.679 --> 0:09:20.640 a small cap stock becker. These days, he's a big 0:09:20.760 --> 0:09:26.440 cap manager, a quantitative fundamental analyst, and newsletter writer as 0:09:26.520 --> 0:09:30.160 well as running two and a half billion dollars. Let's 0:09:30.200 --> 0:09:34.480 start out with a little bit of your academic undergraduate 0:09:34.559 --> 0:09:38.880 work and talk about your your brand of quantitative analysis. 0:09:39.280 --> 0:09:42.280 So you're at cal State, you're doing this research project 0:09:42.400 --> 0:09:46.439 to mimic the SMP five dred. What makes you, as 0:09:46.520 --> 0:09:49.960 a young kid say hey, I think I could beat 0:09:50.040 --> 0:09:54.320 the market. I didn't. I'm I'm basically from Berkeley, California. 0:09:54.480 --> 0:09:56.840 I'm totally trained in socialism. I was taught that we're 0:09:56.840 --> 0:09:59.080 all supposed to in the same amount of money because 0:09:59.120 --> 0:10:01.959 if we don't, least we share it. Were correct. But 0:10:02.120 --> 0:10:04.280 but the reason we're all supposed to earn the same 0:10:04.280 --> 0:10:06.200 amount of money, we're all supposed to index is because 0:10:06.240 --> 0:10:09.199 if we don't, will have create social unrest and so 0:10:09.559 --> 0:10:11.800 for you know, peace, love, harmony, we're all supposed to 0:10:11.880 --> 0:10:14.319 just blindly follow each other and um, and by this 0:10:14.640 --> 0:10:18.240 an index UM. However, Vogel would disagree with you, but 0:10:18.920 --> 0:10:22.360 go on. I have no problem debating with Mr Boga. 0:10:22.360 --> 0:10:25.839 I respect him highly. The but the real issue is 0:10:26.040 --> 0:10:30.280 is that UM indexing evolved because they passed the law 0:10:30.360 --> 0:10:33.240 called Arissa and Orissa says, we need to match this 0:10:33.360 --> 0:10:37.760 benchmark to cover our butt. So basically that's why indexing evolved. 0:10:37.760 --> 0:10:40.360 And of course they started with the SMP and they've 0:10:40.400 --> 0:10:43.079 created monsters. Okay, to be honest with you, if you 0:10:43.160 --> 0:10:45.600 go back to the go go nineties, the big stocks 0:10:45.640 --> 0:10:47.959 are getting bigger because of the cap weighting the SMP. 0:10:48.960 --> 0:10:51.080 UH just before the bubble bursts in March A two 0:10:51.160 --> 0:10:56.200 thousand SMP was in seven giant tech stocks. The issue 0:10:56.280 --> 0:10:59.080 I have with indexing and people that just blindly buy 0:10:59.120 --> 0:11:02.280 baskets of stock, they have no idea what they're buying fundamentally, Okay, 0:11:02.440 --> 0:11:04.120 so let me push back on you a little bit. 0:11:04.280 --> 0:11:07.719 Didn't we see something similar in the late sixties with 0:11:07.840 --> 0:11:10.880 the nifty fifty with the names that everybody knew, they 0:11:10.920 --> 0:11:13.240 were household names. They were all doing great, and all 0:11:13.280 --> 0:11:16.000 the managers used that as their benchmark, and everyone piled 0:11:16.080 --> 0:11:20.040 in to the same fifty stocks, which ultimately collapsed. You 0:11:20.120 --> 0:11:22.559 had the fifty seven percent drop from seventy three to 0:11:22.640 --> 0:11:25.959 seventy four. Is that very different than what took place 0:11:26.480 --> 0:11:29.240 UH in the late nineties it's exactly the same thing, 0:11:29.360 --> 0:11:31.760 except in the go go nineties it was concentrated in 0:11:31.840 --> 0:11:34.280 fewer stocks. And then, of course we had the whole 0:11:34.320 --> 0:11:38.559 fang issue last year, okay, where the top ten stocks 0:11:38.840 --> 0:11:41.559 um in the SMP five hundred better than the other 0:11:41.640 --> 0:11:47.199 four nineties. But Facebook, Amazon, Netflix, and Google overpowered it. 0:11:47.440 --> 0:11:49.560 And actually that was an et F story. You see, 0:11:50.400 --> 0:11:53.599 the the equally weighted ETFs got hit so hard in 0:11:53.679 --> 0:11:56.600 August some of the big wirehouses said, get the hell 0:11:56.679 --> 0:11:59.000 out of these things, go back to cap weighted. So 0:11:59.120 --> 0:12:01.960 as they paraded out usually at the time, as they 0:12:02.040 --> 0:12:04.040 paraded out of equal into cap in the last four 0:12:04.120 --> 0:12:07.000 months a year, they made the big stocks bigger. As 0:12:07.040 --> 0:12:09.720 we started this year, I was I'm not anti faying, 0:12:09.800 --> 0:12:13.520 but I was especially anti Netflix because it was over 0:12:13.559 --> 0:12:16.120 four times earnings to beginning of the year. It's rains 0:12:16.160 --> 0:12:18.439 were forecasts of the slide, so I wrote everybody to 0:12:18.480 --> 0:12:20.880 stay away, even though it number one performer. I had 0:12:20.920 --> 0:12:24.080 some issues evaluations issues with Amazon, but I've since then 0:12:24.160 --> 0:12:27.120 about face because I was very impressed with Amazon's first 0:12:27.200 --> 0:12:29.920 quarter making money in the cloud, taking on Netflix, and 0:12:29.960 --> 0:12:32.200 actually they're even taking on Apple. If you buy an 0:12:32.200 --> 0:12:34.440 Apple TV you can't get Amazon prime because they don't 0:12:34.480 --> 0:12:40.920 they yeah, yeah, so um. But you know, bubbles are 0:12:41.040 --> 0:12:44.120 created by these industries. I would respectedly argue that Tesla's 0:12:44.200 --> 0:12:47.280 valuation was largely caused by the q q Q. When 0:12:47.360 --> 0:12:49.559 Oracle left the q q Q, they put in Tesla 0:12:49.600 --> 0:12:52.679 and couldn't handle the money. And so you have to 0:12:52.760 --> 0:12:55.280 realize getting added to some of these baskets is the 0:12:55.320 --> 0:12:57.320 greatest thing that ever happens to some of these companies. 0:12:57.920 --> 0:13:00.880 But the market right now is just too darn narrow 0:13:01.000 --> 0:13:03.720 to buy the baskets. So you don't think Netflix at 0:13:03.760 --> 0:13:06.320 four times earnings, you don't think they're gonna grow into 0:13:06.400 --> 0:13:10.880 that valuation. No, I don't. And Amazon has been overvalued 0:13:12.200 --> 0:13:13.959 I think forever. Is it? Is that a fair state? 0:13:14.120 --> 0:13:15.760 That is correct? So let let me just walk you 0:13:15.840 --> 0:13:18.120 through Amazon, because I didn't about face on it because 0:13:18.160 --> 0:13:20.719 I'm I guess, slightly bipolar. But by the way, I'm 0:13:20.760 --> 0:13:24.120 a huge fan of both companies as as a consumer, 0:13:24.320 --> 0:13:26.480 not necessarily as an arrest. And my family does the same. 0:13:26.520 --> 0:13:29.160 We both subscribed them. So here's here's my issue with Amazon. 0:13:29.840 --> 0:13:32.080 Last year it hit almost a thousand times trailing earnings, 0:13:32.120 --> 0:13:34.640 It lost money, the first three quarters. The fourth quarter 0:13:34.720 --> 0:13:39.000 earnings were disaster, thirty percent below endless estimates. The best 0:13:39.040 --> 0:13:41.400 thing I could say about Amazon late last year was 0:13:41.440 --> 0:13:44.719 training at two arentimes forecast earnings. When I saw the 0:13:44.760 --> 0:13:47.680 first quarter results, I didn't about face first a surprise. 0:13:47.840 --> 0:13:50.120 They make a lot of money in cloud computing. There 0:13:50.160 --> 0:13:53.000 are taking on Netflix and programming. You may know they 0:13:53.240 --> 0:13:55.960 paid those top Gear guys from to leave the BBC. 0:13:57.600 --> 0:13:59.280 They kind of had left. They were on the way 0:13:59.280 --> 0:14:02.120 out of the BBC, got fired and they landed at Amazon. 0:14:02.280 --> 0:14:04.440 But the two and fifty millions pretty good for three guys. 0:14:04.679 --> 0:14:06.679 I realized, has a production team and a budget. On 0:14:06.760 --> 0:14:08.839 top of they have a ton of great program and 0:14:09.000 --> 0:14:12.200 in the High Tower is one and then there's catastrophe. 0:14:12.440 --> 0:14:16.600 There's a whole run. They've become musty, cor correct and um. 0:14:17.240 --> 0:14:20.040 And when you buy a Sony TV, you have ah 0:14:20.160 --> 0:14:23.720 an Amazon Prime app on it and built in. You 0:14:23.800 --> 0:14:26.000 can't get that app again on the Apple TV. So 0:14:26.240 --> 0:14:28.480 there and then their devices they think is better than 0:14:28.480 --> 0:14:30.440 the Apple TV, and I'll let them slug it out 0:14:30.480 --> 0:14:33.560 with the Apple. But the other thing they got going 0:14:33.640 --> 0:14:36.440 for rather than taking on Netflix and Apple is again 0:14:36.520 --> 0:14:39.880 that cloud computing. They are continuing to dominate. Everyone can't 0:14:39.920 --> 0:14:42.920 wait to have their drone delivery. Um, they're gonna start 0:14:42.960 --> 0:14:44.920 it first in the UK. You do have to put 0:14:44.960 --> 0:14:49.320 out a little matt for your drone delivery because we're 0:14:49.400 --> 0:14:52.280 correct and uh so if the dog gets it or 0:14:52.320 --> 0:14:54.400 if the sprinkles get it at your fault, okay, so 0:14:54.520 --> 0:14:56.080 what you have to have a matt. You know, I 0:14:56.240 --> 0:14:58.960 was reluctant to join Prime until a couple of years ago. 0:14:59.080 --> 0:15:01.480 I finally joined AMA on Prime. And now I don't 0:15:01.520 --> 0:15:03.680 even think about something you needed to twitch. You buy it. 0:15:03.760 --> 0:15:06.200 It's there in two days and half the time, it's 0:15:06.240 --> 0:15:07.720 not there in two days, it's there in a day. 0:15:07.800 --> 0:15:10.840 It's it's so they're onto something. If one day they 0:15:10.880 --> 0:15:12.760 figure out how to make money, they're going to be 0:15:12.920 --> 0:15:15.400 really big. Well, they finally figured it out, and that's 0:15:15.440 --> 0:15:17.760 why I've done in about face and now they're surprising 0:15:17.840 --> 0:15:20.080 their capturing marketing. And you know Wall Street is desperate 0:15:20.120 --> 0:15:23.000 for sales growth. When the second quarterins come out, it's 0:15:23.000 --> 0:15:24.920 gonna be the six quarter row of negative sales in 0:15:24.960 --> 0:15:28.560 the SMP, largely because the multinationals commodity stocked heart by 0:15:28.560 --> 0:15:30.920 the strong dollars. So anything that has pots of sales 0:15:30.960 --> 0:15:33.640 growth is an oasis at this moment. So we're no 0:15:33.720 --> 0:15:35.680 longer going to be able to use weak oil as 0:15:35.680 --> 0:15:38.360 an excuse for that, because oil is now hovering between 0:15:38.400 --> 0:15:41.080 forty five and fifty. When it was under thirty dollars, 0:15:41.120 --> 0:15:43.280 it was easy to say, hey, oil has collapsed, but 0:15:43.520 --> 0:15:46.320 now it seems to be moving back towards a profitable 0:15:47.160 --> 0:15:49.400 correct and the and the energy companies are doing well 0:15:49.400 --> 0:15:52.000 because natural gas prices erupt. This little heat wave we're 0:15:52.000 --> 0:15:55.760 having is helping, however for electricity generation. Yes, However, I 0:15:56.480 --> 0:15:59.760 have to say this oil always goes up in the 0:16:00.040 --> 0:16:04.200 ring and then always goes down the fall. The inventories 0:16:04.240 --> 0:16:07.200 in America have tightened up. However, they're still higher than 0:16:07.240 --> 0:16:10.440 they were last year. They're higher they are historically. Rotterdam 0:16:10.680 --> 0:16:13.360 in Europe is full kept any more oil there. They're 0:16:13.400 --> 0:16:16.200 still storing oil and tankers were nowhere to go, and 0:16:16.520 --> 0:16:19.320 so we still have a glut. Oil demands going up globally, 0:16:19.400 --> 0:16:22.120 but the supply went up faster. Iraq is online, I 0:16:22.560 --> 0:16:28.520 ran his online, or US fracking is just correct, and um, 0:16:28.840 --> 0:16:32.160 what's happening is that Iraq is the big player. If 0:16:32.320 --> 0:16:34.360 I have a chart when I do seminars that shows 0:16:35.040 --> 0:16:39.800 where all the productions coming from marginal editor to Iraq 0:16:39.960 --> 0:16:42.080 is much bigger than all the fracking we've got. But 0:16:42.160 --> 0:16:44.160 now you've got a wrong coming online. Depends on the 0:16:44.240 --> 0:16:46.600 tankers and everybody's trying out do each other, so we're 0:16:46.640 --> 0:16:48.320 not gonna know where oil is to the to the 0:16:48.520 --> 0:16:52.080 to September. I'm Barry Ridhults. You're listening to Masters in 0:16:52.160 --> 0:16:56.480 Business on Bloomberg Radio. My special guest today is Louis Navalier. 0:16:56.720 --> 0:17:02.080 He is a quant money manager, picker, newsletter writer. He 0:17:02.240 --> 0:17:07.520 has been actually running running cash for almost thirty years, 0:17:07.560 --> 0:17:11.080 and it's been in the business for for longer than that. Um, 0:17:12.119 --> 0:17:15.320 let's jump right into the whole idea of mutual funds 0:17:15.480 --> 0:17:18.320 and e t f s. You're you're an advisor to 0:17:18.359 --> 0:17:19.920 a number of funds and the number of e t 0:17:20.119 --> 0:17:23.440 f s. What are some of the disadvantages of those 0:17:23.520 --> 0:17:28.200 two structures and what are some of the advantages. Well, 0:17:28.359 --> 0:17:30.520 I think I should just tell you why I invest 0:17:30.640 --> 0:17:36.280 them personally, Okay, Um, I married a Canadian. Uh, she 0:17:36.480 --> 0:17:39.520 has money in the Caymans and a trust we have 0:17:39.560 --> 0:17:41.960 to report to. I R s. We're not allowed to 0:17:42.000 --> 0:17:43.480 buy US funds over there, So I buy my e 0:17:43.560 --> 0:17:47.240 t F with Oppenheimer over there. Um and uh, I 0:17:47.320 --> 0:17:49.800 think that ETFs fine if you want to buy and hold. Um, 0:17:50.119 --> 0:17:51.920 it is not meant to trade. The spreads are still 0:17:51.920 --> 0:17:53.639 a little bit too wide. As it gets more liquid, 0:17:53.680 --> 0:17:56.280 maybe that will change. But I think ETFs are better 0:17:56.320 --> 0:17:59.200 for buy and hold investing than than trading. Because of that, 0:17:59.280 --> 0:18:01.480 academics that e t f s cost more to buy 0:18:01.480 --> 0:18:03.600 and sell, and then E t F seemed to have 0:18:03.680 --> 0:18:06.240 some liquid issues on during flash crashes things like that. 0:18:06.480 --> 0:18:12.000 So bine hold is fine trading no now over. My 0:18:12.119 --> 0:18:14.920 personal money is in funds. So why did I Why 0:18:14.960 --> 0:18:17.680 do I do that? Well? I do it for a 0:18:17.760 --> 0:18:21.240 very selfish reason. Um, I sold a big chunk of 0:18:21.280 --> 0:18:23.480 my business a few years ago at a cash event, 0:18:24.240 --> 0:18:25.760 and so I have a lot of taxable money in 0:18:25.800 --> 0:18:28.399 the market. When I see it a mutual fund, and 0:18:28.440 --> 0:18:31.159 then I run around grow it because people like me 0:18:31.280 --> 0:18:35.240 or whatever. Something happens. What happens is is the assets 0:18:35.320 --> 0:18:38.480 point in the fund to loot the taxes. So I 0:18:38.640 --> 0:18:40.800 run the places like New York and Los Angeles, and 0:18:40.880 --> 0:18:43.440 I tell everybody that you new Yorkers don't have to 0:18:43.480 --> 0:18:45.680 move to Florida. The people in ll A don't have 0:18:45.720 --> 0:18:47.960 to move to Nevada. Just invest in one of my 0:18:48.000 --> 0:18:50.200 growing funds, because you won't pay your fair share of taxes. 0:18:50.320 --> 0:18:52.879 If I grow a fun tenfold in fiscal year, we 0:18:52.960 --> 0:18:55.320 will only pay tempers on the taxes we should. If 0:18:55.359 --> 0:18:58.280 I grow at fivefold, will only pay twenty. So this 0:18:58.520 --> 0:19:00.639 is a function of mutual fun account me. So I 0:19:00.760 --> 0:19:03.040 purposes seed funds of my own money, and then I 0:19:03.560 --> 0:19:06.040 promote them and try to get them to grow. Uh 0:19:06.160 --> 0:19:08.600 so I can better compound my money and help people 0:19:08.640 --> 0:19:12.800 stay in Los Angeles, New York. So does that technique 0:19:12.840 --> 0:19:15.400 only work when you have funds growing rapidly or would 0:19:15.440 --> 0:19:19.119 that work with any fund that's seated? And subsequently that 0:19:19.240 --> 0:19:21.359 is correct. I left a fund company that had been 0:19:21.440 --> 0:19:24.840 with over for seventeen years as a subadvisor, and I 0:19:24.960 --> 0:19:27.200 left them last year at the end of the first quarter, 0:19:27.320 --> 0:19:29.080 and I was proud I was top one percent, But 0:19:29.160 --> 0:19:31.120 the tax time bomb that went off in that fund 0:19:31.280 --> 0:19:35.080 was just devastating. And uh So, basically when fund shrink, 0:19:35.160 --> 0:19:37.400 they become tax tigme bonds. When they grow their tax 0:19:37.440 --> 0:19:41.240 efficient and so that's why I've seeded funds with my 0:19:41.280 --> 0:19:43.639 own money. And uh, they're all new and they're all 0:19:43.720 --> 0:19:46.119 not that big. But I'm having a ball, and I 0:19:46.720 --> 0:19:49.480 hope people don't think bad about me that I'm helping 0:19:49.520 --> 0:19:53.040 them compound their money faster. But let's just say, for argumisake, 0:19:53.080 --> 0:19:55.440 Hillary has become president and she gets her way, and 0:19:55.520 --> 0:19:57.520 we have to wait six years for long term capital 0:19:57.600 --> 0:20:01.199 gains as opposed to three years. Well one year on stocks, 0:20:01.240 --> 0:20:04.240 it's twelve months in a day. But the bottom line 0:20:04.359 --> 0:20:07.240 is um, that will help my business. You know what 0:20:07.320 --> 0:20:09.159 I mean is there was a proposal that it was 0:20:09.280 --> 0:20:12.320 a three year wait for long term capital gains versus 0:20:12.480 --> 0:20:14.919 one year in a day. Today, Well whatever if they 0:20:15.000 --> 0:20:17.760 lengthen it six years is I haven't heard six years? 0:20:17.800 --> 0:20:20.000 So you said that my joy drop. This is when 0:20:20.040 --> 0:20:23.240 she was running against Bernie and was it was the 0:20:23.440 --> 0:20:26.840 original proposal. But the if she's modified, that's a good sign. 0:20:26.880 --> 0:20:29.159 Of course, her husband cut capital gain, so maybe they 0:20:29.200 --> 0:20:31.600 should talk to each other about this. You know, the 0:20:31.880 --> 0:20:35.080 traditional politics is you run to either extreme and then 0:20:35.200 --> 0:20:38.080 pivot to the middle. I don't think anybody has mentioned 0:20:38.160 --> 0:20:41.720 that to the Donald pivot to the middle I assume 0:20:41.800 --> 0:20:43.720 by the time this airs, he will have begun that 0:20:43.760 --> 0:20:48.760 pivoting process. She's early stages of that. But six years 0:20:48.880 --> 0:20:51.760 is a ridiculous period of time for long term That's correct. 0:20:51.840 --> 0:20:54.479 And and the bottom line is people are stressed over taxes. 0:20:54.520 --> 0:20:57.120 You know. I'm originally from California, and I just see 0:20:57.160 --> 0:20:59.879 the stress uh in everybody's face over there, and the 0:21:01.320 --> 0:21:04.400 steps they go to avoid paying taxes is quite interesting. 0:21:04.840 --> 0:21:07.359 So let's let's talk about that. You're a multi state 0:21:07.560 --> 0:21:13.520 sort of guy. Your offices so Navalian Associates listed in Nevada, correct, 0:21:13.720 --> 0:21:16.280 Correct our ops compliance tradings in Nevada. I still have 0:21:16.320 --> 0:21:18.400 a home there, all right. And you live in Florida. 0:21:18.520 --> 0:21:20.520 I live in the Palm Beach area. So you only 0:21:20.600 --> 0:21:23.600 like sunny places. I can't argue with that. But I 0:21:23.680 --> 0:21:26.160