Navigating the Stock Market: Strategies for Long-Term Investing Success

Episode Transcript
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(00:50):
Aloha inspired Money maker. Thanks for tuning in. If this
is your first time here, welcome. If you're returning. Welcome back.
Let's all be inspired money makers together. I
just want to share a quick story. Back in 1990,
my dad handed me a copy of Peter Lynch's One up on Wall Street.

(01:10):
Great book. I was just a teenager, but
that book opened my eyes. It taught me that investing didn't have to
be mysterious. You could start just by paying attention to the products
and services that you already use. That simple idea
planted the seed for a lifelong curiosity about the
markets. And fast forward to today and we're all

(01:32):
navigating a stock market that feels more complex than ever.
Inflation, interest rates, global uncertainty. So how
do you invest confidently for the long term without getting overwhelmed by
the noise? That's exactly what we're going to discuss today in
this episode of Inspired Money. We're talking long term investing
strategies, what works, what doesn't, and how to stay grounded

(01:55):
through market's ups and downs.
Whether you're a long time DIY investor or just
starting out, maybe you hire other managers
or a financial advisor to handle it for you. But
I think that today you'll leave with real insights that you can put to work.
We've got a rockstar panel of investment pros joining us. People

(02:17):
who've managed billions, built out their own firms,
helped others grow and protect their wealth. You'll hear how they approach stock
picking, risk management, market cycles and emotional
the emotional roller coaster that can come with being an investor. So
grab your notebook, get settled in because this is going to be a
fun, educational and actionable conversation.

(02:40):
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(04:29):
I never knew that I could get excited about a desk, but I'm loving
this desk Now, let's welcome in our incredible
panelists for our discussion today. Let me start with our
first guest, David Stein, an experienced investment strategist who
once managed billions. He served as chief Investment
Strategist and chief portfolio strategist at FEG Investment

(04:51):
Advisors, a $15 billion firm where he
co-led a 21 person research team. David
also founded and managed FEG's $2.2 billion
asset management division, setting its investment philosophy.
Today he brings that institutional insight to
individual investors through his top ranked

(05:14):
podcast, Money for the Rest of Us, his best selling book
and Asset Camp, a fintech platform designed to help
investors build more resilient portfolios with confidence.
David, welcome back. It's great, great to be here. Thanks, Andy. And
you're coming to us from north of the border? I am. We're traveling
Quebec and so I look like I'm working from

(05:37):
a dorm room. So Airbnb at its best. Please
eat some poutine for me later. Plenty of that. I'm
excited that all our panelists have been on the show before. Next we have
Mariko Gordon, CFA and CFP®. She's founder and
CEO of Uzume LLC. She's a
trailblazer who built Daruma Capital Management from scratch into

(05:59):
a $2.5 billion investment firm known for its
unconventional and thoughtful approach to small cap investing. With
more than three decades of experience, Mariko now advises
individuals and families on everything from investing to
navigating life's big transitions. She's also a passionate
advocate for women's empowerment and financial literacy. Great to have

(06:20):
you back, Mariko. Thank you, Andy. It's always so much
fun to be here. Mike T. in the house. Mike
Taylor joining us, portfolio manager of the Simplified
Healthcare ETF, ticker symbol
PINK. Just for Mike today. This is hard to see.
I'm wearing a pink shirt Oh, big man. under my shirt.

(06:42):
And the pink ETF is the first ETF to
donate all net profits to the Susan G. Komen
Foundation. Mike has spent over 20 years managing healthcare
focused portfolios at top hedge funds including Citadel, Millennium
and Diamondback Capital. He's widely recognized for
running one of Wall Street's top performing healthcare hedge funds. And

(07:05):
now he's using his expertise to drive impact in the fight against breast
cancer. Mike T. Welcome back. Thank you so very much.
And I'm pleased to say that PINK
actually there's things I can't say. You'll have to draw your own conclusions. When you
look at the performance of PINK since inception
versus every other actively managed ETF, I think

(07:27):
you'll be very pleased if you're a holder. That's how I'm allowed to
say it. Very nice. Very compliant. And
rounding out our panel today, my brother, Chris Wang.
He's managing partner and director of research at Runnymede
Capital Management where we've worked together for years. Chris started
his career as a securities analyst at the College Retirement

(07:50):
Equities Fund, also known as CREF, and in
1999 became assistant portfolio manager to the CREF Growth
Accounts, one of the largest
pension funds in the country, managing over $16 billion in that growth
account. Today, Chris brings that institutional experience to Runnymede
clients, helping them to navigate markets with a disciplined,

(08:12):
research driven approach. Chris, great to have
you here. Hey, thanks for having me back and excited to be
here with the panel. I just want to give a quick hat tip to
Mariko. Many years ago we looked at Cadence Design
because of Daruma, so still have. It has been an
unbelievable stock. And of course Mike T. Always inspired

(08:34):
to hear your point of view. And David
just met you, so looking forward to learning from you as well.
He's inspired to meet you. Well, we've got a lot to cover. I think we're
going to have a fun conversation today. We do have
segments but feel free all panelists to
chime in on what current events and

(08:57):
topical things may fit into the context. Let's go straight into
segment one. Long term investors can choose from
three main value growth and dividend
investing. Value investing focuses on undervalued stocks
with strong fundamentals using metrics like price to earnings
and price to book ratios to identify potential opportunities.

(09:20):
These stocks may take time to appreciate but can offer strong
returns over time. Growth investing targets companies with high
revenue and earnings expansion, often in sectors like
technology and healthcare. These stocks can deliver
substantial gains but come with higher volatility.
Dividend investing provides passive income by selecting

(09:41):
stocks with consistent dividend payouts. Key metrics include
dividend yield and payout ratio, ensuring
sustainable returns. Investors can blend strategies by
diversifying portfolios based on risk tolerance and
financial goals. Balancing value growth and
dividends helps reduce risk while maximizing long

(10:02):
term returns in changing market conditions.
David, get us started. I know that you have an approach putting together
portfolios that include public and private investments.
How do frameworks help individuals or even
investing committees to select between value growth and dividend

(10:26):
strategies? Well, our approach has generally been
what I call asset garden approach. So we're asset allocators.
I did it as an institutional advisor, I do it now as we work with
individuals and advisors. I think when you talk about
value growth dividends the first question
is and we have sounds like three very

(10:48):
smart active stock selectors and what they do
well at is is identifying companies
be they value, growth, dividends that are doing better than the
consensus. My background is having
spent years working with active managers trying to select them.
Most aren't able to do that and identify those

(11:10):
stocks that beat the consensus. Some do and
so as an individual investor
I it's not something I've done, it's not something I want to do because I
know I'm not competitive at it because it matters who is on the other
side of the trade. What do they know that I don't and
I don't believe I have the skill set to identify individual companies

(11:32):
that'll do better than what's already priced into the stock.
Where do you fall in that asset allocation? Active
managers versus passive managers?
In my case I've always been an allocator so if
I can get the factor exposure I want the underlying drivers are
attractive then I generally have used ETFs and I did

(11:56):
that on the old firm back when institutions didn't invest in
ETFs in the early 2000s and have found that just
a more effective way to implement our view rather
than allocate it to handful of active managers
that end up and sometimes on the overall portfolio basis they cross each
other out given their particular views. And so

(12:18):
it's sort of an active passive approach but the
active position is as part of the top down allocation.
Mariko, you're a great analyst and portfolio manager Chris
called out Cadence. That one always is at the top of my
mind too. How do you explain to people the difference between

(12:39):
investing and gambling?
It's interesting because so much of what passes for investing these
days is really speculation gambling.
So. And the other thing I'll just footnote to
Cadence, you guys saw that Lip-Bu Tan who was the CEO of

(13:00):
Cadence, is now the CEO of Intel.
And I haven't done any work on it. But you know, if anybody
has the insight, he's former board member as well
of Intel. It'll be really interesting to see what he does
there under his leadership, given what's, you
know, all the challenges ahead there. I think for

(13:24):
the difference between investing and gambling, I think
is, is, is the,
the approach that you take to it. So like now you have options where you
can bet on whether the S&P is going to be up and down on Friday
at 4pm Right for the day. I mean, that's not investing,
I think. So I think basically if you have a long, if you have a

(13:46):
longer term horizon, you're, you're investing probably.
And then, so it's both a function of time horizon and it's also a function
of the instruments that you're using. So, so if you're using instruments that expire and
are worthless. Right. Options are very useful, but
they're a weapon to be deployed very strategically

(14:06):
with a very specific use. And I would say I would
use it as either leverage or a defensive hedge.
So for me, the investing is a function of time
horizon, objective, and then also the instrument as well.
Like, does it have, does it have legs? Can it last
long enough to

(14:29):
recover if anything goes wrong? Yeah.
So an element of quality. It sounds like.
Just if I could jump in something I've looked at a lot,
investing versus gambling versus speculation, and a simple
definition for me is investing is something that has a positive expected return.

(14:51):
Gambling is something, a negative expected return. When you go to Vegas, you're
gambling you're not going to win, but you do it for fun. And
speculation is where there's a different or there's a
disagreement. Is cryptocurrency speculation? Yeah. So
is gold. So are other futures. But that's sort of a simple
framework to think about it. If it has a positive expected return,

(15:14):
then it's an investment. Mike, give us some
insight into one of your favorite places on earth that's working on the desk of
a major hedge fund. Talk about strategy. How has
your investment strategy changed over the years?
Oh, you're talking to me. Yeah.
Well, in order to excel in the hedge

(15:37):
fund arena, you really have to be a chameleon.
It's really funny, the fixation of
the managers up top or anyone who's investing in your hedge
fund, when you talk to them, they love to see that
PowerPoint presentation with all the details and what your process
is. And they're fixated on this bulletproof process

(15:59):
that outperforms. And the reality is if you stick
to that process, you will blow
up because you have to reinvent yourself quite often
in this business and have a menu of sort of costumes that you put
on. Okay, I'm going to be this, okay, I'm going to be Harry Houdini now.
And, and you, you have to change the way that you do things in order

(16:21):
to make money. The fixation is always on being right
and being right is not making money. They are two
different things. Being right is for people who write books,
making money is for people who run hedge funds. And they are
not the same thing. So you have to be steadfast in
understanding that the setup that you have on right now

(16:44):
hopefully is a winning one. And, and that you have to change the way
that you think and understand in order to adapt to a
changing environment. And that's really
what I did a lot of at Millennium. Changing
my process, changing how I looked at things,
and always being aware not only what the bottom up companies

(17:07):
are going to do, which frequently turns into
earnings and frequently turns into stock performance, but also looking at what
all the benchmarkers and others in the business have to do,
have to do so far as benchmark weightings and so forth.
And, and one point I'll come to right now. We've seen for instance,
a big move in the Qs, QQQ or nasdaq

(17:30):
and there's been a lot of
very large names not participating enough
in that rally. And it is a real problem
for overall markets whether they know it or not yet.
Yeah, go ahead, Mariko. No, I was just going to say Robert Sutton, I think

(17:52):
put it really well. It says you have to have strong opinions, weakly held.
Right. So be willing to change your mind. And that's not
something that, that psychologically we're, we're
wired for, right. Our egos get very caught up in
our opinions process.
You know, I second your motion, Michael. You know, you have to have a process

(18:14):
that is flexible and evolvable
but also like has, has, has a North Star
too. Like, so it's, it's.
And, and I would guess, I mean that, that there's
a fundamental underlying principle under the way that you've
invested, that has allowed you to be a chameleon. There's a chameleon nature

(18:37):
that allows you to be a successful chameleon. But it's not like you day you're
a wolf, the other day you're a bear, you're a chameleon with a chameleon
nature. Yeah. I think that everyone who does this
successfully at that level, you have two types of people.
You have, first of all, all of them have 150 IQ,
but the ones that survive are the ones that have 150 IQ and represent

(19:00):
themselves as an idiot. And if you
walk into every day assuming that you are the dumbest person on earth,
that's a really good start. And so, you know, I,
I look at it like this, is that my book, even the PINK book, is
going to be a sea of mistakes. And that's what I'm fixated on, is
my mistakes. And. But for some reason, at

(19:23):
the end of the week, the end of the month, the end of the year,
it has outperformed and it is surviving your mistakes
and excelling at the moment that you're not
making a big mistake. So that's what I'm really fixated on,
is mistakes. Yeah. As Mike Montero says, make better mistakes
tomorrow. That was a sign we had in the office. And I think, you

(19:44):
know, this business, you're going to be wrong a lot. You just have to
be right slightly more often than you're wrong. And when you're right, you have to
make more money than you lose when. When you're, when you're wrong.
And that's that margin. Applied consistency
consistently is what will get you. But if you have a trouble with dealing with
failure or mistakes, you're not going to make money

(20:05):
over the long run. Yes. And just give you a reference of
how often you're right versus wrong. There was just a recent
interview with Ken Griffin. I saw a clip of it, and he
owns Citadel, and I saw a clip of it on Twitter
the other day, and he talked about his best guys, his best
guys at the shop. And he probably has about 200

(20:27):
managers of the money over there.
And each one has their own domain. They don't see what each other
are doing. So they're all sort of independent contractors, just like I
was. And he said that people that survive and excel
There are right 54% of days,
and that's actually a pretty low number

(20:49):
at Millennium. It's more like 55.
Just because I'm aware of the metrics internally There I was there for a very
long time, and laughably, my career is about
58 to 59% of days. My best year was about
64% of days up. And so
that's the delta that you're talking about between a manager who's good versus

(21:12):
great is literally 3% of days
up more. That's it. And that, I mean,
but when you compound that, you look at, let's
say, you know, 50, 55% of days versus
60% of days, it means that every five days of trading or a week,
you're right closer to three days a week versus

(21:34):
two. And if you're right three days a week,
that's out of five. That means
that you could be making compounding 25 basis
points a week or so, if not more. And you compound that together,
and there's your return. So it's very, very
difficult to get that right and the

(21:56):
math behind it right. But it does compound
over time. And that is the difference between a winner and a loser. And one
of the profound characteristics that I've witnessed and
embraced is that you must approach it as if you are an amateur
all the time, or as I like to say, a troglodyte.
And you are a caveman. And you have to approach it all the way,

(22:19):
all the time like that, where you have an idea what's going to happen, but
the probability of you being wrong is pretty high. So prepare for it.
I love that mindset. And it's interesting, that 54% number from
Ken Griffin, because I was just talking to someone yesterday
who told me about Roger Federer, the tennis champion gave
a commencement speech, and he talked about he has something like an

(22:42):
80% win record, but what percentage of points
did he win? And I think he said 56%.
And the first thing that popped to my mind was yes,
and he is really good at winning the
important points, those big points, you know he's gonna
win those. That's actually what they look at at Citadel

(23:04):
Millennium is your slug rate. And that's a big
differentiator. So often
people are afraid of their best idea and they don't size
it in the book because they're afraid of being wrong. Usually it's an
idea that's outside of the benchmark, and usually it's something
that's lower, weighted in the benchmark. So, for instance,

(23:27):
one of my better ideas in the book, in the PINK book, Wait, I'll just
pull it up right now and I'll take one up for an example. And I'm
looking at it right now let's see. ADMA Biologics (ADMA). I
have about a 5% position in ADMA. It recently came in
about 20%. God knows why, I don't know. And
it is a large position at 4.9%. It doesn't even appear

(23:50):
in the benchmark. I think that that stock is going to double
and so I am going to weigh it
appropriately so that we can make a ton of money. The PINK investors can
make 4 to 500 basis points out of that move in the back half of
the year. That's how I do it. And I'm,
and my peers don't. And they won't, they will not do that,

(24:13):
or at least I've never seen it where they will take bets like that based
on their alpha. They will simply have a 1% position in
this name if they think it's a big deal and then maybe they'll eke out
50 basis points of net outperformance on the year. And that
is a big reason why the performance of many of my peers
are incredibly lackluster over a long period of

(24:36):
time. They're much more concerned with holding
onto their job than they are concerned with
outperforming for their investors. Chris, we
look at investment strategy and how do you grow your
portfolio over time consistently. What are your thoughts?
Yeah, I just want to touch on the Federer commencement speech first.

(24:59):
I love that commencement speech and I think Federer said that
because he lost so many points. The most important thing is that you have to
have a very short term memory because if you fixate on that
point that you lost, you're just not going to be able to move on. And
I think that's important in investing because all of us are going to make
mistakes and you can't fixate on the

(25:22):
mistake you made yesterday. You have to kind of start off with a clean slate
and move forward again. Especially in these times. I feel
like every other year since 2022
or 2020, it's like a bull market, bear market, bull market,
bear market. I mean it's just like a roller coaster. Nowadays you have to be
very flexible in your thinking and being able to

(25:44):
reevaluate things on the fly.
Now, I forget what your question was, but no
strategy. I think we're getting a lot of gems. But I mean I think strategy
for us, it's really focusing on high quality growth
companies and we tend to
favor service sector companies because we feel like

(26:08):
those are less cyclical, very sticky businesses. It's
kind of like if you go to your dentist, I've been going to
the same dentist since I was a kid. If you find
a good HVAC guy, you stay with that guy forever.
Those are very sticky businesses and those are
the types of businesses that we like. One of the ones that we had, we

(26:30):
had liked in the past is Healthcare Services Group, which is
definitely not a household name, not a sexy sector.
Their core business was in providing laundry service
to nursing homes. So quite dirty business.
But they were just, it was a highly fragmented
market. But once they were in a nursing

(26:54):
home, unless that nursing home had financial
problems, they were, they were basically holding on to that customer for
life. I think they had like a 99%.
Yeah, 99% of the customers stayed on. So
I mean, it was just a very steady growth company. They were growing 15 to
20% every year for many years. But their struggle was that

(27:18):
they switched. They, they decided to get into the food service business.
And I don't think they were prepared for dealing with
food prices going up and down and having to
deal with dealing with commodities
and perishables going bad. So that was

(27:38):
kind of their hiccup that they eventually had to deal
with. But for a long time it was just a great growth company.
Yeah, great, great, great company. And you're right,
I think the hope there was that they wanted to cross sell their cafeteria
food into the existing clients that they had. And then they had a

(27:58):
rude awakening saying food business is different than the laundry
business. So it took an adjustment. Let's go straight into segment two.
Stock analysis relies on two primary approaches,
fundamental and technical analysis. Fundamental analysis
evaluates a company's financial health through income statements,
balance sheets and cash flow reports. Key metrics like

(28:21):
price to earnings ratio, return on equity, and debt to
equity ratio help assess profitability and risk.
Investors also examine management quality, industry
trends, and economic factors like interest rates and
inflation. Technical analysis focuses on price patterns and
market trends. Chart patterns such as head and shoulders or

(28:43):
double tops signal potential movements, while momentum
indicators like relative strength or macd. Looking at moving
average crossings can help identify entry and exit points.
Trading volume and investor sentiment provide further insight into market
direction. A balanced strategy may combine both approaches.
Evaluating financial fundamentals alongside price trends helps

(29:05):
investors make informed decisions, reducing risk while maximizing
long term returns in the stock market.
Mariko I know that as an analyst you're great
at finding undervalued companies that have some
positive catalyst happening.

(29:29):
If you can take your CFA hat off for a moment and then you put
on your CFP hat, do those metrics that were
important to you before, do they matter to your clients today?
Because the objectives and outcomes that they care about I think are very
different. Yeah, it's been an interesting journey because I
used to be concentrated portfolio, small

(29:52):
caps, bottom up, stock picker, held positions for
as long as 10 years. I got to know our companies
really, really well and that was part of the understanding of the
business ecosystem that they were in. And then you marry that with
valuation, what's going on in the larger market. So an opportunity to see where things
are understood. And it's

(30:14):
interesting for me personally too, right, where I've got a portfolio
that's well diversified, low cost ETFs and then I have
another that's still like leftover Daruma positions and the odd sort of, you know,
stock picking thing. And there is something to be said
for the psychic piece that comes, the psychological
peace of mind that comes from, you know what? I just have a well

(30:37):
diversified, well asset allocated
portfolio that's in keeping
in alignment with, you know, my investment objectives and
everything else. The stock
picking is much harder to do,
you know, in a non institutional context.

(31:00):
And the opportunities are where there's like dislocation and a lot
of emotionality, but it's much less about really
understanding individual names. And I find that my clients,
right, want to understand the market and they want to understand what's going on in
their money, with their money. And so they want to learn about
that, but

(31:24):
they're really less interested. It's, it's,
the conversations are much more about what's going on and
what's moving than it is about the individual,
you know, the, the return on invested capital or the
asset allocation decisions that are being made in the specific stocks. I'm sorry,

(31:44):
this is a long way around Robin Hood's Barn. All I can say is I
can really, I have come to appreciate in my second career,
right, the joys of
having a well diversified, well balanced, you know,
portfolio of ETFs in a way that
I, as a stock picker, as a professional institutional investor,

(32:07):
you know, would have been, oh my God, that's so, so boring. I'm like, yeah,
that's kind of the point. Particularly now where like a lot of the market structures,
I think it's really hard, if not impossible for
individual investors to do the kind of analytical work
unless they know something about some, you know, about an industry
and they're willing to use market

(32:30):
opportunities and are willing to hold things
for, for a long time. I really feel like that's,
there's so much information and so much noise
that it's, it's
you'd be chasing so many rabbit holes that you
would not be. Your quality of life is just going to suck if if

(32:53):
you're not. If you're not professionally stock picking in in
certain niches. I you just, you just. I don't. I think as an amateur I
think it's really hard. It can be interesting. Do it for 10% of your portfolio
and learn from your mistakes and have it be as a self awareness
growth opportunity for your understanding your
deeper psychology. Put most of your

(33:14):
money elsewhere. David, is that good
advice for the non professional investor? Do you earmark
10% of your portfolio And I'm curious like how do you
simplify complex financial analyses for
individuals to help them make informed decisions? Well
we. I agree. Michael mentioned the

(33:35):
54% success rate for hedge
funds that make millions of dollars a year. I mean individuals the
idea that they could replicate that especially when you bring on the
emotions just doesn't. It doesn't work. But what
investors can do, individual investors can do, institutional investors can do
is under look at the underlying drivers. So most

(33:58):
asset classes it's driven by the cash flow, the cash flow
growth and what investors are paying for that cash flow growth. And so
what we do, what we've done at Asset Camp I've taught
for the past decade is look at that understand
the 46 stock markets around the world. Growth value, small cap,
large cap, what is the cash flow, what's the dividend yield,

(34:22):
what is the expected earnings growth, the historic earnings growth and what are investors
paying for that and to rank those and look at them based on standard
deviation or what is the cheapest and what appears to be outlier and use
that as guidance for rebalancing to
for example move out some out of large cap growth
in December into World Ex-US small cap value.

(34:45):
And the numbers showed that large cap growth had of
course those companies are growing but with a PEs
of over 40 collectively, you
know two standard deviation more expensive than average. It didn't make sense to continue that
overweight that had that.

(35:06):
Hey Mike T. How do you balance fundamental
and technical analysis in what you do and what risks and
opportunities do you see right now? Well,
how you value it, how you should value it
largely based on free cash flows and all those other good things. But how it

(35:26):
is actually valued is much more important to understand
and it is not what I think it is what everyone else thinks
and that's what moves markets.
So in my experience talking to investors and it's been really eye
opening because you may not know I have essentially had
two clients for my entire career, Ken

(35:48):
Griffin and Izzy (Israel Englander) at Millennium, and that's
it. And my conversations with them
over my entire tenure of running hedge fund money, which is, I don't
know, 15 years or so or 20 or whatever, I
think would all fit on one piece of paper folded in half. And
that would, that would be it. So I never talked to clients until I

(36:12):
started running PINK and building this. And now I
have the privilege of talking to hundreds, if not more
of money managers that are out there. And
the one prominent feature
to their entire stock picking prowess is
charts. And that's it. And that's all

(36:35):
they use, is chart trends. And so I actually think the
entire world essentially including the CTAs
and passive flows, have adulterated stock picking to the nth
degree. So I actually think it is simply
momentum charts that run everything. And when you step off
that momentum wagon, you better have a really good

(36:57):
reason for it. And I think that's how every book is set up, in
fact, or let's say 98% of them
and everyone else simply underperforms, or at least has done
for the past decade. Chris, what
are your thoughts? I mean, we're in this world where
ETFs are so huge in fund

(37:19):
flows, you feel like if you're an individual stock
picker, the tail is wagging the dog. Right? Because
you're trying to make some decisions on individual
companies. You've done the research, you find earnings are
accelerating, low debt. On the balance sheet,
things look great, but at the end of the day,

(37:41):
is the S&P 500 getting inflows or outflows?
Yeah, I agree it's tough because, yeah, just so
much of the market is now controlled by quants
and quant flows. And I mean, it's proven that the
S&P, it's just a tough index to beat because

(38:01):
the S&P has survivor bias. I mean, they keep on
kicking out the worst performers and they keep on adding
new companies that have grown into something and that tends
to be more good companies. So over time, the S&P has
been, I think, a great index to own. And
I think Warren Buffett had that bet for many years that the

(38:24):
S&P would beat hedge fund returns. And I think he would. I think
he, I'm pretty sure he won that bet over time. So
I think definitely for the individual investor, you just park it in the S&P
and don't worry about it. A lot of the time
you don't have to worry through earnings season and a potential blow up
of an individual name just because they pull

(38:47):
their guidance or guide even a little bit light nowadays?
Well, here's the question. I mean, what Mike was talking about is that
it's more important to make money than to be right.
And also you try to do your valuation work,
but at the end of the day, it's ultimately up
to Mr. Market. Like Mr. Market's going to tell you

(39:11):
what the answer is. So in this world where
there's so much uncertainty around inflation rate expectations,
trade wars, to what extent do we try to
anticipate and position our portfolio
versus just watching Mr. Market and
following a trend? Chris,

(39:35):
maybe you first and I'll just go around everybody.
I would say the. I mean, just investing in the S&P and never
touching it. I think it's a great theory, but one that
not too many people can actually execute.
Especially in times of distress. People
aren't tied to the S&P then they're just going to be like, oh, I'll just

(39:57):
trim it back or I'll sell it out just so I can sleep at
night. And I think the positive with individual securities,
perhaps over an S&P 500 in times of distress, at least you can
say, oh, I own this company because I know that the I've,
I'm comfortable with the cash flows growing over time and I can put a

(40:18):
value on that and I will stick with that
even if the world seems like it's falling apart. I feel comfortable in
owning this company for the next 5, 10 years. So
I'm not going to kick that out. But maybe because I don't have an emotional
tie to the S and P where I can just pump that
out just so I could sleep at night.

(40:41):
Mike, how do you anticipate versus trend following?
Oh, that's actually an incredibly good question.
And that's why I'm tied to my desk for 12 hours a day.
And this is why if you're not willing to do that, you really
shouldn't be trading individual stocks yourself for the most part.

(41:03):
So how do I do it? I read a lot
and I think about the setup and I look at and when
I say the setup is who is where and why
and what is going to change next.
Like for instance, before we went on camera here, we
were talking about the budget coming up and you know,

(41:27):
people don't put much thought into it, but I think there's a high probability
this is going to be a budget busting budget and we're going to be
running well north of 2 trillion dollar deficits for the next
year. And where kinetically is that
money going to come from to pay for that. And,
and 40% of the Treasury buying happens. It's more

(41:50):
than that, but let's just say 40 is OUS - outside the
US buyers and they are going to have fewer dollars moving
forward because these tariffs are going to be here to stay to buy much
more Treasury debt than anticipated. And
bonds tend to move on issuance and
the supply and demand features, especially for sovereign

(42:13):
bonds like the US Treasury. So what's
going to happen there? I think that we're going to have really difficult Treasury
auctions moving forward once this budget goes through,
and it might happen a little bit before that. So what I'm saying is you
have something that nobody's really paying attention to and when
are new kinetics going to take effect?

(42:36):
And I spend a lot of time on that specifically when
and how and how will they be manifest? And I was starting
to put on bets around that right now for
those future auctions and what does gold do? And so forth.
And so I'm anticipating an event that is going to change the
kinetics of flow. And so that's what I spend time

(42:58):
on thinking about for these more macro moves is
exactly that change in money flows and what happens to
those kinetics. Like for instance, Vietnam. And I'm looking at the
chart right now. Vietnam. Vietnam just lifted their stock market is
breaking out and it just went up 15% in a month. And
nobody really understands why. I think maybe this panel may not understand

(43:20):
we have this tariff problem. What is going on with Vietnam? Why is the stock
market all of a sudden moving? Well, it's because China
stinks so bad. And you've seen a
unbelievably abrupt departure from
manufacturers in China instantly buying up assets
and setting up shop in Vietnam. And so

(43:41):
wage growth, I think, in Vietnam is going to go up an awful lot.
They're going to have inflation and actually really, really
good GDP comps because the entire world is trying to get the
heck out of China and move to Vietnam. And that's why. So
I, I cite an event that's happening. I talk to a lot of these people
that are moving their business specifically to Vietnam and,

(44:03):
and, and all of it in a month. I mean, it's
astonishing how many billions and billions and billions of dollars
are coming into this little country in order to get
manufacturing going. And it's going to have a profound impact. So I have this sort
of data point that it's soft. I can start to quantify it and
surprise, the stocks already started moving. And so I think

(44:25):
Vietnam is going to be a gigantic beneficiary from
essentially the decline of Chinese labor. How do you
trade it? You go long Vietnam. I'm personally Long Vietnam, but I'm watching it
right now and it's moved an awful lot more than I would have thought. But
I suppose we're going to find out very soon what the numbers look like. So
again we have an event. I think about the kinetics of the flow, what it's

(44:47):
going to do and then translate into a stock or a trade
and hopefully I can get in front of that. Kinetics and the flow.
Thanks for the insight into how you anticipate.
If David and Mariko don't mind me skipping and going
into segment three, unless you guys have something to chime
in. Cool. Let's go to

(45:10):
segment three. Diversification
spreads investments across asset classes, sectors and
geographies to reduce risk and improve long term returns.
Strategic Asset Allocation sets fixed targets based on risk
tolerance and goals, while Tactical Allocation
adjusts holdings based on market conditions.

(45:31):
ETFs and index funds simplify diversification
by offering broad market exposure with low fees.
Position sizing helps manage risk by limiting exposure to
any single investment while stop loss orders in hedging
strategies protect against downturns. Regular portfolio
rebalancing maintains the intended asset mix and risk

(45:53):
profile. Conservative investors may favor bonds and dividend
stocks, while aggressive investors lean toward growth stocks and
alternative assets. Blending different investment strategies and
maintaining disciplined risk management allows investors to
navigate market fluctuations and achieve financial goals over
time. A well structured portfolio provides stability,

(46:15):
growth and resilience in changing market conditions.
Chris at College Retirement Equities Fund the majority of
funds were indexed and then an actively managed part of the
portfolio was smaller. It look closely at

(46:37):
are you overweight? Where are you underweight? What's your tracking
error? Compare that to what you do now and how do you
construct portfolios that are resilient to market cycles?
Yeah, we constructed very differently. I would
say that. Yeah, when I came into the industry at CREF, we
weren't allowed to have any cash in the CREF growth

(47:00):
accounts. And that was definitely a struggle. In
the year 2000 when the market was melting
down after the Internet bubble, my
secretary would come to us and say, hey, why is my
401(k) going down every day? My boss's hair had
turned white. I kind of felt like there has to be a better way.

(47:22):
Luckily our father Sam had
had really focused on investing
well, managing risk in different business cycles.
And that was really his real
key philosophy and he had
avoided Black Monday in 1987. So

(47:45):
I know you and I definitely felt like we had to learn from our
father. So we definitely believe in risk management. There are
times to be offensive and aggressive, and there's time to be
more defensive. So I think just giving an
example, I mean, if we're managing a balanced account, which is typically
kind of a 60/40 portfolio,

(48:07):
during the. The. I'd say year 2020,
after Covid. After the COVID lockdowns and when they were going into
reopening, when we saw GDP
accelerate to over 10% and zero interest
rates, we were very aggressive. We. We felt like
it was a good time to be investing just because you saw huge earnings

(48:30):
accelerations coming. So we shifted that more toward
an aggressive stance into equities. And then in
2022, we saw comps that
were going to be impossible to comp, and you saw
the Fed ready to hike interest rates for the first time. So those were
two very dramatically different economic

(48:53):
environments. And I don't think you can. I don't think it makes sense to
be static and have the same
investment philosophy at that time. You can't just have the 60/40
portfolio. It doesn't make too much sense, especially if you feel like
you can. You know where you are in the business
cycle and you can maneuver. Mariko, how do

(49:15):
you approach rebalancing a portfolio? What triggers a need for
adjustment? So there's two
things. I mean, when, as an institutional investor, I had a
no position greater than percent rule. So in practice, because I had
a concentrated portfolio of 25 to 35 stocks.
So in practice, anything north of 5% got to be big. But on the

(49:38):
other hand, there were no little positions that didn't matter. So I'm with.
I'm with Mike on that one. You had at least a 2% position.
So these were very. These positions were big relative to my
benchmark, which is the Russell 2000. So the rebalancing,
some of it was just forced. And you, you know, you had to look and
go, all right, well, if it's below 2, what I do I want to buy

(49:59):
more here or do I want to sell? But if it
was. If it went above, there was sort of a forced trimming,
and then those assets, you know, that money got
redeployed. And because I was running institutional money, I was
expected cash was never more than like 5%
of the portfolio. So actually 10%.

(50:23):
But usually we ran fully invested because the asset allocation, the
broader asset allocation was at the held in the hands of our investors.
You know, we were hired to always have full exposure in the slice. The small
cap slice that we were chosen for individual investors,
you know, when, when money comes in or it's interesting

(50:43):
because with individuals you have a whole tax issue that's very
important and that can cause some, some balancing
or rebalancing problems. So there's complexity there
in that you don't just have to take into account the exposures,
but you also have to look at tax and you have to look at other
ways to make that happen. But

(51:05):
you know, I just think I get excited when stuff is
down and I'm with David, when you
have a two standard deviation plus like pay attention
both, you know, both as an
opportunity and as a time to rebalance, let go
of profits too. So the extremes,

(51:28):
money is made
at the inflection points at the extremes. And I always try to
predict where the inflection point will come. But
you can feel it, you can see it
and what's going on and the there when there's a

(51:48):
mismatch between emotions
and fundamentals, that's
usually a great time to rebalance.
Mike, talk about portfolio construction because I think
that you have some bellwether holdings in your
portfolio that you love fundamentally and you kind of

(52:12):
leave those and then you're actively trading
maybe shorter term positions around those.
And then what role do options and other derivatives
play in your risk management strategy? Well,
personally, it plays a pretty large role. The PINK
fund doesn't have any options in it, so it's just

(52:34):
straight stocks. But,
but so far as constructing a portfolio and
thinking about risk management, like for instance, it
depends. You have to realize that risk for
a index or let's say an ETF manager whose
benchmark versus an index is much different

(52:57):
than risk for an individual investor.
Like for instance, PINK has an
extremely risk on book right now. That doesn't
mean that I think stocks are necessarily going to go up or down. I
just think that my stocks are going to go up versus down and the
portfolio looks very, very, very different

(53:20):
than the benchmark. For instance, I'll just go
down the names, top names in the benchmark.
Bristol Myers, Vertex, Gilead,
Pfizer, Amgen, Merck,
let's see, Johnson and Johnson.
Those are all huge in the benchmark and PINK owns 0 or near

(53:43):
0 of all of them. So that is a
very, very risk centric or let's say idiocentric
or idiosyncratic book. Whereas in my
personal fund it's all just best ideas.
Stocks with I probably have
five different strategies right now on my book. Usually

(54:06):
it's fewer than that. Usually it's about three. But right now there's a
lot of moving parts around trade tariffs, around transition
of businesses out of China into Vietnam, Argentina for
instance, a lot of OUS exposures and then
fundamental bottoms up companies like I think
personally that Reddit is going to blow the heck up

(54:29):
and Apple I think is in the process of blowing up
for instance. So what do I want to be against that? I want
to be. I want to be PANW, that's Palo
Alto Networks. I want to be
long utilities because that's a pretty low risk way to play
the build out. Even though like Utilities shouldn't work well in this

(54:52):
environment, they are working well because the earnings are going to be better.
I'm long Dell for instance and so I have paired
books on that are really fundamental bottom up and then I'll
have many other strategies. I have an interest rate strategy on that has a
long to do with bonds and gold and then I have a
OUS exposure tariff sort of book on.

(55:14):
So it's rare for me to have so many different strategies on at the same
time in my personal book. But that book is run
much, much, much, much differently than PINK. PINK is all
about outperforming healthcare and that's how it's set
up. Well, thank you for some
insight into your book. Since you've blurred out your

(55:35):
background. We can't read your whiteboard to see. What your I've started doing that
just to limit my tweets because as soon as somebody sees that
board right there they go absolutely ape shit. And I just get
a hundred, I got thousands of inquiries and it's just too much. So
I've decided to blur it out for now. Maybe I'll turn
it back on. I don't know. David.

(55:58):
Well, I think Mike brings up a good point. He talks about
outperforming is the objective as individuals investors,
our objective is not to outperform. We get one shot
through time to steward our retirement assets
and the protecting on the downside can
be very helpful. But we're compounding our capital over time.

(56:23):
It's not picking individual stocks and I think we've shown in this hour how
challenging that is and for those that do it well,
how they're at their desk 12 hours a day. But as
individuals we can't just naively invest in the S&P
500 and hope things will go well. The S&P only makes up US makes
up 65% of the global stock market. The S&P

(56:44):
outperformed because 2 to 3% of the outperformance was
because the stocks got more expensive over the past decade
whereas non US stocks got cheaper. The dividend yields are
higher. The earnings growth is not that much different than US
earnings growth. And so I think our job as
allocators and investors is to understand the drivers on the bond

(57:06):
side, on the stock side and manage more like an
endowment or foundation that is stewarding capital over
generations. That's more like how individuals should invest rather
than speculating on individual companies or
futures or any of that. It's a much more of an institutional
approach because we get one shot through time and if we screw

(57:28):
it up it's going to be a challenging retirement.
Unfortunately, most of the time individuals
don't know how to do that. They're getting like water cooler
ideas and saying oh that sounds interesting, I'll buy a little bit.
And then they do that 20 times and they've got like a portfolio

(57:48):
of like all tech stocks.
Well if they do that on the side, I mean they do that with, with
their funny money. But I mean most of their assets will be on the 401(k)
anyway. Yeah. And there they, they should be more like an institution
or an endowment allocating long term multiple
asset classes. That's why those portfolios are there. And that's how

(58:09):
individuals should invest primarily. And then they can play around with
stock ideas on the side and as Mariko said, learn from
their mistakes, which there will be a lot of them. And
that's the perfect segue. Let's go into segment four talking about
psychology. Behavioral biases can lead to
poor investment decisions. Like loss aversion makes investors hold

(58:32):
onto losing stocks too long while overconfidence can result in
excessive risk taking. Confirmation bias leads to ignoring
contrary data and herd mentality pushes investors to follow
market hype. Emotional investing such as panic selling and
downturns or chasing past performance often leads to
losses. Developing a disciplined long term mindset helps

(58:54):
investors stay committed to their strategy. Dollar cost averaging
reduces the temptation to time the market by investing fixed
amounts at regular intervals. Averaging out price fluctuations.
Investors should use data driven decisions, challenge assumptions
and stick to their plan. A behavioral investing checklist
helps ensure rational choices. Avoiding impulsive reactions

(59:16):
and focusing on long term goals strengthens financial
resilience and prevents costly mistakes. Managing
emotions is as crucial as choosing the right stocks.
Mike T. In high stakes trading environments, even the best

(59:37):
hedge fund managers blow up. And I think this has been a
challenging environment. That's actually not true. No, it's the
worst.
Well, you tell me about funds that have had to unwind their positions
because. Oh yeah, guys couldn't right now hold. On to
their book. Yeah, a lot of times it's liquidity.

(01:00:00):
Liquidity is a real problem, especially for us. A lot
of hedge funds that have dabbled in these small cap
and mid cap sizes and they're, you know, it's not a
big deal when your book's a billion two, but then all of a sudden you
have some success and now you're running a $7 billion book
and every stock that you touched are 5%

(01:00:21):
plus of the float and so you can't get
out. And that's something that recurringly I'm a
reference for many, many allocators, especially
in healthcare, because I know most of the managers and they'll call me up and
say, what is this manager? Like, what are they doing? What is their style?
Because they're looking for a reference point. You know, outside of the pitchbook, who

(01:00:43):
is this person really? And for the most part, for the more senior
managers that are out there, I've grew up with them and I know them as
a young man with hair. And so I can, I can help
with what the sticking points are. And one of the big sticking points I
go back on all the time is, is, is
the exposure to small cap. And it's not because it's

(01:01:05):
a bad idea, it's just a bad idea if you can't get out.
And, and that, that's something that we've been witnessing right now, especially
in this most recent sell off that we had a real problem
with that. So give us some Mike T. Maxims. How do you
quickly admit your mistakes and sometimes like, how do you mentally
reverse your positioning really quickly if you have to?

(01:01:28):
Yeah, well, I look at my,
my progeny, if you will. I look at the managers that
today's gladiators in healthcare that I trained over the past 20
years and most of them are my best friends in the world
and I talk to them every single day. And one
feature that is unique around that group is that in

(01:01:51):
within a 15 minute period, your biggest long can turn into your
biggest short. And that is a very, very, very rare
attribute to have. And that, you know, when the facts change
and the fundamentals change, it's not about getting out,
it's about getting short and flipping your entire book. Because
if everyone was thinking what you were thinking 15 minutes ago and

(01:02:13):
everything just changed on a dime, that's actually a
really, really good short because people most won't respond
in that sort of period of time. In fact, I'll
give you a stat here's a stat. This is a great one. And it also
applies to your biggest shorts becoming your biggest longs.
Citadel and their risk management discovered that

(01:02:37):
every short or not every. Well, they looked at every short. I did every short
that I did that I covered out
within two weeks outperform the group
80% of the time. And that number
is absolutely stunning because I don't have personally an
80% rate on success.

(01:03:01):
But if you simply take my short book and you go long, my
short book two weeks after I cover, you will
outperform 80% of the time. And I'm absolutely certain that
that firm that was Citadel, took that
analysis of my book and made their own book
on top of it to trade my shortcovers.

(01:03:24):
How about that? And that's what really happens when you take a look at the
math of the people behind the curtain that are running what
they're running. They do that analysis to look at what is his
slug rate. What is his slug rate when he covers. Holy crap, that's
free money. We should just go along everything that this guy covers after he
covers it within X period of time, because 80% of the time

(01:03:46):
it outperforms after that moment. Interesting to see where the
information content is. Yes. And so it's. It's
a whole different way for these hedge funds to analyze their portfolio
managers and learn how to make money off of them without them even knowing
it. That is a big piece of what goes on in
managing money, and very few people are aware of it.

(01:04:09):
David, what psychological biases do you find most
detrimental to investors and how do we overcome them?
I think one of the biggest ones is gains feel worse than losses. I'm
sorry? Losses feel worse than gains. And so
that forces investors to want to

(01:04:29):
get rid of the things that aren't going well in their portfolio as opposed to
understanding what's driving it, what happened and
where are we going now? But the other thing we can do is not
look at our portfolios often. If you're an asset
manager, you got to look at it daily. But as an individual investor, if we
know that losses feel worse than

(01:04:52):
gains, then don't look at your portfolio every day, because you're
gonna. The market goes up and down every day.
And so if we keep exposing ourselves to losses
and that feels worse than exposing ourselves when we see a gain, then
our approach and even as an institutional investor is look at it once a month.

(01:05:12):
Like formally look at where things are, look at valuations,
look at earnings, look at what's driving the market once a month.
And that can help control our emotions and
because then we're not exposed to all the noise all the time
much, most of which we can't act on anyway.
Less can be more. Chris, you

(01:05:35):
mentioned how the cycles are much faster.
The bull and bear markets seem to be happening annually.
How do you help clients navigate that fear and greed to be
more rational? And how do you keep your own emotional
or your own emotions in check? That's a really good

(01:05:55):
question. I don't. It's not easy all the time. I mean, I think
we're, we're all humans. We're all emotional. I
think one way is that sometimes you just have to step away from the
screen. Especially on,
on crazy days. I don't know. It doesn't help just staring at the
quotron in a sea of red. It doesn't help you.

(01:06:19):
And then I would say a lot of the time it's
avoiding the headlines and reading. I think
one of our friends who's also been a very successful investor, he
said that you don't want to read the news headlines
until the weekend. You read that on Sundays.
And a lot of those worries that were during the week have not

(01:06:41):
come true. And the rest of them you go to church for
and you pray that they don't come true.
Chris, I think there's a lot of that going on right now. Oh, for sure.
And, and I would, I would submit though that
prayers are required because it can't be truth that
you're looking at. It must be faith. The way that

(01:07:04):
we're. We're looking on our sovereign debt
is absolutely insane
and we cannot stop spending
or, or we will have a meaningful recession. And that's politically
unpalatable. And so they won't do it. And they will continue to spend

(01:07:25):
with insanity until the bond market stops them. And
that's, I don't know exactly when that's going to be, but it is
soon. And that will be the most painful thing that we
could ever experience far west, worse than
any recession because this one will be of long duration
and you'll have a interest rate problem and

(01:07:47):
you will have a currency problem and
you will have a government spending problem all the same time.
And you now have. What looks like to me is
that we're going to have a federal budget that is
augmenting the GDP to the tune of 8%
a year, which is

(01:08:09):
astonishingly high and laughably
high, especially at a time of full employment in a non war
environment. They have gone off the rails. The face
is, you know, you're neck deep into a bag of cocaine.
And, and that's. And you know what I'm talking about, Andy.
So I don't know. My dad might be

(01:08:33):
listening. And, and so, and,
and that's a truth. That's a truth of what's
happening. And so the prayer that you're referring to is
that, well, I hope nobody witnesses that truth
today or this year. And that's where. That's why I think we're
seeing these economic cycles that are becoming closer and closer and

(01:08:54):
tighter and tighter with greater volatility. That's
because the ice gets thinner and thinner and thinner. And the final break
is going to be where, you know, we're Japan. And Japan
could do it, meaning that they've had economic cycles and full
employment and they cannot stop printing money. Can't
stop printing money. And now they. I think

(01:09:17):
Japan's a little different in that if you look at their national debt,
it's. It's 78% of GDP. I mean, where Japan
differs is they're running a Social Security crisis
and they took their assets and they invested in the stock market. So much of
their borrowing is actually backed by assets
on the stock side. So it's very different than the US situation,

(01:09:38):
which it's a true deficit and they don't own
anything. And so I agree with Mike that it's definitely a concern,
especially this budget cycle. Absolutely. Well, they can't stop. And
I'd argue this, that the reason why they're buying the
stock market with printed yen is because the flows would
actually be negative. The population growth is negative, the

(01:10:01):
withdrawals are more than the money put in, and so they have to
offset that with printing money in order to keep
asset values up. And now they have a problem of
inflation as the government has
overspent, much like ours. And so they, they
are. But what's much, much, much different is that all of this

(01:10:22):
is internally sort of contained, where they force the
pension funds, endowments and everyone else, insurance companies, to buy
more and more and to the JGBs. And so they
could internalize all of it. Whereas in the US we have to find 40%
of our buyers a bit over outside the US and so
we can't create laws and force people to buy that. That's

(01:10:44):
the problem. That's the difference between the US and Japan, and
that we can't do what they have done in order
to smooth over that volatility. And that
day of reckoning is coming. So, Chris, I'm with you on
the prayers. I think I may start going to Church more regularly.
I'm kind of like a Christmas dude, you know, and maybe,

(01:11:07):
maybe I'm gonna throw in an Easter too. So
we'll see. If you start wearing a cross.
People would think too, that's actually a, you know, that's a, that's a X, not
a cross. And I'm the target. So I, I won't do the cross.
Mariko, I didn't give you a chance to chime in on this one.

(01:11:32):
You mean just about the world going to
shit.?
Yeah, basically. I mean, you know, I mean, the three
things that, that I was, that would really, you know, get. Because as everyone. Yeah.
I was like, no, you know, keep calm, carry on. Here are the three things
that would worry me, you know, if Trump got rid of Powell because,

(01:11:52):
you know, like, he has everything else. If,
if, you know, the dollar stops being the
currency of choice and if we decide that our
sovereign debt is, you know, like, not really
a serious obligation. Right. Then,
like, those are the fundamental pillars on which modern finance

(01:12:16):
are built on. Right. Treasuries are risk free. Everything
else. And, but this, you know,
the, what's going on with the
deficit, it's just, it's just not sustainable. And you've got,
it's just, it's a problem. It has to be addressed. And there is. So walk
us through that, that, walk us through the addressing part.

(01:12:39):
What would that look like? You mean everyone says it must be
addressed, but nobody says how it's addressed?
Well, I think you have to do a little bit of everything. So everybody has
to be unhappy. And I think there also has to be
a. So give us a number,

(01:13:00):
Give us a number. You know, for instance, Doge
has been hamstrung and they would get a trillion
dollars in cuts. None of it's going to happen. But what would a
trillion dollars in government cuts look like for this economy?
I think it's, it's not just cuts. I think you have to. You

(01:13:22):
again, it has to be everything, right?
Pay some taxes, you have to cut some spend, you have to be more efficient
in the spending. We look at health care, we look at
entitlements, we look at the tax code. I mean, I think,
you know, I think everything has to be done. And to your point earlier,
it's politically unpalatable. So I don't know

(01:13:43):
if we need a big ass crisis
for people to gather behind something that needs to
be and say, all right, we're all going to make a collective sacrifice and make
this happen. After watching this. Interesting.
You can't have interest expense be more than
your defense spending, among others. Oh, I'm certain that's what's going to

(01:14:05):
happen. Yeah. We are not going to stop spending
and we will only be facing it when we are at a meaningful crisis.
Exactly. Yeah, I agree with you.
And what that exactly is going to look like?
Well, it's easy what it looks like, right.

(01:14:26):
It looks like the long end of the yield curve trading well above
inflation. That's what it looks like.
And we're probably there, just about there
right now where it's starting. And you know Yellen started losing
control of the yield curve last year, you could see it. And so
she moved a lot of the issuance on the very short end to get

(01:14:48):
away from that. And, and at issue is that
the, the, the amount of debt to be parlayed by Scott Bessent
over the next year again you're
going to have to find those OUS buyers and I wow,
this is going to be quite the dance to get this done. And, and
every year I think it's just worse and you know, so

(01:15:11):
I, I assume that's what is going to happen and we're
probably going to see the beginning of a material Treasury problem
in the next year depending on how this budget turns out.
I do not expect any material cuts here. I expect the deficit to go
up materially coming out of this. I agree and I think
there's a whole generation that has only seen

(01:15:34):
declining rates and or you know,
weirdly, you know a very atypical situations
on the. Low rates and cheap money. Yeah. Well you
also have to remember that in the past when we did have an economic
cycle, the tax receipts to the

(01:15:54):
government dropped an awful lot and we would normally run a deficit
and, but it was only temporary, short
lived and it was material but it would be short lived
and now we're at a point where we can't do that. This is why I
think they're in a panic to never, ever, ever have an economic cycle
again because I think there's a decent chance next

(01:16:17):
year we're looking at 8% of GDP
being deficit spending. But under a,
under a recessionary conditions where the tax receipts
drop, that could be something like
3 trillion more than that, 2 trillion more than that. Right. And

(01:16:38):
think of the numbers here though. The government's bringing in $5 trillion
in tax receipts and they're probably going to spend close to $8 trillion next
year. So we're over 50%.
They're spending $1.50 for every
$1.00 they bring in and they're putting it on the credit card and,
and, and and you model this out and you're like, you know,

(01:17:01):
that's kind of never going to change. And that's it.
So. A plug for the, the
folks at the Yale Budget Lab, because I really like the work that they do
and the analysis that they do. And it's also very kind of timeliest
information comes out there, running, rerunning numbers and stuff.

(01:17:22):
I don't mean to be depressing on these issues because our job is to allocate
folk's capital. I just think that they should be aware, if they
aren't already, that we've got a gigantic cloud hanging over our
heads and they're just kind of spinning the plates and hoping that
somehow that day never comes. That day is literally.
Well, it's happening in a lot of places, but for the US it'll be,

(01:17:44):
oh, God, I don't even want to know. That is my biggest fear,
and I talked about it four years ago when I started coming public,
is that my fear from COVID was that we would
never be able to stop spending like we were. And that's exactly what's happened
and that's what's been happening. That's it. And they just can't stop
spending and they won't stop spending. Oh, and they can't

(01:18:07):
stop cutting taxes also, though. I mean, it's not just Mariko
is saying, it's the taxes also. The deficit started blending
out during an expansion after the
tax cuts of 2016, 2017 and Trump's first
term. And the House seems set on cutting taxes again.
And so it's a combination. But it doesn't have to be a disaster. I

(01:18:30):
mean, the average interest rate right now is 3.2% on
the debt. The GDP is still growing on a nominal basis, 4
to 5%. If it can grow faster than the average interest rate and we can
actually bring down, down the deficit spending to where it's 3 to 4%,
then. The US can operate with 150%
debt. The GDP, Greece is doing it and

(01:18:52):
their Treasury yields are 10 or 1%
less than ours. And so it doesn't. Who owns all that Greek debt,
by the way? Who owns all that
Greek debt? The Central Bank.
Well, right, that's what I'm saying. But it can be done. The Central Bank owns
a lot of our debt too. And so I just, yeah, I think that

(01:19:16):
this has been a crisis that we've talked about for a decade.
When the, you know, back in, in 2011, the S&P lowered the US
credit rating off AAA. And so I agree that,
I agree with Mike, there's big concerns, but I think that
it is a problem that if, you know, as Powell said,

(01:19:36):
there were adult conversations that could be, it could be solved. It doesn't have
to be a disaster.
Let's go bring it home to the
last segment. We'll see if we end on a lighter note or if
we hunker down in our bunker and discuss

(01:19:57):
where we're going. Markets move in cycles,
shifting through expansion, peak contraction and trough
phases. Understanding these patterns helps investors
anticipate risks and opportunities. Economic
indicators like GDP growth, employment data and corporate
earnings provide insights into the current cycle. During recessions,

(01:20:18):
defensive stocks in consumer staples, utilities and
healthcare can offer stability. Investors may also find
opportunities in undervalued assets in bull markets. Growth
sectors lead, but maintaining a balanced portfolio prevents
overexposure to risk. Reassessing an investment plan is essential
after major life changes or economic shifts. Adjusting asset

(01:20:40):
allocation based on risk tolerance and goals ensures long term
success. A disciplined approach, staying invested, avoiding
panic, selling and using a diversified strategy helps
navigate market fluctuations. Understanding cycles,
managing risk and adapting to change enables investors to
build resilience and sustain long term growth.

(01:21:08):
I'll start with Mariko. What lessons have you learned
from past market cycles? And then given the last segment where
you shared some of your fears or
concerns, how would that
change your like personal investment style
or what you would, how you advise clients or does it not?

(01:21:33):
All right, so there's, there's a lot of questions in that hairball
of a question you just landed me.
Early on I, I worked with Chuck Royce who's a small cap value investor,
right. And in 1987, on Black Monday, I was a young analyst, I,
you know, we were buying stocks.
So even if you weren't sitting on a huge cash position because again I don't

(01:21:56):
recommend that you, you know, that you try to market time,
you know, it's, it's because the best days are often right in the environment
of the worst days as well. But there's an opportunity
to, to upgrade your what,
what you hold in the portfolio. And it was just, it was such a calm
day. I mean it was just, you know, we were doing our thing. He's

(01:22:19):
standing by a tree, we're buying stocks hand over fist. And then when
I went home to the Upper west side, I saw people wandering around the streets
looking shell shocked, you know, like you see after a disaster, you know, ties askew
and hair like this, you know. And I realized that for the
most, you know, most of the finance
bros, it wasn't that, it wasn't this

(01:22:40):
like great buying opportunity of a lifetime. So
I've, I've seen many of these cycles and I had clients that used to
love to come to me when, when you know, there was blood in the streets
because I was excited and, and you know, it
was different. So I think you have to be wired a bit like a mutant
in terms of what to do. I mean that is a, that is a question,

(01:23:02):
right? Because where the hell are you going to go really? You
know, I mean there are your, your other asset classes,
you know, so I think you just do, I mean for me, Iong bonds?
Nope. No, thank you. You know, at all
because, because of all the things that we've talked about. So I
would say more like anti that definitely getting

(01:23:25):
you know, our, my clients who
are you know, very US centric, very you
know, Mag 7 more international,
more small cap, a little bit more in some of the
emerging markets. I'm with Mike on that and

(01:23:46):
you know, but it's, it's, we're part of a system, we're part of a global
ecosystem. You know, I
have, I have a client who's landscaper like buried a hundred thousand dollars in the
backyard. What's his address?
Right, exactly. And this is in Hawaii too. Right. So it's like
that's going to be a biology experiment in about, you know, 30 days.

(01:24:10):
But it's just one of those things where you go, you've got inflation,
it's going to be a problem. You know, you, I think at all times you
do the best you can. It's kind of like how we have to show up
as humans in the world. You do the best you can in,
in accordance with, with what you have. So you have to be, you have to
be balanced. You have to be, you have to be rational.

(01:24:32):
You have to, you know, have a go bag by the
door too. But it's not like I can say oh well, definitely, you
know, put it all in crypto or put it all in gold or you know,
put it all in nuclear energy. I mean
there, there, there's a kind of innate dynamism and,
and, and resilience in these very complex dynamic systems. But

(01:24:55):
are there going to be stressors and. Yeah. And could they be really
bad? Yeah, but I don't have a
golden parachute kind of strategy. No easy
answer. No. Mike may have some easy,
some tough, well deserved answers, but for the

(01:25:16):
average investor I think you also have to
back to. There's a lot of conventional wisdom, but
people's circumstances are very individual. And I
think sometimes people are just happy to get other people's
assets to manage and they're not looking at their own individual
financial ecosystem. And also a lot of tax considerations

(01:25:39):
and also wealth building is one
thing and then decumulation and that phase of life is a different
one and very complex. And I would say all the things that we're worried about
are most worrisome, you know, for that
demographic elephant going through the snake right now.
That is going to be all the, the baby boomers. I'm at the very, you

(01:26:02):
know, tail end of that. But we're,
that's the, this kind of what we're talking about is
going to affect them the most
potentially when you're in that decumulation phase. And they
tend to, you know, us cranky old folks tend to vote
and we don't always think about, you know,

(01:26:26):
our grandchildren when we're like worried about the Social
Security benefits. So I don't know, interesting times. You just do the
best you can. That's what I've always done.
David, you sounded constructive on
the debt situation. How do you advise investors to adjust their
portfolios to different phases of the market cycle?

(01:26:49):
Well, first off, you're massively diversified. So if
it's debt monetization, you own real things. You own gold and should have
owned gold for the past decade. You own bitcoin and
should have owned bitcoin for the past decade. You own other real assets such
as real estate. There are
dozens of asset classes. You can get exposure to understand

(01:27:11):
what drives it, which is speculations, which gold
and bitcoin is. But you also have the cash flow generating assets
and there is the opportunity to look
at market conditions and rebalance the areas that are more attractive and have
lower valuations and think like an allocator because
that's what you're going to need to do. And I agree with

(01:27:33):
Mariko. You have a go bag, right?
Have assets away from the financial system,
be that food storage or if you're
into guns, ammo, whatever. Just don't be completely
tied to the S&P 500.
Have a life outside of the financial markets and you can

(01:27:55):
maintain that flexibility even if we get a
debt crisis. When you think about Japan like
they owe it to themselves, like
the wealth of the country is the private sector and
the ability to create in that dynamism. It's not
accounting government debt, it's accounting and it can be

(01:28:17):
solved. But if the actual rule of law
and the pillars of the economy is destroyed and it's impacting the
private sector, and they're acting based on fear because
they don't trust the court system anymore. That's when you have a real problem.
But that in and of itself is not a problem.
It's what happens because of it.

(01:28:41):
The other thing I would add, and outside of
finance. Right.
In
tough times, I mean, community
mutual aid, we have to tap into our humanity
and have those. There's so much about technology

(01:29:02):
and everything else that's isolating and fragmenting as opposed to
the gathering. But I think when there is
crisis, there's also an opportunity for the best
side of human nature to come through. And I think starting to
cultivate those intangible assets
is. Is important. Chris, you

(01:29:26):
mentioned there are times when you should be more aggressive.
There are times when you should be defensive.
How do you incorporate those, like,
macroeconomic variables into
an investment decision? Yeah, I mean, we're always looking at
business cycle, and we have a philosophy called

(01:29:47):
METV where we're looking at monetary, economic, technical,
and value indicators. And we try to
look at. It's like 60 underlying variables underneath
those, and we kind of get up,
get a positive or negative reading on each of them and come up
with, should we be aggressive or defensive? Right now, I feel

(01:30:11):
like it's pretty much neutral. But I mean, a month ago I
would have said we were negative. So I don't know.
Things change very quickly, especially in the technical
category. I mean, it was incredible how fast things
changed. I think maybe
it is a factor of the changing

(01:30:33):
market dynamics and the amount of
quantitative investing that goes on now. Just the swings
back and forth are just.
They're enhanced on both positive and negative, I feel like. So
I don't know, the. The momentum swings so hard to the downside, and
now in the last, I guess, six weeks is to the upside.

(01:30:55):
So it's been an incredible rebound to watch.
Kind of reminds me of the COVID rebound. But I don't know. We didn't have
the stimulus yet, but I don't know, maybe the mark. I think
Andy and I were talking about it yesterday. I think the market might be just
pricing in that these tariffs just totally disappear because

(01:31:15):
there's a few court cases that
are in the courts of international trade saying
are. Are the actions of the administration even legal?
So if that, if that ruling goes against the administration,
do the tariffs just totally evaporate overnight? And countries are just
like, oh, they don't have to negotiate anymore. I kind of feel

(01:31:39):
like that's what the market is Telling us right now. Yeah. Is the market pricing
that in as well as what Mike's talking about? It's
like what the government's going to be doing if, if spending
doesn't slow down. It will be stimulative,
Mike. If, if deficits keep
growing. Yep. You just have to hide in gold?!

(01:32:02):
You, you have to remember and, and this is like the 101
fractional reserve system. And that's,
that's like old school. From your college days. If you had a finance class,
remember that every dollar, every unit of currency, for the most
part, is borrowed into existence. And
for instance, you, we talked about Japan here a lot.

(01:32:26):
You borrow a million dollars, you have a hurdle rate attached to that.
Let's say 5% yield on a million dollars.
You take that million dollars and you open a restaurant in Tokyo.
It's the greatest restaurant ever. You have 100
tables and it's packed on day one. I
promise you, by the end of your career, 30 years from now,

(01:32:48):
only 70 of those tables will be filled because the
population is going to drop by 30% over the next 30 years.
And that's the case for most industrialized nations. But
that coupon that you owe on that debt will not
stop, even though your scale
deteriorates and your utilization of capacity

(01:33:10):
deteriorates all the way through that. And that is
absolutely what's going to happen over the next 30 years. And the fractional
banking system is not designed
for negative, serially negative
demand year on year because of a declining population.
And we're witnessing right now

(01:33:33):
the government's trying to offset that by
simply spending more to make up for that slack right
now. That's what they're doing to keep growth alive.
They are now borrowing and spending and borrowing and spending, and we see it everywhere.
That will not stop because that's politically what they can
do. And it will turn into what

(01:33:56):
we're starting to see now, which is people not believing
in the ability to pay this off or pay it off
without printing money. So I expect for the next 30 years, just serially
serial money printing left and right until something
breaks. And that's, that's my outlook for the
next 30 years. And it's really born on demographics.

(01:34:18):
Now people can say we're going to have incredible productivity
improvements because of AI and so forth like that. I agree.
Much like the iPhone and handheld technology really change
communications and improve productivity. Email, you know, now
you get bothered at home to do work, which you end up doing anyway, so
you're more productive. And so that is going to be an

(01:34:40):
offset, but there is no offset to the population
dropping by a third over the next 30 years.
So that's really the outlook for me now. Yes, hard assets,
absolutely. I think hard assets is a place to be and
I am working personally towards all of those
hard assets over the past five years. I never had the opportunity to do it

(01:35:02):
because I was running a hedge fund and I didn't have any time to do
it. But that's what I've been spending most of my time on personally is working
on hard assets that generate free
cash flow businesses. And so I'd recommend that
to all of the investors out there. Get involved in a business, something that
does have pricing power, that can be held to at least inflation

(01:35:24):
and have your go bag and
realize that I believe the
equity markets and debt markets moving forward are going to
have much more volatility and much
closer, you know, a sequence of events.
These economic cycles are going to get tighter and tighter and tighter and it's such

(01:35:46):
that now that we can never have an economic downturn
because bond markets will blow up.
So that's, that's what I think is a truism that is much different than
20 years ago. We're going to leave it
there. I want to thank the panelists for
delivering way beyond the allocated time.

(01:36:09):
This has been an incredible conversation. A huge thanks to David, Mariko,
Mike and Chris for sharing all the insights and strategies.
Whether we're talking about value versus growth, risk management
or psychology of investing, I think we covered it all.
And one of my big takeaways is that

(01:36:30):
this market is so dynamic. The world is, is changing so
quickly that you have to be adaptable. And
if we need to have a go bag ready to go, maybe we have to
have a go bag ready to go. So have a plan
and I think that's what it's all about.
So your assignment for this week, just take 15

(01:36:53):
minutes and review your current investments. Ask yourself,
am I clear on why I own each holding? And if you
can't answer that confidently dig in,
look further and
yeah, consider holding gold
or hard assets and watch this episode five times

(01:37:16):
and share it with a friend who
you think would benefit if you enjoyed this episode.
Follow the podcast, leave a review and you can always
connect with me at InspiredMoney.fm.
Inspired Money is created and produced by me,
Bradley John Eaglefeather who

(01:37:38):
edited the segments and he's behind the scenes guy for the
live stream. Chad Lawrence does our graphics, animations,
and editing. The biggest thanks to our guest
David Stein. You can find him at money for the restofus.com
you can find him at assetcamp.com
David anything else you want to share that's going on? No, I

(01:38:00):
enjoy thanks for for putting together the episode.
Thank you for joining for so long, especially when you're
traveling. Mariko Gordon you can find her at
uzumellc.com or
marikogordon.com Mariko any events or things that you
want to share? No I have a weekly

(01:38:21):
newsletter where I riff about mostly personal finance for
individuals but and you
know, often have tmi but people find it
useful. People should sign up. My wife reads it, I read it and
then my wife reminds me to read it again because she says Mariko wrote something
really good this week. Mike Taylor, you

(01:38:43):
can check out the Simplify Health Care ETF ticker symbol
PINK. Read more about it It's
Simplify.us and
just a quick plug to Mike's son Max.
Catch him on the racetrack. What races are coming up? Mike what
races should be we be watching on TV? He will be racing.

(01:39:05):
Heck, he's racing this week. We got to get on a plane tomorrow. My son
races the development level IndyCar series
and this year he's racing something called
Indy NXT, which is one level below professional
IndyCar and his next it's on Fox
Sports broadcast on usually on Saturdays or

(01:39:27):
Sundays when they're racing. And and his next race is going
to be in Detroit for that.
And I'm looking at it right now without my glasses. Next week,
Next week, Saturday and Sunday
the 31st and 1st of June,
you can catch him on Fox Sports. Mike Max Taylor. He's in the big

(01:39:49):
pink Susan G. Komen car and
it's it's a lot of fun. Driving as a 17 year
old at a professional level. He's the youngest guy on
the grid and we're gonna see what happens. But
so far so good and we'll. Be rooting for Max. Thank you.
Thank you so very much. And Chris Wong, my brother,

(01:40:12):
managing partner and director of research at Runnymede Capital. You can find
both of us runnymede.com Chris anything that you want
to pitch or share? Plug or share? I don't think so.
Just we write a bi monthly newsletter you
can subscribe runnymede.com.
We alternate but the month goes by fast. I don't know where

(01:40:34):
the time goes. Nowadays and sometimes this guy forgets. And Chris has to remind
me you didn't write the newsletter yet. So thank you everyone for joining
us. I really appreciate you joining the next
Inspired Money episode will be next week. We're talking retirement income
strategies, maximizing returns for peace of mind.
Maybe a good follow up to today's episode. That will be

(01:40:57):
Wednesday, May 28, 1pm until next time, do
something that scares you because that's where the magic happens. Thank you,
everyone. Thank you.

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