July 23, 2025 • 50 mins
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What does the market look like through the eyes of a seasoned Wall Street veteran? Adam Parker, founder of Trivariate Research and CNBC contributor, joins us to share his institutional perspective on today's investment landscape.
The conversation begins with Adam's surprising take on political developments – while headlines focus on tariffs and tax policy, institutional investors are looking elsewhere. He shares what's really dominating client conversations and why certain sectors remain largely immune to policy shifts. As he puts it, "I think investors just didn't focus on it that much."
We dive deep into the AI revolution, with Adam providing a framework for categorizing companies in four distinct ways: direct revenue beneficiaries, productivity winners, businesses impregnable to disruption, and those vulnerable to AI-driven obsolescence. His unique insights come from systematic analysis of earnings calls using natural language processing to identify trends before they become obvious. Remember – in November 2022, major investment banks made zero mentions of AI in their outlook documents, yet within six months, we witnessed the largest upward sales revision of any mega-cap in history with NVIDIA.
Perhaps most contrarian is Adam's take on international investing. He dismisses the recent European outperformance as "a temporary trade that's already over," explaining why structural differences make US equities structurally superior: "The reason Europe is cheaper is because it's worse. It's the same reason Motel 6 is cheaper than the Four Seasons."
Throughout our conversation, Adam emphasizes his core investment philosophy: "The two things that matter most to investing are changes to perceptions about growth and changes to perception about rates." This simple yet powerful framework helps explain market movements and provides clarity amid complexity.
Whether you're managing a large portfolio or just beginning your investment journey, you'll appreciate Adam's no-nonsense perspective, combining statistical rigor with practical wisdom gained from decades on Wall Street. Visit trivectorresearch.com to access Adam's insights for individual investors and financial advisors.
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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Stephen Davenport (00:01):
Hello everyone and welcome to
Skeptic's Guide to Investing.
Today, Clem and I have thehonor of a guest from CNBC
contributor and frequently citedin the press, Adam Parker from
Trivariate Research.
Adam has a newsletter that hedistributes for investors and
(00:26):
firms institutions, so we thinkit's really nice to get someone
on our show who is going to giveus more of a high-level
institutional view of things.
I know some days we spend timetalking about individual names,
Sometimes we spend on individualbills in Congress, and today
(00:48):
I'd just like to have Adam kindof update us on where he thinks
we are and where we think we'regoing.
So it's an interesting time inmarkets, Adam, and I really
appreciate having you here.
Adam Parker (01:02):
Yeah, thanks for having me.
Pleasure, pleasure's mine.
I really appreciate having youhere.
Yeah, thanks for having me.
Stephen Davenport (01:08):
Pleasure is mine.
Let's start with the bigbeautiful bill.
Adam.
Do you look at that and thepeaceful way it went through
Congress and the way it's beingimplemented as having stabilized
a lot of our next few years interms of what we can expect from
the tax rates and what we canexpect from government?
(01:28):
It feels like what could havebeen a very volatile time has
ended up to be a pretty big winfor the Trump administration.
How are you viewing the bigbeautiful bill?
Adam Parker (01:40):
Yeah, I mean honestly so what we do, our core
business, Trivariate we sellresearch and services to
institutional investors and Ijust got back from two full days
of meetings all day and thatdidn't come up one time during
my meetings.
So I'd say, like day-to-dayinstitutional investors aren't
super focused on it because Idon't think they think it
introduces a ton of volatilityinto the P&L or the top few
(02:01):
hundred US equities ofvolatility into the P&L or the
top few hundred US equities.
There are a couple.
We do a lot of natural imageprocessing where we look at all
the earnings called transcripts.
There are a couple of companiesthat have talked about the big
beautiful bill so far duringthis earning season.
But I don't disagree with yoursetup that to the extent that
there were companies that maybewere at risk of paying a higher
tax rate, that being pushed outis probably a positive.
(02:24):
But honestly I think thatinvestors just didn't focus on
it that much.
I think they focused more ontariffs, which hurt the market
in Q1, and then sort of the lackof impact that most of the
verbiage has had on companiesand the huge rally.
I mean the best signal thisyear, I think, was from the
president.
It was April 9th when he saidit's time to buy stocks and
(02:46):
since then I mean he was right.
But I haven't heard a lot aboutBig Beautiful Bill in my
meetings.
Stephen Davenport (02:55):
How do you see the tariff situation?
Do you think we're going to getall the answers by August 9th
and it will start to just gointo everyone's assumptions and
models for companies in terms ofwhat their foreign exposure is
to some of those drafts, and itfeels like there's kind of been
some names have been taken tothe woodshed but other names
(03:16):
have been kind of rewarded forthe way they've handled it.
Adam Parker (03:23):
I like that phrase take taken behind the woodshed.
Uh, it's a good one.
Um, I just hope it doesn'thappen to me.
Stephen Davenport (03:30):
Um, we're pretty old dogs here, Adam, so
we're gonna, we're gonna bringout some old, you know that's an
old school uh, that's an oldschool phrase that I like, um.
Adam Parker (03:40):
So yeah, I mean, look, we're what we do.
Is we search every earningscall transcript and every
webcast presentationsystematically for anything
related to tariffs.
You know whether it's, you know, passing on pricing or price
increases or what it does to thekind of production versus
consumption.
So is it changing anythingabout investment or CapEx
(04:00):
decisions or delays?
Is it causing any layoffs orhiring issues or workforce stuff
, automation, whatever?
Is it distorting backlogpatterns so pull forward in
demand, or those kinds of things, disruption of service,
whatever.
So the answer is there are adecent number of companies
(04:21):
mentioning it, but we haven'tseen a huge impact in terms of
those mentioning it relativelyoutperforming or underperforming
their industry.
There are a few companies thathave said they benefited, but
honestly, I think most investorsthought it would impact
earnings more in April or theJuly guidance for October than
it has.
I think part of it is just theconstitution of the S&P 500,
which I focus on US equities.
(04:41):
The most 58% of the S&P is tech, financials and comp services.
So think of the big techcompanies Google, meta and comp
services, and then thefinancials and on the margin,
they just don't have a massivetariff impact.
I mean you saw earnings lastweek for most of the large
financials across the boardGoldman, morgan Stanley, jp
Morgan, bank of America, etcetera and the earnings were
(05:02):
good.
I, bank of America, et cetera,and the earnings were good.
I mean the numbers came up.
They're provisioning less forlosses than they were previously
.
So I think that kind of 17% 18%of the market's kind of immune.
A lot of tech companies don'thave direct tariff stuff.
They have pricing power overtheir products, whether it's
software or whatever.
There are some businesses wherethere's both supply and demand
problems from China.
(05:23):
So NVIDIA kind of got theirrevenue gift back from China for
the 2026 outlook.
But in general we've seen acouple of comments in semis last
week ASML, the toolmaker,mentioned tariffs but then
Taiwan Semi beat and raised andkind of said yeah, maybe, but
things are still good at thehigh end.
So I'm studying it reallycarefully.
(05:43):
I haven't seen a big impactfrom tariffs yet.
It's been less than I wouldhave thought three or four
months ago and I think part ofit is two-thirds or
three-quarters of the S&P 500 isjust not really in the tariff
game.
I think if you go smaller capor mid-cap it may be a bigger
deal.
Clem Miller (06:01):
So, Adam, if I might, steve, so in terms of
your review of the you knowthrough NLP, of the various
earnings calls and whatnot, yeah, is there any you know for the
(06:26):
58% you were talking about orthe 58% minus financials?
Is there any discussion aboutsort of these new techie type of
regulations like the DMA inEurope or the you know digital
services act in Europe, or evenGDPR, even GDPR?
Adam Parker (06:41):
Not really.
No not really.
I think people just don'tbelieve it's going to introduce
a ton of volatility into theP&Ls of companies.
I mean, you know, I thinkpeople are still generally
optimistic that we're going toget into a lower regulatory
environment.
I mean, the biggest risk, Ithink, is, you know, the S&P 500
benefits when the dollarweakens.
The most crowded trade, macrotrade out there, is that the
(07:02):
dollar will continue to weaken.
It's weakened kind of a lotyear to date against a lot of
currencies.
So that benefits net, net theearnings for the S&P 500.
All else equal formultinationals in tech and
staples, pharma, industrials,whatever.
But to the extent that youultimately have like a
transactional translationalcrossover, meaning like
(07:22):
eventually the goods just becomeso much more expensive that you
lose demand and that offsetsthe benefit.
We just haven't seen that yet.
So I guess in certain luxurygoods you might see that, but we
just haven't seen it in liketech companies at all.
It's not like people are saying, oh, I'm going to use some
other inferior product thatwasn't designed in yet or test
(07:44):
out some other software orwhatever.
So I think that's why I mean Idon't have the exact numbers in
front of you, but I think thetech sector is 4% of Europe.
It's 31% of the S&P.
You just don't have theswitchable.
Clem Miller (07:55):
Yeah, no, I was just thinking about these giant
fines that some of the US techcompanies are paying in Europe
and whether that's having animpact on their P&Ls.
Adam Parker (08:06):
I mean the stocks have roofed since that news has
come out.
Clem Miller (08:10):
Yeah, okay, okay.
Adam Parker (08:13):
And I'm not saying I don't want to sound like the
whistling by the graveyard, butI'm just saying people aren't
asking about it because it's nottopical today.
And I think it's also like look,the dream is still innocent
until proven guilty.
About AI productivity thebiggest investment controversy,
I think, or one of the top three, is that these hyperscaler tech
(08:35):
companies have massive capitalintensity and they're spending a
ton of capex, so at some pointyou have to get return on that
investment.
And so if we don't start seeinga lot of proof cases for AI
efficacy where companies aredriving revenue synergies and
productivity synergies, thenthat'll be a problem because
higher capex means higherdepreciation burden on COGS,
means lower gross margins, meanslower multiples and so far the
(08:58):
market's innocent until provenguilty on these AI proof cases.
And if, if all the investmentsgoing to happen you know
happened starting in 23 and itwas going to hit the 26 and 27
P&Ls of companies you gettingnegative now because you're
worried about it might bepremature because you might get
the upside at 26 and 27.
I think that's where the thepsychology is more there than
(09:19):
any of these, you know, fleshwounds on one-time payments or
other stuff.
Clem Miller (09:24):
Right, and what?
What do you think?
Since you mentioned AI?
What do you think about the,the argument that you know the
way to really take advantage ofthis is to invest in the, the
energy suppliers and and youknow other suppliers to the, you
know, to the data centers.
Adam Parker (09:43):
So there's look.
The Holy grail would be if youcould tag every stock or
identify every stock as ashaving sort of one of four
possible AI related attributes.
One would be like a directrevenue beneficiary, which
includes, obviously,semiconductors, the associated
compute software, the power uhuh, and utility portion, et
cetera.
(10:03):
Two would be harder, which isand that's somewhat easier to do
.
Two is sort of the productivitybeneficiaries, so you know
which businesses will be able topredict their employee and
customer behavior better andhave low margin.
They have lots of employees andmaybe they can drive you know,
you know margin expansion, maybe, maybe grow their revenue
without any net hiring, maybefire people who are inefficient
(10:25):
and replace them with technology.
So that'd be the second bucket.
The third, which is a littlebit weirder, is maybe the
multiples go up, price toforward earnings or whatever
goes up because they'reimpregnable to AI, and so people
say, okay, well, if you'reimpregnable, then your 2030
earnings or whatever areprobably more relatively
achievable than the market Ximpregnable companies.
So think of toilet paper andwater, but also maybe aggregates
(10:49):
and waste management and selectpower and other stuff too right
, like, per your point.
And so those are getting highermultiples and the old school
person would say well, I want tosell stuff that got more
expensive.
Should it mean revert?
But maybe not.
Maybe what it's telling you isthat you want to own stuff
that's more impregnable to AIdisruption, and then the last
(11:10):
bucket is those that aredisruptible and have business
models that are going to getkind of eaten, taken behind the
woodshed, and so in that casethe cheaper stocks are actually
not like an opportunity butrather a harbinger of maybe more
disruption potential.
So that's the first thoughtthat came with your question.
The second one is look, you gotto be careful the way you think
(11:32):
about it, because if I go toevery institutional investor and
I say what growth themes do youlike and what themes do you
think grow above GDP for thenext decade, most people are
going to say, well, I like AI,semis and software kind of
compute.
I like power and industrials topower the data center.
I like electrification,electrification, industrials
because of energy, you knowelectric transition.
I like you know whatever and um, all of those teams have like
(11:54):
0.85 correlated to each other.
We have custom baskets andwhatever no-transcript.
And how much Vistra and Jeeveor Nova do you own?
Because if you own those andthen you also own Eaton.
Like they're all 0.85correlated to each other and
(12:15):
we've seen days this year wherethat risk management problem has
been exposed.
Clem Miller (12:30):
So those are the two vectors of thought that came
to my head when you asked that.
And what do you think you knowfor an individual who has an
individual portfolio?
What do you think about, youknow, having a portfolio that is
sort of bifurcated one amongthe sort of AI complex you know
to use?
You know the whole combinationof things you were just talking
about, and more defensive stocks, or even a gold ETF, because
(12:50):
gold, given what the dollar hasdone this year, gold has
certainly done pretty well and Iwould imagine, given some macro
trends, gold's going to dopretty well in the future as
well.
So what about bifur,bifurcation and you know, using
gold as a sort of acounterweight to those days when
AI has its problems?
Adam Parker (13:13):
Yeah.
So look, while ourinstitutional business is
Trivariant, we sell, you know,to the biggest, you know, asset
managers and hedge funds in theworld we have an individual
business that we sell insightspublications to for financial
advisors and individuals.
It's $100 a month business.
It's trivectorresearchcom.
People want to go and check itout and what they get for that
(13:34):
is a lot of like sort of threebuckets of advice.
One is sort of important aspectsof running money.
How do you think about abarbell strategy?
It's how I think about someoffense and some defense, and so
the bifurcation thing you teedup.
We do a lot of that.
What are the good defensiveideas?
What are the good offensiveideas?
How correlated are they to eachother?
We do an ETF analysis analyzer.
(13:56):
We have a bunch of ETFs that wego through, we analyze, we give
them letter grades, a littlebit like Dave Portnoy's pizza
reviews.
We say this ETF sucks becauseyou think it's a momentum ETF,
but momentum has been like themost effective ever and it's
barely beaten the S and P.
We give that a C plus, but welike this one or whatever.
So a lot of advisors like that.
And then we do a lot of youknow kind of things like how
(14:16):
should you run money, like howdo you dollar cost average new
business, or why you, why youshouldn't make one month market
calls, or what's the best way tosort of maximize return over a
10 or 20 year period, or thosekinds of things.
So people can check outtribectorresearchcom and we go
through a lot of our offense anddefense ideas.
I mean I think the answer isyou have to have both, because
if you run super long momentumlook at yesterday you had big
(14:37):
momentum reversal the drawdownscan be really dramatic and you
need to find themes that aren'tsuper correlated.
So my answer is like I want toown some offense, which is going
to include some semis, for sure, and some power and some
software, but then I have tobalance it with defense, and so
we actually wrote a note onTrivector Research a couple of
weeks ago with like a bunch oflower beta, more estimate
(14:57):
achievable kind of defensiveideas.
And I think the challenge isit's not, you know, your
father's Ford, so to speak.
It's not the same defense thatyou think of at Pharma, staples
and Telcos that drove a lot oftraditional defensive playbooks.
It's more things likeaggregates and waste management
and tobacco, because it's reallylike Zinn and other stuff.
(15:20):
So it's a little bit of atrickier defensive playbook than
it was, I think, traditionally,and so we have a bunch of ideas
we offer for people on thedefensive side.
I think that's important.
I think you could also arguethat some of the financials are
in that bucket for the firsttime since the financial crisis,
where they actually have a lotof shareholder return and sort
of relatively more stable P&L.
So people like insurance andother stuff is a bit of a kind
(15:41):
of lower beta part of thebarbell and other stuff is a bit
of a kind of lower beta part ofthe barbell.
Clem Miller (15:46):
I got two more questions, steve, and then I'm
going to hand it back to you.
One question is do you look atshort interest at all?
Adam Parker (15:55):
Oh yeah, of course.
Yeah, yeah, changes in short,interest and level.
I mean I guess you're askingbecause of the meme stuff
yesterday with open door andKohl's or just general.
No, no, no.
Clem Miller (16:01):
Open door in Kohl's or just general no no, no, I've
been a big fan of investing atleast the defensive part of the
portfolio in low short intereststocks.
Adam Parker (16:14):
So we study I think you mentioned this in the tee
up, but I have a PhD instatistics and I started off
doing a lot of quantitativeresearch when I got on Wall
Street and we look at factorefficacy across several hundred
signals and a very common one isshort interest.
We look at change in level andshort interest and it is true
that for large baskets of stocks, if you buy low short interest
(16:35):
stocks and sell a short highshort interest stocks, you
generate excess return.
And the reason is because thevery heavily shorted stocks on
average you're betting againstreally smart hedge fund guys who
are speculating that it's goingto go lower and they usually
have a lot of leverage and a lotof factor bets associated with
them.
Usually default risk is high,they have a lot of debt or a
financing issue coming up orthey're losing market share in
(16:56):
their core product or somereason that people want to short
so much of it.
You can get a little trickywhen you get really low price
stocks or where you get retailmanipulation.
So you know stuff like coals,which is an impaired retailer,
that eventually will you know,go to zero or get bought or
turned into pickleball courts orwhatever happens to their
(17:16):
stores like that, that that getssqueezed from 10 to 14 because
it's like a meme thing.
So because it's got 50 shortinterest, so there's at some
point where borrow costs and thelevel can really be make make
it scary.
I mean, open door is a you knowa business that went from like
50 cents to three bucks.
Same thing like a lot of shortinterest.
So but I I agree with yourprinciple.
You want to be a little bitcautious when short interest is
above five or ten percent in aname, um, especially for a mid
(17:39):
or large cap stock.
I think ten percent plus is alot of short interest fee to be
long a stock.
Okay um and there's, there's alot of short interest fee to be
long a stock Okay, and there's alot of different detailed ways
to get that short interest data.
So we pay extra for real-timeshort interest data because we
study its efficacy prettycarefully and borrow cost as
well.
There's some information inborrow cost too.
So if you're getting kind ofrack rate, usually it's not as
(18:03):
intense.
But there are a lot ofbusinesses where you're going to
pay 8%, 10% or more to borrowto short it and that means it
not only has to go down but ithas to go down soon.
Clem Miller (18:12):
Right, right, steve , I'll hand it back over to you
now.
Stephen Davenport (18:16):
Yeah, thanks, adam, for a lot of the people
who listen to our podcast.
We talk about value and we talkabout the ideas of dividend
investing.
I don't know if you guys covermuch about dividend investing.
I know you just got back fromEurope and that's where the
great first half of the year.
Do you think this is a tradethat will continue and that the
(18:38):
dividend investor opportunitiesinternational are not just a fad
but they could become moremeaningful as we see?
If and when the Fed does lowerrates, people start to look back
and say, hey, we're not getting4% from our treasuries anymore,
we're getting closer to 2.5%.
Now getting 3% or 4% fromequities is a good inflation
(19:02):
hedge and it also gives uspretty good income inflation
hedge and it also gives uspretty good income.
How do you guys look at incomeand dividends or are you just
mainly focused on more momentumand growth?
Adam Parker (19:16):
So there's a lot to unpack in your question.
So I'll try to take three orfour things that you said there.
So one is we look at the top3,000 US equities.
We look at them by downloadinghundreds of pieces of
information and computinghundreds of pieces of
information every single dayback daily for more than 25
years and then we have 100 yearsof returns to the S&P,
(19:36):
including the dividend portion.
So we look bottom up reallycarefully at everything.
So of course it's not justmomentum or growth.
We try to give advice to beatthe S&P 500 or to find
individual securities or ideas.
Two, we also have a part of ourbusiness is we sell bespoke
services to corporations, boardsand law firms and management
teams of companies, and we'vebeen hired several times to talk
(19:59):
about and study what's theoptimal initial payout ratio,
how she think about remuneratingthe variable compensation of
your C-suite and dividend can bea portion of that, particularly
if management teams getdividend on the unvested portion
of their deferred comp.
So we study dividend anddividend growth a lot.
You know.
Obviously there was regimeswhere it's incredibly
ineffective, but I think it'shelpful to take a step back and
(20:20):
say, well, over a 100-yearperiod, if returns were kind of
9% a year.
There'd been 10%, the last 50and 20, whatever.
Something like 20 to 30% oftotal return comes from
dividends, so it's not ameaningless amount.
It can be de minimis in yearswhere the market's up 25% per
year, like it was in 23 and 24.
But over a long period of timeit can add up.
(20:40):
So I think most people knowthat and are biased toward
collecting it.
It depends on your user base.
I mean, when I was the USequity strategist at Morgan
Stanley, I think our average FAwas 65 and their average client
was 69.
So there's a lot of people whoare like I got 20 million bucks,
I'm 70 years old and I want tolive off the income and I don't
want to spend less.
So get me 400 grand a year orwhatever the number was.
So I got a lot of those kind ofincome related questions and I
(21:02):
think it is important.
So I'd say for sure, we focus ondividend as a strategy.
We measure it, we look a lot atpayout ratio and I think
distance to median is optimal,meaning you don't want too low
of a payout ratio and you don'twant it to be too high, because
if it's too high there's achance, they could cut or cancel
it, and if it's too low,they're not really serious about
(21:23):
deploying it meaningfully.
So we do a lot of like studyingon like how to pick winners
from losers among the dividendpayers as well, you know.
I just think there's a factorbet associated with it, though,
and so you know the way money'srun now.
It can be out of favor justbecause as a factor level.
You know, generally growthstocks don't have dividends and
they use RSUs and options to paytheir employees, and if you got
(21:46):
a lot of options, thenobviously mathematically the
dividend devalues that and stufflike that, so there can be some
regimes where it's suboptimal.
You made a second comment inthere about value investing, and
I don't view that exactly thesame as dividend, and I kind of
alluded to it earlier in mycomments about AI impacting
valuation levels of securities,where I just-.
Stephen Davenport (22:05):
Well, I guess , when I think about, when I
mentioned the value, I wasreally talking about the fact
that Europe has been fallenbehind for years now.
Okay, Deep value and valueespecially international, has
been a bad bet for people.
So, in my mind, this recentsurge in Europe.
I've been encouraging ourclients to be invested in
dividend payers in Europe andAsia because I think that
(22:28):
they've been underpriced.
Do you think that this is arepricing or do you think this
is just a temporary trade awayfrom the US markets and now that
people are more comfortable,they're just going to come back
to the US?
Adam Parker (22:42):
I think it's a temporary trade that's already
over.
I think it ended in May.
I mean, the relativeoutperformance is really January
through May and I think thereason is because I guess I
think the end of USexceptionalism as a concept is
complete BS from the equityperspective.
And the reason is, if I ask youto identify themes you think
will grow above global GDP forthe next decade, some of them I
(23:05):
alluded to earlier, the USequity market just over-indexes
to all those faster growingthemes.
The reason Europe is cheaper isbecause it's worse.
It's the same reason that Motel6 is cheaper than the Four
Seasons it's just worse.
It's great for vacationing,it's just not great for stocks.
And I think the reason isbecause of innovation.
The tech sector is 4% of Europe, it's 31% of the US and that
(23:26):
doesn't count Google and Metaand other stuff.
So I think it's really just theconstitution of the market.
You know, I was in France andmaybe like 2017, I was giving a
speech at US stocks and overEurope and all that kind of
stuff, and when I was walking upto the stage it was several
hundred people in this bigballroom.
Somebody told me that the CAC40, the France market, all the
(23:48):
stocks were incorporated in 1968or earlier and so I was born in
1969.
So one of the things I kind ofsaid was, hey, in the US they
created stuff since I was bornand everyone kind of chuckled
right, but it was kind of partof the whole thing.
I just think you can have thesesix-month trades, like we had a
five-month trade where Europedoes a lot better because of
(24:08):
perception about where they arein the interest rate cycle with
their policymakers or perceptionabout they've taken austerity
more than we have and we'rerunning at a wartime deficit and
all that kind of stuff.
But I think the challenge isreally the equity constitution
we have is just superior.
So I don't like that Europeover US trade.
(24:32):
I could tell you that what'scrowded in Europe for sure
because I do a lot of stockpicking and idea events are the
defense stocks and the banks andpeople love defense because of
a whole rebuild the Ukraine andjust get the logistics and
infrastructure and that stuffworking.
And I guess I want to segue alittle from that comment you
made because you kind ofreferenced it twice and just
(24:53):
thinking about valuationgenerally, I don't think
valuation is a very good way topick stocks.
I don't think if you buy cheapstocks and short expensive, you
really make any money.
You certainly haven't in thelast 15 years, other than some
isolated six-month periods, andI think the part of it is it's a
factor of that, as you alludedto around policy and interest
rates, and I actually havetotally changed my view on this.
So, again, like I told you, Iwas born in 1969.
(25:15):
So I'm 56 years old.
If you had asked me 20 yearsago, no-transcript of a
recession is in the price.
I'll make a judgment call aboutwhether it's cheap enough to
(25:36):
own it.
It's discounting a recession.
I'll do demand supply math andI'll make a judgment call about
whether production you knowproduction is getting close to,
you know, being belowconsumption or whatever you need
for it to be, to get thecyclical part of value right.
But now that's complete bullshit, right, like if you're a growth
investor, what?
What do you really do?
Right?
You say, let me look at thethemes growing above global
(25:58):
global GDP, let me identify thehigh quality secures in them and
high quality growth isdominated.
And if they get wrecked, likethey did in 22, because of
interest rates, what are yousupposed to do?
You raised money and toldpeople.
You were going to buy highquality growth names.
So when you set it up like toonly do growth, no, I don't only
do growth, but the issue isthat two thirds of the equity
market's growth by market cap.
So if you're trying to beat theS&P, then you're going to do
(26:20):
more than half growth for sure,and I just think that's where
Europe suffers.
So, in a context of global MSCIbeing 67 or whatever percent US
, like yeah, I want to own 70%US for sure, but anyway, you
teed that up in a way that mademe have several different
thoughts about what you said.
But apologize for the longanswer.
Stephen Davenport (26:42):
No, I appreciate it.
I've always heard fromdifferent experienced investors
who said, look, these othercountries just don't have enough
growth to warrant the extraallocation.
And I agree with you withPowell and Trump, and what's
(27:04):
going to happen with interestrates or how long is Powell
going to be in place?
And I look at it and say a lotof these decisions are between
whether you invest in one AIcompany that has an 18% growth
rate and another that has a 30%growth rate, and the question is
what value or multiple are youpaying for that growth rate?
And I think that thosedecisions aren't going to be
(27:27):
impacted by a 2.5% or a 3%short-term rate.
So I kind of think that this isreally just about the topic du
jour.
Just as we had AI is everythingfor 6 to 9 or 12 months, now
we're having Powell-Trump iseverything, and I don't believe
(27:47):
either is true.
So I think the AI is a lot moretrue than the policy.
How do you think this wholevision of Trump and Powell and
you know Trump replacing Powellwith somebody who's going to
deliver lower rates Is lowerrates going to help the economy
and drive housing back to amajor part of our growth, or is
(28:10):
this just a distraction that weshouldn't bother to let affect
us.
Adam Parker (28:17):
So you know I want to talk about the AI thing a
little bit more, and then thePowell.
I'll back up by saying here'swhat I think matters for
investing and I've been, youknow, working hard on this for
(28:39):
the last 25 years or so, so I'mnot sure I've learned anything
yet.
But if you made me say whathave you learned in publishing
two research notes a week for 20years and being on the buy side
or whatever for four years, I'dsay the two things that matter
the most to investing arechanges to perceptions about
growth and changes to perceptionabout rates.
So when you talk about AI,you're talking about changes to
(29:02):
perception about growth, andwhen you talk about Powell and
Trump, you're potentiallytalking about changes to
perception about growth.
And when you talk about Powelland Trump, you're potentially
talking about changes toperception about rates.
So let's just address those twothings that matter a lot, in
order.
Okay, I have like a zillioninterns at Trivariate and
Trivector.
I don't.
We have more interns than wehave employees, and the reason
(29:23):
is because I'm a bad person.
And when one of my friends sayscan my niece, nephew, uncle,
kid where?
If you always say yes and Iregret it every time because
it's like a tax on the business.
But I try to be a nice guy, allright.
So the problem is with chat,gpt research 03 button.
I have 10,000.
Goodwill is improving.
I have 10,000 interns, okay.
(29:43):
So Goodwill account getsgenerated.
I'm hoping that's, that's.
I'm trying to pay it forward.
You know what I mean, but we'llsee.
But you know, the whole pointis like it's hard to utilize
them because, like we, uh, allof our researchers code in
python against their database ordo nlp work and like to train
somebody up over a six-weekinternship when they're 19 or 20
or 21 years old.
Um, it's just impossible.
Just to be clear, like I havekids that age.
(30:04):
So I'm not, I have kids thatare 22, 20, and 18.
I get what they're capable of.
So we try to come up withproducts for them.
The first thing I make them dois I make them read eight
documents.
It kind of puts them away for acouple of days and the eight
documents are Morgan Stanley,goldman Sachs, jp Morgan and
UBS's year-ahead outlooks forthe economy and for US equity
(30:26):
strategy.
So I say, read these documents,tell me what people are
thinking Now.
Generally, these firms all dothese things in November, right
before Thanksgiving to projectthe year forward, and a couple
years ago, this kid made anincredible observation.
In November of 2022, those eightdocuments JPM, goldman Sachs,
morgan Stanley, ubs, strategyEconomics the mentions of the
(30:47):
letters AI were zero.
So in November of 22, none ofthe people at the biggest and
most important firms ineconomics or strategy thought AI
would matter for 2023.
Six months later, we had thelargest upward sales revision of
any mega cap company ever, withNVIDIA.
The investments we were alwaystold were going to be kind of
three to four years forinfrastructure and it'll be less
software or whatever.
(31:08):
So the point is, likeeveryone's an expert on this
thing that's supposed to be adecade long growth rate that
nobody heard of two and a halfyears ago, and the investments
we were told are going to oftenhit in 26 and 27 from the
beginning.
So yeah, stocks are up a lot,but I think we're still in this
innocent until proven guiltymode on growth rate and
productivity and probably someof that's in front of us.
So I think the perception aboutgrowth is still higher and it's
(31:29):
hard to get too negative on USequities with that dream still
alive If we don't get some proofcases in the next 12 to 18
months it'll switch to growthuntil guilty, not proven
innocent.
So that's my thought.
On the AI side, I don't thinkit's a fad.
I think there's a ton of Ithink semis.
I used to be a number oneranked semiconductor analyst for
many years on the street and soI know semis better than other
(31:50):
sectors.
And it grew at 2% above GDP for30 years and now it's growing
5%, 6% above GDP at highermargins.
So I think that's real.
I think the growth rate is areality, not just a perception.
It's going to be higher forcompute generally.
(32:10):
Okay, the pal Trump thing, Ithink, is more fleeting.
I don't really believegenerally that.
Um, uh, I'm not sure I'll goback and say like, look, the
best time to get bullish on USequities was January 1st 2023 in
the last few years.
Why?
Because all of a sudden, youcovered your meta and Nvidia
shorts, which were down 60% plusin 2022, and you got max long.
Why?
(32:30):
Because they were closer to theend of the hiking cycle than
the beginning.
So, if you take that same logicnow, because the market kind of
rhymes with an increasinglyanticipatory nature, aren't we
kind of closer to the end of thecutting cycle than the
beginning, and so I'm not sureI'm going to get this massive
multiple expansion just becauseI get a more dovish guy in there
.
I think what you might get is alittle bit what you said, which
(32:52):
is a rotation underneath.
Maybe housing works, maybepeople play that playbook in
anticipation of somethingimproving.
The truth is industrialshousing, autos, oil and gas have
generally been in recessionaryor poor zones for the last
couple of years, and so the bullcase for equities might be that
you start getting some cyclicalimprovement in some of those
(33:15):
kind of older school industries.
At the same time, some of theAI beneficiaries start hitting
the AI benefits, start hittingproductivity right.
That constitution of the equitymarket is really whack right now
.
The three biggest sectors at58% of the market are the
highest percentage.
Three have been in 25 yearssince the tech bubble unwind
right, and then the smallestfour sectors which are utilities
(33:36):
tech bubble unwind and then thesmallest four sectors which are
utilities real estate, energyand materials are less than 9%
of the S&P.
Nvidia is the same size as allfour sectors.
So if you're trying to beat theS&P, it's hard to take an
active bet in one of thesesmaller, older economy sectors
to have it really impact, yougot to get the tech, financials
and comp services right.
(33:57):
That's the challenge.
So anyway, you made me go intwo or three different
directions the way you phrasedthat.
I apologize.
Stephen Davenport (34:06):
Well, thanks, I appreciate what you're saying
and I realized that it's anumbers game.
We use an equally weightedportfolio, so we've been
suffering because of the equalweighting and we believe it's
probably need to adjust, becausethe big players keep getting
bigger and this just keepsgetting harder and harder to
(34:29):
keep up, unless you cansignificantly overweight some of
these names, I think it'simpossible.
The bigger you get, the harderit is for government to stay
away from you and try toregulate and take money back,
and so I look at Europe as aleader in terms of progressively
trying to get money from thesebig players, and I think that
(34:51):
the US government probably isnot going to do it here under
Trump, but in a new regime itcould go after the technology.
Adam Parker (35:02):
So a couple of thoughts on that Less thoughts
than the previous questions.
So, look, we do a lot of riskmanagement for people.
So we have many funds that sendus their equity portfolios to
do custom risk work and peoplehave Barra, axiom and Morgan
Sinek Fund Service.
They have different ways ofdoing risk, have many funds that
(35:22):
send us their equity portfoliosto do custom risk work and
people have Barra, axiom andMorgan Sinek fund service.
They have different ways ofdoing risk.
But we try to add value withthe way we're looking at things
and I think one of the ways thereason I don't like equal weight
is because some of these nameshave gotten so big that there's
just massive risk managementproblem to be that underweight.
Things that are belowidiosyncratic risk and really
replicable.
So it's like it's hard for youto replicate Microsoft if you
don't own any.
You can't own other names andit's big.
(35:44):
So I think it's a riskmanagement challenge and it's
just hard to offset that, evenif your alpha is amazing, it's
just hard to offset how big.
You know, these seven stocksgot to be 32% of the S&P and 44%
on a beta adjusted basis.
They were higher beta, likeNvidia and Tesla and stuff.
(36:06):
So I just I think it's hard tohave you know something that
nobody else knows about stocksthat are this well covered, this
well owned and are this big.
So I like generating alpha, butjust it's hard on these big
securities.
So I don't love the equal wagething and I don't think that's a
tough road to hoe, as you said.
(36:26):
In terms of the regulation stuff, I kind of hear you on that and
I think the US companies areadvantaged over some of the
European ones and others,because look at Google so let's
take Google, alphabet orwhatever as an example.
So if they make the companybreak up, what do you think
they'll do?
Like what's Waymo worth?
What's YouTube worth?
What's Google's computationalchemistry worth?
(36:47):
Are you sure there won't belike a 1 trillion market cap
Google computational chemistrybusiness in five years?
Maybe Waymo's like.
So maybe as a Googleshareholder, I would be happy to
have four or five differentthings that are four or 500
billion market cap each.
I'm not sure that's a netnegative actually.
Yeah, apple, I don't know howmuch of their market cap is the
(37:14):
data?
Yeah, you know what I'm saying.
(37:35):
I don't know.
So the part that I like in themarket that maybe is counteriary
, stable demand and maybe it'sreally what technology has its
most impact.
I'm happy to go through that ifpeople want, but in the short
term, the biggest problem wehave is we're running at a
wartime deficit.
If you try to cut money back,it's probably going to be
(37:55):
healthcare and defense.
How are you going to do thatand and what companies?
That impact is a, is a, is a isan investment controversy.
But on the other side of that,I just I think it's.
I view equity investing is likeI buy my little dream today and
I sell it to a sucker with abigger dream later, and I think
the healthcare dreams could getkind of juicy in a few years.
Clem Miller (38:14):
Hey Adam, you know, given the emphasis that you
take on, you know, AI andlong-term progress in those
areas, what would you, whatwould you say, your?
Adam Parker (38:26):
investment horizon is 12 to 18 months.
I think most of most of what wegive advice at the industry and
sector level is in thattimeframe.
We do sometimes, you know, tryto make shorter term calls, you
know, three to six months onrelative estimate, achievability
or other things.
But to be honest with you, I'vespent a lot of time on like
trying to make one month callsand I think that's a good way to
destroy value.
So we published a few things.
(38:51):
You know I trifecta businessfor advisors.
We published a big note on likewhy you shouldn't try to make
one month calls.
It's just a waste of time and Ihave some pretty quantitative I
mean I can tell you about it ifyou want, but we have a, you
know, kind of a quantitative wayof showing that.
Clem Miller (39:04):
Do you use limit orders when you hit targets?
Adam Parker (39:13):
So it's hard to answer that question in
isolation, like I think it'slike you asked before about gold
and other defensive stuff.
I think it really just dependson, like, your overall portfolio
.
Honestly, like the number onething you need to know when
you're giving somebody advice islike how rich they are.
Yeah, it's, it's such apersonal thing, like I always
think of the financial advisorbusiness.
It's like a really hardbusiness because, you know,
(39:33):
here's what I want to know.
I want to know how no bullshit,exactly how much money do you
have?
How much do you spend?
How much do you give to charity?
How much do you want to leaveyour kids and then after that
give me all your money?
Stephen Davenport (39:45):
Yeah, it's a pretty hard.
Adam Parker (39:47):
It's a pretty hard sell, right, and so you have to
like, take the concept inconcert with that.
Like, when you talk about risktolerance at the stock level,
like, do you mean in constructwith what?
How much real estate do youhave?
How much wealth do you have?
Do you own Bitcoin?
How did you get rich?
Was it all concentrated?
Because you were an engineer atNVIDIA?
Because there's so manyindividual questions about it
that I'd have to ask.
But at the end of the day, mosttrading strategies like that
(40:10):
destroy value.
Yeah, okay, because they'reanti-momentum strategies or
something else.
But at some point you have tolook at the beta of the stock,
how replicable it is, howidiosyncratic it is and other
things, because you got to putlimits on it.
And one thing I like to thinkabout that a lot of people don't
necessarily think about whenthey buy something is, let's say
(40:30):
, god forbid.
You're super right.
How big are you willing to?
Let it be?
It be right?
So you got 10 million bucks andyou're like you know what?
I'm gonna buy some nvidia I'mgonna buy.
I'm gonna buy a million.
I'm gonna like, strap it on,put 10 of my net worth there.
I own my house and I.
This thing sounds awesome.
What if you're right and itdoubles?
(40:51):
Are you willing to have two ofyour 11 million there?
Or like, what's your limit onwhat you're willing to own?
And I like thinking about themax percentage of my assets
before I make the investment,because I think that helps you
control the initial purchase alittle bit too, because I think
you know a high cost problem tohave.
But, like you know, you don'twant half your net worth in a
stock when you're 60 years old,right?
(41:12):
So I think it's hard to answeryour question.
Clem Miller (41:15):
Right, yeah, I mean my thought right now on limits
and you know I'm not, I'm not aa $20 million net worth person,
right?
Like some of your clients.
Adam Parker (41:25):
I was just picking like the Morgan Stanley
Financial Advisor Networkbecause I worked there.
It's just there's a lot of likethey have a lot of like 70 year
old clients with 20 millionbucks.
I was just yeah, yeah, but Iyou know I'm you know.
Clem Miller (41:35):
I was just thinking that, you know, limit orders
are a way of being able to lockin a certain amount in a highly
volatile environment and,honestly, I think right now is,
uh, you know, with all thepolicies that we're seeing and
all the potential policies wemay not have seen yet, I just
think, in geopolitics, I thinkthere's a high degree of
(41:56):
volatility, and limit orders area way of being able to lock in
some cash, maybe put it in gold,while at the same time
maintaining a part of yourportfolio which is high momentum
.
That's the way I'm looking atit.
Adam Parker (42:09):
So two thoughts.
So we did do some work lookingat the best way to dollar cost
average.
New business, if you're anadvisor so a very senior advisor
running a big book asked me howto think about this, and so we
studied like you get a newclient, the guy's got 10 million
bucks to put in equities.
Do you buy it all day one?
Well, obviously, since thestock market goes up more than
it goes down on average, theanswer is yeah, buy it all on
(42:31):
day one.
But if you kind of look at thedistribution of returns across
25th median, 75th percentile minmax, it looks like the right
thing to do is dollar costaverage around six months.
So what that means is buyshort-term treasuries with what
you don't deploy and put aboutone-sixth of it in at this month
and one-sixth the next monthfor six months forward.
So kind of taking that logicand extending it to the limit
(42:53):
order.
It's like saying, yeah, maybebecause of volatility you're
better off distributing acrossmultiple securities over a
longer period of time.
So if you want to get a bigposition in a stock and it's a
big bet for you.
Maybe you just spread out overseveral months.
And then the second thing,because the second time you
mentioned it was gold, and so Idon't know how you think about
(43:15):
that.
There's a lot of schools ofthought, but I mean, I think you
know the question is like howdo you view Bitcoin or other
proxies?
And I think now it's gotten alot more acceptable, given that
you know a lot of large RIAnetworks that are clients of
Trivariant, the institutionalside of our business and then
(43:42):
obviously we have manyindividual advisors with
Trivector.
They get questioned a lot aboutBitcoin as opposed to gold,
just as a kind of dollarweakening kind of bet.
And I think the legitimacy ofit has really grown.
And when I talk to seniorpeople, more and more of them
have owned some personally thanyou know year over year basis.
(44:04):
So I'd say, like that'sbecoming, if people had a 5%
gold allocation, people are nowsaying, yeah, I'll own a couple
percent of Bitcoin and a couplepercent of gold instead.
So and maybe you don't likethat idea, but I think a lot of
people are doing it- I'm more ofa gold rather than a Bitcoin
person.
Yeah, well, that's why you haveless money than all the Bitcoin
(44:26):
people.
Clem Miller (44:30):
At the moment.
Stephen Davenport (44:31):
I think it's more of a speculation than it is
an investment, but I agree thatwe just had a podcast.
Adam Parker (44:38):
It's up 60% a year for the last you know since
inception.
Clem Miller (44:43):
With some volatility in between.
Adam Parker (44:46):
Yeah, yeah, yeah, totally, totally.
But you know, if you thinkabout those gold like, I bought
gold in 2008.
Personally, I bought it the dayafter I found out UBS money
market accounts were backed byauction rate securities.
It kind of like melted mymotherboard and I bought some.
I thought, geez, if I had like100 grand in my checking account
and they told me it was 92,000,I'd freak out.
So I bought a bunch of gold inthe crisis and obviously it's
(45:07):
underperformed.
Everything by a giant countrymile.
Since then.
There's nothing except formaybe like Europe or EM, that I
mean every US thing.
It's underperformed.
But it's just.
I kind of view it as like, Ithink the bull case on gold is
probably different than you do.
I think the bull case on goldis that for me I'm hoping this
(45:31):
is what it is is I have severalgrandchildren and I currently
have zero.
Obviously is I have severalgrandchildren and I currently
have zero, obviously.
And I leave a shoebox for themwhen I die with their name on it
with a bunch of gold coins init, defrauding the government on
the estate tax, transfer tothem and cause who knows what
it'll be if in that regime, andjust have a little note in there
(45:54):
that says don't sell more than10 K at a time and at a time,
and think of me well when youspend it.
Clem Miller (46:00):
That's my plan for the gold Right.
But what about all the centralbanks that are buying up gold?
Hand over fist right.
Adam Parker (46:08):
Yeah, I'm just saying it.
Really, if you look at thesupply-demand curve, it doesn't
really trade that different fromthat over like 100 years or 50
years or whatever.
So I don't hate it, but I thinkit's like a couple percent
allocation and I think thisBitcoin thing is a little bit
(46:31):
less speculative than I used to,just because it's become like
well, our problem is that we areused to freely transacting in
the US and there's a lot ofparts of the world where they
don't want the government tosteal their money and they want
to be able to transact incertain ways and it has a
legitimate case that otherthings didn't have.
I think we've been broadlydisappointed by blockchain
applications over the lastseveral years, but I think
Bitcoin, at 3 trillion in value,is probably beyond the
(46:52):
speculative window and intosomething that's become a little
bit like kind of gold, wherethere's not a lot of practical
use for it with no income, butit's a perceived store of value
versus a currency.
I could see that transitionhappening If there's 57 million
millionaires on earth andthere's 19 million Bitcoins and
(47:14):
the millionaires are growingfaster than the Bitcoins.
There's 19 million Bitcoins andthe millionaires are growing
faster than the Bitcoins.
You know, maybe.
Maybe it's like more than justspeculative it's.
It's probably beyond tulips andand and stuff at this point,
yeah.
Clem Miller (47:26):
I'll agree with that.
Adam Parker (47:27):
Yeah, I, I, I, I.
I own none personally, for fulldisclosure.
I own none personally and I owngold, but I just I'm telling
you from people I talk to wherewhat's changed.
Stephen Davenport (47:37):
Yeah, Is there any way that you could
adopt Clem or I and we could geta shoe box in your closet as
well?
Adam Parker (47:46):
I'm going to go with.
I'm going to go with a hard noon that one.
But uh, you know, I'll tell youwhat if you join, if you sign
up for TrivectorResearchcom for$100 a month, maybe, maybe we do
write about stuff like gold andBitcoin.
Stephen Davenport (48:04):
I think we have to wrap it up, Adam.
Yeah, sure, so I reallyappreciate you being on.
You've done a great job.
I think you've straightened usout and you've got Clem out of
the gold and now he's going totry a little bit more NVIDIA.
So I think that's going to begood for him and the and the
future he's going to live to bea hundred, so he's going to need
(48:25):
something.
Adam Parker (48:27):
I appreciate you a lot.
Stephen Davenport (48:29):
I think you did a great job today and we
really enjoyed having you on.
Adam Parker (48:33):
No, thanks for having me Totally and any, any
time.
And I guess, when you, when youcurate this, let me know and I
can, you know, I can advertiseit on our social media and that
kind of stuff too, so happy todo that.
Hello everyone and welcome to
Skeptic's Guide to Investing.
Today, Clem and I have thehonor of a guest from CNBC
contributor and frequently citedin the press, Adam Parker from
Trivariate Research.
Adam has a newsletter that hedistributes for investors and
(00:26):
firms institutions, so we thinkit's really nice to get someone
on our show who is going to giveus more of a high-level
institutional view of things.
I know some days we spend timetalking about individual names,
Sometimes we spend on individualbills in Congress, and today
(00:48):
I'd just like to have Adam kindof update us on where he thinks
we are and where we think we'regoing.
So it's an interesting time inmarkets, Adam, and I really
appreciate having you here.
Adam Parker (01:02):
Yeah, thanks for having me.
Pleasure, pleasure's mine.
I really appreciate having youhere.
Yeah, thanks for having me.
Stephen Davenport (01:08):
Pleasure is mine.
Let's start with the bigbeautiful bill.
Adam.
Do you look at that and thepeaceful way it went through
Congress and the way it's beingimplemented as having stabilized
a lot of our next few years interms of what we can expect from
the tax rates and what we canexpect from government?
(01:28):
It feels like what could havebeen a very volatile time has
ended up to be a pretty big winfor the Trump administration.
How are you viewing the bigbeautiful bill?
Adam Parker (01:40):
Yeah, I mean honestly so what we do, our core
business, Trivariate we sellresearch and services to
institutional investors and Ijust got back from two full days
of meetings all day and thatdidn't come up one time during
my meetings.
So I'd say, like day-to-dayinstitutional investors aren't
super focused on it because Idon't think they think it
introduces a ton of volatilityinto the P&L or the top few
(02:01):
hundred US equities ofvolatility into the P&L or the
top few hundred US equities.
There are a couple.
We do a lot of natural imageprocessing where we look at all
the earnings called transcripts.
There are a couple of companiesthat have talked about the big
beautiful bill so far duringthis earning season.
But I don't disagree with yoursetup that to the extent that
there were companies that maybewere at risk of paying a higher
tax rate, that being pushed outis probably a positive.
(02:24):
But honestly I think thatinvestors just didn't focus on
it that much.
I think they focused more ontariffs, which hurt the market
in Q1, and then sort of the lackof impact that most of the
verbiage has had on companiesand the huge rally.
I mean the best signal thisyear, I think, was from the
president.
It was April 9th when he saidit's time to buy stocks and
(02:46):
since then I mean he was right.
But I haven't heard a lot aboutBig Beautiful Bill in my
meetings.
Stephen Davenport (02:55):
How do you see the tariff situation?
Do you think we're going to getall the answers by August 9th
and it will start to just gointo everyone's assumptions and
models for companies in terms ofwhat their foreign exposure is
to some of those drafts, and itfeels like there's kind of been
some names have been taken tothe woodshed but other names
(03:16):
have been kind of rewarded forthe way they've handled it.
Adam Parker (03:23):
I like that phrase take taken behind the woodshed.
Uh, it's a good one.
Um, I just hope it doesn'thappen to me.
Stephen Davenport (03:30):
Um, we're pretty old dogs here, Adam, so
we're gonna, we're gonna bringout some old, you know that's an
old school uh, that's an oldschool phrase that I like, um.
Adam Parker (03:40):
So yeah, I mean, look, we're what we do.
Is we search every earningscall transcript and every
webcast presentationsystematically for anything
related to tariffs.
You know whether it's, you know, passing on pricing or price
increases or what it does to thekind of production versus
consumption.
So is it changing anythingabout investment or CapEx
(04:00):
decisions or delays?
Is it causing any layoffs orhiring issues or workforce stuff
, automation, whatever?
Is it distorting backlogpatterns so pull forward in
demand, or those kinds of things, disruption of service,
whatever.
So the answer is there are adecent number of companies
(04:21):
mentioning it, but we haven'tseen a huge impact in terms of
those mentioning it relativelyoutperforming or underperforming
their industry.
There are a few companies thathave said they benefited, but
honestly, I think most investorsthought it would impact
earnings more in April or theJuly guidance for October than
it has.
I think part of it is just theconstitution of the S&P 500,
which I focus on US equities.
(04:41):
The most 58% of the S&P is tech, financials and comp services.
So think of the big techcompanies Google, meta and comp
services, and then thefinancials and on the margin,
they just don't have a massivetariff impact.
I mean you saw earnings lastweek for most of the large
financials across the boardGoldman, morgan Stanley, jp
Morgan, bank of America, etcetera and the earnings were
(05:02):
good.
I, bank of America, et cetera,and the earnings were good.
I mean the numbers came up.
They're provisioning less forlosses than they were previously
.
So I think that kind of 17% 18%of the market's kind of immune.
A lot of tech companies don'thave direct tariff stuff.
They have pricing power overtheir products, whether it's
software or whatever.
There are some businesses wherethere's both supply and demand
problems from China.
(05:23):
So NVIDIA kind of got theirrevenue gift back from China for
the 2026 outlook.
But in general we've seen acouple of comments in semis last
week ASML, the toolmaker,mentioned tariffs but then
Taiwan Semi beat and raised andkind of said yeah, maybe, but
things are still good at thehigh end.
So I'm studying it reallycarefully.
(05:43):
I haven't seen a big impactfrom tariffs yet.
It's been less than I wouldhave thought three or four
months ago and I think part ofit is two-thirds or
three-quarters of the S&P 500 isjust not really in the tariff
game.
I think if you go smaller capor mid-cap it may be a bigger
deal.
Clem Miller (06:01):
So, Adam, if I might, steve, so in terms of
your review of the you knowthrough NLP, of the various
earnings calls and whatnot, yeah, is there any you know for the
(06:26):
58% you were talking about orthe 58% minus financials?
Is there any discussion aboutsort of these new techie type of
regulations like the DMA inEurope or the you know digital
services act in Europe, or evenGDPR, even GDPR?
Adam Parker (06:41):
Not really.
No not really.
I think people just don'tbelieve it's going to introduce
a ton of volatility into theP&Ls of companies.
I mean, you know, I thinkpeople are still generally
optimistic that we're going toget into a lower regulatory
environment.
I mean, the biggest risk, Ithink, is, you know, the S&P 500
benefits when the dollarweakens.
The most crowded trade, macrotrade out there, is that the
(07:02):
dollar will continue to weaken.
It's weakened kind of a lotyear to date against a lot of
currencies.
So that benefits net, net theearnings for the S&P 500.
All else equal formultinationals in tech and
staples, pharma, industrials,whatever.
But to the extent that youultimately have like a
transactional translationalcrossover, meaning like
(07:22):
eventually the goods just becomeso much more expensive that you
lose demand and that offsetsthe benefit.
We just haven't seen that yet.
So I guess in certain luxurygoods you might see that, but we
just haven't seen it in liketech companies at all.
It's not like people are saying, oh, I'm going to use some
other inferior product thatwasn't designed in yet or test
(07:44):
out some other software orwhatever.
So I think that's why I mean Idon't have the exact numbers in
front of you, but I think thetech sector is 4% of Europe.
It's 31% of the S&P.
You just don't have theswitchable.
Clem Miller (07:55):
Yeah, no, I was just thinking about these giant
fines that some of the US techcompanies are paying in Europe
and whether that's having animpact on their P&Ls.
Adam Parker (08:06):
I mean the stocks have roofed since that news has
come out.
Clem Miller (08:10):
Yeah, okay, okay.
Adam Parker (08:13):
And I'm not saying I don't want to sound like the
whistling by the graveyard, butI'm just saying people aren't
asking about it because it's nottopical today.
And I think it's also like look,the dream is still innocent
until proven guilty.
About AI productivity thebiggest investment controversy,
I think, or one of the top three, is that these hyperscaler tech
(08:35):
companies have massive capitalintensity and they're spending a
ton of capex, so at some pointyou have to get return on that
investment.
And so if we don't start seeinga lot of proof cases for AI
efficacy where companies aredriving revenue synergies and
productivity synergies, thenthat'll be a problem because
higher capex means higherdepreciation burden on COGS,
means lower gross margins, meanslower multiples and so far the
(08:58):
market's innocent until provenguilty on these AI proof cases.
And if, if all the investmentsgoing to happen you know
happened starting in 23 and itwas going to hit the 26 and 27
P&Ls of companies you gettingnegative now because you're
worried about it might bepremature because you might get
the upside at 26 and 27.
I think that's where the thepsychology is more there than
(09:19):
any of these, you know, fleshwounds on one-time payments or
other stuff.
Clem Miller (09:24):
Right, and what?
What do you think?
Since you mentioned AI?
What do you think about the,the argument that you know the
way to really take advantage ofthis is to invest in the, the
energy suppliers and and youknow other suppliers to the, you
know, to the data centers.
Adam Parker (09:43):
So there's look.
The Holy grail would be if youcould tag every stock or
identify every stock as ashaving sort of one of four
possible AI related attributes.
One would be like a directrevenue beneficiary, which
includes, obviously,semiconductors, the associated
compute software, the power uhuh, and utility portion, et
cetera.
(10:03):
Two would be harder, which isand that's somewhat easier to do
.
Two is sort of the productivitybeneficiaries, so you know
which businesses will be able topredict their employee and
customer behavior better andhave low margin.
They have lots of employees andmaybe they can drive you know,
you know margin expansion, maybe, maybe grow their revenue
without any net hiring, maybefire people who are inefficient
(10:25):
and replace them with technology.
So that'd be the second bucket.
The third, which is a littlebit weirder, is maybe the
multiples go up, price toforward earnings or whatever
goes up because they'reimpregnable to AI, and so people
say, okay, well, if you'reimpregnable, then your 2030
earnings or whatever areprobably more relatively
achievable than the market Ximpregnable companies.
So think of toilet paper andwater, but also maybe aggregates
(10:49):
and waste management and selectpower and other stuff too right
, like, per your point.
And so those are getting highermultiples and the old school
person would say well, I want tosell stuff that got more
expensive.
Should it mean revert?
But maybe not.
Maybe what it's telling you isthat you want to own stuff
that's more impregnable to AIdisruption, and then the last
(11:10):
bucket is those that aredisruptible and have business
models that are going to getkind of eaten, taken behind the
woodshed, and so in that casethe cheaper stocks are actually
not like an opportunity butrather a harbinger of maybe more
disruption potential.
So that's the first thoughtthat came with your question.
The second one is look, you gotto be careful the way you think
(11:32):
about it, because if I go toevery institutional investor and
I say what growth themes do youlike and what themes do you
think grow above GDP for thenext decade, most people are
going to say, well, I like AI,semis and software kind of
compute.
I like power and industrials topower the data center.
I like electrification,electrification, industrials
because of energy, you knowelectric transition.
I like you know whatever and um, all of those teams have like
(11:54):
0.85 correlated to each other.
We have custom baskets andwhatever no-transcript.
And how much Vistra and Jeeveor Nova do you own?
Because if you own those andthen you also own Eaton.
Like they're all 0.85correlated to each other and
(12:15):
we've seen days this year wherethat risk management problem has
been exposed.
Clem Miller (12:30):
So those are the two vectors of thought that came
to my head when you asked that.
And what do you think you knowfor an individual who has an
individual portfolio?
What do you think about, youknow, having a portfolio that is
sort of bifurcated one amongthe sort of AI complex you know
to use?
You know the whole combinationof things you were just talking
about, and more defensive stocks, or even a gold ETF, because
(12:50):
gold, given what the dollar hasdone this year, gold has
certainly done pretty well and Iwould imagine, given some macro
trends, gold's going to dopretty well in the future as
well.
So what about bifur,bifurcation and you know, using
gold as a sort of acounterweight to those days when
AI has its problems?
Adam Parker (13:13):
Yeah.
So look, while ourinstitutional business is
Trivariant, we sell, you know,to the biggest, you know, asset
managers and hedge funds in theworld we have an individual
business that we sell insightspublications to for financial
advisors and individuals.
It's $100 a month business.
It's trivectorresearchcom.
People want to go and check itout and what they get for that
(13:34):
is a lot of like sort of threebuckets of advice.
One is sort of important aspectsof running money.
How do you think about abarbell strategy?
It's how I think about someoffense and some defense, and so
the bifurcation thing you teedup.
We do a lot of that.
What are the good defensiveideas?
What are the good offensiveideas?
How correlated are they to eachother?
We do an ETF analysis analyzer.
(13:56):
We have a bunch of ETFs that wego through, we analyze, we give
them letter grades, a littlebit like Dave Portnoy's pizza
reviews.
We say this ETF sucks becauseyou think it's a momentum ETF,
but momentum has been like themost effective ever and it's
barely beaten the S and P.
We give that a C plus, but welike this one or whatever.
So a lot of advisors like that.
And then we do a lot of youknow kind of things like how
(14:16):
should you run money, like howdo you dollar cost average new
business, or why you, why youshouldn't make one month market
calls, or what's the best way tosort of maximize return over a
10 or 20 year period, or thosekinds of things.
So people can check outtribectorresearchcom and we go
through a lot of our offense anddefense ideas.
I mean I think the answer isyou have to have both, because
if you run super long momentumlook at yesterday you had big
(14:37):
momentum reversal the drawdownscan be really dramatic and you
need to find themes that aren'tsuper correlated.
So my answer is like I want toown some offense, which is going
to include some semis, for sure, and some power and some
software, but then I have tobalance it with defense, and so
we actually wrote a note onTrivector Research a couple of
weeks ago with like a bunch oflower beta, more estimate
(14:57):
achievable kind of defensiveideas.
And I think the challenge isit's not, you know, your
father's Ford, so to speak.
It's not the same defense thatyou think of at Pharma, staples
and Telcos that drove a lot oftraditional defensive playbooks.
It's more things likeaggregates and waste management
and tobacco, because it's reallylike Zinn and other stuff.
(15:20):
So it's a little bit of atrickier defensive playbook than
it was, I think, traditionally,and so we have a bunch of ideas
we offer for people on thedefensive side.
I think that's important.
I think you could also arguethat some of the financials are
in that bucket for the firsttime since the financial crisis,
where they actually have a lotof shareholder return and sort
of relatively more stable P&L.
So people like insurance andother stuff is a bit of a kind
(15:41):
of lower beta part of thebarbell and other stuff is a bit
of a kind of lower beta part ofthe barbell.
Clem Miller (15:46):
I got two more questions, steve, and then I'm
going to hand it back to you.
One question is do you look atshort interest at all?
Adam Parker (15:55):
Oh yeah, of course.
Yeah, yeah, changes in short,interest and level.
I mean I guess you're askingbecause of the meme stuff
yesterday with open door andKohl's or just general.
No, no, no.
Clem Miller (16:01):
Open door in Kohl's or just general no no, no, I've
been a big fan of investing atleast the defensive part of the
portfolio in low short intereststocks.
Adam Parker (16:14):
So we study I think you mentioned this in the tee
up, but I have a PhD instatistics and I started off
doing a lot of quantitativeresearch when I got on Wall
Street and we look at factorefficacy across several hundred
signals and a very common one isshort interest.
We look at change in level andshort interest and it is true
that for large baskets of stocks, if you buy low short interest
(16:35):
stocks and sell a short highshort interest stocks, you
generate excess return.
And the reason is because thevery heavily shorted stocks on
average you're betting againstreally smart hedge fund guys who
are speculating that it's goingto go lower and they usually
have a lot of leverage and a lotof factor bets associated with
them.
Usually default risk is high,they have a lot of debt or a
financing issue coming up orthey're losing market share in
(16:56):
their core product or somereason that people want to short
so much of it.
You can get a little trickywhen you get really low price
stocks or where you get retailmanipulation.
So you know stuff like coals,which is an impaired retailer,
that eventually will you know,go to zero or get bought or
turned into pickleball courts orwhatever happens to their
(17:16):
stores like that, that that getssqueezed from 10 to 14 because
it's like a meme thing.
So because it's got 50 shortinterest, so there's at some
point where borrow costs and thelevel can really be make make
it scary.
I mean, open door is a you knowa business that went from like
50 cents to three bucks.
Same thing like a lot of shortinterest.
So but I I agree with yourprinciple.
You want to be a little bitcautious when short interest is
above five or ten percent in aname, um, especially for a mid
(17:39):
or large cap stock.
I think ten percent plus is alot of short interest fee to be
long a stock.
Okay um and there's, there's alot of short interest fee to be
long a stock Okay, and there's alot of different detailed ways
to get that short interest data.
So we pay extra for real-timeshort interest data because we
study its efficacy prettycarefully and borrow cost as
well.
There's some information inborrow cost too.
So if you're getting kind ofrack rate, usually it's not as
(18:03):
intense.
But there are a lot ofbusinesses where you're going to
pay 8%, 10% or more to borrowto short it and that means it
not only has to go down but ithas to go down soon.
Clem Miller (18:12):
Right, right, steve , I'll hand it back over to you
now.
Stephen Davenport (18:16):
Yeah, thanks, adam, for a lot of the people
who listen to our podcast.
We talk about value and we talkabout the ideas of dividend
investing.
I don't know if you guys covermuch about dividend investing.
I know you just got back fromEurope and that's where the
great first half of the year.
Do you think this is a tradethat will continue and that the
(18:38):
dividend investor opportunitiesinternational are not just a fad
but they could become moremeaningful as we see?
If and when the Fed does lowerrates, people start to look back
and say, hey, we're not getting4% from our treasuries anymore,
we're getting closer to 2.5%.
Now getting 3% or 4% fromequities is a good inflation
(19:02):
hedge and it also gives uspretty good income inflation
hedge and it also gives uspretty good income.
How do you guys look at incomeand dividends or are you just
mainly focused on more momentumand growth?
Adam Parker (19:16):
So there's a lot to unpack in your question.
So I'll try to take three orfour things that you said there.
So one is we look at the top3,000 US equities.
We look at them by downloadinghundreds of pieces of
information and computinghundreds of pieces of
information every single dayback daily for more than 25
years and then we have 100 yearsof returns to the S&P,
(19:36):
including the dividend portion.
So we look bottom up reallycarefully at everything.
So of course it's not justmomentum or growth.
We try to give advice to beatthe S&P 500 or to find
individual securities or ideas.
Two, we also have a part of ourbusiness is we sell bespoke
services to corporations, boardsand law firms and management
teams of companies, and we'vebeen hired several times to talk
(19:59):
about and study what's theoptimal initial payout ratio,
how she think about remuneratingthe variable compensation of
your C-suite and dividend can bea portion of that, particularly
if management teams getdividend on the unvested portion
of their deferred comp.
So we study dividend anddividend growth a lot.
You know.
Obviously there was regimeswhere it's incredibly
ineffective, but I think it'shelpful to take a step back and
(20:20):
say, well, over a 100-yearperiod, if returns were kind of
9% a year.
There'd been 10%, the last 50and 20, whatever.
Something like 20 to 30% oftotal return comes from
dividends, so it's not ameaningless amount.
It can be de minimis in yearswhere the market's up 25% per
year, like it was in 23 and 24.
But over a long period of timeit can add up.
(20:40):
So I think most people knowthat and are biased toward
collecting it.
It depends on your user base.
I mean, when I was the USequity strategist at Morgan
Stanley, I think our average FAwas 65 and their average client
was 69.
So there's a lot of people whoare like I got 20 million bucks,
I'm 70 years old and I want tolive off the income and I don't
want to spend less.
So get me 400 grand a year orwhatever the number was.
So I got a lot of those kind ofincome related questions and I
(21:02):
think it is important.
So I'd say for sure, we focus ondividend as a strategy.
We measure it, we look a lot atpayout ratio and I think
distance to median is optimal,meaning you don't want too low
of a payout ratio and you don'twant it to be too high, because
if it's too high there's achance, they could cut or cancel
it, and if it's too low,they're not really serious about
(21:23):
deploying it meaningfully.
So we do a lot of like studyingon like how to pick winners
from losers among the dividendpayers as well, you know.
I just think there's a factorbet associated with it, though,
and so you know the way money'srun now.
It can be out of favor justbecause as a factor level.
You know, generally growthstocks don't have dividends and
they use RSUs and options to paytheir employees, and if you got
(21:46):
a lot of options, thenobviously mathematically the
dividend devalues that and stufflike that, so there can be some
regimes where it's suboptimal.
You made a second comment inthere about value investing, and
I don't view that exactly thesame as dividend, and I kind of
alluded to it earlier in mycomments about AI impacting
valuation levels of securities,where I just-.
Stephen Davenport (22:05):
Well, I guess , when I think about, when I
mentioned the value, I wasreally talking about the fact
that Europe has been fallenbehind for years now.
Okay, Deep value and valueespecially international, has
been a bad bet for people.
So, in my mind, this recentsurge in Europe.
I've been encouraging ourclients to be invested in
dividend payers in Europe andAsia because I think that
(22:28):
they've been underpriced.
Do you think that this is arepricing or do you think this
is just a temporary trade awayfrom the US markets and now that
people are more comfortable,they're just going to come back
to the US?
Adam Parker (22:42):
I think it's a temporary trade that's already
over.
I think it ended in May.
I mean, the relativeoutperformance is really January
through May and I think thereason is because I guess I
think the end of USexceptionalism as a concept is
complete BS from the equityperspective.
And the reason is, if I ask youto identify themes you think
will grow above global GDP forthe next decade, some of them I
(23:05):
alluded to earlier, the USequity market just over-indexes
to all those faster growingthemes.
The reason Europe is cheaper isbecause it's worse.
It's the same reason that Motel6 is cheaper than the Four
Seasons it's just worse.
It's great for vacationing,it's just not great for stocks.
And I think the reason isbecause of innovation.
The tech sector is 4% of Europe, it's 31% of the US and that
(23:26):
doesn't count Google and Metaand other stuff.
So I think it's really just theconstitution of the market.
You know, I was in France andmaybe like 2017, I was giving a
speech at US stocks and overEurope and all that kind of
stuff, and when I was walking upto the stage it was several
hundred people in this bigballroom.
Somebody told me that the CAC40, the France market, all the
(23:48):
stocks were incorporated in 1968or earlier and so I was born in
1969.
So one of the things I kind ofsaid was, hey, in the US they
created stuff since I was bornand everyone kind of chuckled
right, but it was kind of partof the whole thing.
I just think you can have thesesix-month trades, like we had a
five-month trade where Europedoes a lot better because of
(24:08):
perception about where they arein the interest rate cycle with
their policymakers or perceptionabout they've taken austerity
more than we have and we'rerunning at a wartime deficit and
all that kind of stuff.
But I think the challenge isreally the equity constitution
we have is just superior.
So I don't like that Europeover US trade.
(24:32):
I could tell you that what'scrowded in Europe for sure
because I do a lot of stockpicking and idea events are the
defense stocks and the banks andpeople love defense because of
a whole rebuild the Ukraine andjust get the logistics and
infrastructure and that stuffworking.
And I guess I want to segue alittle from that comment you
made because you kind ofreferenced it twice and just
(24:53):
thinking about valuationgenerally, I don't think
valuation is a very good way topick stocks.
I don't think if you buy cheapstocks and short expensive, you
really make any money.
You certainly haven't in thelast 15 years, other than some
isolated six-month periods, andI think the part of it is it's a
factor of that, as you alludedto around policy and interest
rates, and I actually havetotally changed my view on this.
So, again, like I told you, Iwas born in 1969.
(25:15):
So I'm 56 years old.
If you had asked me 20 yearsago, no-transcript of a
recession is in the price.
I'll make a judgment call aboutwhether it's cheap enough to
(25:36):
own it.
It's discounting a recession.
I'll do demand supply math andI'll make a judgment call about
whether production you knowproduction is getting close to,
you know, being belowconsumption or whatever you need
for it to be, to get thecyclical part of value right.
But now that's complete bullshit, right, like if you're a growth
investor, what?
What do you really do?
Right?
You say, let me look at thethemes growing above global
(25:58):
global GDP, let me identify thehigh quality secures in them and
high quality growth isdominated.
And if they get wrecked, likethey did in 22, because of
interest rates, what are yousupposed to do?
You raised money and toldpeople.
You were going to buy highquality growth names.
So when you set it up like toonly do growth, no, I don't only
do growth, but the issue isthat two thirds of the equity
market's growth by market cap.
So if you're trying to beat theS&P, then you're going to do
(26:20):
more than half growth for sure,and I just think that's where
Europe suffers.
So, in a context of global MSCIbeing 67 or whatever percent US
, like yeah, I want to own 70%US for sure, but anyway, you
teed that up in a way that mademe have several different
thoughts about what you said.
But apologize for the longanswer.
Stephen Davenport (26:42):
No, I appreciate it.
I've always heard fromdifferent experienced investors
who said, look, these othercountries just don't have enough
growth to warrant the extraallocation.
And I agree with you withPowell and Trump, and what's
(27:04):
going to happen with interestrates or how long is Powell
going to be in place?
And I look at it and say a lotof these decisions are between
whether you invest in one AIcompany that has an 18% growth
rate and another that has a 30%growth rate, and the question is
what value or multiple are youpaying for that growth rate?
And I think that thosedecisions aren't going to be
(27:27):
impacted by a 2.5% or a 3%short-term rate.
So I kind of think that this isreally just about the topic du
jour.
Just as we had AI is everythingfor 6 to 9 or 12 months, now
we're having Powell-Trump iseverything, and I don't believe
(27:47):
either is true.
So I think the AI is a lot moretrue than the policy.
How do you think this wholevision of Trump and Powell and
you know Trump replacing Powellwith somebody who's going to
deliver lower rates Is lowerrates going to help the economy
and drive housing back to amajor part of our growth, or is
(28:10):
this just a distraction that weshouldn't bother to let affect
us.
Adam Parker (28:17):
So you know I want to talk about the AI thing a
little bit more, and then thePowell.
I'll back up by saying here'swhat I think matters for
investing and I've been, youknow, working hard on this for
(28:39):
the last 25 years or so, so I'mnot sure I've learned anything
yet.
But if you made me say whathave you learned in publishing
two research notes a week for 20years and being on the buy side
or whatever for four years, I'dsay the two things that matter
the most to investing arechanges to perceptions about
growth and changes to perceptionabout rates.
So when you talk about AI,you're talking about changes to
(29:02):
perception about growth, andwhen you talk about Powell and
Trump, you're potentiallytalking about changes to
perception about growth.
And when you talk about Powelland Trump, you're potentially
talking about changes toperception about rates.
So let's just address those twothings that matter a lot, in
order.
Okay, I have like a zillioninterns at Trivariate and
Trivector.
I don't.
We have more interns than wehave employees, and the reason
(29:23):
is because I'm a bad person.
And when one of my friends sayscan my niece, nephew, uncle,
kid where?
If you always say yes and Iregret it every time because
it's like a tax on the business.
But I try to be a nice guy, allright.
So the problem is with chat,gpt research 03 button.
I have 10,000.
Goodwill is improving.
I have 10,000 interns, okay.
(29:43):
So Goodwill account getsgenerated.
I'm hoping that's, that's.
I'm trying to pay it forward.
You know what I mean, but we'llsee.
But you know, the whole pointis like it's hard to utilize
them because, like we, uh, allof our researchers code in
python against their database ordo nlp work and like to train
somebody up over a six-weekinternship when they're 19 or 20
or 21 years old.
Um, it's just impossible.
Just to be clear, like I havekids that age.
(30:04):
So I'm not, I have kids thatare 22, 20, and 18.
I get what they're capable of.
So we try to come up withproducts for them.
The first thing I make them dois I make them read eight
documents.
It kind of puts them away for acouple of days and the eight
documents are Morgan Stanley,goldman Sachs, jp Morgan and
UBS's year-ahead outlooks forthe economy and for US equity
(30:26):
strategy.
So I say, read these documents,tell me what people are
thinking Now.
Generally, these firms all dothese things in November, right
before Thanksgiving to projectthe year forward, and a couple
years ago, this kid made anincredible observation.
In November of 2022, those eightdocuments JPM, goldman Sachs,
morgan Stanley, ubs, strategyEconomics the mentions of the
(30:47):
letters AI were zero.
So in November of 22, none ofthe people at the biggest and
most important firms ineconomics or strategy thought AI
would matter for 2023.
Six months later, we had thelargest upward sales revision of
any mega cap company ever, withNVIDIA.
The investments we were alwaystold were going to be kind of
three to four years forinfrastructure and it'll be less
software or whatever.
(31:08):
So the point is, likeeveryone's an expert on this
thing that's supposed to be adecade long growth rate that
nobody heard of two and a halfyears ago, and the investments
we were told are going to oftenhit in 26 and 27 from the
beginning.
So yeah, stocks are up a lot,but I think we're still in this
innocent until proven guiltymode on growth rate and
productivity and probably someof that's in front of us.
So I think the perception aboutgrowth is still higher and it's
(31:29):
hard to get too negative on USequities with that dream still
alive If we don't get some proofcases in the next 12 to 18
months it'll switch to growthuntil guilty, not proven
innocent.
So that's my thought.
On the AI side, I don't thinkit's a fad.
I think there's a ton of Ithink semis.
I used to be a number oneranked semiconductor analyst for
many years on the street and soI know semis better than other
(31:50):
sectors.
And it grew at 2% above GDP for30 years and now it's growing
5%, 6% above GDP at highermargins.
So I think that's real.
I think the growth rate is areality, not just a perception.
It's going to be higher forcompute generally.
(32:10):
Okay, the pal Trump thing, Ithink, is more fleeting.
I don't really believegenerally that.
Um, uh, I'm not sure I'll goback and say like, look, the
best time to get bullish on USequities was January 1st 2023 in
the last few years.
Why?
Because all of a sudden, youcovered your meta and Nvidia
shorts, which were down 60% plusin 2022, and you got max long.
Why?
(32:30):
Because they were closer to theend of the hiking cycle than
the beginning.
So, if you take that same logicnow, because the market kind of
rhymes with an increasinglyanticipatory nature, aren't we
kind of closer to the end of thecutting cycle than the
beginning, and so I'm not sureI'm going to get this massive
multiple expansion just becauseI get a more dovish guy in there
.
I think what you might get is alittle bit what you said, which
(32:52):
is a rotation underneath.
Maybe housing works, maybepeople play that playbook in
anticipation of somethingimproving.
The truth is industrialshousing, autos, oil and gas have
generally been in recessionaryor poor zones for the last
couple of years, and so the bullcase for equities might be that
you start getting some cyclicalimprovement in some of those
(33:15):
kind of older school industries.
At the same time, some of theAI beneficiaries start hitting
the AI benefits, start hittingproductivity right.
That constitution of the equitymarket is really whack right now
.
The three biggest sectors at58% of the market are the
highest percentage.
Three have been in 25 yearssince the tech bubble unwind
right, and then the smallestfour sectors which are utilities
(33:36):
tech bubble unwind and then thesmallest four sectors which are
utilities real estate, energyand materials are less than 9%
of the S&P.
Nvidia is the same size as allfour sectors.
So if you're trying to beat theS&P, it's hard to take an
active bet in one of thesesmaller, older economy sectors
to have it really impact, yougot to get the tech, financials
and comp services right.
(33:57):
That's the challenge.
So anyway, you made me go intwo or three different
directions the way you phrasedthat.
I apologize.
Stephen Davenport (34:06):
Well, thanks, I appreciate what you're saying
and I realized that it's anumbers game.
We use an equally weightedportfolio, so we've been
suffering because of the equalweighting and we believe it's
probably need to adjust, becausethe big players keep getting
bigger and this just keepsgetting harder and harder to
(34:29):
keep up, unless you cansignificantly overweight some of
these names, I think it'simpossible.
The bigger you get, the harderit is for government to stay
away from you and try toregulate and take money back,
and so I look at Europe as aleader in terms of progressively
trying to get money from thesebig players, and I think that
(34:51):
the US government probably isnot going to do it here under
Trump, but in a new regime itcould go after the technology.
Adam Parker (35:02):
So a couple of thoughts on that Less thoughts
than the previous questions.
So, look, we do a lot of riskmanagement for people.
So we have many funds that sendus their equity portfolios to
do custom risk work and peoplehave Barra, axiom and Morgan
Sinek Fund Service.
They have different ways ofdoing risk, have many funds that
(35:22):
send us their equity portfoliosto do custom risk work and
people have Barra, axiom andMorgan Sinek fund service.
They have different ways ofdoing risk.
But we try to add value withthe way we're looking at things
and I think one of the ways thereason I don't like equal weight
is because some of these nameshave gotten so big that there's
just massive risk managementproblem to be that underweight.
Things that are belowidiosyncratic risk and really
replicable.
So it's like it's hard for youto replicate Microsoft if you
don't own any.
You can't own other names andit's big.
(35:44):
So I think it's a riskmanagement challenge and it's
just hard to offset that, evenif your alpha is amazing, it's
just hard to offset how big.
You know, these seven stocksgot to be 32% of the S&P and 44%
on a beta adjusted basis.
They were higher beta, likeNvidia and Tesla and stuff.
(36:06):
So I just I think it's hard tohave you know something that
nobody else knows about stocksthat are this well covered, this
well owned and are this big.
So I like generating alpha, butjust it's hard on these big
securities.
So I don't love the equal wagething and I don't think that's a
tough road to hoe, as you said.
(36:26):
In terms of the regulation stuff, I kind of hear you on that and
I think the US companies areadvantaged over some of the
European ones and others,because look at Google so let's
take Google, alphabet orwhatever as an example.
So if they make the companybreak up, what do you think
they'll do?
Like what's Waymo worth?
What's YouTube worth?
What's Google's computationalchemistry worth?
(36:47):
Are you sure there won't belike a 1 trillion market cap
Google computational chemistrybusiness in five years?
Maybe Waymo's like.
So maybe as a Googleshareholder, I would be happy to
have four or five differentthings that are four or 500
billion market cap each.
I'm not sure that's a netnegative actually.
Yeah, apple, I don't know howmuch of their market cap is the
(37:14):
data?
Yeah, you know what I'm saying.
(37:35):
I don't know.
So the part that I like in themarket that maybe is counteriary
, stable demand and maybe it'sreally what technology has its
most impact.
I'm happy to go through that ifpeople want, but in the short
term, the biggest problem wehave is we're running at a
wartime deficit.
If you try to cut money back,it's probably going to be
(37:55):
healthcare and defense.
How are you going to do thatand and what companies?
That impact is a, is a, is a isan investment controversy.
But on the other side of that,I just I think it's.
I view equity investing is likeI buy my little dream today and
I sell it to a sucker with abigger dream later, and I think
the healthcare dreams could getkind of juicy in a few years.
Clem Miller (38:14):
Hey Adam, you know, given the emphasis that you
take on, you know, AI andlong-term progress in those
areas, what would you, whatwould you say, your?
Adam Parker (38:26):
investment horizon is 12 to 18 months.
I think most of most of what wegive advice at the industry and
sector level is in thattimeframe.
We do sometimes, you know, tryto make shorter term calls, you
know, three to six months onrelative estimate, achievability
or other things.
But to be honest with you, I'vespent a lot of time on like
trying to make one month callsand I think that's a good way to
destroy value.
So we published a few things.
(38:51):
You know I trifecta businessfor advisors.
We published a big note on likewhy you shouldn't try to make
one month calls.
It's just a waste of time and Ihave some pretty quantitative I
mean I can tell you about it ifyou want, but we have a, you
know, kind of a quantitative wayof showing that.
Clem Miller (39:04):
Do you use limit orders when you hit targets?
Adam Parker (39:13):
So it's hard to answer that question in
isolation, like I think it'slike you asked before about gold
and other defensive stuff.
I think it really just dependson, like, your overall portfolio
.
Honestly, like the number onething you need to know when
you're giving somebody advice islike how rich they are.
Yeah, it's, it's such apersonal thing, like I always
think of the financial advisorbusiness.
It's like a really hardbusiness because, you know,
(39:33):
here's what I want to know.
I want to know how no bullshit,exactly how much money do you
have?
How much do you spend?
How much do you give to charity?
How much do you want to leaveyour kids and then after that
give me all your money?
Stephen Davenport (39:45):
Yeah, it's a pretty hard.
Adam Parker (39:47):
It's a pretty hard sell, right, and so you have to
like, take the concept inconcert with that.
Like, when you talk about risktolerance at the stock level,
like, do you mean in constructwith what?
How much real estate do youhave?
How much wealth do you have?
Do you own Bitcoin?
How did you get rich?
Was it all concentrated?
Because you were an engineer atNVIDIA?
Because there's so manyindividual questions about it
that I'd have to ask.
But at the end of the day, mosttrading strategies like that
(40:10):
destroy value.
Yeah, okay, because they'reanti-momentum strategies or
something else.
But at some point you have tolook at the beta of the stock,
how replicable it is, howidiosyncratic it is and other
things, because you got to putlimits on it.
And one thing I like to thinkabout that a lot of people don't
necessarily think about whenthey buy something is, let's say
(40:30):
, god forbid.
You're super right.
How big are you willing to?
Let it be?
It be right?
So you got 10 million bucks andyou're like you know what?
I'm gonna buy some nvidia I'mgonna buy.
I'm gonna buy a million.
I'm gonna like, strap it on,put 10 of my net worth there.
I own my house and I.
This thing sounds awesome.
What if you're right and itdoubles?
(40:51):
Are you willing to have two ofyour 11 million there?
Or like, what's your limit onwhat you're willing to own?
And I like thinking about themax percentage of my assets
before I make the investment,because I think that helps you
control the initial purchase alittle bit too, because I think
you know a high cost problem tohave.
But, like you know, you don'twant half your net worth in a
stock when you're 60 years old,right?
(41:12):
So I think it's hard to answeryour question.
Clem Miller (41:15):
Right, yeah, I mean my thought right now on limits
and you know I'm not, I'm not aa $20 million net worth person,
right?
Like some of your clients.
Adam Parker (41:25):
I was just picking like the Morgan Stanley
Financial Advisor Networkbecause I worked there.
It's just there's a lot of likethey have a lot of like 70 year
old clients with 20 millionbucks.
I was just yeah, yeah, but Iyou know I'm you know.
Clem Miller (41:35):
I was just thinking that, you know, limit orders
are a way of being able to lockin a certain amount in a highly
volatile environment and,honestly, I think right now is,
uh, you know, with all thepolicies that we're seeing and
all the potential policies wemay not have seen yet, I just
think, in geopolitics, I thinkthere's a high degree of
(41:56):
volatility, and limit orders area way of being able to lock in
some cash, maybe put it in gold,while at the same time
maintaining a part of yourportfolio which is high momentum
.
That's the way I'm looking atit.
Adam Parker (42:09):
So two thoughts.
So we did do some work lookingat the best way to dollar cost
average.
New business, if you're anadvisor so a very senior advisor
running a big book asked me howto think about this, and so we
studied like you get a newclient, the guy's got 10 million
bucks to put in equities.
Do you buy it all day one?
Well, obviously, since thestock market goes up more than
it goes down on average, theanswer is yeah, buy it all on
(42:31):
day one.
But if you kind of look at thedistribution of returns across
25th median, 75th percentile minmax, it looks like the right
thing to do is dollar costaverage around six months.
So what that means is buyshort-term treasuries with what
you don't deploy and put aboutone-sixth of it in at this month
and one-sixth the next monthfor six months forward.
So kind of taking that logicand extending it to the limit
(42:53):
order.
It's like saying, yeah, maybebecause of volatility you're
better off distributing acrossmultiple securities over a
longer period of time.
So if you want to get a bigposition in a stock and it's a
big bet for you.
Maybe you just spread out overseveral months.
And then the second thing,because the second time you
mentioned it was gold, and so Idon't know how you think about
(43:15):
that.
There's a lot of schools ofthought, but I mean, I think you
know the question is like howdo you view Bitcoin or other
proxies?
And I think now it's gotten alot more acceptable, given that
you know a lot of large RIAnetworks that are clients of
Trivariant, the institutionalside of our business and then
(43:42):
obviously we have manyindividual advisors with
Trivector.
They get questioned a lot aboutBitcoin as opposed to gold,
just as a kind of dollarweakening kind of bet.
And I think the legitimacy ofit has really grown.
And when I talk to seniorpeople, more and more of them
have owned some personally thanyou know year over year basis.
(44:04):
So I'd say, like that'sbecoming, if people had a 5%
gold allocation, people are nowsaying, yeah, I'll own a couple
percent of Bitcoin and a couplepercent of gold instead.
So and maybe you don't likethat idea, but I think a lot of
people are doing it- I'm more ofa gold rather than a Bitcoin
person.
Yeah, well, that's why you haveless money than all the Bitcoin
(44:26):
people.
Clem Miller (44:30):
At the moment.
Stephen Davenport (44:31):
I think it's more of a speculation than it is
an investment, but I agree thatwe just had a podcast.
Adam Parker (44:38):
It's up 60% a year for the last you know since
inception.
Clem Miller (44:43):
With some volatility in between.
Adam Parker (44:46):
Yeah, yeah, yeah, totally, totally.
But you know, if you thinkabout those gold like, I bought
gold in 2008.
Personally, I bought it the dayafter I found out UBS money
market accounts were backed byauction rate securities.
It kind of like melted mymotherboard and I bought some.
I thought, geez, if I had like100 grand in my checking account
and they told me it was 92,000,I'd freak out.
So I bought a bunch of gold inthe crisis and obviously it's
(45:07):
underperformed.
Everything by a giant countrymile.
Since then.
There's nothing except formaybe like Europe or EM, that I
mean every US thing.
It's underperformed.
But it's just.
I kind of view it as like, Ithink the bull case on gold is
probably different than you do.
I think the bull case on goldis that for me I'm hoping this
(45:31):
is what it is is I have severalgrandchildren and I currently
have zero.
Obviously is I have severalgrandchildren and I currently
have zero, obviously.
And I leave a shoebox for themwhen I die with their name on it
with a bunch of gold coins init, defrauding the government on
the estate tax, transfer tothem and cause who knows what
it'll be if in that regime, andjust have a little note in there
(45:54):
that says don't sell more than10 K at a time and at a time,
and think of me well when youspend it.
Clem Miller (46:00):
That's my plan for the gold Right.
But what about all the centralbanks that are buying up gold?
Hand over fist right.
Adam Parker (46:08):
Yeah, I'm just saying it.
Really, if you look at thesupply-demand curve, it doesn't
really trade that different fromthat over like 100 years or 50
years or whatever.
So I don't hate it, but I thinkit's like a couple percent
allocation and I think thisBitcoin thing is a little bit
(46:31):
less speculative than I used to,just because it's become like
well, our problem is that we areused to freely transacting in
the US and there's a lot ofparts of the world where they
don't want the government tosteal their money and they want
to be able to transact incertain ways and it has a
legitimate case that otherthings didn't have.
I think we've been broadlydisappointed by blockchain
applications over the lastseveral years, but I think
Bitcoin, at 3 trillion in value,is probably beyond the
(46:52):
speculative window and intosomething that's become a little
bit like kind of gold, wherethere's not a lot of practical
use for it with no income, butit's a perceived store of value
versus a currency.
I could see that transitionhappening If there's 57 million
millionaires on earth andthere's 19 million Bitcoins and
(47:14):
the millionaires are growingfaster than the Bitcoins.
There's 19 million Bitcoins andthe millionaires are growing
faster than the Bitcoins.
You know, maybe.
Maybe it's like more than justspeculative it's.
It's probably beyond tulips andand and stuff at this point,
yeah.
Clem Miller (47:26):
I'll agree with that.
Adam Parker (47:27):
Yeah, I, I, I, I.
I own none personally, for fulldisclosure.
I own none personally and I owngold, but I just I'm telling
you from people I talk to wherewhat's changed.
Stephen Davenport (47:37):
Yeah, Is there any way that you could
adopt Clem or I and we could geta shoe box in your closet as
well?
Adam Parker (47:46):
I'm going to go with.
I'm going to go with a hard noon that one.
But uh, you know, I'll tell youwhat if you join, if you sign
up for TrivectorResearchcom for$100 a month, maybe, maybe we do
write about stuff like gold andBitcoin.
Stephen Davenport (48:04):
I think we have to wrap it up, Adam.
Yeah, sure, so I reallyappreciate you being on.
You've done a great job.
I think you've straightened usout and you've got Clem out of
the gold and now he's going totry a little bit more NVIDIA.
So I think that's going to begood for him and the and the
future he's going to live to bea hundred, so he's going to need
(48:25):
something.
Adam Parker (48:27):
I appreciate you a lot.
Stephen Davenport (48:29):
I think you did a great job today and we
really enjoyed having you on.
Adam Parker (48:33):
No, thanks for having me Totally and any, any
time.
And I guess, when you, when youcurate this, let me know and I
can, you know, I can advertiseit on our social media and that
kind of stuff too, so happy todo that.
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